issue-1995-12-11•Federal Register proposed rules — 1995-12-11
Federal Register proposed rules — 1995-12-11
issue-1995-12-11Federal Register proposed rules — 1995-12-11Proposed Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 95-30107 Approval and Promulgation of Implementation Plans State of South Carolina's State Implementation Plan (SIP)
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Page 63491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30107]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[SC-029-1-7177b; FRL-5316-6]
Approval and Promulgation of Implementation Plans State of South
Carolina's State Implementation Plan (SIP)
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule.
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SUMMARY: EPA proposes to approve the State Implementation Plan (SIP)
revision submitted by the State of South Carolina for the purpose of
establishing a Federally enforceable state construction and operating
permit (FESCOP) program. In order to extend the Federal enforceability
of South Carolina's FESCOP to hazardous air pollutants (HAPs), EPA is
also proposing approval of South Carolina's FESCOP regulations pursuant
to section 112 of the Clean Air Act as amended in 1990 (CAA). In the
Final Rules Section of this Federal Register, EPA is approving the
State's SIP revision as a direct final rule without prior proposal
because the Agency views this as a noncontroversial revision amendment
and anticipates no adverse comments. A detailed rationale for the
approval is set forth in the direct final rule. If no adverse comments
are received in response to that direct final rule, no further activity
is contemplated in relation to this proposed rule. If EPA receives
adverse comments, the direct final rule will be withdrawn and all
public comments received will be addressed in a subsequent final rule
based on this proposed rule. EPA will not institute a second comment
period on this document. Any parties interested in commenting on this
document should do so at this time.
DATE: To be considered, comments must be received by January 10, 1996.
ADDRESSES: Written comments should be addressed to: Scott Miller, Air
Programs Branch, Air, Pesticides & Toxics Mangement Division, Region 4
Environmental Protection Agency, 345 Courtland Street, NE, Atlanta,
Georgia 30365.
Copies of the material submitted by the State of South Carolina may
be examined during normal business hours at the following locations:
Air and Radiation Docket and Information Center (Air Docket 6102), U.S.
Environmental Protection Agency, 401 M Street SW., Washington, DC
20460.
Environmental Protection Agency, Region 4 Air Programs Branch, 345
Courtland Street NE., Atlanta, Georgia 30365.
South Carolina Department of Health and Environmental Control, 2600
Bull Street, Columbia, South Carolina 29201.
FOR FURTHER INFORMATION CONTACT: Scott Miller, Air Programs Branch,
Air, Pesticides & Toxics Management Division, Region 4 Environmental
Protection Agency, 345 Courtland Street, NE, Atlanta, Georgia 30365.
The telephone number is 404/347-3555 extension 4153.
SUPPLEMENTARY INFORMATION: For additional information see the direct
final rule which is published in the rules section of this Federal
Register.
Dated: September 20, 1995.
Patrick M. Tobin,
Acting Regional Administrator.
[FR Doc. 95-30107 Filed 12-8-95; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 95-30087 Source of Income From Sales of Inventory and Natural Resources Produced in One Jurisdiction and Sold in Another Jurisdiction
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63478-63489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30087]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[INTL-0003-95]
RIN 1545-AT92
Source of Income From Sales of Inventory and Natural Resources
Produced in One Jurisdiction and Sold in Another Jurisdiction
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations governing the
source of income from sales of natural resources or other inventory
produced in the United States and sold in a foreign country or produced
in a foreign country and sold in the United States. This document
affects persons who produce natural resources or other inventory in the
United States and sell in a foreign country, or produce natural
resources or other inventory in a foreign country and sell in the
United States. This document also provides notice of a public hearing
on these proposed regulations.
DATES: Written comments and outlines of oral comments to be presented
at the public hearing scheduled for April 10, 1996, at 10 a.m. must be
received by March 11, 1996.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (INTL-0003-95),
[[Page 63479]]
room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alternative, submissions may be hand
delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R
(INTL-0003-95), Courier's Desk, Internal Revenue Service, 1111
Constitution Avenue NW., Washington, DC. The public hearing will be
held in the IRS Auditorium, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Anne
Shelburne, (202) 622-3880; concerning submissions and the hearing, Ms.
Christina Vasquez, (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
(OMB) for review in accordance with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507).
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of Treasury, Office of Information and Regulatory Affairs, Washington,
DC 20503, with copies to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, T:FP, Washington, DC 20224. Comments on the
collection of information should be received by February 9, 1996.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The collection of information requirements are in proposed
Secs. 1.863-1(b)(6) and 1.863-3(e)(2). This information is required by
the IRS to monitor compliance with the federal tax rules for
determining the source of income from the sale of natural resources or
other inventory produced in the United States and sold in a foreign
country or produced in a foreign country and sold in the United States.
The likely respondents are taxpayers who produce natural resources or
other inventory in the United States and sell in a foreign country, or
who produce natural resources or other inventory in a foreign country
and sell in the United States. Responses to this collection of
information are required to properly determine the source of a
taxpayer's income from such sales.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Estimated total annual reporting burden: 1125 hours. The estimated
annual burden per respondent varies from 1 hour to 5 hours, depending
on individual circumstances, with an estimated average of 2.6 hours.
Estimated number of respondents: 425.
Estimated annual frequency of responses: One time per year.
Background
These proposed regulations contain rules relating to the source of
income from the sale of certain natural resources and other inventory.
These regulations are proposed to be effective for taxable years
beginning 30 days after publication of final regulations. However,
taxpayers may elect to apply these regulations for taxable years
beginning after July 11, 1995.
Explanation of Provisions
I. Natural Resources
A. Current Regulations
Section 863 authorizes the Secretary to promulgate regulations
allocating or apportioning to sources within or without the United
States all items of gross income, expenses, losses, and deductions
other than those items specified in sections 861(a) and 862(a).
Section 1.863-1 of the existing regulations contains rules for
determining the source of income derived from the sale of certain
natural resources. Generally, under paragraph (b)(1) of those
regulations, income derived from the ownership or operation of any
farm, mine, oil or gas well, other natural deposit, or timber located
within the United States and from the sale by the producer of the
products within or without the United States ordinarily must be
included in gross income from sources within the United States.
However, if a taxpayer can show to the satisfaction of the District
Director that, due to peculiar conditions of production and sale or for
other reasons, not all of the gross income derived therefrom should be
allocated to sources within the United States, the source of the income
generally is determined under the 50/50 method described in Sec. 1.863-
3(b)(2) Example 2. The regulations do not define ``peculiar conditions
of production and sale.'' In addition, Sec. 1.863-1(b)(2) permits the
Commissioner to make an allocation or apportionment that more clearly
reflects the proper source of a taxpayer's income, if the Commissioner
determines that the application of paragraph (b)(1) does not result in
the proper allocation or apportionment of income. Similar rules apply
in the case of natural resources produced without the United States and
sold within the United States. See Sec. 1.863-6. Thus, income from the
sale of such products ordinarily will be allocated entirely to foreign
sources.
B. Issues Under Current Regulations
The IRS and Treasury have reexamined the existing regulations under
section 863 regarding natural resources and arrived at several
conclusions. First, certain ambiguities in existing Sec. 1.863-1 should
be clarified. For example, the regulation does not define the term
``peculiar conditions of production and sale,'' and there is virtually
no authoritative guidance as to the scope of that term. To the extent
that ``peculiar conditions of production and sale'' is defined
narrowly, the regulation may lead to inappropriate results when
determining the source of income from the sale of processed natural
resources. For example, if a U.S. corporation harvests timber to
manufacture furniture for export, all of its income may be from sources
within the United States. However, if another U.S. corporation
purchases cut timber to manufacture furniture for export from the
United States, one-half of that taxpayer's income may be from sources
without the United States under the 50/50 method.
Second, the interaction of the existing regulations and the
recently-issued consolidated return regulations may cause inappropriate
sourcing results. On July 11, 1995, the IRS and Treasury issued final
regulations under Sec. 1.1502-13 [TD 8597 (60 FR 36671)], treating
members of a U.S. consolidated group as a single entity for purposes of
determining the source of a taxpayer's income. The IRS and Treasury
understand that inappropriate results may occur when the current
section 863 regulations are applied to certain consolidated groups on a
single entity basis. For example, a U.S. corporation that is a member
of a consolidated group may extract oil abroad. The oil is then
transported to the United States where it is refined by another member
of the consolidated group. It is sold in the United States through
other members of the consolidated group. Under Sec. 1.1502-13 of the
consolidated return rules, the consolidated group is treated as a
single entity, and the source of income from the sale of oil must be
determined under
[[Page 63480]]
section 863. Because the consolidated group refines the oil outside the
country of extraction, it may be that peculiar conditions of production
and sale exist, and the exclusive sourcing rules of paragraph (b)(1) do
not apply. Thus, the taxpayer would generally determine the source of
its income under the 50/50 method described in Sec. 1.863-3(b)(2)
Example 2. Under this method, 50 percent of the consolidated group's
income would be U.S. source income based on the place of sale. However,
this calculation may understate the appropriate amount of the
taxpayer's foreign source income because the value of the oil as
extracted may represent more than 50 percent of the total value of the
product that is finally sold in the United States. The preamble to the
regulations under Sec. 1.1502-13 indicated that the IRS and Treasury
would consider amending the regulations under section 863 to address
these concerns.
Accordingly, the IRS and Treasury are issuing proposed regulations
under section 863 to clarify ambiguities in the existing regulation and
to address concerns created by the new Sec. 1.1502-13 regulations.
C. Proposed Regulations
Section 1.863-1(b) provides special rules for determining the
source of income from the sale of products derived from the ownership
or operation of any farm, mine, oil or gas well, other natural deposit,
or timber, within the United States and the sale of these products
without the United States. The proposed regulations also provide
special rules for determining the source of income from the sale of
products derived from the ownership or operation of any farm, mine, oil
or gas well, other natural deposit, or timber, without the United
States and the sale of these products within the United States. The
export terminal rule of paragraph (b)(1) provides that the source of
gross receipts from the sale of such products equal to the fair market
value of the product immediately prior to export (referred to in the
proposed regulations as the export terminal) is determined according to
where the farm, mine, oil or gas well, other natural deposit or timber
is located. Separate rules are provided for determining the source of
any gross receipts in excess of the fair market value of the product at
the export terminal. Paragraph (b)(2) provides an exception to the
approach of paragraph (b)(1) where, prior to export, the taxpayer
engages in substantial production activities in addition to activities
related to the ownership or operation of a farm, mine, oil or gas well,
other natural deposit, or timber.
1. Export Terminal Rule
Under the export terminal rule of paragraph (b)(1), gross receipts
derived from the ownership or operation of any farm, mine, oil or gas
well, other natural deposit, or timber, and sale of the products
derived therefrom, are allocated between sources within and without the
United States based on the fair market value of the product at the
export terminal. The export terminal is the last point from which the
product is sent from the United States to a foreign country or the last
point from which goods are sent from a foreign country to the United
States. For example, if a U.S. corporation extracts oil in one foreign
country, sends the crude oil to a port in a second foreign country via
pipeline, and delivers the oil to a U.S. refinery by ship, the export
terminal would be the port in the second foreign country where the
crude oil was loaded onto the ship.
Under the export terminal rule, the source of gross receipts equal
to the fair market value of the product at the export terminal is
determined by the location of the farm, mine, well, deposit, or uncut
timber. The source of gross receipts in excess of the fair market value
of the product at the export terminal (excess gross receipts) is
determined according to whether the taxpayer engages in any additional
production activity following export. A taxpayer will be treated as
performing production activities in addition to the activities of
owning or operating a farm, mine, oil or gas well, other natural
deposit, or timber based on the principles of Sec. 1.954-3(a)(4).
However, activities that prepare the natural resource itself for
export, including those that are designed to facilitate the
transportation of the natural resource to or from the export terminal,
will not be considered additional production activities. Thus,
Sec. 1.863-1 Example 2 illustrates that liquefaction of natural gas
would not constitute additional production activities. In addition,
activities such as delimbing and debarking trees, sorting grain, and
treating and stabilizing oil would ordinarily not constitute additional
production activities. In contrast, the transformation of timber into
furniture is not done to prepare the natural resource itself for
export, and would constitute additional production activity. Production
activities are defined in Sec. 1.863-1(b)(3)(i).
If no additional production occurs following export, paragraph
(b)(1)(i) requires that the source of the excess gross receipts be
determined according to where the farm, mine, well, deposit, or uncut
timber is located.
However, under paragraph (b)(1)(ii), if the taxpayer engages in
additional production activities after the export terminal and outside
the country of sale, the source of excess gross receipts is determined
under the rules of Sec. 1.863-3. For example, if a U.S. corporation
extracts oil in a foreign country, refines the oil in the United
States, and sells the refined product in another foreign country, the
source of gross receipts in excess of the fair market value of the
product when it is exported from the first foreign country must be
determined under one of the three methods described in Sec. 1.863-3
(i.e., the 50/50 method as described in Sec. 1.863-3(b)(1), the IFP
method described in Sec. 1.863-3(b)(2), or, if permitted by the
District Director, the books and records method as described in
Sec. 1.863-3(b)(3)).
In any case not described in either paragraph (b)(1) (i) or (ii) of
the proposed regulations, the source of the excess gross receipts is
determined according to the place of sale pursuant to paragraph
(b)(1)(iii). This rule would apply, for example, in the case where the
taxpayer engages in additional production activities in the country of
sale.
Paragraph (b)(1) addresses the concerns of U.S. corporations
involved in the production of natural resources abroad and the
application of the new Sec. 1.1502-13 consolidated return regulations,
by allowing them to treat the value of the natural resources at the
point of export as income from sources where the farm, mine, well,
deposit, or uncut timber is located. This rule has no effect on the
rules governing foreign oil and gas extraction income under section
907(c)(1).
On November 28, 1995, the Tenth Circuit affirmed the Tax Court
decision in Phillips Petroleum v. Comm'r, 97 T.C. 30 (1991), which held
existing Sec. 1.863-1(b)(1) invalid to the extent it allocates income
from the sale of U.S. natural resources solely to sources within the
United States. Phillips Petroleum v. Comm'r, No. 94-9021 (10th Cir.
Nov. 28, 1995). The IRS and Treasury will consider the implications of
this decision when finalizing these proposed regulations.
2. Additional Production Prior to Export Terminal
Paragraph (b)(2) provides a special rule for determining the source
of income where a taxpayer performs substantial additional production
activities before the product leaves the export terminal. Under
paragraph (b)(2),
[[Page 63481]]
the source of gross receipts equal to the fair market value of the
product prior to the additional production activities is based on the
location of the farm, mine, well, deposit, or uncut timber. The source
of gross receipts in excess of the fair market value of the products at
the beginning of the additional production activities is determined
under the rules of Sec. 1.863-3.
3. Other Rules
The proposed regulation contains rules for determining the fair
market value of relevant products. For this purpose, fair market value
depends on all of the facts and circumstances as they exist relative to
a party in any particular case. Thus, these rules for determining fair
market value are consistent with the foreign oil and gas rules
contained in Sec. 1.907(c)-1(b)(6). In addition, fair market value
determinations must be consistent with prices charged in sales, if any,
to related parties in a transaction that is subject to section 482. For
example, if a member of a U.S. consolidated group extracts natural
resources in a foreign country and sells the natural resources to
another member of the same group at the export terminal, the value of
the natural resources determined at the export terminal should be the
price charged by the producing member to the purchasing member for
purposes of section 482.
Under paragraph (b)(5), a taxpayer's gross income from sources
within or without the United States is determined by reducing its gross
receipts from sources within or without the United States by the cost
of goods sold properly attributable to such gross receipts. Under
paragraph (c), a taxpayer's taxable income from U.S. or foreign sources
must be determined under the rules of Secs. 1.861-8 through 1.861-14T.
Under paragraph (b)(6), taxpayers must fully explain the
methodology used, the facts describing substantial additional
production activities (if any), and the determination of fair market
value in a statement attached to the taxpayer's return. In addition,
taxpayers must provide such other information as is required by
Sec. 1.863-3(e)(2).
Taxpayers may elect to apply the rules of these regulations for
taxable years beginning after July 11, 1995. Otherwise, these
regulations are effective for taxable years beginning 30 days after the
publication of this regulation as a final regulation.
II. Inventory Other Than Natural Resources
A. Current Regulations
Section 863 authorizes the Secretary to promulgate regulations
allocating or apportioning to sources within or without the United
States all items of gross income, expenses, losses, and deductions
other than those specified in sections 861(a) and 862(a).
Section 1.863-3 of the current regulations governs the source of
income from the sale of inventory produced (in whole or in part) in the
United States and sold in a foreign country, or produced (in whole or
in part) in a foreign country and sold in the United States (Section
863 Sales). Section 1.863-3 provides three methods, set forth in the
form of three examples, to determine the source of income from Section
863 Sales.
Sec. 1.861-3(b)(2) Example 1 of the current regulations illustrates
how an independent factory or production price (IFP) applies to
determine the income attributable to production (IFP method). An IFP
generally is established if a taxpayer regularly sells part of its
output to wholly independent distributors in such a way as to
reasonably reflect the income attributable to production activity. If
an IFP exists, taxpayers must use the IFP method to determine the
income attributable to production activities in both the sale
establishing the IFP and in sales of similar products. See Phillips
Petroleum v. Comm'r, 97 T.C. 30 (1991), aff'd, No. 94-9021 (10th Cir.
Nov. 28, 1995); Rev. Rul. 88-73 (1988-2 C.B. 173). Gross receipts in
excess of the IFP are attributable to sales activity. Taxpayers can
otherwise establish an IFP by showing to the satisfaction of the
District Director that an IFP exists. Notice 89-10 (1989-1 C.B. 631)
contains additional rules regarding the application of the IFP method.
Section 1.863-3(b)(2) Example 1 of the current regulations does not
provide explicit guidance as to how to determine the source of income
attributable to production activities under the IFP method. However,
the source of income attributable to sales activities is based
generally on where title to the inventory passes to the purchaser as
defined in Sec. 1.861-7(c).
Section 1.863-3(b)(2) Example 2 of the current regulations divides
a taxpayer's income from Section 863 Sales equally between production
activity and sales activity (50/50 method). The source of income
attributable to production activity is based on the location of the
taxpayer's property. The portion of this production income attributable
to sources within the United States is determined by a fraction, the
numerator of which is the taxpayer's property located within the United
States used to produce income from Section 863 Sales, and the
denominator of which is the taxpayer's property both within the United
States and within a foreign country used to produce income from Section
863 Sales. The source of the taxpayer's income attributable to sales
activity is based on where title to the inventory passes to the
purchaser as defined in Sec. 1.861-7(c).
Section 1.863-3(b)(2) Example 3 of the current regulations allows a
taxpayer to request permission from the District Director to use the
taxpayer's books and records to allocate income to sources within and
without the United States if those books reflect more clearly than the
other methods the taxable income derived from sources within the United
States (books and records method).
B. Issues Under Current Regulations
On July 12, 1995, the IRS and Treasury issued regulations under
Sec. 1.1502-13, treating members of a consolidated group as a single
entity for purposes of determining the source of a taxpayer's income.
The IRS and Treasury understand that the current section 863
regulations may raise questions when applied to certain consolidated
groups on a single entity basis. The preamble to the regulations under
Sec. 1.1502-13 indicated that the IRS and Treasury would reevaluate
part of the regulations under section 863. As part of this process, the
IRS and Treasury also have reexamined the remainder of the existing
section 863 regulations and have concluded that several additional
changes are necessary.
First, the existing regulations were drafted more than 70 years
ago, and have not been amended to reflect the evolution of business
practices. As a result, the regulations have been the source of
controversies in recent years. See Intel Corporation v. Comm'r, 100
T.C. 39 (1993), aff'd, No. 94-70105 (9th Cir. Oct. 16, 1995); Phillips
Petroleum v. Comm'r, 97 T.C. 30 (1991), 101 T.C. 78, 104 (1993)
(``there have been no cases interpreting [the 50/50 method] and no
administrative pronouncements regarding its application since the
regulation was promulgated in 1922 except for necessary inferences to
be drawn from Intel * * *''), aff'd, No. 94-9021 (10th Cir. Nov. 28,
1995). In part, these controversies may be due to the structure of the
current regulations, which do not contain operative rules to describe
the methods of allocating and
[[Page 63482]]
apportioning income, but instead rely on examples.
Second, the existing regulations raise important administrative
concerns. For example, the IFP method requires an analysis of each of
the taxpayer's sales transactions to identify an IFP. If one or more
IFPs are so identified, a second analysis is required of each of the
taxpayer's sales transactions to identify which transactions are
similar to the IFP sale. In some cases, this process may require a
review of a multitude of transactions. The IFP method may, therefore,
be difficult for both taxpayers and the government to apply. The
existing 50/50 method also presents administrative concerns. For
example, the 50/50 method may require the taxpayer to determine the
fair market value of each of its assets at the end of every tax year.
Taxpayers have often commented to the IRS about the difficulties of
determining the fair market value of their assets.
Third, the existing regulations result in disparate treatment of
similarly situated taxpayers. Although an IFP must be used under
current rules if one exists, the mandate applies only to taxpayers
selling inventory to certain independent distributors. Taxpayers
selling exclusively to related parties are not required to use the IFP
method since the IRS may not establish an IFP based on such sales.
Instead, these taxpayers use the 50/50 method to source their income
from export sales. Thus, taxpayers selling inventory exclusively to
related parties may be deemed to generate far more foreign source
income than taxpayers selling a portion of their inventory to
independent distributors, even though the two taxpayers may perform the
same functions. The IRS and Treasury believe that this differing
treatment of similarly situated taxpayers is not justified.
Fourth, the existing 50/50 method can result in apportionment of
income that is inconsistent with the common understanding of that
method. The 50/50 method is generally characterized as a method that
would source export sales income one-half in the United States and one-
half in a foreign country. For example, in 1984 the Treasury Department
stated: ``Generally, [income derived from manufacture and sale of
property] is allocated one-half on the basis of the place of
manufacture and half on the basis of the place of sale * * *'' Treasury
Department, Tax Reform for Fairness, Simplicity, and Economic Growth,
Nov. 1984 at 364. In addition, Congress understands the 50/50 method to
operate in this fashion. In 1986, the House, Senate and Conference
Committees each stated: ``[Under the existing 50/50 method], half of
such income generally is sourced in the country of manufacture, and
half of the income is sourced on the basis of the place of sale''.
House Rep. No. 426, 99th Cong. 1st Sess. 359 (1985); S. Rep. No. 313,
99th Cong. 2d Sess. 329 (1986); H.R. Conf. Rep. No. 841, 99th Cong. 2d
Sess. II-595 (1986). The staff of the Joint Committee on Taxation has
referred to the 50/50 method as the ``production/marketing split'' and
stated that under this method ``50 percent of such income generally is
attributed to the place of production * * *'' Staff of the Joint Comm.
on Taxation, Factors Affecting International Competitiveness of the
United States 148 (1991).
The existing regulations may, however, allow taxpayers to use the
50/50 method to obtain results that are inconsistent with this common
understanding. Under the existing regulations, 50 percent of the income
is treated as sales income and sourced on the basis of title passage.
The remaining 50 percent is treated as production income and sourced
based on the location of assets. This half of the formula is not
necessarily, however, limited to production assets. For example,
goodwill and accounts receivables are counted as assets in allocating
production income. The inclusion of sales assets in the formula
allocating production income results in additional income being
allocated to sales activities. The contribution of the sales assets to
sales income should be reflected only in the 50 percent of the income
that is allocated to sales and sourced under title passage. Thus, the
production income formula should only take into account assets directly
involved in the production of inventory.
B. Proposed Regulations
1. Overview
Section 1.863-3 provides rules for allocating and apportioning
income from Section 863 Sales. Generally, Sec. 1.863-3(b) provides
three methods for determining the amount of gross income attributable
to production activity and the amount of gross income attributable to
sales activity. The source of gross income attributable to each
activity is then determined under the rules of paragraph (c). Paragraph
(d) provides rules to determine the source of taxable income. Reporting
and election rules are set forth under paragraph (e) of the proposed
regulations. The proposed regulations reserve on paragraph (f) (prior
paragraph (c)), dealing with income partly from sources within a
possession of the United States. The IRS and Treasury solicit comments
from taxpayers regarding changes that should be made to new paragraph
(f) (if any) to conform to the other changes in Sec. 1.863-3.
The proposed regulations generally apply an aggregate approach in
taking into account a taxpayer's interest in a partnership. The IRS and
Treasury solicit comments on the appropriate treatment of partnerships,
including whether there should be special rules for limited
partnerships, de minimis interests in partnerships, and tiered
partnerships.
2. Methods To Determine Gross Income Attributable to Production
Activity and Sales Activity
Section 1.863-3 generally retains the three methods of the current
regulations for splitting income between production and sales activity,
with several modifications.
a. 50/50 Method
The proposed regulations do not change the allocation of half of
the taxpayer's income from Section 863 Sales to production activity and
half to sales activity. As described below, the proposed regulations
modify and clarify the determination of the location of assets. In
addition, paragraph (b)(1) of the proposed regulations makes the 50/50
method the general rule to determine the amount of income attributable
to production and sales activities. The taxpayer, however, may elect to
apply the IFP method, described in paragraph (b)(2), or, with the
consent of the District Director, the books and records method,
described in paragraph (b)(3).
b. IFP Method
By making the IFP method elective, the proposed regulations
significantly reduce administrative burdens related to its application
and eliminate any bias against taxpayers choosing to export through
independent distributors.
Under the proposed regulations, the taxpayer may elect to apply the
IFP method if it is able to establish an IFP. As in the current
regulations, an IFP is fairly established by actual sales of the
taxpayer if the taxpayer regularly sells part of its output to wholly
independent distributors or other selling concerns in such a way as to
reasonably reflect the income attributable to production activity. Once
the IFP is established, it can be used to determine the amount of
income attributable to production activity in other Section 863 Sales
if the inventory sold in the other sales is substantially similar in
physical characteristics and function, and is sold at a similar level
of distribution as the
[[Page 63483]]
inventory sold in a sale establishing an IFP. A sale will not be
considered to establish an IFP if sales activity for the relevant
product is significant in relation to all of the activities for that
product. The IRS and Treasury intend to supersede Notice 89-10 upon
publication of final regulations.
The proposed regulations would also eliminate the existing rule
permitting taxpayers to otherwise establish an IFP by showing to the
satisfaction of the District Director that a sale reasonably reflecting
the income attributable to production exists. This ``otherwise
established'' IFP is rarely, if ever, used. American Law Institute,
International Aspects of United States Income Taxation 31 (1987). The
IRS and Treasury solicit comments from taxpayers on the continued
utility of the otherwise established IFP.
The proposed regulations omit the reference in the existing
regulation to a sales branch. A taxpayer may elect to use the IFP
method even if it does not maintain a sales branch in a foreign
country.
c. Books and Records Method
The proposed regulations retain the books and records method of the
existing regulations, permitting taxpayers to request permission from
the District Director to use their books and records to determine the
income attributable to production and sales activities. The District
Director will consider a taxpayer's request if the taxpayer maintains a
detailed allocation of receipts and expenditures, clearly reflecting
the amount of income from production and sales activities.
The books and records method is rarely, if ever, used. American Law
Institute, International Aspects of United States Income Taxation, 31
(1987). The IRS and Treasury solicit comments from taxpayers on the
continued utility of the books and records method, or whether the books
and records method should be replaced by another method of economic
sourcing.
3. Determination of Source of Gross Income
Unlike the current regulations which provide specific rules for
determining the source of income attributable to production activity
and sales activity only for purposes of the 50/50 method, the proposed
regulations adopt rules applicable to each of the three methods. Under
the proposed regulations, once gross income attributable to production
activity and sales activity has been determined under one of the
methods described in paragraph (b), the source of the income is
determined separately for each type of income under paragraph (c). The
source of gross income attributable to production activity is
determined under paragraph (c)(1), based on the location of production
assets, and the source of gross income attributable to sales activity
is determined under paragraph (c)(2) based on the location of the sale.
a. Source of Gross Income Attributable to Production Activity
The proposed regulations generally adopt the approach set forth in
the current regulations under the 50/50 method, but with modifications
and clarifications.
Under Sec. 1.863-3(c)(1), the source of income attributable to
production activity is determined based on the location of the
taxpayer's production assets. Thus, if a taxpayer manufactures
inventory exclusively in the United States, all of its income
attributable to production activity will be considered from sources
within the United States. The rules described below are intended to
apply only to taxpayers that produce inventory both within and without
the United States.
Under the proposed regulations, the source of a taxpayer's income
from production activities is determined by reference to the taxpayer's
production assets, instead of all of its assets that produce income
from Section 863 Sales. The IRS and Treasury believe that this change
is appropriate to ensure that the source of production income
corresponds to the location of production activity. Production assets
are defined to include tangible and intangible property owned by the
taxpayer that are used to produce inventory sold in Section 863 Sales.
Any property not directly used to produce inventory is excluded. Thus,
accounts receivable and marketing intangibles are excluded because they
are sales assets and not production assets. Other assets excluded
because they do not directly produce inventory are transportation
assets, warehouses, inventory, work-in-process, raw materials, cash,
investment assets, and stock of a subsidiary. Working capital is
excluded to avoid uncertainty arising from determinations of the
appropriate amount of working capital. In addition, working capital
would generally be apportioned pro rata in accordance with a taxpayer's
production assets. As under the current regulations, leased assets are
excluded; only assets owned by the taxpayer are included.
The proposed regulations also provide specific rules for
determining where a production asset is located. Tangible assets are
located where the assets are used by the taxpayer. Intangible Assets
are located where the tangible production assets to which they relate
are located.
Where production takes place both within the United States and
within a foreign country, the regulations apply a property fraction to
apportion production income between U.S. and foreign sources. The
taxpayer's foreign source gross production income is determined by
multiplying its gross production income by a fraction, the numerator of
which is the taxpayer's production assets located within a foreign
country, and the denominator of which is the taxpayer's production
assets located both within the united States and within a foreign
country.
The current regulations generally include assets in the property
formula at fair market value. The proposed regulations modify this rule
to provide that an asset must be included in the property formula at
its average adjusted basis (see section 1011). The IRS and Treasury
believe that this change to adjusted basis will significantly simplify
the application of this formula for both taxpayers and the IRS.
The proposed regulations also contain more detailed guidance than
the current regulations for determining the amounts to be included in
the property fraction. For example, the proposed regulations would
require that if the asset is used to produce inventory sold in Section
863 Sales and is also used to produce other property, the basis of the
asset must be prorated to account for such other uses.
The purpose of the property formula is to attribute the source of
the taxpayer's production income to the location of its production
activity. The IRS and Treasury are concerned that taxpayers may be able
to affect the location of assets without changing the sit us of
economic activity. Accordingly, comments are solicited about whether
there should be rules to prevent manipulation of this formula in a
manner inconsistent with the purpose of the regulation.
b. Source of Gross Income Attributable to Sales Activity
The source of gross income that is attributable to sales activity
is determined under paragraph (c)(2). As under the current regulations,
the source of this income is generally based on where a sale takes
place. See Sec. 1.861-7(c). Accordingly, if a U.S. producer sells its
goods in a foreign country, the income attributable to sales activity
is generally foreign source income.
[[Page 63484]]
The proposed regulation would retain the language of the existing
regulation, which only applies to sales that occur within a foreign
country. The IRS and Treasury solicit comments as to whether the
regulations should be expanded to apply to sales made in international
waters or in space. The IRS and Treasury are concerned, however, that
if such a change were made, a U.S. seller may try to use the 50/50
method by selling inventory in international waters to U.S. purchasers,
even when the goods were destined for the United States. In view of
these concerns, the IRS and Treasury also solicit comments as to
whether the regulations should provide an exception to the title
passage rule in the case of sales of goods produced in the United
States and destined for use in the United States.
4. Determination of Source of Taxable Income
Once the amount and source of gross income are determined under
paragraph (c), taxpayers then determine the source of their taxable
income. Under proposed paragraph (d), taxpayers must allocate or
apportion under Secs. 1.861-8 through 1.861-14T the amounts of
expenses, losses and other deductions to its gross income determined
under each method described in paragraph (b). In the case of amounts of
expenses, losses and other deductions allocated or apportioned to gross
income determined under the IFP method or the books and records method,
the taxpayer must apply the rules of Secs. 1.861-8 through 1.861-14T to
allocate or apportion these amounts between gross income from sources
within and without the United States. For amounts of expenses, losses
and other deductions allocated or apportioned to gross income
determined under the 50/50 method, taxpayers must apportion expenses
and other deductions prorata based on the relative amounts of U.S. and
foreign source gross income. These rules are consistent with existing
regulations.
5. Election and Reporting Rules
Under paragraph (e) of the proposed regulations, a taxpayer must
use the 50/50 method unless the taxpayer elects to use the IFP method,
or elects the Books and Records method. The taxpayer makes the election
by using the method on its tax return. Once The tax return is filed,
the election is not revokable for that year. In addition, that method
must be used in later taxable years unless the Commissioner or her
delegate consents to a change. Permission to change methods in later
years will not be withheld unless the change would result in a
substantial distortion of the source of income.
A taxpayer must fully explain the methodology used in paragraph
(b), and the amount of income allocated or apportioned to U.S. and
foreign sources in a statement attached to its tax return.
6. Conforming Changes
The proposed regulations make conforming changes to Sec. 1.863-2 of
the regulations. Under Sec. 1.863-2, the taxpayer may elect to apply
the 50/50 method to its net taxable income, instead of its gross income
as specified in Sec. 1.863-3. The proposed regulations clarify that
income derived from the purchase of personal property within a
possession of the United States and its sale within the United States
is subject to these regulations only to the extent it is not excluded
by Sec. 1.936-6(a)(5), Q&A 7. Other changes to Sec. 1.863-2 were
intended to conform the language of the regulation to the changes in
Sec. 1.863-3.
Finally, the IRS and Treasury will reconsider the existing
regulations issued under section 863 regarding transportation services
and cable and telegraph services in light of the Tax Reform Act of
1986. Accordingly, the transportation rules contained in Sec. 1.863-4
will only apply to services that are not described in section 863(c)
and the telegraph and cable rules contained in Sec. 1.863-5 are
deleted. No inference is intended as to whether portions of the
existing regulations continued to apply after the Tax Reform Act of
1986.
7. Proposed Effective Dates
These regulations are effective for taxable years beginning 30 days
after publication of final regulations. However, taxpayers may apply
these regulations for taxable years beginning after July 11, 1995, and
before 30 days after publication of these regulations as final
regulations.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It is hereby certified that
these regulations will not have a significant economic impact on a
substantial number of small entities. Accordingly, a regulatory
flexibility analysis is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) that are submitted timely to the IRS. All
comments will be available for public inspection and copying.
A public hearing has been scheduled for April 10, 1996, at 10 a.m.
in the IRS Auditorium. Because of access restrictions, visitors will
not be admitted beyond the Internal Revenue Building lobby more than 15
minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit written comments and an outline of topics to be discussed and
the time to be devoted to each topic (signed original and eight (8)
copies) by March 11, 1996.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal author of these regulations is Anne Shelburne, Office
of Associate Chief Counsel (International). However, other personnel
from the IRS and Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.863-1 also issued under 26 U.S.C. 863.
Section 1.863-2 also issued under 26 U.S.C. 863.
Section 1.863-3 also issued under 26 U.S.C. 863.
Section 1.863-4 also issued under 26 U.S.C. 863.
Section 1.863-6 also issued under 26 U.S.C. 863. * * *
Par. 2. Sections 1.863-0 is added to read as follows:
[[Page 63485]]
Sec. 1.863-0 Table of contents.
This section lists captions contained in Secs. 1.863-1, 1.863-2,
and 1.863-3.
Sec. 1.863-1 Allocation of Gross Income.
(a) In general.
(b) Natural resources.
(1) In general.
(2) Additional production prior to export terminal.
(3) Definitions.
(i) Production activity.
(ii) Additional production activities.
(iii) Export terminal.
(4) Determination of fair market value.
(5) Determination of gross income.
(6) Tax return disclosure.
(7) Examples.
(c) Determination of taxable income.
(d) Effective dates.
Sec. 1.863-2 Allocation and Apportionment of Taxable Income.
(a) Determination of taxable income.
(b) Determination of source of taxable income.
(c) Effective dates.
Sec. 1.863-3 Allocation and Apportionment of Income from Certain
Sales of Inventory.
(a) In general.
(b) Methods to determine income attributable to production activity
and sales activity.
(1) 50/50 method.
(i) Determination of gross income.
(ii) Example.
(2) IFP method.
(i) Establishing an IFP.
(ii) Applying the IFP method.
(iii) Determination of gross income.
(iv) Examples.
(3) Books and records method.
(c) Determination of the source of gross income from production
activity and sales activity.
(1) Income attributable to production activity.
(i) Production only within the United States or only within foreign
countries.
(A) Source of income.
(B) Definition of production assets.
(C) Location of production assets.
(ii) Production both within the United States and within foreign
countries.
(A) Source of income.
(B) Adjusted basis of production assets.
(iii)Examples.
(2) Income attributable to sales activity.
(d) Determination of source of taxable income.
(e) Election and reporting rules.
(1) Elections under paragraph (b) of this section.
(2) Disclosure on tax return.
(f) Income partly from sources within a possession of the United
States. [Reserved]
(g) Effective dates.
Par. 3. Sections 1.863-1, 1.863-2, and 1.863-3 are revised to read
as follows:
Sec. 1.863-1 Allocation of gross income.
(a) In general. Items of gross income other than those specified in
section 861(a) and section 862(a) will generally be separately
allocated to sources within or without the United States. See
Sec. 1.863-2 for alternate methods to determine the income from sources
within or without the United States in the case of items specified in
Sec. 1.863-2(a). See also sections 865(b) and 865(e)(2).
(b) Natural resources--(1) In general. Except to the extent
provided in paragraph (b)(2) of this section, gross receipts from the
sale outside the United States of products derived from the ownership
or operation of any farm, mine, oil or gas well, other natural deposit,
or timber within the United States, are allocated between sources
within or without the United States based on the fair market value of
the product at the export terminal (as defined in paragraph (b)(3)(iii)
of this section). Except to the extent provided in paragraph (b)(2) of
this section, gross receipts from the sale within the United States of
products derived from the ownership or operation of any farm, mine, oil
or gas well, other natural deposit, or timber outside the United States
are also allocated between sources within or without the United States
based on the fair market value of the product at the export terminal.
The source of gross receipts equal to the fair market value of the
product at the export terminal will be from sources where the farm,
mine, well, deposit, or uncut timber is located. The source of gross
receipts from the sale of the product in excess of its fair market
value at the export terminal (excess gross receipts) will be determined
as follows--
(i) If the taxpayer does not engage in additional production
activities (as defined in paragraph (b)(3)(ii) of this section), excess
gross receipts will be from sources where the farm, mine, well,
deposit, or uncut timber is located;
(ii) If the taxpayer engages in additional production activities
subsequent to shipment from the export terminal and outside the country
of sale, the source of excess gross receipts must be determined under
Sec. 1.863-3. For purposes of applying Sec. 1.863-3, only production
assets used in additional production activity subsequent to the export
terminal are taken into account; or
(iii) In all other cases, excess gross receipts will be from
sources within the country of sale, as described in Sec. 1.861-7(c).
This paragraph (b)(1)(iii) applies, for example, to a taxpayer that
engages in additional production activities in the country of sale.
(2) Additional production prior to export terminal. Notwithstanding
any other provision of this section, gross receipts from the sale of
products derived by a taxpayer who performs additional production
activities as defined in paragraph (b)(3)(ii) of this section before
the relevant product is shipped from the export terminal are allocated
between sources within and without the United States based on the fair
market value of the product immediately prior to the additional
production activities. The source of gross receipts equal to the fair
market value of the product immediately prior to the additional
production activities will be from sources where the farm, mine, well,
deposit, or uncut timber is located. The source of gross receipts from
the sale of the product in excess of the fair market value immediately
prior to the additional production activities must be determined under
Sec. 1.863-3. For purposes of applying Sec. 1.863-3, only production
assets used in the additional production activities are taken into
account.
(3) Definitions--(i) Production activity. For purposes of this
section, production activity means an activity that creates,
fabricates, manufactures, extracts, processes, cures, or ages
inventory. See Sec. 1.864-1.
(ii) Additional production activities. For purposes of this
section, additional production activities are substantial production
activities performed by the taxpayer in addition to activities from the
ownership or operation of any farm, mine, oil or gas well, other
natural deposit, or timber. Whether a taxpayer performs such additional
production activities will be determined under the principles of
Sec. 1.954-3(a)(4). However, in no case will activities that prepare
the natural resource itself for export, including those that are
designed to facilitate the transportation of the natural resource to or
from the export terminal, be considered additional production
activities for purposes of this section.
(iii) Export terminal. Where the farm, mine, well, deposit, or
uncut timber is located without the United States, the export terminal
will be the final point in a foreign country from which goods are
shipped from a foreign country to the United States. Where the farm,
mine, well, deposit, or uncut timber is located within the United
States, the export terminal will be the final point in the United
States from which goods are shipped from the United States to a foreign
country. The export terminal is determined without regard to any
contractual terms agreed to by the taxpayer and without regard to
whether there is an actual sale of the products at the export terminal.
[[Page 63486]]
(4) Determination of fair market value. For purposes of this
section, fair market value depends on all of the facts and
circumstances as they exist relative to a party in any particular case.
Where the products are sold to a related party in a transaction subject
to section 482, the determination of fair market value under this
section must be consistent with the arm's length price determined under
section 482.
(5) Determination of gross income. To determine the amount of a
taxpayer's gross income from sources within or without the United
States, the taxpayer's gross receipts from sources within or without
the United States determined under this paragraph (b) must be reduced
by the cost of goods sold properly attributable to gross receipts from
sources within or without the United States.
(6) Tax return disclosure. A taxpayer that determines the source of
its income under this paragraph (b) shall attach a statement to its
return explaining the methodology used to determine fair market value
under paragraph (b)(4) of this section, and explaining any additional
production activities (as defined in paragraph (b)(3)(ii) of this
section) performed by the taxpayer. In addition, the taxpayer must
provide such other information as is required by Sec. 1.863-3.
(7) Examples. The following examples illustrate the rules of this
paragraph (b):
Example 1. No additional production. US Mines, a U.S.
corporation, extracts coal in the United States and, without
substantial additional production, sells the coal in a foreign
country. Under Sec. 1.863-1(b) and (b)(1)(i), all of US Mines'
income will be from sources within the United States.
Example 2. Scope of additional production. US Gas, a U.S.
corporation, extracts natural gas within the United States, and
transports the natural gas to a U.S. port where it is liquified in
preparation for shipment. The liquified natural gas is then
transported via freighter and sold without additional production
activities in a foreign country. Liquefaction of natural gas is not
an additional production activity because liquefaction prepares the
natural gas for transportation from the export terminal. Therefore,
under Sec. 1.863-1(b) and (b)(1)(i), all of US Gas' income will be
from sources within the United States.
Example 3. Sale in third country. US Gold, a U.S. corporation,
mines gold in country X, produces gold jewelry in the United States,
and sells the jewelry in country Y. Assume that the fair market
value of the gold at the export terminal in country X is $40, and
that US Gold ultimately sells the gold jewelry in country Y for
$100. Under Sec. 1.863-1(b), $40 of US Gold's gross receipts will be
allocated to sources without the United States. Under Sec. 1.863-
1(b)(1)(ii), the source of the remaining $60 of gross receipts will
be determined under Sec. 1.863-3. If US Gold applies the 50/50
method described in Sec. 1.863-3, $20 of cost of goods sold is
properly attributable to activities subsequent to the export
terminal, and all of US Gold's production assets subsequent to the
export terminal are located in the United States, then $20 of gross
income will be allocated to sources within the United States and $20
of gross income will be allocated to sources without the United
States.
Example 4. Production in country of sale. US Oil, a U.S.
corporation, extracts oil in country X, transports the oil via
pipeline to the export terminal in country Y, refines the oil in the
United States, and sells the refined product in the United States to
unrelated persons. Assume that the fair market value of the oil at
the export terminal in country Y is $80, and that US Oil ultimately
sells the refined product for $100. Under Sec. 1.863-1(b)(1), $80 of
US Oil's gross receipts will be allocated to sources without the
United States, and under Sec. 1.863-1(b)(1)(iii) the remaining $20
of gross receipts will be allocated to sources within the United
States.
Example 5. Additional production prior to export. US Furniture,
a U.S. corporation, cuts trees in the United States, converts the
trees into lumber, uses the lumber to manufacture furniture in the
United States, and sells the furniture in another country. Assume
that the fair market value of the trees when the conversion into
lumber begins is $40, and that US Furniture ultimately sells the
furniture for $100. Because the conversion of the trees into lumber
is an additional production activity within the United States within
the meaning of Sec. 1.863-1(b)(3)(ii), the source of US Furniture's
income will be determined under Sec. 1.863-1(b)(2). Thus, $40 of US
Furniture's gross receipts will be allocated to sources within the
United States. The source of the remaining $60 of gross receipts
will be determined under Sec. 1.863-3. If US Furniture applies the
50/50 method described in Sec. 1.863-3(b)(1), $20 of cost of goods
sold is properly attributable to the additional production activity,
and all of US Furniture's production assets used in the additional
production activity are located in the United States, then $20 of
gross income will be allocated to sources within the United States
and $20 of gross income will be allocated to sources without the
United States.
(c) Determination of taxable income. The taxpayer's taxable income
from sources within or without the United States will be determined
under the rules of Secs. 1.861-8 through 1.861-14T for determining
taxable income from sources within the United States.
(d) Effective dates. The rules of this section will apply to
taxable years beginning 30 days after publication of these regulations
as final regulations. However, taxpayers may apply the rules of this
section for taxable years beginning after July 11, 1995, and before 30
days after publication of these regulations as final regulations. For
years beginning before 30 days after publication of these regulations
as final regulations, see Sec. 1.863-1 (as contained in 26 CFR part 1
revised as of April 1, 1995).
Sec. 1.863-2 Allocation and apportionment of taxable income.
(a) Determination of taxable income. Section 863(b) provides an
alternate method for determining taxable income from sources within the
United States in the case of gross income derived from sources partly
within and partly without the United States. Under this method, taxable
income is determined by deducting from such gross income the expenses,
losses, or other deductions properly apportioned or allocated thereto
and a ratable part of any other expenses, losses, or deductions that
cannot definitely be allocated to some item or class of gross income.
The income to which this section applies (and that is treated as
derived partly from sources within and partly from sources without the
United States) will consist of gains, profits, and income--
(1) From certain transportation or other services rendered partly
within and partly without the United States to the extent not within
the scope of section 863(c) or other specific provisions of this title;
(2) From the sale of inventory property (within the meaning of
section 865(i)) produced (in whole or in part) by the taxpayer in the
United States and sold in a foreign country or produced (in whole or in
part) by the taxpayer in a foreign country and sold in the United
States; or
(3) Derived from the purchase of personal property within a
possession of the United States and its sale within the United States,
to the extent not excluded from the scope of these regulations under
Sec. 1.936-6(a)(5), Q&A 7.
(b) Determination of source of taxable income. Income treated as
derived from sources partly within and partly without the United States
under paragraph (a) of this section may be allocated to sources within
and without the United States pursuant to Sec. 1.863-1 or apportioned
to such sources in accordance with the methods described in other
regulations under section 863. To determine the source of certain types
of income described in paragraph (a)(1) of this section, see
Sec. 1.863-4. To determine the source of gross income described in
paragraph (a)(2) of this section, see Sec. 1.863-3. However, the
principles of Sec. 1.863-3 (b)(1) and (c) may be applied to determine
the source of taxable income from sales of inventory property. To
determine the source of income described in paragraph (a)(3) of this
section, see Sec. 1.863-3(f).
[[Page 63487]]
(c) Effective dates. This section will apply to taxable years
beginning 30 days after publication of these regulations as final
regulations. However, taxpayers may apply the rules of this section for
taxable years beginning after July 11, 1995, and before 30 days after
publication of these regulations as final regulations. For years
beginning before 30 days after publication of these regulations as
final regulations, see Sec. 1.863-2 (as contained in 26 CFR part 1
revised as of April 1, 1995).
Sec. 1.863-3 Allocation and apportionment of income from certain sales
of inventory.
(a) In general. This section applies to determine the source of
income derived from the sale of inventory property (inventory) produced
(in whole or in part) by a taxpayer within the United States and sold
within a foreign country, or produced (in whole or in part) by a
taxpayer in one or more foreign countries and sold within the United
States (Section 863 Sales). For purposes of this section, a taxpayer's
production activity includes production activities conducted by members
of the same affiliated group as defined under section 1504(a). A
taxpayer's production activity also includes production activities
conducted through a partnership of which the taxpayer is a partner
either directly or through one or more partnerships. A taxpayer subject
to this section must divide gross income from Section 863 Sales between
production activity and sales activity using one of the methods
described in paragraph (b) of this section. The source of gross income
from production activity and from sales activity must then be
determined under paragraph (c) of this section. Taxable income from
Section 863 Sales is determined under paragraph (d) of this section.
Paragraph (e) of this section describes the rules for electing the
methods described in paragraph (b) of this section and the information
that a taxpayer must disclose on a tax return. Paragraph (f) of this
section applies to determine the source of certain income derived from
a possession of the United States. Paragraph (g) of this section
provides effective dates for the rules in this section. Once a taxpayer
has elected a method described in paragraph (b) of this section, the
taxpayer must separately apply that method to Section 863 Sales in the
United States and to Section 863 Sales in foreign countries. In
addition, the taxpayer must apply the rules of paragraphs (c) and (d)
of this section by aggregating all Section 863 Sales to which a method
described in paragraph (b) of this section applies. See section
865(i)(1) for the definition of inventory property; Sec. 1.861-7(c) for
the time and place of sale. See also section 865(e)(2).
(b) Methods to determine income attributable to production activity
and sales activity--(1) 50/50 method--(i) Determination of gross
income. Generally, gross income from Section 863 Sales will be
apportioned between production activity and sales activity under the
50/50 method as described in this paragraph (b)(1). Under the 50/50
method, one-half of the taxpayer's gross income will be considered
income attributable to production activity and the source of that
income will be determined under the rules of paragraph (c)(1) of this
section. The remaining one-half of such gross income will be considered
income attributable to sales activity and the source of that income
will be determined under the rules of paragraph (c)(2) of this section.
In lieu of the 50/50 method, the taxpayer may elect to determine the
source of income from Section 863 Sales under the IFP method described
in paragraph (b)(2) of this section or, with the consent of the
District Director, the books and records method described in paragraph
(b)(3) of this section.
(ii) Example. The following example illustrates the rules of this
paragraph (b)(1):
Example. 50/50 method. (i) P, a U.S. corporation, produces
widgets in the United States. P sells the widgets for $100 to D, an
unrelated foreign distributor, in another country. P's cost of goods
sold is $40. Thus, P's gross income is $60.
(ii) Pursuant to the 50/50 method, one-half of P's gross income,
or $30, is considered income attributable to production activity,
and one-half of P's gross income, or $30, is considered income
attributable to sales activity.
(2) IFP method--(i) Establishing an IFP. A taxpayer may elect to
allocate gross income earned from production activity and sales
activity using the independent factory price (IFP) method described in
this paragraph (b)(2) if an IFP is fairly established. An IFP is fairly
established based on a sale by the taxpayer only if the taxpayer
regularly sells part of its output to wholly independent distributors
or other selling concerns in such a way as to reasonably reflect the
income earned from production activity. A sale will not be considered
to fairly establish an IFP if sales activity by the taxpayer with
respect to that sale is significant in relation to all of the
activities with respect to that product.
(ii) Applying the IFP method. If the taxpayer elects to use the IFP
method, the amount of the gross sales price equal to the IFP will be
treated as attributable to production activity, and the excess of the
gross sales price over the IFP will be treated as attributable to sales
activity. If a taxpayer elects to use the IFP method, the IFP must be
applied to all Section 863 Sales of inventory that are substantially
similar in physical characteristics and function, and are sold at a
similar level of distribution as the inventory sold in the sale fairly
establishing an IFP. The IFP will only be applied to sales that are
reasonably contemporaneous with the sale fairly establishing the IFP.
An IFP cannot be applied to sales in other geographic markets if the
markets are substantially different. The rules of this paragraph will
also apply to determine the division of gross receipts between
production activity and sales activity in a Section 863 Sale that
itself fairly establishes an IFP. If the taxpayer elects to apply the
IFP method, the IFP method must be applied to all sales for which an
IFP may be fairly established for that taxable year and each subsequent
taxable year. The taxpayer will apply either the 50/50 method described
in paragraph (b)(1) of this section or the books and records method
described in paragraph (b)(3) of this section to any other Section 863
Sale for which an IFP cannot be established or applied for each taxable
year.
(iii) Determination of gross income. The amount of a taxpayer's
gross income from production activity is determined by reducing the
amount of gross receipts from production activity by the cost of goods
sold properly attributable to production activity. The amount of a
taxpayer's gross income from sales activity is determined by reducing
the amount of gross receipts from sales activity by the cost of goods
sold (if any) properly attributable to sales activity. The source of
gross income from production activity is determined under the rules of
paragraph (c)(1) of this section, and the source of gross income from
sales activity will be determined under the rules of paragraph (c)(2)
of this section.
(iv) Examples. The following examples illustrate the rules of this
paragraph (b)(2):
Example 1. IFP method. (i) P, a U.S. producer, purchases cotton
and produces cloth in the United States. P sells cloth in country X
to D, a unrelated foreign clothing manufacturer, for $100. Cost of
goods sold for cloth is $80, entirely attributable to production
activity. P does not engage in significant sales activity in
relation to its other activities in the sales to D. Under these
facts, the sale to D fairly establishes an IFP of $100. Assume that
P elects to use the IFP method. Accordingly, $100 of the gross sales
price is treated as attributable to production activity, and no
amount of income from this
[[Page 63488]]
sale is attributable to sales activity. After reducing the gross sales
price by cost of goods sold, $20 of the gross income is treated as
attributable to production activity ($100-$80).
(ii) P also sells cloth in country X to A, a unrelated foreign
retail outlet, for $110. Because P elected the IFP method and the
cloth is substantially similar to the cloth sold to D, the IFP
fairly established in the sales to D must be used to determine the
amount attributable to production activity in the sale to A.
Accordingly, $100 of the gross sales price is treated as
attributable to production activity and $10 ($110-$100) is
attributable to sales activity. After reducing the gross sales price
by cost of goods sold, $20 of the gross income is treated as
attributable to production activity ($100-$80) and $10 is
attributable to sales activity.
Example 2. Scope of IFP Method. (i) USCo manufactures three
dissimilar products. USCo elects to apply the IFP method. In year 1,
an IFP can be established for sales of product X, but not for
products Y and Z. In year 2, an IFP cannot be established for any of
USCo's products. In year 3, an IFP can be established for products X
and Y, but not for product Z.
(ii) In year 1, USCo must apply the IFP method to sales of
product X. In year 2, although USCo's IFP election remains in
effect, USCo is not required to apply the IFP election to any
products. In year 3, USCo is required to apply the IFP method to
sales of products X and Y.
(3) Books and records method. A taxpayer may elect to determine the
amount of its gross income from Section 863 Sales that is attributable
to production and sales activities for the taxable year based upon its
books of account if it has received in advance the permission of the
District Director having audit responsibility over its tax return. The
taxpayer must establish to the satisfaction of the District Director
that the taxpayer, in good faith and unaffected by considerations of
tax liability, will regularly employ in its books of account a detailed
allocation of receipts and expenditures which clearly reflects the
amount of the taxpayer's income from production and sales activities.
If a taxpayer receives permission to apply the books and records
method, but does not comply with a material condition set forth by the
District Director, the District Director may, in its discretion, revoke
permission to use the books and records method. The source of gross
income treated as attributable to production activity under this method
may be determined under the rules of paragraph (c)(1) of this section,
and the source of gross income attributable to sales activity will be
determined under the rules of paragraph (c)(2) of this section.
(c) Determination of the source of gross income from production
activity and sales activity--(1) Income attributable to production
activity--(i) Production only within the United States or only within
foreign countries--(A) Source of income. Where the taxpayer's
production assets are located only within the United States or only
within a foreign country, the income attributable to production
activity is sourced where the taxpayer's production assets are located.
For rules regarding the source of income when production assets are
located both within the United States and within one or more foreign
countries, see paragraph (c)(1)(ii) of this section. For purposes of
this section, production activity means an activity that creates,
fabricates, manufactures, extracts, processes, cures, or ages
inventory. See Sec. 1.864-1.
(B) Definition of production assets. For purposes of this section,
production assets include only tangible and intangible assets owned by
the taxpayer that are directly used by the taxpayer to produce
inventory described in paragraph (a) of this section. Production assets
do not include assets that are not directly used to produce inventory
described in paragraph (a) of this section. Thus, production assets do
not include such assets as accounts receivables, intangibles not
related to production of inventory (e.g., marketing intangibles,
including trademarks and customer lists), transportation assets,
warehouses, the inventory itself, raw materials, or work-in-process. In
addition, production assets do not include cash or other liquid assets
(including working capital), investment assets, prepaid expenses, or
stock of a subsidiary. A partner will be treated as owning its
proportionate share of the partnership's production assets, determined
by reference to the partner's distributive share of partnership income
for the year attributable to such production assets.
(C) Location of production assets. For purposes of this section, a
tangible production asset will be considered located where the asset is
physically located. An intangible production asset will be considered
located where the tangible production assets owned by the taxpayer to
which it relates are located.
(ii) Production both within the United States and within foreign
countries--(A) Source of income. Where the taxpayer's production assets
are located both within the United States and within one or more
foreign countries, income from sources without the United States will
be determined by multiplying the income attributable to production
activity by a fraction, the numerator of which is the average adjusted
basis of production assets that are located in one or more foreign
countries and the denominator of which is the average adjusted basis of
all production assets in foreign countries and in the United States.
The remaining income is treated as from sources within the United
States.
(B) Adjusted basis of production assets. For purposes of paragraph
(c)(1)(ii)(A) of this section, the adjusted basis of an asset is
determined under section 1011. The average adjusted basis is computed
by averaging the adjusted basis of the asset at the beginning and end
of the taxable year, unless by reason of material changes during the
taxable year such average does not fairly represent the average for
such year. In this event, the average adjusted basis will be determined
upon a more appropriate basis. If production assets are used to produce
inventory sold in Section 863 Sales and are also used to produce other
property during the taxable year, the portion of its adjusted basis
that is included in the fraction described in paragraph (c)(1)(ii)(A)
of this section will be determined under any method that reasonably
reflects the portion of the assets that produces inventory sold in
Section 863 Sales. For example, the portion of such an asset that is
included in the formula may be determined by multiplying the asset's
average adjusted basis by a fraction, the numerator of which is the
gross receipts from sales of inventory from Section 863 Sales produced
by the asset, and the denominator of which is the gross receipts from
all property produced by that asset. For purposes of this section, a
taxpayer's basis in production assets held through a partnership shall
be determined by reference to the partnership's adjusted basis in its
assets (including a partner's special basis adjustment, if any, under
section 743).
(iii) Examples. The following examples illustrate the rules of this
paragraph (c)(1):
Example 1. Source of production income. (i) A, a U.S.
corporation, produces widgets that are sold both within the United
States and within a foreign country. The initial manufacture of all
widgets occurs in the United States. The second stage of production
of widgets that are sold within a foreign country is completed
within the country of sale. A's U.S. plant and machinery which is
involved in the initial manufacture of the widgets has an average
adjusted basis of $200. A also owns warehouses used to store work-
in-process. A owns foreign equipment with an average adjusted basis
of $25. A's gross receipts from all sales of widgets is $100, and
its gross receipts from export sales of widgets is $25. Assume that
apportioning average adjusted basis using gross receipts is
reasonable. Assume A's cost of goods sold from the sale of widgets
in the foreign countries is $13 and thus, its gross
[[Page 63489]]
income from widgets sold in foreign countries is $12. A uses the 50/50
method to divide its gross income between production activity and
sales activity.
(ii) A determines its production gross income from sources
without the United States by multiplying one-half of A's $12 of
gross income from sales of widgets in foreign countries, or $6, by a
fraction, the numerator of which is all relevant foreign production
assets, or $25, and the denominator of which is all relevant
production assets, or $75 ($25 foreign assets + ($200 U.S. assets
x $25 gross receipts from export sales/$100 gross receipts from all
sales)). Therefore, A's gross production income from sources without
the United States is $2 ($6 x ($25/$75)).
Example 2. Location of intangible property. Assume the same
facts as Example 1, except that A employs a patented process that
applies only to the initial production of widgets. In computing the
formula used to determine the source of income from production
activity, A's patent, if it has an average adjusted basis, would be
located in the United States.
(2) Income attributable to sales activity. The source of the
taxpayer's income that is attributable to sales activity will be
determined under the provisions of Sec. 1.861-7(c).
(d) Determination of source of taxable income. Once the source of
gross income has been determined under paragraph (c) of this section,
the taxpayer must properly allocate and apportion separately under
Secs. 1.861-8 through 1.861-14T the amounts of its expenses, losses,
and other deductions to its respective amounts of gross income from
Section 863 Sales determined separately under each method described in
paragraph (b) of this section. In addition, if the taxpayer deducts
expenses for research and development under section 174 that may be
attributed to its Section 863 Sales under Sec. 1.861-8(e)(3), the
taxpayer must separately allocate or apportion expenses, losses, and
other deductions to its respective amounts of gross income from each
relevant product category that the taxpayer uses in applying the rules
of Sec. 1.861-8(e)(3)(i)(A). In the case of gross income from Section
863 Sales determined under the IFP method or the books and records
method, the rules of Secs. 1.861-8 through 1.861-14T must apply to
properly allocate or apportion amounts of expenses, losses and other
deductions allocated and apportioned to such gross income between gross
income from sources within and without the United States. In the case
of gross income from Section 863 Sales determined under the 50/50
method, the amounts of expenses, losses, and other deductions allocated
and apportioned to such gross income must be apportioned between
sources within and without the United States pro rata based on the
relative amounts of gross income from sources within and without the
United States determined under the 50/50 method.
(e) Election and reporting rules--(1) Elections under paragraph (b)
of this section. If a taxpayer does not elect a method specified in
paragraph (b)(2) or (3) of this section, the taxpayer must apply the
method specified in paragraph (b)(1) of this section. The taxpayer may
elect to apply the method specified in paragraph (b)(2) of this section
by using the method on a timely filed original return (including
extensions). A taxpayer may elect to apply the method specified in
paragraph (b)(3) of this section by using the method on a timely filed
original return (including extensions), but only if the taxpayer has
received permission from the District Director to apply that method.
Once a method under paragraph (b) of this section has been used, that
method must be used in later taxable years unless the Commissioner
consents to a change. See e.g., paragraph (b)(2)(ii) Example 2 of this
section. However, if a taxpayer elects to change to or from the method
specified in paragraph (b)(3) of this section, the taxpayer must obtain
permission from the District Director instead of the Commissioner.
Permission to change methods from one year to another year will not be
withheld unless the change would result in a substantial distortion of
the source of the taxpayer's income.
(2) Disclosure on tax return. A taxpayer who uses one of the
methods described in paragraph (b) of this section must fully explain
the methodology used, the circumstances justifying use of that method,
the extent that sales are aggregated, and the amount of income so
allocated.
(f) Income partly from sources within a possession of the United
States. [Reserved]
(g) Effective dates. The rules of paragraphs (a) through (e) of
this section will apply to taxable years beginning 30 days after
publication of final regulations. However, taxpayers may apply these
regulations for taxable years beginning after July 11, 1995, and before
30 days after publication of these regulations as final regulations.
For years beginning before 30 days after the publication of these
regulations as final regulations, see Sec. 1.863-3 (as contained in 26
CFR part 1 revised as of April 1, 1995).
Par. 4. Section 1.863-4 is amended by revising the section heading
and paragraph (a) to read as follows:
Sec. 1.863-4 Certain transportation services.
(a) General. A taxpayer carrying on the business of transportation
service (other than an activity giving rise to transportation income
described in section 863(c) or to income subject to other specific
provisions of this title) between points in the United States and
points outside the United States derives income partly from sources
within and partly from sources without the United States.
* * * * *
Sec. 1.863-5 [Removed]
Par. 6. Section 1.863-5 is removed.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 95-30087 Filed 12-7-95; 2:00 pm]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30085 Common Crop Insurance Regulations; Malting Barley Price and Quality Endorsement Crop Insurance Provisions
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63457-63461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30085]
=======================================================================
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DEPARTMENT OF AGRICULTURE
Federal Crop Insurance Corporation
7 CFR Part 457
RIN 0563-AB24
Common Crop Insurance Regulations; Malting Barley Price and
Quality Endorsement Crop Insurance Provisions
AGENCY: Federal Crop Insurance Corporation.
ACTION: Proposed rule.
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SUMMARY: The Federal Crop Insurance Corporation (``FCIC'') hereby
proposes to revise the Malting Barley Option Crop Insurance provisions.
The intended effect of this action is to improve the insurance coverage
now available for producers who grow malting barley under contract with
a brewery, or business that sells malt or processed mash to a brewery;
and to provide a new option that will allow producers without contracts
(open market producers) to obtain insurance for their malting barley.
DATES: Written comments, data, and opinions on this proposed rule must
be submitted by the close of business December 21, 1995 to be
considered when the rule is to be made final. The comment period for
information collections under the Paperwork Reduction Act of 1995
continues through February 5, 1996.
ADDRESSES: Written comments, data, and opinion on this proposed rule
should be sent to Diana Moslak, Regulatory and Procedural Development
Staff, Federal Crop Insurance Corporation, USDA, Washington, D.C.
20250. Hand or messenger delivery should be made to 14th and
Independence Avenue, S.W., Room 6097, South Building, Washington, D.C.
Written comments will be available for public inspection and copying in
the Office of the Manager, 14th and Independence Avenue, S.W., Room
6097, South Building, Washington, D.C., during regular business hours,
Monday through Friday.
FOR FURTHER INFORMATION CONTACT: For further information and a copy of
the Regulatory Economic Analysis of the Malting Barley Endorsement Crop
Insurance provisions, contact Diana Moslak, Regulatory and Procedural
Development Staff, Federal Crop Insurance Corporation, USDA,
Washington, D.C. 20250. Telephone (202) 720-0713.
SUPPLEMENTARY INFORMATION: This action has been reviewed under United
States Department of Agriculture (``USDA'') procedures established by
Executive Order 12866 and Departmental Regulation 1512-1. This action
constitutes a review as to the need, currency, clarity, and
effectiveness of these regulations under those procedures. The sunset
review date established for these regulations is July 1, 2000.
This rule has been determined to be ``significant'' for the
purposes of Executive Order 12866 and, therefore, has been reviewed by
the Office of Management and Budget (``OMB'').
A Regulatory Economic Analysis has been completed and is available
to interested persons at the address listed above. In summary, the
analysis finds that the expected benefits of this action outweigh the
costs. The new Malting Barley Price and Quality Endorsement will
simplify program operations, benefit FCIC and reinsured companies, and
enhance the insurance coverage for malting barley producers.
Paperwork Reduction Act of 1995
The information collection requirements contained in these
regulations were submitted to OMB for their approval under section
3507(j) of the Paperwork Reduction Act of 1995, and received emergency
approval through March 5, 1996. The agency is also seeking a valid
approval for 3 years under section 3507(d). These requirements were
previously approved by OMB under OMB control number 0563-0003 through
September 30, 1998. Public comments are due by February 5, 1996.
The title of this information collection is ``Catastrophic Risk
Protection Plan and Related Requirements including General Crop
Insurance Regulations, Common Crop Insurance Regulations; Malting
Barley Price and Quality Endorsement Crop Insurance Provisions.'' The
Information to be collected includes: a crop insurance acreage report,
an insurance application and continuous contract. Information collected
from the acreage report and application is electronically submitted to
FCIC by the reinsured companies. Some respondents may provide
additional information for the purpose of selecting malting barley
insurance coverage options. Potential respondents to this information
collection are growers of malting barley that are eligible for Federal
crop insurance.
The information requested is necessary for the insurance company
and FCIC to provide insurance, provide reinsurance, determine
eligibility, determine and collect premiums or other monetary amounts
(or fees), and pay benefits.
All information is reported annually. The reporting burden for this
collection of information is estimated to average 16.9 minutes per
response for each of the 3.6 responses from approximately 1,755,015
respondents. The total annual burden on the public for this information
collection is 2,676,932 hours.
The comment period for information collections under the Paperwork
Reduction Act of 1995 continues through February 5, 1996, on the
following: (a) whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information shall have practical utility; (b) the
accuracy of the agency's estimate of the burden of the proposed
collection of information; (c) ways to enhance the quality, utility,
and clarity of the information to be collected; and (d) ways to
minimize the burden of the collection of information
[[Page 63458]]
on respondents, including through the use of automated collection
techniques or other forms of information technology.
Comments should be submitted to the Desk Officer for Agriculture,
Office of Information and Regulatory Affairs, Office of Management and
Budget (OMB), Washington, D.C. 20503 and to Bonnie Hart, Information
Management Branch, Farm Service Agency, U.S. Department of Agriculture,
Washington, D.C. 20250. Copies of the information collection may be
obtained from Bonnie Hart at the above address. Telephone (202) 690-
2857.
It has been determined under section 6(a) of Executive Order 12612,
Federalism, that this rule does not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment. The
provisions contained in this rule will not have a substantial direct
effect on states or their political subdivisions, or on the
distribution of power and responsibilities among the various levels of
government.
This regulation will not have a significant impact on a substantial
number of small entities. The impact of obtaining or delivering these
policies will not vary significantly from that required to obtain or
deliver the present policy. Therefore, this action is determined to be
exempt from the provisions of the Regulatory Flexibility Act (5 U.S.C.
Sec. 605 ) and no Regulatory Flexibility Analysis was prepared.
This program is listed in the Catalog of Federal Domestic
Assistance under No. 10.450.
This program is not subject to the provisions of Executive Order
12372 which require intergovernmental consultation with state and local
officials. See the Notice related to 7 CFR part 3015, subpart V,
published at 48 FR 29115, June 24, 1983.
The Office of the General Counsel has determined that these
regulations meet the applicable standards provided in subsections 2(a)
and 2(b)(2) of Executive Order 12778. The provisions of this rule will
preempt state and local laws to the extent such state and local laws
are inconsistent herewith. The administrative appeal provisions
promulgated by the National Appeals Division under Pub. L. No. 103-354
must be exhausted before judicial action may be brought.
This action is not expected to have any significant impact on the
quality of the human environment, health, and safety. Therefore,
neither an Environmental Assessment nor an Environmental Impact
Statement is needed.
Background
FCIC proposes to amend the Common Crop Insurance Regulations (7 CFR
part 457) by revising and reissuing 7 CFR 457.103, Malting Barley
Option effective for the 1996 and succeeding crop years. The principal
changes to the provisions for insuring malting barley are as follows:
1. The current Malting Barley Option will be replaced by the
proposed Malting Barley Price and Quality Endorsement. The new
endorsement is divided into two coverage options. Option A is intended
to provide insurance coverage for producers who do not grow malting
barley under contract with a brewery or with a business that makes or
sells malt or processed mash to a brewery. Option B provides insurance
coverage for producers who grow malting barley under such a contract. A
producer may select only one option to cover all acreage planted to
approved varieties of malting barley in the county during the crop
year.
Option A
2. Section 1--Requires an applicant for insurance or insured to
provide records of the sale of malting barley for at least four crop
years to be eligible for coverage. These production records may be used
to determine the malting barley production guarantee (see item 3
below).
3. Section 2--Provides that the malting barley production guarantee
per acre will be the lesser of: (a) The production guarantee calculated
under the APH regulations, 7 CFR part 400, subpart G, and the Small
Grains Crop Provisions for feed barley for acreage planted to approved
malting varieties; or (b) the average amount calculated under the APH
regulations of malting barley sold per planted acre during the APH base
period.
4. Section 3--Provides for the maximum malting barley additional
value price to be designated in the Special Provisions.
5. Section 4--Indicates the production to count against the malting
barley production guarantee. Quality standards specified in this
section represent typical minimum acceptance standards in the malting
barley industry.
6. Section 5--Provides that a claim cannot be settled until final
disposition of all production can be determined, or May 31 of the
calendar year following the crop year. Production stored after May 31
of the calendar year following the crop year will be adjusted based on
the quality specifications contained in subsection 4(b) of the option.
This extended settlement period is intended to prevent the payment of
an indemnity for production that does not meet quality specifications
but is ultimately used for malting purposes due to a shortage of
quality malting barley. If barley is used for malting purposes
regardless of quality it is production to count against the guarantee.
Option B
7. Section 1--Requires an applicant for insurance or insured to
provide a copy of the malting barley contract by the acreage reporting
date to be eligible for coverage. The amount of production under
contract may be used to determine the malting barley production
guarantee (see item 8 below).
8. Section 2--Provides that the malting barley production guarantee
per acre be the lesser of: (a) The production guarantee calculated
under the APH regulations, 7 CFR part 400, subpart G, and the Small
Grains Crop Provisions for feed barley for acreage planted to approved
malting varieties; or (b) the amount determined by dividing the number
of bushels of contracted production by the number of acres planted to
approved malting varieties, and multiplying the result by the
percentage for the coverage level you elected under the Small Grains
Crop Provisions for feed barley.
9. Section 3--Establishes the maximum malting barley additional
value price as: (a) The difference between the maximum price election
available for feed barley under the Small Grains Crop Provisions and
the established sale price in the malting barley contract provided such
price is fixed on or before the acreage reporting date; or (b) the
basis or differential per bushel shown in the malting barley contract
if the sale price is based on a future market price for basic (feed)
barley plus a differential amount for malting barley production. For
example, if the malting barley contract provides for a fixed price of
$2.50 per bushel on or before the acreage reporting date and the
maximum price election available for feed barley is $1.90 per bushel,
the additional value price would be $0.60 per bushel ($2.50-$1.90);
however, if the malting barley contract provides for a basis or
differential of $0.60 per bushel above a future market price, the
additional value price would be $0.60. In no event will the additional
value price exceed 200% of the maximum additional value price shown in
the Special Provisions.
10. Section 4--Indicates the production to count against the
malting barley production guarantee in the event of a claim. Production
meeting the
[[Page 63459]]
minimum acceptance standards specified in the malting barley contract
for percentage of protein, plump kernels, thin kernels, germination,
blight damage, mold injury or damage, sprout damage, frost injury or
damage, and parts per million of substances or conditions, including
mycotoxins, that are identified by the Food and Drug Administration as
being injurious to human or animal health, or the standards specified
in this section, will be considered production to count.
11. Section 5--Specifies that a claim cannot be settled until final
disposition of all production can be determined, or May 31 of the
calendar year following the crop year. Production stored after this
date will be adjusted based on the quality specifications indicated in
subsection 4(b) of the option. This extended settlement period is
intended to prevent the payment of an indemnity for production that
does not meet quality specifications but that is ultimately used for
malting purposes due to a shortage of quality malting barley. If barley
is used for malting purposes regardless of quality it is production to
count against the guarantee.
List of Subjects in 7 CFR Part 457
Crop insurance, Malting Barley Price and Quality Endorsement Crop
Provisions
Proposed Rule
Pursuant to the authority contained in the Federal Crop Insurance
Act, as amended (7 U.S.C. Sec. 1501 et seq.), the Federal Crop
Insurance Corporation hereby proposes to amend the Common Crop
Insurance Regulations (7 CFR part 457), effective for the 1996 and
succeeding crop years, as follows:
PART 457--[AMENDED]
1. The authority citation for 7 CFR part 457 continues to read as
follows:
Authority: 7 U.S.C. 1506(1).
2. Section 457.103 is revised to read as follows:
Sec. 457.103 Malting Barley Crop Insurance.
The malting barley crop insurance provisions for the 1996 and
succeeding crop years are as follows:
United States Department of Agriculture; Federal Crop Insurance
Corporation; Small Grains Crop Insurance; Malting Barley Price and
Quality Endorsement
(This is a continuous endorsement. Refer to section 2 of the Common
Crop Insurance Policy.)
In return for your payment of premium for the coverage contained
herein, this endorsement will be attached to and made part of the
Common Crop Insurance Policy (Sec. 457.8) and Small Grains Crop
Provisions (Sec. 457.101), subject to the terms and conditions
described herein.
1. You must have the Common Crop Insurance Policy (Sec. 457.8)
and the Small Grains Crop Insurance Provisions (Sec. 457.101) in
force to elect to insure malting barley under this endorsement.
2. You must select either option A or option B before the sales
closing date. Failure to select either option A or option B, or
failure to qualify for coverage under the terms of the option
selected, will result in no coverage under this endorsement for the
applicable crop year. For example, if you elect option B but fail to
have a binding malting barley contract by the acreage reporting
date, no coverage will be provided under this endorsement for the
crop year. The selection will continue from year to year unless you
cancel or change your selection prior to the sales closing date.
3. You must select an added value price election at the time of
application.
4. The additional premium amount for this coverage will be
determined by multiplying your malting barley production guarantee
per acre times your selected additional value price election, times
the premium rate, times the insured acreage, times your share at the
time coverage begins.
5. In addition to the acreage reporting requirements contained
in section 6 of the Common Crop Insurance Policy (Sec. 457.8), you
must provide the information required by your selected option.
6. All barley acreage that is planted to approved malting
varieties, and that is insurable under the feed barley crop
provisions and the selected option must be insured under this
endorsement and, on the acreage report, will be designated as, and
limited to, one unit.
7. In lieu of provisions in the Common Crop Insurance Policy
(Sec. 457.8) that require you to submit a claim for indemnity not
later than 60 days after the end of the insurance period, you must
submit a claim for indemnity declaring the amount of your loss not
later than May 31 of the calendar year immediately following the
crop year.
8. Prevented planting coverage is not provided by this
endorsement but is available only under the terms of the Small
Grains Crop Provisions for barley.
9. Definitions:
(a) APH--Actual Production History as determined in accordance
with 7 CFR part 400, subpart G.
(b) Approved malting variety--A variety of barley specified as
such in the Special Provisions.
(c) Brewery--A facility where malt beverages are commercially
produced for human consumption.
(d) Contracted production--The quantity of malting barley the
insured producer agrees to grow and deliver, and the buyer agrees to
accept, under the terms of the malting barley contract.
(e) Licensed grain grader--A person who is authorized to inspect
and grade barley under the United States Grain Standards Act or the
United States Warehouse Act.
(f) Malting barley contract--A written contract with a brewery
or business that produces or sells malt or processed mash to a
brewery or a company owned by such brewery or business, in which is
stated the production contracted and a purchase price or a method to
be used in determining such price.
(g) Objective test--A determination made by a qualified person
using standardized equipment that is widely used in the malting
industry, and following a procedure approved by the American Society
of Brewing Chemists when determining percent germination or protein
content; grading performed following a procedure approved by the
Federal Grain Inspection Service when determining quality factors
other than percent germination or protein content; or by the Food
and Drug Administration when determining parts per million of
mycotoxins or other substances or conditions that are identified as
being injurious to human or animal health.
(h) Subjective test--A determination made using olfactory,
visual, touch or feel, masticatory, or other senses unless performed
by a licensed grain grader; or that uses non-standardized equipment,
or that does not follow a procedure approved by the American Society
of Brewing Chemists, the Federal Grain Inspection Service, or the
Food and Drug Administration.
(i) Value per bushel--The highest price per bushel received or
that could be received for the malting barley in the local market
area.
(j) Unit--All insurable acreage of approved malting varieties in
the county on the date coverage begins for the crop year.
Option A (for Non-Contracted Production or a Combination of Contracted
and Non-Contracted Production)
This option provides coverage for malting barley production
losses at a price per bushel greater than that available under the
Small Grains Crop Provisions.
1. To be eligible for coverage under this option you must
provide us acceptable records of the sale of malting barley and the
number of acres planted to malting varieties for at least the four
crop years prior to the crop year immediately preceding the current
crop year. For example, to determine your production guarantee for
the 1995 crop year, records must be provided for the 1990 through
the 1993 crop years, if malting barley was planted in each of those
crop years. You must provide these records to us no later than the
production reporting date.
2. Your malting barley production guarantee per acre will be the
lesser of:
(a) The production guarantee for feed barley for acreage planted
to approved malting varieties calculated in accordance with the
Small Grains Crop Provisions and APH regulations; or
(b) A production guarantee calculated in accordance with APH
procedures using the malting barley sales and acreage records
provided by you.
3. The additional value price per bushel elected cannot exceed
the maximum price designated in the Special Provisions.
4. The amount of production to count against your malting barley
production guarantee will include all:
[[Page 63460]]
(a) Appraised production determined in accordance with
subsections 11(c)(1) (i) and (ii) of the Small Grains Crop
Provisions;
(b) Harvested production and potential unharvested production
that meets, or would if properly handled, meet:
(1) Tolerances established by the Food and Drug Administration
or other public health organization of the United States for
substances or conditions, including mycotoxins, that are identified
as being injurious to human or animal health; and
(2) The following quality standards, as applicable:
----------------------------------------------------------------------------------------------------------------
Six-rowed malting barley Two-rowed malting barley
----------------------------------------------------------------------------------------------------------------
Protein (dry basis)................... 14.0% maximum...................... 14.0% maximum.
Plump kernels......................... 65.0% minimum...................... 75.0% minimum.
Thin kernels.......................... 10.0% maximum...................... 10.0% maximum.
Germination........................... 95.0% minimum...................... 95.0% minimum.
Blight damaged........................ 4.0% maximum....................... 4.0% maximum.
Injured by mold....................... 5.0% maximum....................... 5.0% maximum.
Mold damaged.......................... 0.4% maximum....................... 0.4% maximum.
Sprout damaged........................ 1.0% maximum....................... 1.0% maximum.
Injured by frost...................... 5.0% maximum....................... 5.0% maximum.
Frost damaged......................... 0.4% maximum....................... 0.4% maximum.
----------------------------------------------------------------------------------------------------------------
(c) Harvested production that does not meet the quality
standards contained in subsection 4(b) of this option, but is
accepted by a buyer for malting purposes.
(d) No reduction in value will be allowed for moisture content;
damage due to uninsured causes; costs or reduced value associated
with drying, handling, processing, or quality factors other than
those contained in subsection (b) of this section; or any other
costs associated with normal handling and marketing of malting
barley. All grade and quality determinations must be based on the
results of objective tests. No indemnity will be paid for any loss
established by subjective tests. We may obtain one or more samples
of the insured crop and have tests performed at an official grain
inspection location established under the Grain Standards Act to
verify the result of any test. In the event of a conflict in the
test results, our results will be used to determine the amount of
production to count. If failure to meet the quality standards is due
to insurable causes, the quantity of such production may be reduced
for quality deficiencies by:
(1) Adding the maximum barley price election under the Small
Grains Crop Provisions and the maximum additional value price;
(2) Dividing this sum into the value per bushel of the damaged
production; and
(3) Multiplying the resulting factor (not to exceed 1.0) by the
number of bushels of damaged production.
5. No claim under this option may be settled until the earlier
of:
(a) The date final disposition of production from all acreage
planted to approved malting barley varieties is completed; or
(b) May 31 of the calendar year immediately following the
calendar year in which the insured malting barley is normally
harvested. Production to count for malting barley that has not been
sold by this May 31 date will include all production that meets the
quality specifications contained in subsection 4(b) of this option.
The limitations specified in subsections 5(a) and (b) will not
apply when all production from the insured malting barley unit
grades U.S. No. 4 or lower in accordance with the grades and grade
requirements for the subclasses Six-rowed barley, Two-rowed barley,
and the class Barley in accordance with the Official United States
Standards for Grain.
6. In the event of loss or damage covered by this policy, we
will settle your claim by:
(a) Multiplying the insured acreage by the malting barley
production guarantee per acre;
(b) Multiplying the result by your elected additional value
price per bushel;
(c) Multiplying the number of bushels of production to count by
your elected additional value price per bushel; and
(d) Subtracting the result of step (c) from the result of step
(b).
7. For example, assume you insure two units of barley under the
Small Grains Crop Provisions in which you have a 100% share and that
are planted to approved malting varieties. Assume that each unit
contains 40 acres. Further assume that your production guarantee
under the Small Grains Crop Provisions is 30 bushels per acre or a
total of 2,400 bushels. Your malting barley unit production
guarantee is limited to 2,100 bushels by subsection 2(b). A loss
causes the total production to count for all units under the Small
Grains Crop Provisions to drop to 1,000 bushels, none of which meet
the quality standards covered by this option. The indemnity for the
malting barley unit would be based on a combined production and
quality loss of 2,100 bushels. The indemnity would be paid at the
additional value price per bushel. If the price were $0.40 per
bushel, the indemnity for the malting barley unit would be $840.00
(2,100 x $0.40). The basic loss is paid under the Small Grains
Crop Provisions for feed barley.
Option B--(for Contracted Production)
This option provides coverage for malting barley production
losses at a price per bushel greater than that available under the
Small Grains Crop Provisions.
1. To be eligible for coverage under this option you must
provide us a copy of your malting barley contract by the acreage
reporting date. Only production or acreage under contract is covered
by this option (B). The contract must be in place and effective
before the acreage reporting date.
2. Your malting barley production guarantee per acre will be the
lesser of:
(a) The production guarantee for feed barley for acreage planted
to approved malting varieties calculated in accordance with the
Small Grains Crop Provisions and APH regulations; or
(b) The number of bushels obtained by:
(1) Dividing the number of bushels of contracted production by
the number of acres planted to approved malting varieties in the
current crop year; and
(2) Multiplying the result by the percentage for the coverage
level you elected for barley covered under the Small Grains Crop
Provisions.
3. The additional value price per bushel will not exceed 200% of
the maximum additional value price shown on the Special Provisions
and will be further limited to:
(a) The difference between the maximum price election available
for feed barley under the Small Grains Crop Provisions and the
established sale price contained in the malting barley contract for
production that meets the quality standards required by such
contract (without regard to discounts or incentives) if the sale
price is a fixed dollar amount established on or before the acreage
reporting date; or
(b) The premium amount per bushel contained in the malting
barley contract for production that meets the quality specifications
required by such contract (without regard to discounts or
incentives) if the sale price is based on a future market price for
feed barley plus a premium amount for malting barley production.
4. The amount of production to count against your malting barley
production guarantee will include all:
(a) Appraised production determined in accordance with
subsection 11(c)(1) (i) and (ii) of the Small Grains Crop
Provisions;
(b) Either harvested production and potential unharvested
production that meets, or would if properly handled meet, the
minimum acceptance standards contained in the malting barley
contract for protein, plump kernels, thin kernels, germination,
blight damage, mold injury or damage, sprout damage, frost injury or
damage, and mycotoxins or other substances or conditions identified
by the Food and Drug Administration or other public health
organization of the United States as being injurious to human or
animal health, or the following quality standards as applicable:
[[Page 63461]]
----------------------------------------------------------------------------------------------------------------
Six-rowed malting barley Two-rowed malting barley
----------------------------------------------------------------------------------------------------------------
Protein (dry basis)................... 14.0% maximum...................... 14.0% maximum.
Plump kernels......................... 65.0% minimum...................... 75.0% minimum.
Thin kernels.......................... 10.0% maximum...................... 10.0% maximum.
Germination........................... 95.0% minimum...................... 95.0% minimum.
Blight damaged........................ 4.0% maximum....................... 4.0% maximum.
Injured by mold....................... 5.0% maximum....................... 5.0% maximum.
Mold damaged.......................... 0.4% maximum....................... 0.4% maximum.
Sprout damaged........................ 1.0% maximum....................... 1.0% maximum.
Injured by frost...................... 5.0% maximum....................... 5.0% maximum.
Frost damaged......................... 0.4% maximum....................... 0.4% maximum.
----------------------------------------------------------------------------------------------------------------
(c) Harvested production that does not meet the minimum
acceptance standards for the factors listed in subsection 4(b) of
this option, but that is accepted by a buyer for malting purposes.
(d) No reduction in value will be allowed for moisture content;
damage due to uninsured causes; costs or reduced value associated
with drying, handling, processing, or quality factors other than
those contained in subsection (b) of this section; or any other
costs associated with normal handling and marketing of malting
barley. All grade and quality determinations must be based on the
results of objective tests. No indemnity will be paid for any loss
established by subjective tests. We may obtain one or more samples
of the insured crop and have tests performed at an official grain
inspection location established under the Grain Standards Act to
verify the result of any test. In the event of a conflict in the
test results, our results will be used to determine the amount of
production to count. If failure to meet the quality standards is due
to insurable causes, the quantity of such production may be reduced
for quality deficiencies by:
(1) Adding the maximum barley price election under the Small
Grains Crop Provisions and the maximum additional value price;
(2) Dividing this sum into the value per bushel of the damaged
production; and
(3) Multiplying the resulting factor (not to exceed 1.0) by the
number of bushels of damaged production.
5. No claim under this option may be settled until the earlier
of :
(a) The date final disposition of production from all acreage
planted to approved malting barley varieties is completed; or
(b) May 31 of the calendar year immediately following the
calendar year in which the insured malting barley is normally
harvested. Production to count for malting barley that has not been
sold by this May 31 date will include all production established in
accordance with subsection 4(b) of this option.
The limitations specified in subsections 5 (a) and (b) will not
apply when all production from the insured malting barley unit
grades U.S. No. 4 or worse in accordance with the grades and grade
requirements for the subclasses Six-rowed barley, Two-rowed barley,
and the class Barley in accordance with the Official United States
Standards for Grain.
6. In the event of loss or damage covered by this policy, we
will settle your claim by:
(a) Multiplying the insured acreage by the malting barley
production guarantee per acre;
(b) Multiplying the result by your elected additional value
price per bushel;
(c) Multiplying the number of bushels of production to count by
your elected additional value price per bushel; and
(d) Subtracting the result of step (c) from the result of step
(b).
7. For example, assume you insure two units of barley under the
Small Grains Crop Provisions in which you have a 100% share and that
are planted to approved malting varieties. Assume that unit contains
40 acres. Further assume that your production guarantee under the
Small Grains Crop Provisions is 30 bushels per acre or a total of
2,400 bushels. Your malting barley unit production guarantee is
limited to 2,100 bushels by subsection 2(b). A loss causes the total
production to count under the basic barley policy to drop to 1,000
bushels, none of which meet the minimum acceptance standards covered
under this option. The indemnity for the malting barley unit would
be based on a combined production and quality loss of 2,100 bushels.
The indemnity would be paid at the additional value price per
bushel. If the price were $0.60 per bushel, the indemnity for the
malting barley unit would be $1,260.00 (2,100 x $0.60). The basic
loss is paid under the Small Grains Crop Provisions for feed barley.
Done in Washington, D.C., on December 5, 1995.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 95-30085 Filed 12-6-95; 4:03 pm]
BILLING CODE 3410-FA-P
Complete official Federal Register PDF
FR Doc. 95-30076 Airworthiness Directives; Fokker Model F28 Mark 0100 Series Airplanes
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63470-63472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30076]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 39
[Docket No. 95-NM-86-AD]
Airworthiness Directives; Fokker Model F28 Mark 0100 Series
Airplanes
AGENCY: Federal Aviation Administration, DOT.
ACTION: Notice of proposed rulemaking (NPRM).
-----------------------------------------------------------------------
SUMMARY: This document proposes the adoption of a new airworthiness
directive (AD) that is applicable to certain Fokker Model F28 Mark 0100
series airplanes. This proposal would require inspection(s) to verify
that the position indicator of the fuel balance transfer valve (FBTV)
is in the closed position, and closing the FBTV, if necessary; and
deactivation of the fuel balance transfer system (FBTS). This proposal
is prompted by a report that, under certain failure conditions, the
actuator of the FBTV could remain in the open position without a flight
deck indication. The actions specified by the proposed AD are intended
to ensure that the FBTV is not in the open position during flight,
which could lead to the reduction of fuel supply to the engines during
cross-feed operation and consequent engine fuel starvation.
DATES: Comments must be received by January 22, 1996.
ADDRESSES: Submit comments in triplicate to the Federal Aviation
Administration (FAA), Transport Airplane Directorate, ANM-103,
Attention: Rules Docket No. 95-NM-86-AD, 1601 Lind Avenue, SW., Renton,
Washington 98055-4056. Comments may be inspected at this location
between 9:00 a.m. and 3:00 p.m., Monday through Friday, except Federal
holidays.
The service information referenced in the proposed rule may be
obtained from Fokker Aircraft USA, Inc., 1199 North Fairfax Street,
Alexandria, Virginia 22314. This information may be examined at the
FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton,
Washington.
FOR FURTHER INFORMATION CONTACT: Tim Dulin, Aerospace Engineer,
Standardization Branch, ANM-113, FAA, Transport Airplane Directorate,
1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone (206)
227-2141; fax (206) 227-1149.
SUPPLEMENTARY INFORMATION:
Comments Invited
Interested persons are invited to participate in the making of the
proposed rule by submitting such written data, views, or arguments as
[[Page 63471]]
they may desire. Communications shall identify the Rules Docket number
and be submitted in triplicate to the address specified above. All
communications received on or before the closing date for comments,
specified above, will be considered before taking action on the
proposed rule. The proposals contained in this notice may be changed in
light of the comments received.
Comments are specifically invited on the overall regulatory,
economic, environmental, and energy aspects of the proposed rule. All
comments submitted will be available, both before and after the closing
date for comments, in the Rules Docket for examination by interested
persons. A report summarizing each FAA-public contact concerned with
the substance of this proposal will be filed in the Rules Docket.
Commenters wishing the FAA to acknowledge receipt of their comments
submitted in response to this notice must submit a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to Docket Number 95-NM-86-AD.'' The postcard will be date stamped and
returned to the commenter.
Availability of NPRMs
Any person may obtain a copy of this NPRM by submitting a request
to the FAA, Transport Airplane Directorate, ANM-103, Attention: Rules
Docket No. 95-NM-86-AD, 1601 Lind Avenue, SW., Renton, Washington
98055-4056.
Discussion
The Rijksluchtvaartdienst (RLD), which is the airworthiness
authority for the Netherlands, recently notified the FAA that an unsafe
condition may exist on certain Fokker Model F28 Mark 0100 series
airplanes. The RLD advises that it has received a report that, under
certain failure conditions, the actuator of the fuel balance transfer
valve (FBTV) could remain in the open position after maintenance
without a flight deck indication. The FBTV is part of the fuel balance
transfer system (FBTS) that prevents inadvertent and uncontrolled
transfer of fuel. The FBTS is used during maintenance activities to
move the center of gravity of the airplane forward, as required, and
allows fuel to be transferred from the main tanks to the center tanks
through the cross-feed system. If the FBTV remains in the open position
during flight, the fuel supply to the engines during cross-feed
operation may be reduced, which could lead to engine fuel starvation.
Fokker has issued Service Bulletin SBF100-28-030, Revision 1, dated
December 5, 1994, which describes procedures for inspection(s) to
verify that the position indicator of the FBTV is in the closed
position, and closing the FBTV, if necessary; and deactivation of the
FBTS. For all airplanes, the deactivation involves disconnecting the
power supply to the FBTV. In addition, for certain airplanes, the
deactivation involves removing the FBTV actuator, and installing a
locking device. The RLD classified this service bulletin as mandatory
and issued Dutch airworthiness directive BLA 94-146 (A), dated
September 30, 1994, in order to assure the continued airworthiness of
these airplanes in the Netherlands.
This airplane model is manufactured in the Netherlands and is type
certificated for operation in the United States under the provisions of
section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and
the applicable bilateral airworthiness agreement. Pursuant to this
bilateral airworthiness agreement, the RLD has kept the FAA informed of
the situation described above. The FAA has examined the findings of the
RLD, reviewed all available information, and determined that AD action
is necessary for products of this type design that are certificated for
operation in the United States.
Since an unsafe condition has been identified that is likely to
exist or develop on other airplanes of the same type design registered
in the United States, the proposed AD would require inspection(s) to
verify that the position indicator of the FBTV is in the closed
position, and closing the FBTV, if necessary; and deactivation of the
FBTS. The actions would be required to be accomplished in accordance
with the service bulletin described previously.
The FAA estimates that 4 airplanes of U.S. registry would be
affected by this proposed AD, that it would take approximately 4 work
hours per airplane to accomplish the proposed actions, and that the
average labor rate is $60 per work hour. Required parts would cost
approximately $250 per airplane. Based on these figures, the cost
impact of the proposed AD on U.S. operators is estimated to be $1,960,
or $490 per airplane.
The cost impact figure discussed above is based on assumptions that
no operator has yet accomplished any of the proposed requirements of
this AD action, and that no operator would accomplish those actions in
the future if this AD were not adopted.
The regulations proposed herein would not have substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, in
accordance with Executive Order 12612, it is determined that this
proposal would not have sufficient federalism implications to warrant
the preparation of a Federalism Assessment.
For the reasons discussed above, I certify that this proposed
regulation (1) is not a ``significant regulatory action'' under
Executive Order 12866; (2) is not a ``significant rule'' under the DOT
Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
and (3) if promulgated, will not have a significant economic impact,
positive or negative, on a substantial number of small entities under
the criteria of the Regulatory Flexibility Act. A copy of the draft
regulatory evaluation prepared for this action is contained in the
Rules Docket. A copy of it may be obtained by contacting the Rules
Docket at the location provided under the caption ADDRESSES.
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation safety, Safety.
The Proposed Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration proposes to amend
part 39 of the Federal Aviation Regulations (14 CFR part 39) as
follows:
PART 39--AIRWORTHINESS DIRECTIVES
1. The authority citation for part 39 continues to read as follows:
Authority: 49 USC 106(g), 40101, 40113, 44701.
Sec. 39.13 [Amended]
2. Section 39.13 is amended by adding the following new
airworthiness directive:
Fokker: Docket 95-NM-86-AD.
Applicability: Model F28 Mark 0100 series airplanes, as listed
in Fokker Service Bulletin SBF100-28-030, Revision 1, dated December
5, 1994; certificated in any category.
Note 1: This AD applies to each airplane identified in the
preceding applicability provision, regardless of whether it has been
modified, altered, or repaired in the area subject to the
requirements of this AD. For airplanes that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must use the authority
provided in paragraph (c) of this AD to request approval from the
FAA. This approval may address either no action, if the current
configuration eliminates the unsafe condition; or different actions
necessary to address the unsafe condition described in this AD. Such
a request should include an
[[Page 63472]]
assessment of the effect of the changed configuration on the unsafe
condition addressed by this AD. In no case does the presence of any
modification, alteration, or repair remove any airplane from the
applicability of this AD.
Compliance: Required as indicated, unless accomplished
previously.
To prevent the reduction of fuel supply to the engines during
cross-feed operation, which could lead to engine fuel starvation,
accomplish the following:
(a) After the effective date of this AD, whenever the fuel
balance transfer system (FBTS) is used during maintenance, prior to
further flight, perform an inspection to verify that the position
indicator of the fuel balance transfer valve (FBTV) is in the closed
position, in accordance with Fokker Service Bulletin SBF100-28-030,
Revision 1, dated December 5, 1994. The inspection requirements of
this paragraph must be accomplished until the deactivation required
by paragraph (b) of this AD is accomplished.
(1) If the position indicator is in the closed position, no
further action is required by this paragraph.
(2) If the position indicator is in the open position, close the
FBTV in accordance with the service bulletin.
(b) Within 90 days after the effective date of this AD,
deactivate the FBTS in accordance with either Part 2 or Part 3 of
the Accomplishment Instructions of Fokker Service Bulletin SBF100-
28-030, Revision 1, dated December 5, 1994, as applicable.
Accomplishment of the deactivation constitutes terminating action
for the repetitive inspection requirements of paragraph (a) of this
AD.
(c) An alternative method of compliance or adjustment of the
compliance time that provides an acceptable level of safety may be
used if approved by the Manager, Standardization Branch, ANM-113,
FAA, Transport Airplane Directorate. Operators shall submit their
requests through an appropriate FAA Principal Maintenance Inspector,
who may add comments and then send it to the Manager,
Standardization Branch, ANM-113.
Note 2: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the Standardization Branch, ANM-113.
(d) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the airplane to a location where
the requirements of this AD can be accomplished.
Issued in Renton, Washington, on December 5, 1995.
Darrell M. Pederson,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 95-30076 Filed 12-8-95; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 95-30075 Airworthiness Directives; Fokker Model F28 Mark 0100 Series Airplanes
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63468-63470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30075]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 39
[Docket No. 95-NM-99-AD]
Airworthiness Directives; Fokker Model F28 Mark 0100 Series
Airplanes
AGENCY: Federal Aviation Administration, DOT.
ACTION: Notice of proposed rulemaking (NPRM).
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SUMMARY: This document proposes the adoption of a new airworthiness
directive (AD) that is applicable to certain Fokker Model F28 Mark 0100
series airplanes. This proposal would require inspections to verify the
correct operation of the main landing gear (MLG) downlock actuators,
and replacement of any discrepant unit with a serviceable unit. The
proposed AD also would require eventual replacement of the MLG downlock
actuators with improved units. This proposal is prompted by reports of
improper operation of the MLG downlock actuator due to jamming. The
actions specified by the proposed AD are intended to prevent such
jamming of the downlock actuator, which could result in failure of the
MLG downlock system, and a potential gear-up landing.
DATES: Comments must be received by January 22, 1996.
ADDRESSES: Submit comments in triplicate to the Federal Aviation
Administration (FAA), Transport Airplane Directorate, ANM-103,
Attention: Rules Docket No. 95-NM-99-AD, 1601 Lind Avenue, SW., Renton,
Washington 98055-4056. Comments may be inspected at this location
between 9:00 a.m. and 3:00 p.m., Monday through Friday, except Federal
holidays. -
The service information referenced in the proposed rule may be
obtained from Fokker Aircraft USA, Inc., 1199 North Fairfax Street,
Alexandria, Virginia 22314, and Dowty Aerospace, Customer Support
Center, P.O. Box 49, Sterling, VA 20166. This information may be
examined at the FAA, Transport Airplane Directorate, 1601 Lind Avenue,
SW., Renton, Washington.
FOR FURTHER INFORMATION CONTACT: Tim Dulin, Aerospace Engineer,
Standardization Branch, ANM-113, FAA, Transport Airplane Directorate,
1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone (206)
227-2141; fax (206) 227-1320.
SUPPLEMENTARY INFORMATION:
Comments Invited -
Interested persons are invited to participate in the making of the
proposed rule by submitting such
[[Page 63469]]
written data, views, or arguments as they may desire. Communications
shall identify the Rules Docket number and be submitted in triplicate
to the address specified above. All communications received on or
before the closing date for comments, specified above, will be
considered before taking action on the proposed rule. The proposals
contained in this notice may be changed in light of the comments
received.
Comments are specifically invited on the overall regulatory,
economic, environmental, and energy aspects of the proposed rule. All
comments submitted will be available, both before and after the closing
date for comments, in the Rules Docket for examination by interested
persons. A report summarizing each FAA-public contact concerned with
the substance of this proposal will be filed in the Rules Docket.
Commenters wishing the FAA to acknowledge receipt of their comments
submitted in response to this notice must submit a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to Docket Number 95-NM-99-AD.'' The postcard will be date stamped and
returned to the commenter.
Availability of NPRMs
Any person may obtain a copy of this NPRM by submitting a request
to the FAA, Transport Airplane Directorate, ANM-103, Attention: Rules
Docket No. 95-NM-99-AD, 1601 Lind Avenue, SW., Renton, Washington
98055-4056.
Discussion
The Rijksluchtvaartdienst (RLD), which is the airworthiness
authority for the Netherlands, recently notified the FAA that an unsafe
condition may exist on certain Fokker Model F28 Mark 0100 series
airplanes. The RLD advises that several operators of these airplanes
have reported that landing gear ``unsafe'' warning indications have
appeared on the multi-function display unit (MFDU) after the flight
crew selected the landing gear to the down position. In most cases,
recycling the landing gear resulted in a positive downlock indication.
Investigation revealed that the main landing gear (MLG) downlock
actuator (jack and springpot unit) did not operate properly. Further
investigation revealed that the tip of a spring carrier broke due to a
malformed piston rod and a spring that was not square, which caused the
spring carrier to move at an angle. A jammed actuator could result in
failure of the MLG downlock system. This condition, if not corrected,
could result in a gear-up landing.
Fokker has issued Service Bulletin SBF100-32-072, dated March 30,
1993, which describes procedures for repetitive inspections to verify
the correct operation of any MLG downlock actuator having part number
(P/N) 201218001, 201218002, 201218003, or 201218004, and replacement of
discrepant units with serviceable units. The Fokker service bulletin
references Dowty Aerospace Hydraulics Service Bulletin F100-32-505,
Revision 1, dated April 16, 1993. The Dowty Aerospace Hydraulics
service bulletin contains additional procedures for accomplishment of
the inspection. For airplanes on which the MLG downlock actuator
operates correctly, the Dowty Aerospace Hydraulics service bulletin
also specifies procedures for recording the accomplishment of each
inspection on the unit nameplate.
Fokker also has issued Service Bulletin SBF100-32-074, dated July
21, 1993, which describes procedures for replacement of any MLG
downlock actuator having P/N 201218001, 201218002, 201218003, or
201218004 with an improved unit having P/N 201218005, 201218006,
201218007, or 201218008, respectively. The improved units have improved
jack and springpot units with modified spring carriers and spring
actuators, as well as a new end fitting subassembly and nut. The Fokker
service bulletin references Dowty Aerospace Hydraulics Service Bulletin
F100-32-506, dated June 9, 1993, as an additional source of service
information.
The RLD classified these service bulletins as mandatory and issued
Netherlands airworthiness directive BLA 93-052/2 (A), dated September
10, 1993, in order to assure the continued airworthiness of these
airplanes in the Netherlands.
This airplane model is manufactured in the Netherlands and is type
certificated for operation in the United States under the provisions of
section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and
the applicable bilateral airworthiness agreement. Pursuant to this
bilateral airworthiness agreement, the RLD has kept the FAA informed of
the situation described above. The FAA has examined the findings of the
RLD, reviewed all available information, and determined that AD action
is necessary for products of this type design that are certificated for
operation in the United States.
Since an unsafe condition has been identified that is likely to
exist or develop on other airplanes of the same type design registered
in the United States, the proposed AD would require repetitive
inspections to verify the correct operation of the MLG downlock
actuators; and replacement of any discrepant unit with a serviceable
unit. For airplanes on which no discrepant unit is found, the proposed
AD also would require recording the accomplishment of each inspection
on the unit nameplate. In addition, the proposed AD would require
eventual replacement of the MLG downlock actuators with improved units.
The actions would be required to be accomplished in accordance with the
service bulletins described previously.
The FAA estimates that 119 airplanes of U.S. registry would be
affected by this proposed AD, that it would take approximately 21 work
hours per airplane to accomplish the proposed actions, at an average
labor rate of $60 per work hour. Required parts would be supplied by
the vendor at no cost to operators. Based on these figures, the cost
impact of the proposed AD on U.S. operators is estimated to be
$149,940, or $1,260 per airplane.
The cost impact figure discussed above is based on assumptions that
no operator has yet accomplished any of the proposed requirements of
this AD action, and that no operator would accomplish those actions in
the future if this AD were not adopted.
The regulations proposed herein would not have substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, in
accordance with Executive Order 12612, it is determined that this
proposal would not have sufficient federalism implications to warrant
the preparation of a Federalism Assessment.
For the reasons discussed above, I certify that this proposed
regulation (1) is not a ``significant regulatory action'' under
Executive Order 12866; (2) is not a ``significant rule'' under the DOT
Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
and (3) if promulgated, will not have a significant economic impact,
positive or negative, on a substantial number of small entities under
the criteria of the Regulatory Flexibility Act. A copy of the draft
regulatory evaluation prepared for this action is contained in the
Rules Docket. A copy of it may be obtained by contacting the Rules
Docket at the location provided under the caption ADDRESSES.
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation safety, Safety.
[[Page 63470]]
The Proposed Amendment -
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration proposes to amend
part 39 of the Federal Aviation Regulations (14 CFR part 39) as
follows:
PART 39--AIRWORTHINESS DIRECTIVES -
1. The authority citation for part 39 continues to read as follows:
Authority: 49 USC 106(g), 40101, 40113, 44701.
Sec. 39.13 [Amended] -
2. Section 39.13 is amended by adding the following new
airworthiness directive:
Fokker: Docket 95-NM-99-AD.
-Applicability: Model F28 Mark 0100 series airplanes equipped
with Dowty Aerospace Hydraulics main landing gear (MLG) downlock
actuators having part number (P/N) 201218001, 201218002, 201218003,
or 201218004, all serial numbers; certificated in any category.
-Note 1: This AD applies to each airplane identified in the
preceding applicability provision, regardless of whether it has been
modified, altered, or repaired in the area subject to the
requirements of this AD. For airplanes that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must use the authority
provided in paragraph (d) of this AD to request approval from the
FAA. This approval may address either no action, if the current
configuration eliminates the unsafe condition; or different actions
necessary to address the unsafe condition described in this AD. Such
a request should include an assessment of the effect of the changed
configuration on the unsafe condition addressed by this AD. In no
case does the presence of any modification, alteration, or repair
remove any airplane from the applicability of this AD. -
Compliance: Required as indicated, unless accomplished
previously. -
To prevent jamming of the MLG downlock actuator and a potential
gear-up landing, accomplish the following: -
(a) Within 2 months after the effective date of this AD, and
thereafter at intervals not to exceed 1,250 landings: Perform an
inspection to verify correct operation of the MLG downlock actuator
having P/N 201218001, 201218002, 201218003, or 201218004, all serial
numbers, in accordance with Fokker Service Bulletin SBF100-32-072,
dated March 30, 1993, and Dowty Aerospace Hydraulics Service
Bulletin F100-32-505, Revision 1, dated April 16, 1993. -
(1) If the MLG downlock actuator operates as specified in the
inspection procedure contained in the Accomplishment Instructions of
Dowty Aerospace Hydraulics Service Bulletin F100-32-505, Revision 1,
dated April 16, 1993, prior to further flight, record the
accomplishment of the inspection on the unit nameplate in accordance
with the Dowty Aerospace Hydraulics service bulletin. Following
accomplishment of each subsequent inspection required by this AD,
record the accomplishment of the inspection in accordance with the
requirement of this paragraph. -
(2) If any MLG downlock actuator does not operate as specified
in the inspection procedure contained in the Accomplishment
Instructions of Dowty Aerospace Hydraulics Service Bulletin F100-32-
505, Revision 1, dated April 16, 1993, prior to further flight,
replace the downlock actuator with a serviceable unit, in accordance
with Chapter 32-32-05 of the Aircraft Maintenance Manual.
Thereafter, perform repetitive inspections of the replacement unit
in accordance with paragraph (a) of this AD until the replacement
required by paragraph (b) of this AD is accomplished. -
(b) Within 9 months after the effective date of this AD, replace
any MLG downlock actuator having P/N 201218001, 201218002,
201218003, or 201218004, any serial number, with an improved unit
having P/N 201218005, 201218006, 201218007, or 201218008,
respectively; in accordance with Fokker Service Bulletin SBF100-32-
074, dated July 21, 1993, and Dowty Aerospace Hydraulics Service
Bulletin F100-32-506, dated June 9, 1993. Accomplishment of this
replacement constitutes terminating action for the repetitive
inspections required by paragraph (a) of this AD. -
(c) As of the effective date of this AD, no person shall install
on any airplane a MLG downlock actuator having P/N 201218001,
201218002, 201218003, or 201218004, any serial number. -
(d) An alternative method of compliance or adjustment of the
compliance time that provides an acceptable level of safety may be
used if approved by the Manager, Standardization Branch, ANM-113,
FAA, Transport Airplane Directorate. Operators shall submit their
requests through an appropriate FAA Principal Maintenance Inspector,
who may add comments and then send it to the Manager,
Standardization Branch, ANM-113. -
Note 2: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the Standardization Branch, ANM-113.
-(e) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the airplane to a location where
the requirements of this AD can be accomplished.
Issued in Renton, Washington, on December 5, 1995.
Darrell M. Pederson,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 95-30075 Filed 12-8-95; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 95-30074 Airworthiness Directives; Boeing Model 747 Series Airplanes
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63465-63468]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30074]
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. 94-NM-226-AD]
Airworthiness Directives; Boeing Model 747 Series Airplanes
AGENCY: Federal Aviation Administration, DOT.
ACTION: Supplemental notice of proposed rulemaking; reopening of
comment period.
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SUMMARY: This document revises an earlier proposed airworthiness
directive (AD), applicable to certain Boeing Model 747 series
airplanes, that would have required modification of the left and right
inboard elevator servo assemblies and the hydraulic routing of the
right inboard elevator power control package (PCP). That proposal was
prompted by a report of an uncommanded right elevator deflection after
takeoff and reports of elevator/control column bumps during landing
gear retraction on these airplanes. This action revises the proposed
rule by revising the applicability of the proposed AD to add additional
airplanes and additional part numbers of the elevator PCP's, and by
including additional service information. The actions specified by this
proposed AD are intended to prevent uncommanded elevator deflection,
which could result in structural damage and reduced controllability of
the airplane.
DATES: Comments must be received by January 5, 1996.
ADDRESSES: Submit comments in triplicate to the Federal Aviation
Administration (FAA), Transport Airplane Directorate, ANM-103,
Attention: Rules Docket No. 94-NM-226-AD, 1601 Lind Avenue, SW.,
Renton, Washington 98055-4056. Comments may be inspected at this
location between 9:00 a.m. and 3:00 p.m., Monday through Friday, except
Federal holidays.
The service information referenced in the proposed rule may be
obtained from Boeing Commercial Airplane Group, P.O. Box 3707, Seattle,
Washington 98124-2207; and Parker Hannifin Corporation, Customer
Support Operations, 16666 Von Karman Avenue, Irvine, California 92714.
This information may be examined at the FAA, Transport Airplane
Directorate, 1601 Lind Avenue, SW., Renton, Washington.
FOR FURTHER INFORMATION CONTACT: Kathi N. Ishimaru, Aerospace Engineer,
[[Page 63466]]
Systems and Equipment Branch, ANM-130S, FAA, Transport Airplane
Directorate, Seattle Aircraft Certification Office, 1601 Lind Avenue,
SW., Renton, Washington 98055-4056; telephone (206) 227-2674; fax (206)
227-1181.
SUPPLEMENTARY INFORMATION:
Comments Invited
Interested persons are invited to participate in the making of the
proposed rule by submitting such written data, views, or arguments as
they may desire. Communications shall identify the Rules Docket number
and be submitted in triplicate to the address specified above. All
communications received on or before the closing date for comments,
specified above, will be considered before taking action on the
proposed rule. The proposals contained in this notice may be changed in
light of the comments received.
Comments are specifically invited on the overall regulatory,
economic, environmental, and energy aspects of the proposed rule. All
comments submitted will be available, both before and after the closing
date for comments, in the Rules Docket for examination by interested
persons. A report summarizing each FAA-public contact concerned with
the substance of this proposal will be filed in the Rules Docket.
Commenters wishing the FAA to acknowledge receipt of their comments
submitted in response to this notice must submit a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to Docket Number 94-NM-226-AD.'' The postcard will be date stamped and
returned to the commenter.
Availability of NPRMs
Any person may obtain a copy of this NPRM by submitting a request
to the FAA, Transport Airplane Directorate, ANM-103, Attention: Rules
Docket No. 94-NM-226-AD, 1601 Lind Avenue, SW., Renton, Washington
98055-4056.
Discussion
A proposal to amend part 39 of the Federal Aviation Regulations (14
CFR part 39) to add an airworthiness directive (AD), applicable to
certain Boeing Model 747 series airplanes, was published as a notice of
proposed rulemaking (NPRM) in the Federal Register on March 3, 1995 (60
FR 11942). That NPRM would have required modification of the left and
right inboard elevator servo assemblies and re-routing the hydraulic
tubing of the inboard elevator power control package (PCP). That NPRM
was prompted by a report of an uncommanded right elevator deflection
after takeoff and reports of elevator/control column bumps during
landing gear retraction on these airplanes. That condition, if not
corrected, could result in structural damage and reduced
controllability of the airplane.
Due consideration has been given to the comments received in
response to the NPRM.
One commenter requests that paragraph (a) of the proposal be
revised to cite the latest revision of Boeing Alert Service Bulletin
747-27A2348 when referring to the applicability of that paragraph. This
commenter states that Revision 1 of the service bulletin includes
additional airplanes that are also subject to the proposed AD. The FAA
concurs. The FAA inadvertently cited the original version, dated
November 17, 1994, of Boeing Alert Service Bulletin 747-27A2348 in
paragraph (a) of the proposal when referring to the applicable
airplanes for that paragraph. Since that revision level is incorrect,
the FAA has removed it and referenced Revision 1, dated January 26,
1995, in its place in paragraph (a) of the supplemental NPRM.
One commenter states that Model 747SP series airplanes should be
subject to paragraph (b) of the proposal. The FAA acknowledges that
Model 747SP series airplanes were inadvertently omitted from the
applicability of the proposal. The FAA's intent was that the proposed
rule be applicable to all Model 747 series airplanes (i.e., Model 747-
100, -200B, -200F, -200C, 747SR, 747SP, 747-100B, -300, -100B SUD, -
400, -400D, and -400F series airplanes). Therefore, the FAA has revised
the applicability statement of the supplemental NPRM accordingly.
Since these changes expand the scope of the originally proposed
rule, the FAA has determined that it is necessary to reopen the comment
period to provide additional opportunity for public comment.
In addition, due consideration has been given to the following
additional comments, which do not change the scope of the originally
proposed rule, received in response to the NPRM.
Three commenters request that the compliance time for paragraph (a)
of the proposal be extended from the proposed 1 year. One of these
commenters states that such an extension will allow operators to
accomplish the modification during a regularly scheduled heavy
maintenance visit. The FAA does not concur. In developing an
appropriate compliance time for this action, the FAA considered not
only the degree of urgency associated with addressing the subject
unsafe condition, but the availability of required parts and the
practical aspects of installing the required modification within an
interval of time that parallels normal scheduled maintenance for the
majority of affected operators. The manufacturer has advised that an
ample number of required parts should be available for modification of
the U.S. fleet within the proposed compliance period. Further, the FAA
has determined that a heavy maintenance visit is not required to
accomplish the modification.
Several commenters state that paragraph (b) of the proposed rule is
unjustified because there have been no reports of actuator jamming on
the classic Model 747 (747-100, -100B SUD, -200, -300, SR, SP) series
airplanes after accumulating 87 million flight hours. One of these
commenters states that the safety concern surrounding the configuration
of the servo valve assembly of the inboard elevator PCP is theoretical
at best.
The FAA does not concur with the commenters' suggestion that
paragraph (b) of the proposed rule is unjustified. The FAA finds that
the lack of reported jams and subsequent uncommanded elevator motion
may be attributed, in part, to the small percentage of airplanes that
recorded the elevator position while accumulating the 87 million flight
hours. Paragraph (c)(10) of section 121.343, ``Flight recorders'', of
the Federal Aviation Regulations (FAR) (14 CFR 121.343) requires that
operators record either the control column or pitch control surface
position (i.e., the position of the elevator and the stabilizer) of the
airplane. Operators may comply with section 121.343 by electing to
record the control column position, which is not a positive indicator
of the elevator position. Consequently, incidents of uncommanded
elevator motion due to actuator jamming may have occurred, but were not
reported due to the flightcrew's inability to confirm the anomaly.
Furthermore, the FAA finds that uncommanded elevator motion may occur
on all Boeing Model 747 series airplanes if the servo valve secondary
slide moves to the valve's internal stop. Therefore, the FAA finds that
this AD action is warranted since an unsafe condition exists, which is
identified as reduced controllability or structural damage to the
airplane due to asymmetric elevator.
One commenter states that only Model 747-400 series airplanes have
experienced actuator jamming with uncommanded elevator deflection. The
commenter also states that the uncommanded elevator deflection problem
has been directly attributed to
[[Page 63467]]
the fact that Model 747-400 series airplanes have the hydraulic system
number 4 connected to the pressure sensitive side of the servo valve of
the right inboard elevator PCP. The commenter contends that rerouting
the hydraulic tubing, as required by paragraph (a) of the proposal
(which references Boeing Alert Service Bulletin 747-27A2348, Revision
1, dated January 26, 1995, as the appropriate source of service
information) will alleviate this problem. The commenter notes that
Model 747-100, -200, -300, and SP series airplanes, which do not have
the hydraulic system number 4 connected to the pressure sensitive side
of the servo valve of the right inboard elevator PCP, have not
experienced the uncommanded elevator deflection problem.
From this comment, the FAA infers that the commenter is requesting
that paragraph (b) of the proposal be deleted. The FAA does not concur.
The FAA has reviewed the pressure survey data for the number 3 and
number 4 systems that was submitted by another commenter. The FAA finds
that pressure fluctuations, which contribute to uncommanded elevator
deflection, occur in hydraulic system number 3, as well as hydraulic
system number 4. Therefore, the FAA finds that these data do not
substantiate the commenter's suggestion that routing the hydraulic
system number 3 to the sensitive side of the servo valve would preclude
uncommanded elevator deflection.
One commenter states that paragraph (b) of the proposal, which is
applicable to certain Model 747-100, -200, -300, and -400 series
airplanes, references Parker Service Bulletin 327400-27-171 as the
appropriate source of service information. The commenter further states
that this service bulletin is not applicable to certain Model 747-100,
-100B SUD, -200, -300, SR, and SP series airplanes, since the elevator
power control packages specified in Parker Service Bulletin 327400-27-
171 are not installed on these airplanes. The FAA's intent was to
reference a service bulletin that addressed a modification for all
affected airplane models. The FAA has reviewed and approved Parker
Service Bulletin 93600-27-173, dated May 17, 1995. The modification
procedures described in this service bulletin are identical to those
described in Parker Service Bulletin 327400-27-171. The effectivity
listing of Parker Service Bulletin 93600-27-173 contains elevator PCP's
having part numbers
(P/N) 93600-5005 through -5051 inclusive, which are installed on
certain Model 747-100, -100B SUD, -200, -300, SR, and SP series
airplanes. The FAA has revised the applicability statement of the
supplemental NPRM to include these additional P/N's. Additionally, the
FAA has revised paragraph (b) of the supplemental NPRM to include this
service bulletin as an additional source of service information.
One commenter requests that applicability of paragraph (b) of the
proposal be limited to Model 747-100, -100B SUD, -200, -300, SR, and SP
series airplanes (``classic'') having cumulative line (C/L) 696 and
subsequent and that the compliance time be extended from 3 years to 5
years for those airplanes. The commenter contends that the aft fuselage
limit load can be exceeded if the residual pressure at the actuator
pistons exceeds 800 pounds per square inch (psi)/cylinder. The
commenter further contends that the probability of exceeding this is
less than 1 x 10e-5. This pressure assumes the valve jammed at the
most adverse position achievable from pilot inputs. The commenter
states that the aft fuselage limit load can be exceeded for classic
airplanes having C/L 001 through 695 inclusive, if the residual
pressure at the actuator pistons exceeds 1,700 psi/cylinder. The
commenter also states that the probability of exceeding the structural
limit is less than 1 x 10e-9.
The FAA does not concur with the commenter's request to limit the
applicability and extend the compliance time of paragraph (b) of the
proposal. Following a review of the commenter's probability analysis,
the FAA has determined that the commenter has based its analysis on a
sampling that was much too small from which accurate statistical
conclusions that would be representative of the fleet could be drawn.
Further, the FAA finds that the flow rate and differential pressures
used by this commenter were not substantiated to be the worst case
scenario. Therefore, based on this flawed probability analysis, no
change to the supplemental NPRM is warranted.
One commenter requests that Boeing Model 747-400 series airplanes
be removed from the applicability of paragraph (b) of the proposal. The
commenter states that if the valve jams, the resultant asymmetric
elevator will not result in structural damage on these airplanes. The
FAA does not concur. The FAA has determined that, although the
asymmetric elevator may not damage Model 747-400 series airplanes, an
unsafe condition (i.e., reduced controllability) still exists.
Two commenters request that the compliance time for paragraph (b)
of the proposal be extended from the proposed 3 years to 5 years. One
commenter states that it does not have enough seed units to accomplish
the modification at their own facilities within the proposed compliance
time. The FAA does not concur. As stated above, the FAA considered the
availability of required parts and the practical aspects of installing
the required modification. In addition, the FAA finds that other
maintenance facilities are available to operators that are unable to
accomplish the modification at their own facilities. However, under
paragraph (c) of the proposed rule, the FAA may approve requests for
adjustments to the compliance time if data are submitted to
substantiate that such an adjustment would provide an acceptable level
of safety.
One commenter questions the FAA's estimate of the cost of required
replacement parts for classic Model 747 series airplanes. The commenter
states that the $3,720 per airplane figure, presented in the cost
impact information in the preamble to the notice, is too low. This
commenter suggests that parts costs will be approximately $7,440 per
airplane (2 elevator power control packages at $3,720 each). After
considering the data presented by the commenter, the FAA concurs that
the cost of required parts per airplane is higher than previously
estimated; the economic impact information, below, has been revised to
indicate this higher amount.
There are approximately 672 Model 747-100, -100B SUD, -200, -300,
SR, and SP series airplanes, and 357 Model 747-400 series airplanes of
the affected design in the worldwide fleet, a total of 1,029 airplanes.
The FAA estimates that 114 Model 747-100, -100B SUD, -200, -300,
SR, and SP series airplanes of U.S. registry would be affected by this
proposed AD, that it would take approximately 73 work hours per
airplane to accomplish the proposed actions, and that the average labor
rate is $60 per work hour. Required parts would cost approximately
$7,440 per airplane. Based on these figures, the cost impact of the
proposed AD on U.S. operators is estimated to be $1,347,480, or $11,820
per airplane.
The FAA estimates that 65 Model 747-400 series airplanes of U.S.
registry would be affected by this proposed AD, that it would take
approximately 111 work hours per airplane to accomplish the proposed
actions, and that the average labor rate is $60 per work hour. Required
parts would cost approximately $12,269 per airplane. Based on these
figures, the cost impact
[[Page 63468]]
of the proposed AD on U.S. operators is estimated to be $1,230,385, or
$18,929 per airplane.
The cost impact figure discussed above is based on assumptions that
no operator has yet accomplished any of the proposed requirements of
this AD action, and that no operator would accomplish those actions in
the future if this AD were not adopted.
The regulations proposed herein would not have substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, in
accordance with Executive Order 12612, it is determined that this
proposal would not have sufficient federalism implications to warrant
the preparation of a Federalism Assessment.
For the reasons discussed above, I certify that this proposed
regulation (1) is not a ``significant regulatory action'' under
Executive Order 12866; (2) is not a ``significant rule'' under the DOT
Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
and (3) if promulgated, will not have a significant economic impact,
positive or negative, on a substantial number of small entities under
the criteria of the Regulatory Flexibility Act. A copy of the draft
regulatory evaluation prepared for this action is contained in the
Rules Docket. A copy of it may be obtained by contacting the Rules
Docket at the location provided under the caption ADDRESSES.
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation safety, Safety.
The Proposed Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration proposes to amend
part 39 of the Federal Aviation Regulations (14 CFR part 39) as
follows:
PART 39--AIRWORTHINESS DIRECTIVES
1. The authority citation for part 39 continues to read as follows:
Authority: 49 USC 106(g), 40101, 40113, 44701.
Sec. 39.13 [Amended]
2. Section 39.13 is amended by adding the following new
airworthiness directive:
Boeing: Docket 94-NM-226-AD.
Applicability: Model 747 series airplanes, equipped with Parker
inboard elevator power control packages (PCP) having part numbers
(P/N) 93600-5005 through -5051 inclusive, or P/N's 327400-1001, -
1003, -1005, and -1007; certificated in any category.
Note 1: This AD applies to each airplane identified in the
preceding applicability provision, regardless of whether it has been
modified, altered, or repaired in the area subject to the
requirements of this AD. For airplanes that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must use the authority
provided in paragraph (c) of this AD to request approval from the
FAA. This approval may address either no action, if the current
configuration eliminates the unsafe condition; or different actions
necessary to address the unsafe condition described in this AD. Such
a request should include an assessment of the effect of the changed
configuration on the unsafe condition addressed by this AD. In no
case does the presence of any modification, alteration, or repair
remove any airplane from the applicability of this AD.
Compliance: Required as indicated, unless accomplished
previously.
To prevent uncommanded elevator deflection, which could result
in structural damage and reduced controllability of the airplane,
accomplish the following:
(a) For Model 747-400 series airplanes, as listed in Boeing
Alert Service Bulletin 747-27A2348, Revision 1, dated January 26,
1995: Within 1 year after the effective date of this AD, modify the
hydraulic tubing of the right inboard elevator PCP, in accordance
with Boeing Alert Service Bulletin 747-27A2348, Revision 1, dated
January 26, 1995.
(b) For all airplanes: Within 3 years after the effective date
of this AD, modify the left and right servo assemblies of the
inboard elevator PCP, in accordance with Parker Service Bulletin
327400-27-171, Revision 1, dated April 14, 1995, or Parker Service
Bulletin 93600-27-173, dated May 17, 1995, as applicable.
(c) An alternative method of compliance or adjustment of the
compliance time that provides an acceptable level of safety may be
used if approved by the Manager, Seattle Aircraft Certification
Office (ACO), FAA, Transport Airplane Directorate. Operators shall
submit their requests through an appropriate FAA Principal
Maintenance Inspector, who may add comments and then send it to the
Manager, Seattle ACO.
Note 2: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the Seattle ACO.
(d) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the airplane to a location where
the requirements of this AD can be accomplished.
Issued in Renton, Washington, on December 5, 1995.
Darrell M. Pederson,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 95-30074 Filed 12-8-95; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 95-30062 Gas Pipeline Facilities and Services on the Outer Continental ShelfIssues Related to the Commission's Jurisdiction Under the Natural Gas Act and the Outer Continental Shelf Lands Act
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63476-63478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30062]
=======================================================================
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Chapter I
[Docket No. RM96-5-000]
Gas Pipeline Facilities and Services on the Outer Continental
Shelf--Issues Related to the Commission's Jurisdiction Under the
Natural Gas Act and the Outer Continental Shelf Lands Act
November 29, 1995.
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Proposed rule; notice of inquiry.
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SUMMARY: The Federal Energy Regulatory Commission is initiating an
inquiry into the Commission's policy respecting the application of its
jurisdiction under the Natural Gas Act and the Outer Continental Shelf
Lands Act over natural gas facilities and services on the Outer
Continental Shelf (OCS). The notice of inquiry is intended to receive
information respecting the structure and operation of natural gas
gathering and transportation on the OCS and the effects of the
Commission's current policy. The notice of inquiry solicits comments on
the legal and policy issues to be considered, in either maintaining or
departing from the Commission's present policy, the operational
considerations pertaining to OCS exploration and development
activities, and pipeline systems that the Commission should take into
account in its review of its current policy. The notice of inquiry
invites all interested persons to participate in the inquiry and to
submit answers to several specific questions.
DATES: Written comments must be received on or before January 12, 1996;
an original and 14 copies should be filed.
ADDRESSES: All comments should refer to Docket No. RM96-5-000 and
should be addressed to: Office of the Secretary, Federal Energy
Regulatory Commission, 888 First Street, N.E., Washington, DC 20426.
FOR FURTHER INFORMATION CONTACT:
Robert Wolfe, Office of the General Counsel, 888 First Street, NE.,
Washington, DC 20426, (202) 208-2098.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Federal Energy Regulatory Commission is initiating an inquiry
into the Commission's policy respecting the application of its
jurisdiction under the Natural Gas Act (NGA) and the Outer Continental
Shelf Lands Act (OCSLA) over natural gas facilities and services on the
Outer Continental Shelf (OCS).
The Commission is initiating this Notice of Inquiry (NOI) to
examine the structure and operation of natural gas gathering and
transportation on the OCS and the effects of the Commission's current
policy. The NOI will also seek information on the legal and policy
issues to be considered, in either maintaining or departing from the
Commission's present policy, the operational considerations pertaining
to OCS exploration and development activities, and pipeline systems
that the Commission should take into account in its review of its
current policy.
II. Background
The Commission's current policy respecting the jurisdictional
status of gas pipelines and services on the OCS presents a number of
issues concerning the status, scope, and effects of the Commission's
regulation of gathering and transportation on the OCS. The Commission
has determined that it should undertake a review of these issues.
Increases in successful offshore exploration and development
activities, particularly in the Gulf of Mexico, have heightened the
significance of these jurisdictional issues. Recently, several
companies have either filed requests for, or have indicated their
intent to request, exempt gathering status for offshore pipeline
systems that each is eager to construct to bring gas onshore from
significant newly developed deep water reserves in the Gulf. There are
also pending requests for declaratory orders concerning existing
certificated offshore systems.
There are 18 existing interstate pipelines on the Outer Continental
Shelf (OCS) in the Gulf of Mexico that are presently subject to the
Commission's regulation under the NGA. There are also numerous
facilities that are not under NGA jurisdiction. These are principally
producer-owned facilities. It is noteworthy that an estimated 27% of
the lower 48 State's total dry gas production comes from the Gulf of
Mexico OCS.\1\
\1\ See, Natural Gas Production for the Lower 48 States 1982
through 1993, Energy Information Agency, March 1993.
---------------------------------------------------------------------------
The various OCS pipeline system proposals and Sea Robin Pipeline
Company's request for rehearing of the Commission's June 16, 1995 order
in Docket No. CP95-168-000 \2\ have prompted reexamination of the
[[Page 63477]]
Commission's approach to regulating OCS facilities. Given the
continuing importance of the OCS as a source of natural gas, a
principal aim of the Commission is to develop regulatory policies that
do not impede or distort developmental activities on the OCS.
\2\ 71 FERC para. 61,351 (1995).
---------------------------------------------------------------------------
III. The Statutory Framework
A. The Natural Gas Act (NGA)
The basic purpose of Congress in enacting the NGA was to ``occupy
the field'' \3\ of the regulation of natural gas moving in interstate
commerce by the primary grant of jurisdiction to the Commission over
those aspects of such regulation over which the states may not act.\4\
To that end, Congress meant to create a comprehensive regulatory scheme
of dual state and federal authority.\5\ Section 1(b) of the NGA
embodies the primary grant of jurisdiction to the Commission. At the
same time, section 1(b) exempts from the Act's coverage ``the
production or gathering of natural gas.'' Thus, section 1(b) first
grants to the Commission broad plenary authority to regulate the
business of transporting and of wholesaling natural gas moving in
interstate commerce. Secondly, section 1(b), by operation of the
``production and gathering'' exemption, removes from that plenary grant
of federal jurisdiction those aspects of natural gas regulation which
are the proper subject of state regulation.\6\
\3\ See Schneidwind v. ANR Pipeline Co., 485 U.S. 293, 310-311
(1988).
\4\ Interstate Natural Gas Co. v. FPC, 331 U.S. 682 (1947).
\5\ FPC v. Louisiana Power & Light Co., 406 U.S. 621 (1972).
\6\ See, e.g., Phillips Petroleum Co. v. Wisconsin, 347 U.S.
672, 682-84 (1954); Interstate Natural Gas Co. v. FPC, supra at 690.
---------------------------------------------------------------------------
B. The Outer Continental Shelf Lands Act (OCSLA)
Additional sources of regulatory authority over OCS pipeline
facilities and activities are sections 5(e), and 5(f)(1), of the
OCSLA.\7\ Generally, sections 5(e) and 5(f)(1) of the OCSLA give the
Commission certain responsibilities and authorizations to ensure that
natural gas pipelines on the OCS transport for non-owner shippers in a
nondiscriminatory manner and operate in accordance with certain
competitive principles.
\7\ 43 U.S.C. Sec. 1334(e), (f)(1).
---------------------------------------------------------------------------
Section 5(e) of the OCSLA requires pipelines to transport natural
gas produced from the OCS ``without discrimination'' and in such
``proportionate amounts'' as the Commission, in consultation with the
Secretary of Energy, determines to be reasonable. In addition, section
5(f)(1) of the OCSLA requires pipelines transporting gas on or across
the OCS to adhere to certain ``competitive principles''. These
``competitive principles'' include a requirement that the pipeline must
provide ``open and nondiscriminatory access to both owner and nonowner
shippers.''
The applicability of the provisions of sections 5(e) and 5(f)(1) is
not restricted to interstate pipelines that are subject to the
Commission's NGA jurisdiction. The only pipelines that may be exempt
from the Commission's authority under the OCSLA are certain ``feeder
lines,'' which are defined in section 5(f)(2) of the OCSLA \8\ as a
pipeline that feeds into a facility where oil and gas are ``first
collected'' or a facility where oil and gas are ``first separated,
dehydrated, or otherwise processed.'' These ``feeder lines'' may only
be exempted from the requirements of the OCSLA by order of the
Commission.
\8\ 43 U.S.C. Sec. 1334(f)(2).
---------------------------------------------------------------------------
IV. The Commission's Current Policy
In 1989, in response to the court's decision in EP Operating v.
FERC (EP Operating),\9\ which reversed a Commission determination that
a 51-mile long, 16-inch diameter OCS pipeline was a jurisdictional
transportation facility, the Commission set upon a review of its
``gathering policy.'' The purpose of that review was to assess the
impact of EP Operating as well as the continuing viability and
relevance of the ``primary function'' test, which at that time was the
Commission's preferred methodology for determining the jurisdictional
status of gas pipeline facilities.\10\ That review culminated in the
Commission's articulation and application of the ``modified primary
function'' test in Amerada Hess, et. al. (Amerada Hess).\11\
\9\ 876 F. 2d 46 (Fifth Cir. 1989).
\10\ The ``primary function'' test was articulated in Farmland
Industries, Inc. (Farmland), 23 FERC para. 61,063 (1983). In
Farmland the Commission enumerated several physical and geographic
criteria to be included in the analysis for determining whether the
``primary function'' of a facility is the transportation or the
gathering of natural gas. These factors are: (1) the length and
diameter of the line, (2) the extension of the facility beyond the
central point in the field, (3) the line's geographic configuration,
(4) the location of compressors and processing plants, (5) the
location of wells along all or part of the facility, and (6) the
operating pressure of the line. The ``primary function'' test has
been found by the Commission to be applicable to both onshore and
offshore facilities. The criteria set out in Farmland were not
intended to be all inclusive. The Commission has also considered
nonphysical criteria such as the intended purpose, location, and
operation of the facility, the general business activity of the
owner of the facility, and whether the jurisdictional determination
is consistent with the objectives of the NGA and the Natural Gas
Policy Act of 1978 (NGPA).
\11\ 52 FERC para. 61,268 (1990).
---------------------------------------------------------------------------
As set out in Amerada Hess, the ``modified primary function'' test
consists of the continued application of the ``primary function'' test,
with a modification in its application in accord with EP. Specifically,
when applying the Farmland criteria, the Commission stated that it
would consider, especially for offshore facilities, the changing
technical and geographic nature of exploration and production. The
order explained that because of recent advances in engineering and
available technology, offshore drilling operations were moving further
offshore and further from existing interstate pipeline
interconnections. Accordingly, the order explained that a relatively
long pipeline on the OCS may be consistent with a primary function of
gathering or production whereas an onshore pipeline of similar length
would not. Therefore, in applying the ``modified primary function''
test to OCS pipeline facilities the Commission stated that it would
apply, in effect, a sliding scale that would allow for the use of
gathering pipelines of increasing lengths and diameters in correlation
to the distance from shore and the water depth of the offshore
production area.
V. Specific Questions for Response by All Commenters
The Commission has compiled a list of questions, set forth below,
that will be helpful in assessing the Commission's current policy and
possible policy alternatives. This list is not meant to be all
inclusive. Parties to this proceeding are invited to present
alternative solutions not specifically referenced in this notice.
A. General.
1. It is necessary or appropriate to continue distinguishing
between gathering and transportation on the OCS, or would it be better
either to declare that under the NGA all such facilities are exempt
gathering facilities or to declare that under the NGA all such
facilities are jurisdictional transportation facilities?
2. Does the Commission need to continue to regulate offshore
transportation under the NGA, or is reliance on the OCSLA sufficient to
protect the public interest?
3. Is there a ``regulatory gap'' pertaining to rates or any other
matter respecting gas pipeline facilities or services on the OCS?
4. What is the extent of the Commission's authority under the
[[Page 63478]]
OCSLA respecting rates for gas pipeline services?
5. Does the OCSLA provide sufficient remedial authority for the
Commission to ensure nondiscriminatory access by prohibiting
discriminatory or excessive rates?
6. Does the OCSLA provide the Commission with sufficient authority
to protect the interests of historical customers of existing offshore
interstate pipelines if these pipelines were declared to be gathering
facilities?
7. Is it feasible, as a matter of law and policy, to adopt a light-
handed regulatory approach that relies on complaints about
discriminatory access or rates?
8. If such an approach is adopted, is there a need to distinguish
between new and existing pipelines to determine how much regulation is
necessary? What would be the legal and policy basis for any such
distinction?
9. What are the implications of a change in OCS gathering policy on
existing OCS interstate pipelines that may wish to retain their
jurisdictional status or on existing, interstate pipeline-owned, OCS
transmission facilities that wish to retain a transmission
classification for those facilities?
10. How much, if any, OCS gas is processed at locations other than
onshore or in shallow waters?
B. Should the Commission issue a rule under the NGA declaring all
pipeline facilities on the OCS to be nonjurisdicational gathering
facilities and simultaneously issue a rule under the OCSLA imposing
terms and conditions on OCS facilities to protect existing shippers on
existing OCS interstate pipelines or on existing OCS transmission
facilities?
1. What would be the practical effect of these rules?
2. Does the Commission have sufficient authority under the OCSLA to
prohibit, eliminate or alter rates that are clearly discriminatory or
rates that are so high that they would have the effect of denying
access to shippers?
3. What would be the impact of the Commission's ceasing to regulate
any offshore pipeline rates under the ``just and reasonable'' standard
of sections 4 and 5 of the NGA?
4. Is here a legal basis under the OCSLA for the Commission to
regulate generally the level of rates for services performed by OCS
pipelines?
5. What conditions could the Commission require under the NGA and/
or the OCSLA to protect historical customers of currently regulated OCS
pipelines if their facilities are declared to be exempt gathering
facilities?
6. Under this option, should the Commission consider allowing all
rate regulation to end at any point that a pipeline and a (non-
affiliated) shipper agree? (This option would be similar to recent
proposals for ``recourse rates''.\12\)
\12\ Under ``recourse rates'', pipelines would be free to offer
negotiated rates. Customers could choose either negotiated rates or
they could choose the pipeline's on-file, cost-of-service rates.
---------------------------------------------------------------------------
C. Should the Commission issue a rule under the NGA declaring all
pipeline facilities on the OCS to be jurisdictional transportation
facilities, but only regulate transportation rates for historical
customers on existing interstate pipelines and for non-owner shippers
on new facilities?
1. What would be the practical effect of such a rule?
2. Does a ``regulatory gap'' exist on the OCS that would support
the issuance of such a rule?
3. What legal support is there for the Commission's regulating only
those pipelines that transport non-owner shipper gas?
4. Is there any need to regulate the rates charged new customers
that have not relied upon or have no expectation of NGA regulation?
5. Would the provisions of the OSCLA provide sufficient protection
from undue discrimination to both historical and new customers of OCS
pipelines?
6. Under this option, should the Commission consider allowing all
rate regulation to end at any point that a pipeline and a (non-
affiliated) shipper agree? (This option would be similar to recent
proposals for ``recourse rates''.\13\)
\13\ See n. 13 supra.
---------------------------------------------------------------------------
D. Should the Commission continue the application of the ``modified
primary function'' test on a case-by-case basis? What would be the
effects of this approach?
VI. Procedure for Comments
The Commission invites interested persons to submit comments, data,
views, and other information concerning the matters set out in this
notice.
To facilitate the Commission's review of the comments, commenters
are requested to provide an executive summary of their position on the
issues raised in the NOI. Commenters are requested to identify the
specific question posed by the NOI that their discussion addresses and
to use appropriate headings. Additionally, commenters should double
space their comments.
The original and 14 copies of such comments must be received by the
Commission before 5:00 p.m., Friday, January 12, 1996. Comments should
be submitted to the Office of the Secretary, Federal Energy Regulatory
Commission, 888 First Street, NE., Washington DC 20426 and should refer
to Docket No. RM96-5-000.
In addition, commenters are asked to submit their written comments
and executive summaries on a 3 1/2-inch diskette formatted for MS-DOS
based computers. In light of our ability to translate MS-DOS based
materials, the text need only be submitted in the format and version
that it was generated (i.e. MS WORD, WordPerfect, ASC III, etc.) For
Macintosh users, it would be helpful to save the documents in word
processor format and then write them to files on a diskette formatted
for MS-DOS machines.
By direction of the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 95-30062 Filed 12-8-95; 8:45 am]
BILLING CODE 6717-01-M
Complete official Federal Register PDF
FR Doc. 95-30053 Executive and Management Development
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63454-63457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30053]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 /
Proposed Rules
[[Page 63454]]
OFFICE OF PERSONNEL MANAGEMENT
5 CFR Parts 317 and 412
RIN 3206-AF96
Executive and Management Development
AGENCY: Office of Personnel Management.
ACTION: Proposed regulations.
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SUMMARY: The Office of Personnel Management (OPM) is proposing to amend
part 317 of its regulations governing initial career appointment to the
Senior Executive Service (SES) and Qualifications Review Board
certification. The proposed changes to part 317 would eliminate the 3-
year limitation on the validity of Qualifications Review Board (QRB)
certification for appointment to the Senior Executive Service and
simplify the Executive Resources Board (ERB) certification of
candidates. The Office is also proposing to amend part 412 of its
regulations governing executive and management development. The
coverage will be expanded to include supervisory development. The
revised regulations present broad program criteria on the systematic
development of executives, managers, supervisors, and candidates. They
also establish minimum requirements for formal Senior Executive Service
candidate development programs. The changes proposed promote training
and development activities which foster a corporate perspective of
Government.
DATES: Written comments will be considered if received no later than
February 9, 1996.
ADDRESSES: Send or deliver written comments to the Ms. K. Joyce
Edwards, Assistant Director, Office of Executive Resources, Office of
Personnel Management, Room 6484, 1900 E Street NW., Washington, DC
20415.
FOR FURTHER INFORMATION CONTACT:
Constance Maravell, 202-606-1832.
SUPPLEMENTARY INFORMATION: The Office of Personnel Management (OPM)
issued proposed regulations on executive and management development on
March 2, 1993 (58 FR 11988). We received comments from 23 agencies, 9
individuals and the Federal Executive Institute Alumni Association.
Most comments expressed support for including the development of
supervisors along with that of managers and executives. The proposed
regulations were withdrawn on February 11, 1994 (59 FR 6593) to see
which objectives of the regulations could be achieved through
alternative means and so they could be reviewed in the context of the
sunsetting of the Federal Personnel Manual in December 1993.
General
In keeping with the spirit of Executive Order 12861 on
``Elimination on One-Half of Executive Branch Internal Regulations,''
we re-examined the proposed regulations. This has resulted in the
elimination of regulations on needs assessments for the management
profession and for individuals and formal candidate development
programs for supervisors and managers. Proposed requirements in these
areas have been removed, not because we have found such activities to
be ineffective, but because agencies should be free to engage in them
without being required to do so. Well selected developmental
experiences enhance the competence and broaden the perspective of the
managerial workforce. We encourage agencies to undertake these
activities on a systematic basis.
We are also deleting regulations that are covered by statute which
require no further clarification such as OPM's responsibility for the
review of agency programs. We would like to draw agency attention to
two provisions of statute which will not be regulated further. The
first is the use of sabbaticals in general, 5 U.S.C. 3396(c). The
second is, 5 U.S.C. 3396(d), authorizing sabbaticals, training, or
details or other temporary assignments in other agencies, State or
local governments, or the private sector for the continuing training
and development of incumbent career SES members
The earlier proposed regulations also provided for the reactivation
of expired QRB certifications for graduates of formal SES candidate
development programs (CDP). Reactivation was accomplished by a
variation to the regulations in December 1993, which extended
certifications until December 31, 1996. The current proposed
regulations in part 317 would remove the present 3-year time limit on
all QRB certifications. The removal would apply to certifications
issued before the regulations as well as those issued afterwards.
In response to a recommendation from the Executive Resources
Management Group work group on staffing, we propose to simplify
procedural requirements for the ERB certification of SES candidates.
Specifically, when there are less than 10 eligible candidates for an
SES position, an ERB would be permitted to refer all candidates to the
appointing authority without further ranking. The statutory requirement
that ERB's make written recommendations must be observed regardless of
the number of candidates.
What remains in the regulations is a clear set of criteria which
promote a corporate perspective of governance through the systematic
development of candidates for the SES and the continuing development of
supervisors, managers, and executives. Public managers with a corporate
perspective respect and embrace the dynamics of American democracy;
they recognize their fundamental responsibility for balancing change
and continuity. Their values encompass a respect for both diversity and
merit. Their commitment to Government service transcends their agency
mission and individual profession. Executives with a corporate
perspective will play a critical role in the reinvention of Government.
These regulations recognize and give meaning to the findings of
OPM's 1992 Leadership Effectiveness Study. The 10,000 managers who
responded identified 22 generic competencies essential to successful
performance as leaders in any government position. The study found that
effective supervisors, managers and executives have a shared base of
competencies. As individuals move from supervisors to managers and
executives they must acquire additional enhanced competencies. For this
reason, the preparation of supervisors and managers is considered
integral to the development of candidates for the SES.
[[Page 63455]]
The criteria in section 412.103 are designed to enable agencies to
run strong supervisory, managerial and executive development programs
to provide a corporate perspective in the context of their succession
planning systems. This assures that there are enough prepared and
qualified employees as candidates for SES positions. This section
requires agencies to provide initial and continuing training and
development to their management corps. Formal SES candidate development
programs are one option, but not the only one for assuring that
agencies have enough candidates for the SES.
SES Candidate Development Programs (CDP)
If an agency desires graduates of its SES candidate development
program to receive Qualifications Review Board certification, the
program must meet the minimum standards in Sec. 412.104. OPM will
review all programs prior to announcement for the first time under
these regulations regardless of whether they have been approved under
the previous regulations. After the initial announcement, OPM will only
review programs if there is a significant change in the program.
The standards meet statutory requirements and support the National
Performance Review recommendation for promoting a corporate culture in
the SES. During the time the candidates are in the program, they must
attend at least 80 hours of formal interagency training programs; have
developmental assignments totalling 4 months; and have a mentor. If an
agency wishes to deviate from these minimum requirements, it must
obtain an exception from OPM before the candidate starts the program.
OPM believes that even individuals who are well qualified for an
SES appointment can benefit from this minimum training and development.
It is not our intention to grant exceptions to the minimum requirements
based on the fact that the candidate is already well qualified to enter
the SES. OPM does not support the use of the formal SES candidate
development program as a mechanism for ``precertifying'' fully
qualified individuals for the SES.
These standards differ from the existing regulations in the
following ways. Agencies can choose, under the standards, the formal
interagency executive level training experience rather than be limited
to OPM approved programs. An agency may substitute a work experience,
longer than 80 hours, that involves multiple agencies for formal
training; but this substitution does not eliminate the requirement for
a developmental assignment. The length of the developmental work
assignments has been specified to eliminate confusion about what cases
will be presented to the QRB.
One way to promote a corporate perspective in the SES is to
encourage the selection of qualified applicants from outside the
agency. The law, in 5 U.S.C. 3393(a), supports this goal by requiring
at least governmentwide competition for initial appointment to the SES.
While the proposed regulations on recruitment for SES CDP are
consistent with this statutory requirement, they provide flexibility
for those agencies which have demonstrated support for an SES corporate
perspective.
Specifically, the exception from Governmentwide competition in the
current regulations for agencies with 150 or fewer allocated SES
positions for their candidate development programs has been changed in
two ways. First, the exception is available to agencies which can show
OPM that in the 5 years prior to announcing a CDP, at least 15% of the
career SES members appointed come from outside the agency. An agency
may be able to conduct one offering of a CDP under this exception but
not another because the agency does not meet the criterion at that
time. Second, when there has only been agencywide competition for the
CDP, the graduates of these programs are required to compete
Governmentwide for entry to the SES.
The regulations on ``status'' and ``non-status'' SES candidate
development programs currently in subpart E have been rewritten in a
new subpart B to eliminate redundancy. There is no change in the nature
of the programs.
Regulatory Flexibility Act
I certify that these regulations will not have significant economic
impact on a substantial number of small entities because they affect
only Federal employees and agencies.
List of Subjects in 5 CFR Parts 317 and 412
Government employees.
Office of Personnel Management.
James B. King,
Director.
Accordingly, the Office of Personnel Management proposes to amend 5
CFR parts 317 and 412 as follows:
PART 317--EMPLOYMENT IN THE SENIOR EXECUTIVE SERVICE
1. The authority citation for part 317 continues to read as
follows:
Authority: 5 U.S.C. 3392, 3393, 3393a, 3395, 3397, 3593, and
3595.
2. In section 317.501, paragraph (c)(5) is revised to read as
follows:
Sec. 317.501 Recruitment and selection for initial SES career
appointment.
* * * * *
(c) * * *
(5) Provide that the ERB make written recommendations to the
appointing authority on the eligible candidates and identify the best
qualified candidates. If there are less than 10 eligible candidates,
the ERB may refer to the appointing authority all candidates as ``best
qualified.'' Rating sheets may be used to satisfy the written
recommendations requirement for individual candidates, but the ERB must
certify in writing the list of candidates to the appointing authority.
* * * * *
3. In section 317.502, paragraph (c) is revised to read as follows:
Sec. 317.502 Qualifications Review Board certification.
* * * * *
(c) Qualifications Review Board certification of executive
qualifications must be based on demonstrated executive experience;
successful completion of an OPM-approved candidate development program;
or possession of special or unique qualities that indicate a likelihood
of executive success. Any existing time limit on a previously approved
certification is removed.
* * * * *
PART 412--EXECUTIVE, MANAGEMENT, AND SUPERVISORY DEVELOPMENT
3. Part 412 is revised to read as follows:
PART 412--EXECUTIVE, MANAGEMENT, AND SUPERVISORY DEVELOPMENT
Subpart A--General Provisions
Sec.
412.101 Coverage.
412.102 Purpose.
412.103 Criteria for programs for the systematic training and
development of executives, managers, supervisors, and candidates.
412.104 Formal candidate development programs for Senior Executive
Service positions.
Subpart B--Senior Executive Service Status and Nonstatus Candidate
Development Programs
412.201 Purpose.
412.202 ``Status'' programs.
412.203 ``Non-status'' programs.
[[Page 63456]]
Authority: 5 U.S.C. 3397, 4101, et seq.
Subpart A--General Provisions
Sec. 412.101 Coverage.
This subpart applies to all incumbents of or candidates for
supervisory, managerial, and executive positions in the General
Schedule, the Senior Executive Service (SES), or equivalent pay systems
who are also covered by part 410 of this chapter.
Sec. 412.102 Purpose.
(a) This subpart implements for supervisors, managers, and
executives the provisions of chapter 41 of title 5 of the United States
Code related to training and section 3396 of title 5 related to the
criteria for programs of systematic development of candidates for the
SES and the continuing development of SES members.
(b) The subpart identifies a continuum of preparation starting with
supervisory positions and proceeding through management and executive
positions governmentwide. For this reason, the subpart establishes a
comprehensive system that is intended to:
(1) Provide the competencies needed by supervisors, managers, and
executives to perform their current functions at the mastery level of
proficiency; and
(2) Provide learning through development and training in the
context of succession planning and corporate perspective to prepare
individuals for advancement, thus supplying the agency and the
government with an adequate number of well prepared and qualified
candidates to fill supervisory, managerial, and executive positions
governmentwide.
Sec. 412.103 Criteria for programs for the systematic training and
development of executives, managers, supervisors, and candidates.
Each agency must provide for the initial and continuing development
of individuals in executive, managerial, and supervisory positions, and
candidates for those positions. The agency must issue a written policy
to assure that their development programs:
(a) Are designed as part of the agency's strategic plan and foster
a corporate perspective.
(b) Make assignments to training and development consistent with
the merit system principles set forth in 5 U.S.C. 2301(b) (1) and (2).
(c) Provide for:
(1) Initial training as an individual makes critical career
transitions to become a new supervisor, a new manager, or a new
executive consistent with the results of needs assessments;
(2) Continuing learning experiences, both short- and long-term,
throughout an individual's career in order for the individual to
achieve the mastery level of proficiency for his or her current
management level and position; and
(3) Systematic development of candidates for advancement to a
higher management level. Formal candidate development programs leading
to noncompetitive placement eligibility represent one, but not the
only, type of systematic development.
Sec. 412.104 Formal candidate development programs for Senior
Executive Service positions.
Formal SES candidate development programs permit the certification
of the executive qualifications of graduates by a Qualifications Review
Board under the criterion of 5 U.S.C. 3393(c)(2)(B) and selection for
the SES without further competition. The agency must have a written
policy describing how the program will operate. The agency must obtain
OPM approval of the program before it is conducted for the first time
under these regulations and whenever there are substantive changes to
the program. Agency programs must meet the following criteria.
(a) Recruitment. (1) Recruitment for the program is from all groups
of qualified individuals within the civil service, or all groups of
qualified individuals whether or not within the civil service.
(2) Agencies may request an exception to the provision in paragraph
(a)(1) of this section if they can show that during the 5-year period
prior to the announcement of a program they have made at least 15% of
their career SES appointments from sources outside the agency.
Notwithstanding this exception recruitment must be competitive and be
announced at least agencywide. Graduates of these programs who have
been certified by a QRB must then compete Governmentwide for entry to
the SES, but do not have to obtain a second QRB certification before
appointment.
(b) In recruiting, the agency, consistent with the merit system
principles in 5 U.S.C. 2301(b) (1) and (2), takes into consideration
the goal of achieving a diversified workforce.
(c) All candidates are selected through SES merit staffing
procedures. The number selected shall be consistent with the number of
expected vacancies.
(d) Each candidate has an SES development plan covering the period
of the program. The plan is prepared from a competency-based needs
determination. It is approved by the Executive Resources Board.
(e) The minimum program requirements, unless an exception is
obtained in advance of the beginning of the candidate's program, for an
SES development plan are as follows:
(1) There is a formal training experience that addresses the
executive core qualifications and their application to SES positions
governmentwide. The training experience must include interaction with a
wide mix of Federal employees outside the candidate's department or
agency to foster a corporate perspective but may include managers from
the private sector and state and local governments. The nature and
scope of the training must have Governmentwide or multi-agency
applicability. If formal interagency training is used to meet this
requirement, it must total at least 80 hours. If an interagency work
experience is used, it must be of significantly longer duration than 80
hours.
(2) There are developmental assignments that total at least 4
months of full-time service outside the candidate's position of record.
The purpose of the assignments is to broaden the candidate's experience
and/or increase knowledge of the overall functioning of the agency so
that the candidate is prepared for a range of agency positions.
(3) There is a member of the Senior Executive Service as a mentor.
(f) Each candidate's performance in the program is evaluated
periodically, and there is a written policy for discontinuing a
candidate's participation in the program. A candidate can be
discontinued or may withdraw from the program without prejudice to his
or her ability to apply directly for SES positions.
(g) Each candidate has a documented starting and finishing date in
the program.
Subpart B--Senior Executive Service Status and Nonstatus Candidate
Development Programs
Sec. 412.201 Purpose.
Section 3393 of title 5, United States Code, requires that career
appointees to the SES be recruited either from all groups of qualified
individuals within the civil service, or from all groups of qualified
individuals whether or not within the civil service. This subpart sets
forth regulations establishing two types of SES candidate development
programs, ``status'' and ``nonstatus.''
[[Page 63457]]
Sec. 412.202 ``Status'' programs.
Only employees serving under career appointments, or under career-
type appointments as defined in 5 CFR 317.304(a)(2), may participate in
``status'' candidate development programs.
Sec. 412.203 ``Nonstatus'' programs.
(a) Eligibility. Candidates are from outside Government and/or from
among employees serving on other than career or career-type
appointments within the civil service.
(b) Requirements. (1) Candidates must be appointed utilizing the
Schedule B authority authorized by 5 CFR 213.3202(j). The appointment
may not exceed or be extended beyond 3 years.
(2) Assignments must be to a full-time position created for
developmental purposes connected with the SES candidate development
program. Candidates serving under Schedule B appointment may not be
used to fill an agency's regular positions on a continuing basis.
(3) Schedule B appointments must be made in the same manner as
merit staffing requirements prescribed for the SES, except that each
agency shall follow the principle of veteran preference as far as
administratively feasible. Positions filled through this authority are
excluded under 5 CFR 302.101(c)(6) from the appointment procedures of
part 302.
[FR Doc. 95-30053 Filed 12-8-95; 8:45 am]
BILLING CODE 6325-01-M
Complete official Federal Register PDF
FR Doc. 95-30051 Calling Number Identification ServiceCaller ID
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63491-63492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30051]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 64
[CC Docket No. 91-281; FCC 95-480]
Calling Number Identification Service--Caller ID
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: On November 30, 1995, the Commission adopted a Fourth Notice
of Proposed Rulemaking (Fourth NPRM) addressing numerous petitions for
waiver of its Caller ID rules. The Fourth NPRM is intended to address
issues associated with requiring carriers to deploy blocking
capabilities. It seeks comment on whether local exchange carriers
(LECs) must pass calling party number (CPN) if they use particular
switches that do not have CLASS software installed.
DATES: Comments must be filed on or before December 27, 1995, and reply
comments must be filed on or before January 10, 1996.
ADDRESSES: Federal Communications Commission, 1919 M Street, N.W.,
Washington, D.C. 20554.
[[Page 63492]]
FOR FURTHER INFORMATION CONTACT:
Michael Specht, Senior Engineer, Network Services Division, Common
Carrier Bureau, (202) 418-2378 or Elizabeth Nightingale, Attorney,
Network Services Division, Common Carrier Bureau, (202) 418-2352.
SUPPLEMENTARY INFORMATION: This summarizes the Commission's Fourth
Notice of Proposed Rulemaking in the matter of Calling Number
Identification Service--Caller ID, (CC Docket No. 91-281, FCC 95-480,
adopted November 30, 1995 and released December 1, 1995). The file is
available for inspection and copying during the weekday hours of 9 a.m.
to 4:30 p.m. in the Commission's Reference Center, room 239, 1919 M
St., N.W., Washington, D.C., or copies may be purchased from the
Commission's duplicating contractor, ITS, Inc. 2100 M St., N.W., Suite
140, Washington, D.C. 20037, phone (202) 857-3800.
Analysis of Proceeding
On May 5, 1995, the Commission affirmed its finding that interstate
delivery of a calling party's number is in the public interest. The
Commission noted that widespread availability of CPN promotes new
services, consistent with Commission responsibilities under Section 1
and 7 of the Communications Act and benefits the public by enabling
consumers to conduct telephone transactions more efficiently. The
Commission also continued to recognize the importance of balancing the
benefits of such widespread availability with the privacy interests of
calling and called parties and the need for reasonable consumer
education. The Commission affirmed rules that require carriers with
Signalling System 7 (SS7) call set up capability to transport CPN to
interconnecting carriers without additional charge. The Commission also
affirmed rules that require originating carriers to recognize *67 as
the first three digits of a call as a caller's request for privacy. The
Commission permitted per line blocking where state policy allows and
established rules that carriers providing per line blocking services
recognize *82 as a caller's request that privacy not be provided.
Additionally, the Commission affirmed rules that require carriers to
notify customers with respect to *67 and *82 capabilities.
Over the past several months, the Commission has received numerous
requests from petitioners seeking waivers, stays or declaratory rulings
of the Commission's caller ID rules. On October 30, 1995, the
Commission released an Order that addressed some of these requests for
relief. See Rules and Policies Regarding Calling Numbering
Identification Service--Caller ID, Order, CC Docket No. 91-281, FCC 95-
446, released October 30, 1995. On November 30, 1995, the Common
Carrier Bureau, pursuant to delegated authority, adopted an Order that
addressed the remaining petitions for relief. See Rules and Policies
Regarding Calling Number Identification Service--Caller ID, Order, CC
Docket No. 91-281, DA 95-2415 (Com. Car. Bur. adopted November 30,
1995).
The Fourth NPRM tentatively concludes that LEC switches not
equipped with CLASS software should not be required to pass CPN and
that they should be permitted to pass it only if they can provide the
blocking and unblocking capabilities specified in Section 64.1601(b) of
the Commission's rules. The Fourth NPRM seeks comment on its tentative
conclusions, and specifically on the economic feasibility of adding
blocking and unblocking capabilities to switches already able to pass
CPN.
Ordering Clauses
It is further ordered, pursuant to Sections 1, 4(i) and (j), 201-
205, 218 of the Communications Act as amended, 47 U.S.C. 151, 154(i),
154(j), 201-205, and 218, that notice is hereby given of the proposed
changes in policies regarding the application of caller ID rules to
switches without CLASS software, and comment is invited on this
proposal.
List of Subjects in 47 CFR Part 64
Calling party telephone number, Communications common carriers,
Telephone.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-30051 Filed 12-8-95; 8:45 am]
BILLING CODE 6712-01-M
Complete official Federal Register PDF
FR Doc. 95-30046 Foreign Commodity Options
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63472-63476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30046]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 30
Foreign Commodity Options
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing to amend rule 30.3 to eliminate the requirement that the
CFTC authorize the offer and sale of a particular foreign commodity
option before it can be offered or sold in the United States. This
proposal reflects the Commission's assessment that the continued
treatment of foreign commodity options differently from foreign futures
(which do not require a specific authorization order) should be
reevaluated.
DATES: Comments must be submitted on or before January 10, 1996.
ADDRESSES: Comments should be sent to the Secretariat, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
N.W., Washington, D.C. 20581. Reference should be made to ``Rule 30.3--
Foreign commodity options.''
FOR FURTHER INFORMATION CONTACT: Jane C. Kang, Esq., or Robert H.
Rosenfeld, Esq., Division of Trading and Markets, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W.,
Washington, D.C. 20581; telephone (202) 418-5435.
SUPPLEMENTARY INFORMATION:
Background
Commission rule 30.3(a) of the Commission's Part 30 rules governing
the offer and sale of foreign futures and option transactions makes it
unlawful for any person to engage in the domestic offer or sale of any
foreign commodity option contract until the Commission, by order,
authorizes the foreign option to be offered or sold in the United
States.1 A Commission order is not required with respect to
foreign futures. However, an option on a foreign stock-index futures
contract will not be approved unless, among other things, the
Commission's Office of the General Counsel has issued a no-action
letter authorizing the offer and sale in the United States of the
underlying foreign stock-index futures contract. In addition, debt
obligations of a foreign country must be designated as an exempted
security by the SEC under its rule 3a12-8, 17 CFR 240.3a12-8, before a
futures contract based on such debt obligation (or an option on such a
futures contract) may be offered or sold to a U.S. person.2
\1\ The Commission previously made clear that subject to certain
conditions applicable to transactions involving stock indexes and
foreign government debt, a rule 30.3 order would not be necessary
for transactions effected by U.S. futures commission merchants (FCM)
on behalf of foreign customers. See 57 FR 36369 (August 13, 1992).
\2\ Consistent with section 2(a)(1)(B) of the CEA, this proposed
rulemaking would not be applicable to commodity options based on or
involving a foreign futures contract based on a foreign stock index
unless the foreign stock index futures contract has been approved
for offer or sale in the United States through the issuance of a no-
action letter by the Commission's Office of the General Counsel.
Further, this proposed rulemaking would not be applicable to
commodity options based on a foreign government debt which has not
been designated as an exempted security under SEC rule 3a12-8.
---------------------------------------------------------------------------
The Commission is proposing to eliminate the specific authorization
requirement of rule 30.3 thereby permitting, subject to existing
prohibitions with respect to stock index futures and options and
foreign government debt futures and options products, the offer and
sale of foreign commodity options in the same manner as currently
applies to the offer and sale of foreign futures. The Commission would,
however, continue to monitor the situation and take appropriate action
should it determine that U.S. investors, or the Commission, are not
able to obtain appropriate information related to the option
transactions of a specific exchange or are otherwise being adversely
affected by the rule change. Moreover, the proposal would not affect
the existing regulatory requirements applicable to the manner in which
appropriate products may be offered or sold to U.S. persons, e.g.,
registration of intermediaries, requirements related to sales practices
(including appropriate disclosures), availability to the Commission of
books and records and prohibitions on fraudulent activities.
The Commission's determination to propose modifications to the
current procedure of regulation 30.3(a) for approval of foreign option
products for sale to U.S. persons is based on its experiences with the
regulations governing options generally, and, in particular, with the
initial regulations imposed on foreign options trading. This proposal
reflects the Commission's assessment that the continued treatment of
foreign commodity options differently from foreign futures (which do
not require a specific authorization order) should be reevaluated.
History of Options Regulation
The regulatory approach to commodity options in the United States
[[Page 63473]]
has been particularly cautious due to the history of abuses which had
been associated with such transactions.3
\3\ The Commission notes that the abuses which characterized the
offer and sale of commodity options in the past generally involved
sales practices, 46 FR 54500, 54503 (November 3, 1981), including
sales activity with respect to alleged ``London options'' (which
appeared to have been perpetrated exclusively by sales persons or
organizations in the United States, and did not involve any improper
activities on the part of foreign exchanges), see 42 FR 18246, 18249
(April 5, 1977).
---------------------------------------------------------------------------
Unsatisfactory experiences with what essentially were unregulated
sales of options on commodities in the early 1970's, and further abuses
under interim regulations adopted in 1976 ultimately resulted in the
Commission's suspension of the offer and sale of all commodity options
as of June 1, 1978 and the codification of that suspension by Congress
in the Commodity Exchange Act of 1978. See 46 FR 54500, 54502 (November
3, 1981). The suspension codified by Congress permitted the Commission
to introduce option trading, but only if the Commission could document
to its Congressional oversight committee its ability to regulate
successfully such transactions.4
\4\ See section 4c(c) of the CEA, as amended by the 1978 Act.
See 46 FR 33293, 33294 (June 29, 1981).
---------------------------------------------------------------------------
Mindful of this history, in proposing a pilot program for the offer
and sale of options in 1981, the Commission expressly stated that it
was: 5
\5\ See 46 FR 33293, 33294 (June 29, 1981).
Cognizant of the need to exercise a strong degree of control
---------------------------------------------------------------------------
over all aspects of commodity option trading.
Thus, the final domestic exchange-traded commodity option rules adopted
in 1981 authorized the introduction of options under a limited pilot
program which permitted only one option contract per exchange, did not
permit either foreign options or options on physical commodities to be
offered, and placed significantly greater self-regulatory
responsibilities on boards of trade than was then required for futures
trading, particularly with respect to the protection of the public from
sales practice abuses.6
\6\ See 46 FR 54500, 54502 (November 3, 1981).
---------------------------------------------------------------------------
Evolution of Domestic Option Regulations
Although starting narrowly and cautiously, the Commission's options
regulations have evolved consistently with the acquisition of an
operational history under those regulations. Thus, in December 1982 the
Commission expanded the pilot program to permit each exchange to trade
one option on a futures contract and one option contract on a non-
agricultural physical commodity.7 The Commission continued to
expand the pilot program in a controlled and orderly manner so that
both the Commission and the exchanges would obtain greater experience
with the trading of options,8 subsequently expanding the pilot
program to permit more option contracts per exchange,9 to include
option contracts on futures contracts on agricultural
commodities,10 and ultimately, to eliminate the pilot status of
the option regulations.11
\7\ 47 FR 56996 (December 22, 1982).
\8\ Id. at 56997.
\9\ See, e.g., 49 FR 33641 (August 24, 1984) (permitting each
exchange to trade five contracts); 50 FR 45811 (November 4, 1985)
(increasing from five to eight the number of contracts permitted per
exchange).
\10\ 49 FR 2752 (January 23, 1984). The pilot program was
established after the statutory bar to trading options on domestic
agricultural commodities was repealed by section 206 of the Futures
Trading Act of 1982, Pub. L. 97-444, 96 Stat. 2294, 2301 (1983). The
Commission limited the pilot program to options on futures contracts
on agricultural products. The Commission noted that industry
commenters generally favored such a restriction and the Commission's
cautious approach. See 49 FR at 2754.
\11\ See 51 FR 17464 (May 13, 1986) (termination of pilot status
for non-agricultural options); 53 FR 777 (January 9, 1987)
(termination of pilot status for options on non-agricultural
physical commodities and on agricultural futures contracts).
---------------------------------------------------------------------------
The Commission's incremental expansion of the domestic exchange-
traded options program was validated by Congress in 1986 when Congress
amended section 4c of the CEA to make permanent the program of
exchange-traded commodity options. As stated in the House Report on the
1986 legislation: 12
\12\ See H. Rep. 99-624, 99th Cong., 2d Sess. 15 (1986).
The Committee's amendment coincides with a recent decision by
the Commission to terminate the pilot status of the program for
trading options on futures contracts other than those on domestic
agricultural commodities and make the trading of such options
permanent. * * *
The Committee believes the Commission has practiced good
judgment in its regulation and oversight of both agricultural and
the nonagricultural options programs. Furthermore, the Committee is
satisfied that the overall experience with both of these pilot
programs indicates that few regulatory problems have arisen, and
that the exchanges have discharged their responsibilities
adequately. Additionally, the Commission has detected no adverse
effects on the underlying futures markets resulting from such option
trading.
Moreover, based on its administration of the option pilot program
for more than ten years, the Commission has previously determined to
eliminate certain provisions that were originally part of its options
designation requirements for which there were not comparable futures
regulation, such as:
--Rule 33.4(b)(9) which required a board of trade applying for
designation as a contract market with respect to commodity option
transactions to adopt special rules governing the handling by its
member FCMs of discretionary accounts in option transactions;
13
\13\ 58 FR 30701 (May 27, 1993). The Commission based this rule
change on its belief that compliance with the supervisory
requirements of rule 166.3, the requirements of rule 166.2
concerning authorization to trade, other Commission rules of general
applicability, and SRO rules such as NFA compliance rule 2-8, should
be adequate to address the regulatory concerns applicable to both
option and futures customer discretionary accounts. See 58 FR 30701,
30702.
---------------------------------------------------------------------------
--rules which require boards of trade designated as contract
markets for options to adopt rules requiring FCMs that engage in the
offer or sale of commodity options regulated under Part 33 to send
copies of customer complaints and their resolutions and copies of
all promotional materials to the members' designated self-regulatory
organization (DSRO); 14 and
\14\ See 57 FR 58976, 58977 (December 14, 1992) (such records
must however be maintained by the FCM for review as part of the
routine audit process); see generally 56 FR 43694 (September 4,
1991).
---------------------------------------------------------------------------
--rules which required a specified volume of trading in the
underlying futures contract prior to designation; established a
delisting criterion for the trading of low-volume contracts; and
required exchanges to provide a comprehensive list of occupational
categories of commercial users of the commodity underlying the
option.15
\15\ 56 FR 43694 (September 4, 1991). The Commission also
revised rule 33.4(d) which had required exchanges to justify
expiration dates of less than 10 days before first notice day or
last trading day of the future, whichever comes first.
---------------------------------------------------------------------------
History of Foreign Options Rules.
As noted above, the Commission's initial pilot programs did not
include foreign options.16 Thus the ban contained in section 4c of
the CEA remained in effect with respect to foreign options. A program
to authorize the offer and sale of foreign exchange-traded commodity
options was not implemented until 1987 with the general adoption of the
part 30 rules governing foreign futures and option transactions
generally.17 The Part 30 rules, among other things, provided a
mechanism for lifting the ban with respect to foreign exchange-traded
options. Under rule 30.3(a), foreign exchange-traded commodity options
are prohibited from being offered or sold in the United States unless
the Commission issues a product-specific order. The part 30 rules did
not similarly require a product-specific order for foreign futures
transactions.
\16\ See 46 FR 33293, 33294 (June 29, 1981).
\17\ 52 FR 28980 (August 5, 1987).
[[Page 63474]]
---------------------------------------------------------------------------
As with the Commission's pilot program for domestic exchange-traded
options, the program for foreign exchange-traded commodity options also
has proceeded cautiously. Thus, in issuing the order for any foreign
market, the Commission has considered: (1) The availability of certain
information relevant to preventing abuses including, but not limited to
trade confirmation data; (2) the arrangements in place for assuring
that sales practice abuses do not occur; (3) the arrangements for U.S.
customers to redress grievances; and (4) the regulatory environment in
which such options are traded.18
\18\ See, e.g., 53 FR 28840 (July 29, 1988).
---------------------------------------------------------------------------
In particular, the Commission placed great stress initially on its
ability to obtain information from the foreign exchange with respect to
transactions entered into on that exchange on behalf of U.S.
customers.19 As stated in the final rules: 20
\19\ See 52 FR 28980, 28988 (August 5, 1987).
\20\ Id.
In order to ensure that foreign commodity exchanges are both
willing and able to share appropriate information with the
Commission * * * the Commission has determined to make the issuance
of a Commission order a prerequisite to the lawful offer and sale of
such products.
Reevaluation of foreign options rules.
Since 1987 foreign option sales to U.S. customers have been
permitted under the Commission's part 30 rules. Such sales have
occurred without the type of sales abuses that historically had been
associated with commodity option activities. Contributing to this
success has been the requirement that foreign options be sold to U.S.
customers by futures commission merchants (which ensures among other
things the adequacy of firm capital, fitness of personnel and proper
supervision of sales practices); the Commission's Part 30 rules, which
seek to ensure that foreign firms directly soliciting U.S. customers
for foreign products are otherwise regulated as to their sales
practices; 21 and the undertaking by the National Futures
Association (NFA) to audit the foreign options sales practices of
domestic firms marketing foreign options to domestic customers.22
In particular, under the current regulatory scheme, firms engaged in
the offer or sale of foreign commodity options (and futures) to U.S.
customers must either be a Commission registrant or a foreign firm
which has qualified to sell foreign products in the United States under
the Commission's Part 30 rules based on substituted compliance with a
foreign jurisdiction's licensing and fitness requirements and subject
to certain other conditions to assure the availability of the firms'
records and its submission to Commission jurisdiction under the CEA and
U.S. law otherwise.
\21\ In reviewing the foreign regulatory program for purposes of
rule 30.10, the Commission's staff considers the sales practice
compliance review program in effect in the foreign jurisdiction.
\22\ Part 33 requires exchanges as a condition of designation as
a contract market to have specific options sales practice compliance
responsibilities. NFA and the futures exchanges participate in a
Joint Audit Plan (Plan) to reduce the duplication of audit and
financial surveillance work which otherwise could occur with respect
to FCMs which are members of more than one exchange. The plan
assigns primary audit and financial surveillance responsibility for
each FCM, which is a member of more than one of the SROs, to one of
the Plan participants. The SRO which has the primary responsibility
is known as that FCM's DSRO. NFA is the DSRO for all FCMs which are
not members of any commodity exchange and therefore, do not have an
exchange SRO and, in some cases, NFA by agreement is the DSRO for
certain exchange member firms. NFA also is the DSRO responsible for
surveillance over the financial reporting and recordkeeping by all
member CPOs, and independent introducing brokers (IBs), as well as
guaranteed IBs whose guaranteeing FCMs have NFA as the DSRO. NFA
also is charged with auditing for sales practice compliance all
member IBs, CTAs and CPOs, and branch offices of FCMs for which NFA
is DSRO, as well as all futures sales practices compliance not
contracted to another SRO.
To date, NFA has undertaken, in conjunction with specific
Commission orders under rule 30.3(a), to conduct sales practice
compliance auditing of registrants marketing particular foreign
commodity options under relevant arrangements with such firms' DSRO.
Therefore, any revisions to Commission rule 30.3 would be premised
on the existence of an audit program to assure general sales
practice compliance for all foreign commodity option transactions.
See also n. 21.
---------------------------------------------------------------------------
In the case of NFA, NFA audits generally include the review and
analysis of a member firm's trading records, sales materials and
practices (sales practices compliance audits), and for FCMs and
independent IBs, accounting procedures, financial statements and
records (financial audits). NFA's audit programs are designed so that
the auditors must perform a certain amount of work at the member firm's
office, testing records and resolving any discrepancies. While all NFA
members are subject to audit, decisions concerning whether to audit a
particular firm are based on a number of factors, including NFA's
review of financial statements, monitoring of media advertising,
receipt of customer complaints, knowledge of the past history of the
firm and its principals, the time elapsed since the previous NFA audit,
potential effects of market movements and referrals outside of NFA.
NFA compliance audits have two major objectives: to determine
whether the firm is maintaining records in accordance with NFA rules
and applicable Commission regulations, and to ascertain that the firm
is being operated in a professional manner and that customers are
protected against unscrupulous activities, including fraudulent or
high-pressure sales practices. The compliance program specifically
examines the firm's practices in soliciting accounts and audits could
review, among other things: records of customers' orders; customer
confirmations and other account statements; records regarding handling
of discretionary accounts; disclosure documents, advertising and other
promotional material; records of customer complaints; and records
relative to the internal supervision of account executives, order
handling or sales personnel.23
\23\ See Commission rule 33.4(c); see also n. 22.
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The Commission believes that its experience since 1987 with foreign
options justifies a reexamination of the necessity of requiring a
specific option authorization order for each options contract offered
and sold in the United States, that is, the continuing need for
differential treatment of the offer or sale of foreign futures and
foreign options in the United States. Just as the Commission's domestic
exchange-traded option program has evolved on the basis of accumulated
operational experience, the Commission believes that a similar measured
evolution, based on experience, is warranted with respect to foreign
commodity options.
However, as noted above, the Commission believes that its existing
regulatory scheme governing domestic registered firms which deal
directly with the public in conjunction with the sales practice program
of the NFA--all subject to Commission oversight--should provide
adequate sales practice protections for customers who would engage in
foreign options transactions through registered FCMs. In this
connection, prior to adopting any final rules in this regard, the
Commission would need to be assured that arrangements exist through NFA
or otherwise to ensure that sales practice compliance audits of
registrants offering foreign commodity options will be undertaken,
thereby ensuring complete sales practice compliance audit coverage of
firms (which heretofore has been mandated on a product-specific basis
under rule 30.3 orders).
Similarly, the Commission's rule 30.10 orders permitting foreign
firms to directly solicit U.S. persons for foreign products address
options and futures sales practice concerns. In addition, the
Commission notes that existing 30.10 orders have been accompanied by
information-sharing arrangements
[[Page 63475]]
which assure Commission access to relevant information of the type
which previously may not have been available.24 The Commission
further recognizes that its ability to obtain information to confirm
the existence of transactions executed on foreign exchanges 25 has
been materially enhanced by the numerous information-sharing memoranda
of understanding and cooperative arrangements that have been entered
with foreign jurisdictions.\26\
\24\ Significantly, to date, the Commission has not had occasion
to request any information under any information sharing arrangement
in connection with the approval of a particular exchange foreign
option product.
\25\ In explaining its decision to suspend the offer and sale of
foreign commodity options in the United States, the Commission noted
in 1977, among other things, that:
The Commission's investigators and auditors have also
encountered great difficulty in their attempts to verify the details
of option transactions purportedly effected for Americans on foreign
exchanges.
See 43 FR 16153, 16155 (April 17, 1977).
\26\ For example, such regulatory and enforcement MOUs and
cooperative arrangements have been entered into with authorities in
Australia, Argentina, Brazil, Canada, France, Hong Kong, Italy,
Japan, Mexico, the Netherlands, Singapore, Spain, Taiwan, and the
United Kingdom.
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Nor would elimination of the authorization requirement negatively
affect the access of U.S. customers to existing customer complaint
procedures, either under existing rule 30.10 orders for customers
directly solicited by foreign firms or under NFA's arbitration rules
governing disputes with a foreign party.
Customers solicited by foreign firms operating under a rule 30.10
order will, pursuant to the express terms of such orders, have access
to arbitration procedures both abroad and through NFA. Customers
transacting through a domestic firm will have the option of electing
NFA arbitration procedures. NFA rules governing arbitration of disputes
involving foreign parties provide that disputes involving a foreign
party may, in the discretion of NFA, be arbitrated if the parties agree
to such arbitration (see NFA foreign arbitration rule sec. 2(a)(1)).
Demands for arbitration will be rejected, however, if the claim arises
primarily out of delivery, clearance, settlement or floor practices of
a foreign exchange unless the foreign jurisdiction has no program for
the resolution of disputes, in which case NFA will hear such claims.
The rule 30.10 order permits the 30.10 firm to require a customer to
consent to use a foreign regulator's non-binding mediation or
conciliation service prior to initiating an NFA arbitration case. (See
NFA Arbitration Policy Statement (March 1, 1989)).
Thus, whether solicited by Commission registrants or foreign firms
operating under rule 30.10, the Commission believes that the systems in
place to address sales practice abuses and information sharing warrant
reexamination of existing procedures.
Finally, the Commission notes that FCMs which are not members of
foreign exchanges should assure themselves that there are no statutory
or regulatory impediments on their ability to obtain information from
foreign exchange-members firms necessary to enable such FCMs to comply
with the CEA and regulations thereunder relative to confirming the
execution of foreign option transactions.
In conclusion, the Commission believes that the differential
treatment of foreign options no longer is justified. Indeed, to the
extent that such differential treatment continues under circumstances
when such treatment is not warranted based on existing economic and/or
regulatory concerns, it risks conveying to traders the incorrect
impression that the Commission can provide a greater level of
protection with respect to foreign options than with respect to foreign
futures. Moreover, as domestic exchanges increasingly seek to link
their exchanges electronically with other exchanges worldwide, the
presence of an authorization process for commodity options raises,
under the current circumstances, an unnecessary obstacle that could
competitively disadvantage domestic exchanges.
Proposal
The Commission is therefore proposing to eliminate rule 30.3's
requirement that no foreign option may be offered or sold in the United
States until the Commission, by order, authorizes such foreign
commodity option to be offered or sold in the United States.
The Commission notes that the proposed elimination of the specific
authorization requirement in rule 30.3(a) will not affect the existing
product restrictions applicable to options on futures contracts based
on stock index products (i.e., the underlying stock index futures must
be the subject of a no-action letter issued by the CFTC's Office of the
General Counsel) and foreign government debt (i.e., the debt product
must be designated by the SEC as an exempted security under SEC rule
13a-8) contained in section 2(a)(1)(B)(v) of the CEA.
Accordingly, the Commission invites comment from interested parties
on its proposal. Moreover, the Commission specifically invites the
contract markets to indicate any other areas in which the designation
requirements for options and futures generally could be further
harmonized.
Other Matters
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires that agencies, in proposing rules, consider the impact of
those rules on small businesses. The Commission has previously
determined that FCMs should be excluded from the definition of ``small
entity'' based upon the fiduciary nature of the FCM/customer
relationships as well as the fact that FCMs must meet minimum financial
requirements. 47 FR 18618, 18619 (April 30, 1982). The Commission
similarly determined that CPOs are not small entities for purposes of
the RFA. 47 FR 18618, 18620 (April 30, 1982). With respect to CTAs and
IBs, the Commission has stated that it would evaluate within the
context of a particular rule proposal whether all or some affected CTAs
would be considered to be small entities and, if so, the economic
impact on them of any rule. 47 FR 18618, 18620 (April 30, 1982) (CTAs);
48 FR 35248, 35276 (August 3, 1983) (IBs).
The proposed amendment of rule 30.3 is intended to facilitate the
ability of Commission registrants or exempted firms to provide
customers with access to desired products by eliminating a current
product-by-product authorization requirement, thus providing easier
access to a greater number of persons.
Accordingly, the Chairman, on behalf of the Commission, hereby
certifies, pursuant to 5 U.S.C. 605(b), that the proposed rule will not
have a significant economic impact on a substantial number of small
entities.
Paperwork Reduction Act
The Paperwork Reduction Act of 1980 (Act), 44 U.S.C. 3501 et seq.,
imposes certain requirements on federal agencies (including the
Commission) in connection with their conducting or sponsoring any
collection of information as defined by the Act. The Commission has
determined that the proposed amendment does not have any paperwork
burden.
Persons wishing to comment on the Commission's determination on the
paperwork burden concerning this proposed rule should contact Jeff
Hill,
[[Page 63476]]
Office of Management and Budget, room 3228, NEOB, Washington, D.C.
20503, (202) 395-7340. Copies of the information collection submission
to OMB are available from Joe Mink, CFTC Clearance Officer, Three
Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581;
telephone (202) 418-5170.
List of Subjects in 17 CFR Part 30
Commodity futures.
In consideration of the foregoing, and pursuant to the authority
contained in the Commodity Exchange Act and, in particular, sections
2(a)(1)(A), 4, 4c and 8a of the Commodity Exchange Act, 7 U.S.C. 2, 6,
6c and 12a, the Commission hereby proposes to amend part 30 of chapter
I of title 17 of the Code of Federal Regulations as follows:
PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS
1. The authority citation for part 30 continues to read as follows:
Authority: Secs. 2(a)(1)(A), 4, 4c and 8a of the Commodity
Exchange Act, 7 U.S.C. 2, 6, 6c and 12a.
2. Section 30.3 is proposed to be amended by revising paragraph (a)
to read as follows:
Sec. 30.3 Prohibited transactions.
(a) It shall be unlawful for any person to engage in the offer and
sale of any foreign futures contract or foreign options transaction for
or on behalf of a foreign futures or foreign options customer, except
in accordance with the provisions of this part: Provided, that, with
the exception of the disclosure and antifraud provisions set forth in
Secs. 30.6 and 30.9 of this part, the provisions of this part shall not
apply to transactions executed on a foreign board of trade, and carried
for or on behalf of a customer at a designated contract market, subject
to an agreement with and rules of a contract market which permit
positions in a commodity interest which have been established on one
market to be liquidated on another market.
* * * * *
Issued in Washington, D.C. on December 5, 1995 by the
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 95-30046 Filed 12-8-95; 8:45 am]
BILLING CODE 6351-01-P
Complete official Federal Register PDF
FR Doc. 95-30028 Extensions of Credit to Insiders and Transactions With Affiliates
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63461-63465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30028]
=======================================================================
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 31
[Docket No. 95-29]
RIN 1557-AB40
Extensions of Credit to Insiders and Transactions With Affiliates
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) proposes
to revise its rules governing extensions of credit to national bank
insiders and to relocate to part 31 several interpretive rulings
dealing with transactions with affiliates. This proposal is another
component of the OCC's Regulation Review Program to update and
streamline OCC regulations and to reduce unnecessary regulatory costs
and other burdens. The proposal modernizes and clarifies the insider
lending rules and reduces unnecessary regulatory burdens where
feasible, consistent with statutory requirements.
DATES: Comments must be received by February 9, 1996.
ADDRESSES: Comments should be directed to: Office of the Comptroller of
the Currency, Communications Division, 250 E Street, SW, Washington, DC
20219, Attention: Docket No. 95-29. Comments will be available for
public inspection and photocopying at the same location. In addition,
comments may be sent by facsimile transmission to FAX number (202) 874-
5274 or by electronic mail to [email protected].
FOR FURTHER INFORMATION CONTACT: Aline Henderson, Senior Attorney, Bank
Activities and Structure (202) 874-5300; Emily McNaughton, National
Bank Examiner, Credit & Management Policy (202) 874-5170; or Mark
Tenhundfeld, Senior Attorney, Legislative and Regulatory Activities
(202) 874-5090.
SUPPLEMENTARY INFORMATION:
Background
Summary of Regulation Review Program
The OCC proposes to revise 12 CFR part 31 as another component of
its Regulation Review Program (Program). The goal of the Program is to
review all of the OCC's rules and to eliminate provisions that do not
contribute significantly to maintaining the safety and soundness of
national banks or to accomplishing the OCC's other statutory
responsibilities. Another goal of the Program is to clarify regulations
so that they more effectively convey the standards the OCC seeks to
apply.
[[Page 63462]]
The OCC intends for this proposal to reduce regulatory costs and
other burdens on national banks by eliminating regulatory requirements
that are neither essential to maintaining the safety and soundness of
national banks nor needed to accomplish the OCC's statutory
responsibilities. The proposal also seeks comments on whether it would
be useful for the OCC to issue additional guidance on the differences
between the requirements of part 31 and 12 CFR part 32 (Lending
Limits).
Discussion
Current part 31 contains two subparts. Subpart A implements 12
U.S.C. 375a(4) and 375b(3) by setting a limit on the amount that a
national bank may lend to any one of its executive officers other than
for housing- and education-related loans and by establishing a
threshold above which approval of the bank's board of directors is
required for any loan to an insider. Subpart B implements 12 U.S.C.
1817(k) and 1972(2)(G)(ii) by requiring a national bank to disclose,
upon request, the names of its executive officers and principal
shareholders who borrow more than specified amounts from the bank
itself or the bank's correspondent banks and to maintain records
related to requests for this information. Subpart B also implements 12
U.S.C. 1972(2)(G)(i), which requires a national bank's executive
officers and principal shareholders to report on loans they or their
related interests receive from the bank's correspondent banks.
This proposal creates three exceptions to the limit on loans that a
national bank may make to its executive officers for situations where
the lending bank's position is clearly protected by virtue of the type
of collateral involved. It also clarifies and simplifies the current
rule by removing provisions that are no longer necessary. Finally, it
invites comments on whether guidance would be helpful on the
differences between the insider lending limits and the loans-to-one-
borrower limits and, if so, the areas where clarification may be most
needed.
The following discussion identifies and explains material proposed
changes to part 31. The OCC invites general comments on the proposed
regulation as well as specific comments on the areas identified.
Title of Regulation
The current rule is titled ``Extensions of Credit to National Bank
Insiders.''
The proposed rule changes the title to ``Extensions of Credit to
Insiders and Transactions with Affiliates.'' This change reflects the
proposed relocation to 12 CFR part 31 of several interpretations
regarding transactions with affiliates that currently are set out in
part 7. (See ``Interpretations'' and text that follows for further
discussion of the relocation.)
Subpart A--Loans to Insiders
Definitions (Proposed Sec. 31.2)
Current Sec. 31.3 states that the definitions contained in
Secs. 215.2 and 215.3 of Regulation O (12 CFR part 215) apply to
subpart A of part 31.
Proposed Sec. 31.2 also states that the definitions used in
Secs. 215.2 and 215.3 of Regulation O apply. However, because proposed
Sec. 31.3 uses a term (capital and surplus) that is Not defined in
Regulation O, proposed Sec. 31.2 states that ``capital and surplus''
will be defined in the same way as that term is defined in part 32
(Lending Limits) (12 CFR 32.2(b)). This clarifies that national banks
calculate their loans-to-one-borrower lending limits and their insider
lending limits using the same capital base.1
\1\ Regulation O uses the term ``unimpaired capital and
unimpaired surplus.'' See 12 CFR 215.2(i). The Board of Governors of
the Federal Reserve System (Board) recently amended Regulation O to
conform the definition of ``unimpaired capital and unimpaired
surplus'' to the definition of ``capital and surplus'' as defined in
part 32 (60 FR 31053, June 13, 1995). Accordingly, the capital base
from which different limits are measured now is the same, despite
the different terminology.
---------------------------------------------------------------------------
Loan Limits (Proposed Sec. 31.3)
Current Sec. 31.2(a) prohibits a national bank from making a loan
to an executive officer if the loan, when aggregated with all other
loans outstanding from the bank to the officer, would exceed the higher
of $25,000 or 2.5 percent of the bank's capital and unimpaired surplus,
up to $100,000. However, the current rule exempts home mortgage and
educational loans from this limit pursuant to sections 22(g)(2) and
22(g)(3) of the Federal Reserve Act (12 U.S.C. 375a (2) and (3)).2
Loans that do not comply with sections 22(g)(2) or 22(g)(3) often are
referred to as ``other purpose loans,'' because they are for purposes
other than those identified in those sections of the Federal Reserve
Act.
\2\ Section 22(g)(2) of the Federal Reserve Act permits a member
bank (and, therefore, a national bank) to make a loan to one of its
executive officers if the loan is secured by a first lien on a
dwelling that the officer will own and use as his or her residence
after the loan is made. Section 22(g)(3) permits a member bank to
make a loan to an executive officer to finance the education of the
officer's children.
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Pursuant to the rulemaking authority in 12 U.S.C. 375(a)(4),
proposed Sec. 31.3(a) exempts a loan from the limits applicable to
``other purpose loans'' if the loan is secured by United States
obligations, obligations guaranteed by a Federal agency, or a
segregated deposit account.3 The proposal effects this change by
incorporating the exceptions set forth in the OCC's Lending Limits
regulation at 12 CFR 32.3(c)(3), (c)(4)(ii), and (c)(6). The proposal
also clarifies that the limits prescribed by Sec. 31.3(a) do not apply
to executive officers of affiliates of the lending bank.
\3\ The OCC currently exempts these loans from the limits on
loans to one borrower. See 12 CFR 32.3(c)(3), (4), and (6). The only
difference between the exceptions in proposed part 31 and the
exceptions currently available under part 32 is that the proposal
does not include the exemption for loans to a Federal agency (12 CFR
32.3(c)(4)(i)), given that this exemption does not apply to loans to
executive officers.
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The OCC believes that the proposed exceptions, which entail
situations where the lending bank's position is secure by the nature of
the collateral required, are consistent with safe and sound banking
practices and would eliminate unnecessary restrictions on lending by
national banks. Moreover, in the insider lending context, loans that
qualify for the exceptions remain subject to the safeguards found in
sections 22(g)(1) and 22(h)(2) of the Federal Reserve Act (12 U.S.C.
375a(1) and 375b(2)), thereby providing additional protection against
abuse.4
\4\ Section 22(g)(1) of the Federal Reserve Act requires that
any loan by a member bank to one of its executive officers be
promptly reported to the bank's board of directors. The bank may
make the loan to the executive officer only if it is authorized to
make the loan to borrowers other than its officers, the loan is on
terms not more favorable than those afforded other borrowers, and
the officer has submitted a detailed current financial statement.
Section 22(h)(2) authorizes a member bank to make a loan to a bank
insider only if the loan is made on substantially the same terms as
those prevailing at the time for comparable transactions by the bank
with persons who are not insiders, the loan does not involve more
than the normal risk of repayment or present other unfavorable
features, and the bank follows credit underwriting procedures that
are not less stringent than those applicable to comparable
transactions by the bank with non-insiders.
---------------------------------------------------------------------------
Both the Federal Deposit Insurance Corporation (FDIC) and the Board
have amended their insider lending rules to include exemptions similar
to those noted above. See 59 FR 66666 (December 28, 1994) (amending the
FDIC's rule at 12 CFR 337.3) and 59 FR 8831 (February 24, 1994)
(amending the Board's rule at 12 CFR 215.5).5 The OCC
[[Page 63463]]
believes the disparity between its rule and those of the other Federal
banking agencies is both unnecessary and inconsistent with section 303
of the Riegle Community Development and Regulatory Improvement Act of
1994 (CDRI) (12 U.S.C. 4803), which requires each agency to work with
the other Federal banking agencies to make uniform all regulations and
guidelines implementing common statutory or supervisory policies. CDRI,
section 303(a)(2).
\5\ The Office of Thrift Supervision's regulation automatically
applies the Board's insider lending rule to thrifts. See 12 CFR
563.43. Accordingly, the amendment to 12 CFR 215.5 also applies to
thrifts. The OCC also believes that the current restrictions run
counter to section 303(a)(1)(A) of the CDRI, which requires the
Federal banking agencies to eliminate unwarranted constraints on
credit availability. The OCC has observed no significant problems
arising from the exemptions in the loans-to-one-borrower context.
This experience, coupled with the safeguards provided by sections
22(g) and 22(h), leads the OCC to conclude that limiting the amount
of loans secured in the manner in question is unwarranted.
---------------------------------------------------------------------------
For these reasons, the OCC proposes to eliminate the special
restrictions on extensions of credit by national banks to their
executive officers, provided the loans are secured in the manner
previously described. The OCC seeks comment on whether interested
parties agree that the exemptions are appropriate for national banks.
Current Sec. 31.2(b) requires a majority of the directors of a
national bank to approve in advance a loan to one of the bank's
executive officers, principal shareholders, or directors (or to any
related interest of such persons) if the amount of the loan, when
aggregated with other loans outstanding to that insider and his or her
related interests, exceeds the higher of $25,000 or 5 percent of the
bank's capital and surplus. In no event may a national bank lend more
than $500,000 to an insider and his or her related interests without
the majority of the bank's board first approving the loan. Interested
directors must abstain from the voting.
Proposed Sec. 31.3(b) amends the OCC's rule to conform to recent
changes made to the definitions of ``director,'' ``executive officer,''
and ``principal shareholder'' in Regulation O (12 CFR 215.2(d), (e),
and (m), respectively). The Board narrowed these definitions so that
they generally apply just to insiders of the bank and not to its
affiliates. At the same time the Board narrowed these definitions, it
also clarified, in 12 CFR 215.4(b)(1), that the prior approval
requirements continue to apply to insiders of the bank as well as
insiders of the bank's affiliates. Proposed Sec. 31.3(b) also makes
this clarification.
It should be noted that the exemptions set forth in proposed
Sec. 31.3(a) do not apply to proposed Sec. 31.3(b). Thus, a loan
secured, for instance, by a segregated deposit account still must be
counted for purposes of determining whether prior approval is required
under proposed Sec. 31.3(b). This provides an additional protection
against insider abuse by insuring that a bank's directors will have the
opportunity to review loans to insiders in amounts that exceed the
specified thresholds.
Subpart B--Reports and Public Disclosure
Authority and OMB Control Number (Sec. 31.4)
Current Sec. 31.4 states the authority pursuant to which subpart B
is issued and sets forth the Office of Management and Budget (OMB)
control number.
The proposed rule removes the statement of the OMB control number
from part 31 but retains the statement of authority. In a separate
rulemaking, the OCC will relocate all OMB control numbers to 12 CFR
part 4.
Definitions (Proposed Sec. 31.5)
Current Sec. 31.5(d) states, as a general matter, that the
definitions found in subpart B of Regulation O (12 CFR 215.20 through
215.23) apply to subpart B of part 31. Current Sec. 31.5(d) also states
that, for purposes of the requirement governing reports of loans to
insiders from the insider's bank, the term ``bank'' means Federally-
chartered insured bank.
The proposal relocates the definition section to proposed Sec. 31.5
and incorporates into subpart B of part 31 the definitions found in
subpart B of Regulation O. The proposal also clarifies, for the reasons
stated in the discussion of proposed Sec. 31.2, that the term ``capital
and surplus'' in part 31 has the same meaning as ``capital and
surplus'' as that term is used in 12 CFR part 32. The proposal also
removes an obsolete reference to 12 U.S.C. 1817.
Disclosure of Insider Indebtedness (Proposed Sec. 31.6)
Current Sec. 31.5 requires a national bank to disclose, if
requested, the names of each executive officer and principal
shareholder whose aggregate indebtedness (including debt of the
insider's related interests) from either the bank or its correspondent
banks equals or exceeds the lesser of 5 percent of the bank's capital
and unimpaired surplus or $500,000.6 The current rule also
requires a national bank to maintain records of requests for
information for two years following the request.
\6\ This requirement applies only to aggregate indebtedness that
exceeds $25,000.
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Proposed Sec. 31.6 makes no substantive change, but revises the
current section's style in order to improve clarity. Proposed
Sec. 31.6(a) uses the term ``capital and surplus'' instead of ``capital
and unimpaired surplus,'' which is used in the current regulation. This
change conforms subpart B of part 31 to subpart A. The proposal also
clarifies, in Sec. 31.6(c), that the two-year period for retaining
records of requests and the disposition of requests begins on the date
of the request.
Reports by Executive Officers and Principal Shareholders (Proposed
Sec. 31.7)
Current Sec. 31.6 implements 12 U.S.C. 1972(2)(G)(i), which
requires national bank executive officers and principal shareholders to
file annual reports with their bank's board of directors showing
indebtedness from correspondent banks to the insiders or their related
interests. The current rule states that ``This requirement is restated
in Regulation O, 12 CFR 215.22,'' thereby implicitly incorporating the
provisions of the section cited.
Proposed Sec. 31.7 clarifies that 12 U.S.C. 1972(2)(G)(i) requires
reports only if the executive officer or principal shareholder (or
their related interests) have credit outstanding at some point during
the year. The proposed rule also clarifies that all of the provisions
of 12 CFR 215.22 apply. The OCC does not intend any substantive change
by these proposed amendments.
Interpretations
On March 3, 1995, the OCC proposed to relocate several
interpretations that currently appear in part 7. See 60 FR 11924, 11930
(proposing to relocate 12 CFR 7.7355 (debts of affiliates), 7.7360
(loans secured by stock or obligations of an affiliate), 7.7365
(Federal funds transactions between affiliates), and 7.7370 (deposits
between affiliated banks)). The OCC proposed to relocate these
interpretations to part 31 because the interpretations and part 31 stem
from the same concern about persons or entities taking undue advantage
of positions of influence and thereby adversely affecting the safety
and soundness of a national bank. Given the similarities in the
supervisory concerns that prompted both part 31 and the
interpretations, the OCC believes that it is more appropriate to
include the interpretations in part 31 rather than in a collection of
unrelated interpretations. The OCC also believes that relocating the
interpretations to part 31 will make them easier to find.
The proposed rule restates the latter three of these
interpretations at new Secs. 31.100-31.102. Current Sec. 7.7355, which
interprets the prohibition against a national bank withdrawing its
capital, will be relocated to part 5 to consolidate all provisions
related to changes in a national bank's equity capital. The OCC
[[Page 63464]]
invites comments on these interpretations.
Additional Guidance Regarding Differences Between Lending Limits and
Insider Lending Standards
The OCC seeks comment on whether it would be useful for the OCC to
issue guidance clarifying the differences between the loans-to-one-
borrower limits (12 CFR part 32) and the insider lending limits (part
31). For instance, the attribution rules and the definition of
``extension of credit'' applied by the OCC in the two regulations are
similar but sufficiently different that a banker or bank counsel must
keep straight two different sets of rules that often will apply to the
same transaction. In many cases, these differences are compelled by
differences in the underlying statutory authority for the two parts.
The OCC requests that commenters who believe that this type of guidance
would be helpful also identify areas where the intersection of the two
rules gives rise to the most uncertainty. In this way, the OCC can
focus any guidance it provides on those areas where help is most
needed. The OCC also requests comment on whether the guidance should
appear in an appendix to part 31, as an OCC bulletin, or in some other
format.
The following table directs readers to the provision(s) of the
current regulation, if any, upon which the proposed provision is based,
and identifies generally the action taken.
Derivation Table
------------------------------------------------------------------------
Revised section Original section Comments
------------------------------------------------------------------------
31.1................... 31.1................... No change.
31.2................... 31.3................... Relocated and
modified.
31.3(a)(1)............. 31.2(a)................ Modified.
31.3(a)(2)............. ....................... Added.
31.3(b)................ 31.2(b)................ Modified.
31.4................... 31.4................... Modified.
31.5................... 31.5(d)................ Relocated and
modified.
31.6(a)................ 31.5(a)................ Modified.
31.6(b)................ 31.5(b)................ Modified.
31.6(c)................ 31.5(c)................ Modified.
31.7................... 31.6................... Modified.
31.100................. 7.7360................. Relocated and
modified.
31.101................. 7.7365................. Relocated.
31.102................. 7.7370................. Relocated and
modified.
------------------------------------------------------------------------
Regulatory Flexibility Act
It is hereby certified that this regulation will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not required. This
regulation will reduce the regulatory burden on national banks,
regardless of size, by eliminating and clarifying current regulatory
requirements.
Executive Order 12866
The OCC has determined that this proposal is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Act of 1995 (Unfunded Mandates
Act) requires that an agency prepare a budgetary impact statement
before promulgating a proposal likely to result in a rule that includes
a Federal mandate that may result in the annual expenditure of $100
million or more in any one year by State, local, and tribal
governments, in the aggregate, or by the private sector. If a budgetary
impact statement is required, section 205 of the Unfunded Mandates Act
requires an agency to identify and consider a reasonable number of
alternatives before promulgating a proposal. The OCC has determined
that the proposal, if adopted, will not result in expenditures by
State, local, and tribal governments, or by the private sector, of more
than $100 million in any one year. Accordingly, the OCC has not
prepared a budgetary impact statement or specifically addressed the
regulatory alternatives considered.
List of Subjects in 12 CFR Part 31
Credit, Disclosure, Executive officers, National banks, Principal
shareholders, Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons set out in the preamble, the OCC proposes to revise
part 31 of chapter I of title 12 of the Code of Federal Regulations as
set forth below:
PART 31--EXTENSIONS OF CREDIT TO INSIDERS AND TRANSACTIONS WITH
AFFILIATES
Subpart A--Loans to Insiders
Sec.
31.1 Authority.
31.2 Definitions.
31.3 Loan limits.
Subpart B--Reports and Public Disclosure
31.4 Authority.
31.5 Definitions.
31.6 Disclosure of insider indebtedness.
31.7 Reports by executive officers and principal shareholders.
Interpretations
31.100 Loans secured by stock or obligations of an affiliate.
31.101 Federal funds transactions between affiliates.
31.102 Deposits between affiliated banks.
Authority: 12 U.S.C. 375a(4), 375b(3), 1817(k), and
1972(2)(G)(ii), as amended.
Subpart A--Loans to Insiders
Sec. 31.1 Authority.
The part is issued by the Comptroller of the Currency pursuant to
12 U.S.C. 375a(4) and 375b(3), as amended.
Sec. 31.2 Definitions.
For the purposes of this subpart, the definitions of the terms
contained in Regulation O, 12 CFR 215.2 and 215.3, apply, except that
the term ``capital and surplus'' as used in this subpart has the same
meaning as ``capital and surplus'' as defined in 12 CFR 32.2(b).
Sec. 31.3 Loan limits.
(a) Lending limit on loans to executive officer--(1) General limit.
Except as provided in paragraph (a)(2) of this section, a national bank
may not extend credit to an executive officer of the bank in an amount
that, when aggregated with all other outstanding extensions of credit
to that officer, exceeds the greater of $25,000 or 2.5 percent of the
bank's capital and surplus, or in any event $100,000. The restrictions
of this section apply only to executive officers of the national bank
and not to executive officers of its affiliates.
(2) Exceptions. The general limit specified in paragraph (a)(1) of
this section does not apply to the following:
(i) A loan made for the purpose described in 12 U.S.C. 375a(2)
(housing-related loans) or 12 U.S.C. 375a(3) (loans made to finance the
education of the officer's children); and
(ii) A loan secured in a manner described in 12 CFR 32.3(c)(3)
(secured by United States obligations), 12 CFR 32.3(c)(4)(ii) (secured
by obligations guaranteed by a Federal agency), or 12 CFR 32.3(c)(6)
(secured by a segregated deposit account).
(b) Approval limits on all loans to an insider. Notwithstanding
paragraph (a) of this section, a national bank may not extend credit to
an insider of the bank or insider of its affiliates in an amount that,
when aggregated with all other extensions of credit to that insider,
exceeds the greater of $25,000 or 5 percent of the bank's capital and
surplus, or in any event $500,000, unless:
(1) A majority of the lending bank's entire board of directors
approves the loan in advance; and
(2) The interested party abstains from participating directly or
indirectly in the vote.
[[Page 63465]]
Subpart B--Reports and Public Disclosure
Sec. 31.4 Authority.
This subpart is issued by the Comptroller of the Currency pursuant
to 12 U.S.C. 1817(k) and 12 U.S.C. 1972(2)(G)(ii), as amended.
Sec. 31.5 Definitions.
The definitions set forth in 12 CFR 215.21 apply to this subpart,
except that ``capital and surplus'' has the same meaning as ``capital
and surplus'' as defined in 12 CFR 32.2(b), and, for purposes of
Sec. 31.5(a)(1), ``bank'' means an insured national bank.
Sec. 31.6 Disclosure of insider indebtedness.
(a) Upon receipt of a written request, a national bank shall
disclose the name of each of its executive officers and principal
shareholders whose aggregate indebtedness (including indebtedness of
related interests of such persons) from either--
(1) The insider's bank as of the latest calendar quarter, or
(2) The bank's correspondent banks at any time during the previous
calendar year, equals or exceeds the lesser of 5 percent of the bank's
capital and surplus or $500,000. This requirement applies only if the
insider's (and his or her related interest's) aggregate indebtedness
described in paragraphs (a)(1) or (a)(2) of this section exceeds
$25,000.
(b) A national bank need not disclose additional information
concerning indebtedness of its executive officers and principal
shareholders. The bank may base its disclosure under paragraph (a)(1)
of this section on the bank's most recent Consolidated Report of
Condition and Income. The bank may base its disclosure under paragraph
(a)(2) of this section on information contained in the reports referred
to in Sec. 31.6.
(c) A national bank shall maintain records of any requests for
information under paragraph (a) of this section and records of the
disposition of these requests for two years from the date of the
request.
Sec. 31.7 Reports by executive officers and principal shareholders.
Pursuant to 12 U.S.C. 1972(2)(G)(i), each executive officer and
principal shareholder of a national bank shall report annually to the
bank's board of directors his or her indebtedness, and the indebtedness
of his or her related interests, from correspondent banks of the
insider's bank. For purposes of this section, the requirements stated
in 12 CFR 215.22 (which implements the insider reporting requirements
imposed by 12 U.S.C. 1972(2)(G)(i)) apply.
Interpretations
Sec. 31.100 Loans secured by stock or obligations of an affiliate.
If a loan to an affiliate is otherwise adequately secured in
compliance with 12 U.S.C. 371c(c), a national bank may take a security
interest in the securities of an affiliate as additional collateral
without the loan being considered a covered transaction for purposes of
the limits on transactions with affiliates in 12 U.S.C. 371c(a)(1) (A)
and (B).
Sec. 31.101 Federal funds transactions between affiliates.
The limitations contained in 12 U.S.C. 371c apply to the sale of
federal funds by a national bank to an affiliate of the bank.
Sec. 31.102 Deposits between affiliated banks.
(a) General rule. The OCC considers a deposit made by a bank in an
affiliated bank to be a loan or extension of credit to the affiliate
under 12 U.S.C. 371c. These deposits must be secured in accordance with
12 U.S.C. 371c(c). However, a national bank may not pledge assets to
secure private deposits unless otherwise permitted by law (see, e.g.,
12 U.S.C. 90 (permitting collateralization of deposits of public
funds); 12 U.S.C. 92a (trust funds); and 25 U.S.C. 156 and 162a (Native
American funds)). Thus, unless one of the exceptions to 12 U.S.C. 371c
noted in paragraph (b), of this section, applies or unless another
exception applies that enables a bank to meet the collateral
requirements of 12 U.S.C. 371c(c), a national bank may not:
(1) Make a deposit in an affiliated national bank;
(2) Make a deposit in an affiliated State-chartered bank unless the
affiliated State-chartered bank can legally offer collateral for the
deposit in conformance with applicable State law and 12 U.S.C. 371c; or
(3) Receive deposits from an affiliated bank.
(b) Exceptions. The restrictions of 12 U.S.C. 371c (other than 12
U.S.C. 371c(a)(4), which requires affiliate transactions to be
consistent with safe and sound banking practices) do not apply to
deposits:
(1) Made in the ordinary course of correspondent business; or
(2) Made in an affiliate that qualifies as a ``sister bank'' under
12 U.S.C. 371c(d)(1).
Dated: November 28, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-30028 Filed 12-8-95; 8:45 am]
BILLING CODE 4810-33-P
Complete official Federal Register PDF
FR Doc. 95-29807 Cable Television Act of 1992
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63492-63497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29807]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[CS Docket No. 95-174; FCC 95-472]
Cable Television Act of 1992
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This Notice of Proposed Rulemaking seeks comment on proposed
methods for cable operators' setting of uniform rates for uniform
services offered in multiple franchising areas. The Commission is
exploring this issue to solicit comment on possibly permitting
operators to establish uniform rates. The item will help the Commission
create a record on this issue, which will assist the Commission in
designing new or amending current regulations to allow operators to
establish uniform rates.
DATES: Comments are due on or before January 12, 1996 and reply
comments are due on or before February 12, 1996.
ADDRESSES: Federal Communications Commission, 1919 M Street NW.,
Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT:
Larry Walke, (202) 416-0847.
SUPPLEMENTARY INFORMATION: The text of this document is available for
inspection and copying during normal business hours in the FCC
Reference Center (Room 239), 1919 M Street NW., Washington, DC 20554,
and may be purchased from the Commission's copy contractor,
International Transcription Service, (202) 857-3800, 2100 M Street NW.,
Washington, DC 20037.
[CS Docket No. 95-174]
In the matter of Implementation of Sections of the Cable
Television Consumer Protection and Competition Act of 1992--Rate
Regulation Uniform Rate-Setting Methodology.
Notice of Proposed Rulemaking
Adopted: November 28, 1995.
Released: November 29, 1995.
By the Commission:
Comment Date: January 12, 1996.
Reply Comment Date: February 12, 1996.
I. Introduction
1. Under the Commission's cable service rate regulations, a cable
operator serving multiple franchise areas must establish maximum
permitted service rates in each franchise area. These rates often vary
from franchise area to franchise area, even if each area receives the
identical package of program services. This outcome may cause needless
confusion for subscribers, as well as unnecessary administrative
burdens for cable companies. In addition, a cable operator's ability to
market its product on a regional basis may be hindered. Therefore, in
this Notice of Proposed Rulemaking (``NPRM''), we explore the design
and implementation of an optional rate-setting methodology under which
a cable operator could establish uniform rates for uniform cable
service tiers offered in multiple franchise area.
II. Background
2. Under the Cable Television Consumer Protection and Competition
Act of 1992 (the ``1992 Cable Act''), the rates charged by a cable
system are
[[Page 63493]]
subject to regulation unless the system faces effective competition. In
particular, the 1992 Cable Act directed the Commission to establish
regulations designed to protect subscribers from unreasonable rates for
certain types of cable services offered by such systems. Rate-regulated
services consist of the basic service tier (``BST'') and the cable
programming services tier (``CPST'').
3. Every cable operator subject to rate regulation must offer a BST
that includes all local broadcast stations that the operator carries on
its system, plus all public, educational, and governmental (``PEG'')
access channels required by the operator's franchise agreement with its
local franchising authority. If it so chooses, a cable operator may
offer additional programming on its BST beyond these minimum
requirements. Subscribers to a rate-regulated cable system must
purchase the BST in order to have access to any other tier of service.
CPSTs include all non-BST programming offered over the cable system,
other than programming offered to subscribers on a per channel or per
program basis. There is no general requirement that an operator offer a
CPST, and some operators offer no CPST. Per channel and per program
offerings are generally exempt from rate regulation.
4. Congress identified several specific factors that the Commission
must consider in establishing regulations governing BST and CPST rates.
The Commission may take other factors into account as well. In
addition, the 1992 Cable Act required that the Commission ``seek to
reduce administrative burdens on subscribers, cable operators,
franchising authorities and the Commission'' in establishing its
regulations.
5. Under the primary method of rate regulation adopted by the
Commission, a regulated cable system determines the maximum permitted
initial rates for cable services pursuant to a benchmark formula. In
selecting a primary regulatory model, the Commission employed a
benchmark formula instead of the cost-of-service methodology that is
traditionally applied to public utilities because of the often
significant administrative costs and burdens on regulators and
regulated companies associated with cost-of-service regulation.
However, operators subject to regulation do have the option of setting
rates in accordance with a cost-of-service methodology that the
Commission has developed.
6. To set or justify its initial rates in accordance with the
benchmark formula, a cable operator first must use FCC Form 1200. This
form generates a maximum permitted rate as of May 15, 1994 for a
particular franchise area, based upon various characteristics specific
to the cable system within that franchise area. These variables include
channels per tier, number of regulated non-broadcast channels per tier,
number of subscribers in the local franchise area, number of tier
changes, the census income level for the franchise area, number of
additional outlets and remote control units in the franchise area,
system-wide subscribership, whether the system is part of a multiple
system operation (``MSO''), and the number of systems in the MSO. A
benchmark operator may, and sometimes must, adjust the rates permitted
by Form 1200 to take account of changes in inflation and other costs
since May 15, 1994. Currently, the operator must use FCC Form 1210 to
calculate these adjustments. As of the effective date of the Form 1240
promulgated pursuant to the recently adopted Thirteenth Order on
Reconsideration, 60 FR 52106 (October 6, 1995), operators may make rate
adjustments as provided by FCC Form 1240 in lieu of Form 1210. Whereas
an operator can file Form 1210 as often as once per calendar quarter to
adjust rates to take account of costs already incurred by the operator,
Form 1240 will be filed no more than annually but will permit the
operator to adjust rates based on costs to be incurred within the
coming year. In addition, operators may increase rates to reflect the
addition of new programming services to regulated tiers. Our rules
provide two methods for adjusting rates for the addition of programming
services. First, an operator can add channels to CPSTs using our
original ``going-forward'' rules, which allow the operator to charge
subscribers the cost of the additional programming plus up to an
additional 7.5% markup on that cost. Second, an operator may add
programming services under the Commission's more recently adopted
going-forward option, which allows an operator to charge subscribers up
to $0.20 per channel for additional channels and up to a further $0.30
in associated licensing fees. The latter going-forward rules similarly
require specific decreases in subscriber rates when an operator deletes
channels from its lineup, depending on when the channel in question was
added.
7. Enforcement of the Commission rate regulations is divided
between qualified local franchising authorities and the Commission. A
local franchising authority may enforce regulation of the cable
operator's BST once the Commission has received and approved the local
franchising authority's certification that it has the legal and
practical ability to do so. Upon receiving notification that the
franchising authority has been certified by the Commission to regulate
rates, a cable operator opting for benchmark regulation must justify
its existing BST rates pursuant to the benchmark formula. Once
regulated, the operator also must seek local approval for future BST
rate increases. The operator seeks such approvals by filing the forms
described above. The operator also must justify its rates for equipment
and installations associated with the BST. The franchising authority
must then review the forms, may request additional information if
reasonably necessary to complete its review, and ultimately issue an
order approving or disapproving the rates proposed by the operator.
8. The participation by local franchising authorities in the
regulation of cable service is critical. Generally, the Commission
establishes federal standards and procedures concerning various aspects
of cable service which local franchising authorities implement. These
rules include but are not limited to subscriber rates, cable service
technical standards, and customer service. Local franchising
authorities are the first line of enforcement of these numerous
regulations. While the Commission may be on hand, either by statute or
informally, to help resolve any disputes that may arise between a cable
provider and a local franchising authority, the responsibility to
oversee cable service regulations falls primarily on the franchise
authorities. Generally, the Commission gives significant deference to
decisions by local franchising authorities. For example, where a cable
operator appeals a franchising authority's rate decision, the
Commission will not conduct de novo review of the decision; rather, the
Commission will defer to the local authority's decision provided there
is a rational basis for the decision. This process is just one example
of the Commission's significant reliance upon local franchising
authorities in the regulation of basic cable service. Moreover, in all
but the most rare situations, local authorities administer cable
service regulation without federal assistance.
9. An operator's CPST is subject to regulation directly by the
Commission. Commission enforcement of CPST rate regulation is triggered
by the filing of a complaint by a subscriber or franchising authority
or other relevant state or local regulatory authority. Upon the filing
of
[[Page 63494]]
such a complaint, the operator must file the necessary forms with the
Commission, which then follows a review process analogous to that used
by local franchising authorities regulating BST rates.
10. The benchmark approach described above requires operators to
establish a separate rate structure in each franchise area served,
since many of the variable used to generate the maximum rate are
franchise specific. For example, while the data on whether the system
is part of an MSO will be identical throughout all of the franchise
areas served, the census income and subscribership variables are
measured on a franchise area basis and necessarily will vary among
franchise areas. Similarly, costs associated with PEG channels and
other franchise-related costs may vary among franchise areas. A
disparity in rates among franchise areas will occur even if the
operator provides service to multiple franchise areas through a single,
integrated cable system, since even in that case rates are set
separately for each franchise area on the basis of variables specific
to the franchise area.
11. Relatedly, we note that the acquisition and clustering of
neighboring cable systems by MSOs has become fairly common. An operator
seeking to establish uniform rates and services for clustered systems
likely will need to add channels to the programming lineups of certain
system and delete channels from the lineups of other systems. While the
Commission's ``going-forward'' rate regulations typically provide
operators with the flexibility to establish a uniform package of
programming services, the operator's efforts to equalize prices will be
severely constrained because the rules quite specifically dictate
permitted changes in rates that must accompany changes in level of
service and do not permit regional averaging of the data used to
complete rates.
III. Discussion
12. We tentatively conclude that permitting operators serving
multiple franchise areas to establish uniform services at uniform rates
in all such areas would be beneficial for subscribers, franchising
authorities, and operators. For example, facilitating an operator's
ability to advertise a single rate for cable service over a broad
geographic region may lower marketing costs and enhance the operator's
efficiency in responding to competition from alternative service
providers that typically may establish and market uniform services and
rates without regard to franchise area boundaries. The increased
ability of operators to compete resulting from this approach may
increase penetration in a particular franchise area. Such an approach
could reduce consumer confusion because a subscriber moving from one
part of the operator's service area to another would not experience any
difference in price or service offerings. We explore below two
alternatives for permitting an operator to establish uniform rates for
uniform services across multiple franchise areas, while fully
protecting subscribers from unreasonable rates, and solicit comment on
these and any other possible approaches. Before discussing these two
methodologies, we will identify several issues that will arise
regardless of which methodology we ultimately adopt.
13. Cable operators currently serve multiple franchise areas using
a variety of system structure; some operators serve multiple areas with
a single, integrated cable system while others use multiple, distinct
systems. An operator's rates are not dependent on whether single or
multiple systems are used to deliver service. We propose that under a
uniform rate0-setting option, a cable operator be allowed to establish
uniform rates for uniform service offerings in multiple franchise areas
regardless of whether the operator serves the multiple franchise areas
with on integrated cable system (i.e., one ``headend'') or with
multiple separate cable systems, and seek comment on this proposal.
14. We believe that cable operators primarily will seek to
establish uniform rates for systems serving multiple franchise areas
that are located within some measure of proximity to each other,
perhaps for purposes of regional adverting. Moreover, it is likely that
the service costs and characteristics, such as the number of channels,
density of subscribers, and median income level, associated with
various franchise areas typically will vary as the geographic distances
increase between the multiple franchise areas. This circumstance can
increase the complexity of uniform rate-setting across multiple
franchise areas. We note that a cable operator's obligation under the
``must-carry'' rules to carry local over-the-air broadcast stations, as
well as the operator's copyright fee responsibilities, are determined
based on the Area of Dominant Influence (``ADI'') in which the system
is located. Section 4 of the 1992 Cable Act specifies that a commercial
broadcasting station's market shall be determined in the manner
provided in Sec. 73.3555(d)(3)(i) of the Commission's Rules, as in
effect on May 1, 1991. This section of the rules, now redesignated
Sec. 73.3555(e)(3)(i), refers to Arbitron's ADI for purposes of the
broadcast multiple ownership rules. Section 76.55(e) of the
Commission's Rules provides that the ADIs to be used for purposes of
the initial implementation of the mandatory carriage rules are those
published in Arbitron's 1991-1992 Television Market Guide. This
Arbitron Guide is available at the Federal Communications Commission,
2033 M Street, N.W., Room 200, Washington, D.C. We note that Arbitron,
the company that establishes the boundaries for ADIs, has ceased
updating its ADI market list. Commission staff is currently exploring
the designation of a replacement measure. Accordingly, we seek comment
on whether the ADI, or some other region, would be appropriate for the
setting of uniform rates. We seek comment on additional benefits of
limiting uniform rate-setting to franchise areas located within the
same ADI or similar region, as well as any difficulties resulting from
this limitation. We further seek comment on the benefits or detriments
of limiting rates to franchise areas located within the same county or
state. Finally, we seek comment on the costs and benefits of permitting
cable operators to select the region in which to set uniform rates
under a uniform rate-setting method.
15. Below we describe two possible approaches for permitting cable
operators to establish uniform rates for uniform packages of services
offered to multiple franchise areas. We invite comment from interested
parties as to these approaches and we seek suggestions as to any other
alternatives that would further the goals discussed above.
16. The first approach would work generally as follows. A cable
operator first would determine or identify BST and CPST rates
established in each local franchise area pursuant to our existing rate
regulations, as adjusted to reflect permitted or required rate changes
resulting from the addition or deletion of channels necessary to
structure uniform tiers throughout the franchise areas served. We seek
comment on whether an operator would similarly follow our existing
regulations concerning rates for equipment. BST rates then would be
equalized by reducing all BST rates charged in the relevant region to
the lowest regulated BST rate charged in any one franchise area located
in the region. The new uniform BST rate would now constitute the
operator's maximum permitted rate for basic cable service in all the
relevant franchise areas. The operator then would add the total amount
of ``lost'' revenue resulting from the various BST rate reductions to
the total CPST
[[Page 63495]]
revenues to which the operator is otherwise entitled, under our
existing rules, for all franchise areas in the relevant region. The
operator then would determine a uniform CPST rate by dividing the total
of the displaced BST revenues and existing CPST revenues by all CPST
subscribers in the region. Thereafter, the operator would apply our
going-forward policies and annual rate adjustment regulations on a
regional basis. A numerical example of this option can be found below.
17. In some instances, cable systems may be regulated in certain
franchise areas within the region and unregulated in others. We
proposed that operators be free to establish uniform rates under the
uniform rate-setting approach in unregulated as well as regulated
franchise areas for purposes of uniformity. We believe that in such
situations, an operator may elect to base uniform rates in part on data
from unregulated areas only if such uniform rates also are charged in
the unregulated areas. We believe that this optional approach further
enhances operators' flexibility in establishing uniform rates.
Moreover, uniform rates calculated pursuant to the method ultimately
adopted in this proceeding, and charged in unregulated areas, should
increase an operator's regulatory certainty with respect to whether the
subscriber rates charged in the unregulated areas are reasonable under
our rules should the operator later become subject to rate regulation
in one of those areas. An operator later becoming subject to regulation
would follow our existing procedures for establishing regulated rates,
including determining an initial rate pursuant to our benchmark formula
or cost-of-service rules, and seeking the approval of rates from the
local franchising authority. We seek comment on this approach. We also
seek comment on how an operator's regulated rates for equipment may
affect the setting of uniform rates.
18. An operator's rates would remain subject to the dual
jurisdictions of the affected local franchising authorities and the
Commission. Upon the initial application of this approach, BST rates
would be unchanged in at least one franchise area and would be reduced
in each franchise area with higher rates. Thus, this proposal may
benefit many subscribers who receive only basic cable service, and
should be cost-neutral to the remaining basic-only subscribers in the
franchise area(s) with the lowest current BST rates. Certified local
franchising authorities would retain jurisdiction to ensure that the
operator's BST rates are in compliance with our rules. The operator
would recoup the costs of reduced BST rates through the averaged CPST
rates over which the Commission would retain jurisdiction. We seek
comment on this proposed approach, including comment on: (1) the costs
and benefits of requiring operators to reduce BST rates to the lowest
common rate under this option, (2) the impact of an operator's
redistribution of BST rate reductions among CPST rates charged in
neighboring franchise areas, and (3) the application of our going-
forward policies and annual rate adjustment on a regional basis. We
note that our rules allow franchising authorities to review and approve
operators' proposed BST rates and increases to those rates. Under this
option, however, pre-approval of uniform BST rates by franchising
authorities generally will be unnecessary given that subscriber rates
typically will decrease or remain unchanged. We seek comment on the
benefits and costs of this approach for local franchising authorities,
and whether this approach will protect subscribers from unreasonable
rates.
19. Under the second possible approach for establishing uniform
rates for uniform services, a cable operator would determine or
identify BST and CPST rates charged in each of the relevant franchise
areas pursuant to our existing rate regulations, as adjusted for rate
changes resulting from the addition or deletion of channels necessary
to structure uniform service tiers. We seek comment on whether an
operator similarly would follow our existing regulations concerning
rates for equipment. After aggregating the BST rates and revenues for
all the franchise areas in the region, and then the CPST rates and
revenues for all franchise areas, the operator would determine a single
``blended'' rate for BSTs, and a single blended rate for CPSTs, to be
charged in all franchise areas in the region pursuant to a formula
designed by the Commission. The blended rates for BSTs and CPSTs would
be determined by averaging the operator's total BST and CPST rates,
respectively, on a per subscriber basis for all subscribers in the
region, in order to ensure that the establishment of uniform rates is
revenue-neutral to the cable operator. A numerical example of this
option can be found below. The operator would be required to justify
its blended rates to each local franchising authority certified to
regulate rates. The operator would be free, of course, to establish
this rate in uncertified areas, for purposes of uniformity across a
wide region. As noted for the other proposed approach, we propose that
an operator may elect a base uniform rates in part on data from
unregulated areas only if such uniform rates also are charged in the
unregulated areas, and believe that similar benefits for operators and
subscribers will result from this requirement under both possible
approaches. We seek comment on this tentative conclusion, as well as
comment on other benefits and detriments of the cable operator basing
the blended rate in part on data from such unregulated areas. We also
seek comment on how an operator's establishment of uniform rates in
uncertified areas may impact on the operator's ability to later
implement required refunds or prospective rate reductions in certified
areas.
20. After setting initial uniform rates, the operator would apply
our going-forward policies and the recently adopted annual adjustment
method on a regional basis to adjust future rates. Again, the dual
jurisdictional boundaries of franchising authorities and the Commission
would remain intact. We seek comment on this approach generally,
including comment on: (1) any associated burdens for regulated cable
companies and regulators, (2) whether this approach would protect cable
subscribers from unreasonable rates in accordance with the 1992 Cable
Act, (3) the proposed calculation of the blended rate, and (4) the
application of our going-forward policies and annual adjustment method
on a regional basis. We note that under this approach subscribers' BST
rates may increase in certain jurisdictions (and decrease in others) as
BST rates are adjusted to establish uniformity. We seek comment on the
benefits and costs of adopting this formula given that certain BST
subscribers may experience rate increases.
21. Both proposed uniform rate setting methodologies will result in
increases in CPST rates for some subscribers. In light of the cost
savings to cable operators likely to be created by implementation of
uniform rates, we seek comment on whether it is appropriate to either
limit the amount of increase a CPST subscriber must pay in a given year
as a result of this institution of uniform rates or to phase-in
significant increases over a two-year period. Comments should also
address what administrative burdens such a limitation or phased-in
increase would create for operators.
22. Several potential timing circumstances may affect the
implementation of a uniform rate-setting approach. For example, where
an operator has submitted justifications, the operator may be subject
to multiple
[[Page 63496]]
local tolling orders of varying durations which can complicate
implementation of uniform BST rates. After the initial 30 day notice
period that must precede any rate adjustment, franchising authorities
can toll the effective date of a proposed rate for an additional 90
days in benchmark cases or 150 days in cost of service cases. We seek
suggestions of procedures that would permit a cable operator in this
situation to establish uniform rates as expeditiously as possible. We
solicit comment on allowing proposed uniform rates to take effect
automatically after some period of time, subject to ultimate resolution
in a later ``truing-up'' process, in which rate discrepancies could be
reflected in rates for the following year.
23. In proposing to give cable operators flexibility to charge
uniform rates for uniform services, we in no way seek to circumscribe
the authority of local franchising authorities to negotiate franchise-
specific terms in their agreements with cable operators. For example,
we note that local franchising authorities typically establish
requirements in a franchise agreement with respect to the designation
or use of the franchised cable operator's channel capacity of PEG
services. This could result in a cable system having a non-uniform
channel line-up within franchise areas where it seeks to establish
uniform rates. We seek comment on whether our uniform rate proposals
require any modification or adjustment to accommodate such non-uniform
offerings.
24. A further problem may arise because PEG requirements and other
franchise obligations will vary between franchise areas, such that the
operator's ``franchise related costs,'' one of the variables used to
establish and adjust rates, also will vary among franchise areas. We
seek to provide cable operators with uniform rate alternatives while
allowing franchising authorities flexibility to negotiate franchise
terms and conditions that respond to particular community needs. We
also seek to ensure that the uniform rate proposal does not allow
franchise-specific costs to be shifted from one community to another.
One alternative for resolving this issue would be to permit the cable
operator simply to itemize and charge for franchise-related costs
outside the uniform rate-setting formula. We seek comment on this
approach. We also seek suggestions of other methods that could
compensate operators for legitimately incurred expenses while
protecting subscribers from unreasonable rates. Finally, we seek
comment on additional potential obstacles to the establishment of
uniform rates and service offerings, and possible resolutions to such
obstacles.
IV. Initial Regulatory Flexibility Act Analysis
25. Pursuant to Section 603 of the Regulatory Flexibility Act, the
Commission has prepared the following initial regulatory flexibility
analysis (``IRFA'') of the expected impact of these proposed policies
and rules on small entities. Written public comments are requested on
the IRFA. These comments must be filed in accordance with the same
filing deadlines as comments on the rest of the NPRM, but they must
have a separate and distinct heading designating them as responses to
the regulatory flexibility analysis. The Secretary shall cause a copy
of the NPRM, including the initial regulatory flexibility analysis, to
be sent to the Chief Counsel for Advocacy of the Small Business
Administration in accordance with Section 603(a) of the Regulatory
Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. 601 et
seq. (1981).
26. Reason for Action. The Commission has perceived that our cable
service rate regulations may impede a cable operator's ability to
establish uniform rates for uniform services offered in multiple
clustered franchise areas. We believe that allowing operators to set
such uniform rates may facilitate operators' regional marketing of
services, reduce administrative burdens on both regulators and cable
companies, and reduce consumer confusion resulting from disparate
rates. The NPRM proposes two possible alternatives for setting uniform
rates, and solicits comments on further approaches.
27. Objectives. To explore a method under which a cable operator
could establish uniform rates for uniform services offered in multiple
franchise areas.
28. Legal Basis. Action as proposed for this rulemaking is
contained in Section 623 of the Communications Act of 1934, as amended,
47 U.S.C. Sec. 543.
29. Description, Potential Impact and Number of Small Entities
Affected. The proposals, if adopted, will not have a significant effect
on a substantial number of small entities.
30. Reporting, Recordkeeping and Other Compliance Requirements.
None.
31. Federal Rules which Overlap, duplicate or Conflict with these
Rules. None.
32. Any Significant Alternatives Minimizing Impact on Small
Entities and Consistent with Stated Objectives. None.
V. Paperwork Reduction Act
33. This NPRM contains either a proposed or modified information
collection. The Commission, as part of its continuing effort to reduce
paperwork burdens, invites the general public and the Office of
Management and Budget (OMB) to comment on the information collections
contained in this NPRM, as required by the Paperwork Reduction Act of
1995, Pub. L. No. 104-13. Public and agency comments are due to the
same time as other comments on this NPRM; OMB comments are due 60 days
from date of publication of this NPRM in the Federal Register. Comments
should address: (a) whether the proposed collection of information is
necessary for the proper performance of the functions of the
Commission, including whether the information shall have practical
utility; (b) the accuracy of the Commission's burden estimates; (c)
ways to enhance the quality, utility, and clarity of the information
collected; and (d) ways to minimize the burden of the collection of
information on the respondents, including the use of automated
collection techniques or other forms of information technology.
VI. Procedural Provisions
34. Ex parte Rules--Non-Restricted Proceeding. This is a non-
restricted notice and comment rulemaking proceeding. Ex parte
presentations are permitted, except during the Sunshine Agenda period,
provided that they are disclosed as provided in Commission's rules. See
generally 47 CFR Secs. 1.1202, 1.1203, and 1.1206(a).
35. To file formally in this proceeding, you must file an original
plus four copies of all comments, reply comments, and supporting
comments. If you want each Commissioner to receive a personal copy of
your comments and reply comments, you must file an original plus nine
copies. Comments are due by January 12, 1996, and reply comments are
due by February 12, 1996. You should send comments and reply comments
to Office of the Secretary, Federal Communications Commission, 1919 M
Street NW., Washington, DC 20554. Comments and reply comments will be
available for public inspection during regular business hours in the
FCC Reference Center, Room 239, Federal Communications Commission, 1919
M Street NW., Washington, DC 20554.
36. In addition to filing comments with the Secretary, a copy of
any comments on the information collections contained herein should be
submitted to Dorothy Conway, Federal
[[Page 63497]]
Communications Commission, Room 234, 1919 M Street, N.W., Washington,
DC 20554, or via the Internet to [email protected], and to Timothy Fain,
OMB Desk Officer, 10236, NEBO, 725--17th Street, N.W., Washington, DC
20503 or via the Internet to [email protected].
37. For additional information concerning the information
collections contained in this NPRM contact Dorothy Conway at 202-418-
0217, or via the Internet at [email protected].
VII. Ordering Clauses
38. It is ordered that, pursuant to Sections 623 of the
Communications Act of 1934, as amended, 47 U.S.C. 543 notice is hereby
given of proposed amendments to Part 76, in accordance with the
proposals, discussions, and statement of issues in this NPRM, and that
COMMENT IS SOUGHT regarding such proposals, discussion, and statement
of issues.
39. It is further ordered that the Secretary shall send a copy of
this NPRM, including the Initial Regulatory Flexibility Analysis, to
the Chief Counsel for Advocacy of the Small Business Administration in
accordance with paragraph 603(a) of the Regulatory Flexibility Act,
Public Law 96-354, 94 Stat. 1164, 5 U.S.C. Secs. 601 et seq. (1981).
List of Subjects in 47 CFR Part 76
[Cable television.]
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Examples of Proposed Methods
----------------------------------------------------------------------------------------------------------------
Current rates Franchise A Franchise B Franchise C
----------------------------------------------------------------------------------------------------------------
BST............................................................. $10 $11 $11
CPST............................................................ 21 21 20
-----------------------------------------------
Total..................................................... 31 32 31
----------------------------------------------------------------------------------------------------------------
* Each franchise area has 11,000 BST subscribers and 10,000 CPST subscribers.
First Proposed Method:
Step 1: BST rates reduced to lowest in region: BST rates in
franchise areas ``B'' and ``C'' reduced to $10.
Step 2: ``Lost'' BST revenues is totaled; $1/subscriber in
franchise areas ``B'' and ``C''=($1 x 11,000)+($1 x 11,000)=$22,000.
Step 3: Current CPST revenue is totaled:
($21 x 10,000)+($21 x 10,000)+($20 x 10,000)=$620,000.
Step 4: Current CPST revenue is added to Lost BST revenue to create
new CPST revenue requirement: $620,000+$22,000=$642,000.
Step 5: New CPST revenue requirement is divided evenly by all CPST
subcribers in the region to calculate new uniform CPST rate: $642,000/
30,000=$21.40.
----------------------------------------------------------------------------------------------------------------
Current rates Franchise A Franchise B Franchise C
----------------------------------------------------------------------------------------------------------------
BST............................................................. $10.00 $10.00 $10.00
CPST............................................................ 21.40 21.40 21.40
-----------------------------------------------
Total..................................................... 31.40 31.40 31.40
----------------------------------------------------------------------------------------------------------------
Franchise A: no change in BST rates; increase in CPST and overall
rates.
Franchise B: decrease in BST rates; increase in CPST rates;
decrease in overall rates.
Franchise C: decrease in BST rates; increase in overall rates.
Second Proposed Method:
Step 1: Average current BST rates on a per BST subscriber basis to
calculate average, uniform BST rate:
$10(11,000)+$11(11,000)+$11(11,000)=$10.67/BST subscriber.
Step 2: Average current CPST rates on a per CPST subscriber basis
to calculate average, uniform CPST rate:
$21(10,000)+$21(10,000)+$20(10,000)=$20.67/CPST subscriber.
Total: $31.34/subscriber.
----------------------------------------------------------------------------------------------------------------
New rates Franchise A Franchise B Franchise C
----------------------------------------------------------------------------------------------------------------
BST............................................................. $10.67 $10.67 $10.67
CPST............................................................ 20.67 20.67 20.67
-----------------------------------------------
Total..................................................... 31.34 31.34 31.34
----------------------------------------------------------------------------------------------------------------
Franchise A: increase in BST rates; decrease in CPST; increase in
overall rates.
Franchise B: decrease in BST rates; decrease in CPST rates;
decrease in overall rates.
Franchise C: decrease in BST rates; increase in CPST rates;
increase in overall rates.
The results under each proposed method will vary widely depending
on the current rates and the numbers of subscribers in each franchise
area. In addition, these examples do not account for the impact of
channel changes that may be necessary to achieve uniform packages of
services.
[FR Doc. 95-29807 Filed 12-8-95; 8:45 am]
BILLING CODE 6712-01-M
Complete official Federal Register PDF
FR Doc. 95-29345 Coast Guard Board for Correction of Military Records; Procedural Regulation
[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63489-63491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29345]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Office of the Secretary
33 CFR Part 52
[OST Docket No. OST-95-878; Notice 95-14]
RIN 2105-AC31
Coast Guard Board for Correction of Military Records; Procedural
Regulation
AGENCY: Office of the Secretary, DOT.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Department proposes to amend its regulations with respect
to reconsideration of final decisions of the Board for Correction of
Military Records of the Coast Guard (Board). This action is taken on
the Department's initiative in order to streamline processing of these
cases and to clarify the circumstances under which final decisions can
be reconsidered. The proposed amendment will make it possible for the
Board to expedite reconsideration and will increase the resources
available to meet the requirement that all cases be decided within 10
months of the receipt of a completed application.
DATES: Comments must be submitted on or before February 9, 1996. Late-
filed comments will be considered to the extent practicable.
ADDRESSES: Comments should be mailed, preferably in duplicate, to
Docket No. OST-95-878, Documentary Services Division, C-55, PL-401,
U.S. Department of Transportation; 400 Seventh Street SW, Washington,
D.C. 20590. Comments will be available for review by the public at this
address from 9 a.m. through 5 p.m., Monday
[[Page 63490]]
through Friday. Persons wishing acknowledgment of their comments'
receipt should include a stamped, self-addressed postcard. The
Documentary Services Division will time and date-stamp the card and
return it to the commenter.
FOR FURTHER INFORMATION CONTACT: Robert H. Joost, Chairman, Board for
Correction of Military Records of the Coast Guard, C-60, Office of the
General Counsel, U.S. Department of Transportation, 400 Seventh Street
SW, Washington, D.C. 20590-0001. Telephone: (202) 366-9335.
SUPPLEMENTARY INFORMATION:
The Board Process With Respect to Reconsideration
The Secretary of Transportation, acting through the Department of
Transportation Board for Correction of Military Records of the Coast
Guard, is authorized by section 1552 of title 10, United States Code,
to correct the military records of serving, separated and retired Coast
Guard military personnel when there is an error or injustice in a
military record.
After a final decision has been reached on an application for
correction, the decision can be appealed by the applicant in an
appropriate Federal court. There is no right, under 10 U.S.C. 1552, to
administrative reconsideration of a final decision, but applicants have
always been allowed to request such reconsideration by regulation.
Under the present DOT BCMR regulation with respect to
reconsideration (33 CFR 52.67(b)), the only basis for reconsideration
is the presentation of ``newly discovered evidence or information, not
previously considered by the Board * * * [which] would, if true, result
in a determination other than that originally made.''
The present regulation does not explicitly authorize
reconsideration if the applicant offers evidence showing that material
legal or factual error was made by the Board in its original decision.
Also, it does not provide a means for expeditious handling of requests
for reconsideration that do not meet the threshold requirements for
review. Because of the current statutory direction that Board decisions
be issued within 10 months of receiving a complete application, and the
resulting pressure on Board resources, the Board must find ways to
increase its efficiency of operation. An expedited process for handling
facially defective reconsideration requests is proposed as an
appropriate step in that direction. In addition, the present rule does
not require that a request for reconsideration be made within a certain
time period.
The Proposal
The proposed rule would explicitly authorize the Board to consider
applications for reconsideration upon a showing that the Board
committed legal or factual error in the original determination that
could have resulted in a determination other than that made.
The proposed rule would authorize the Chairman not to docket
applications for reconsideration that do not meet the threshold
requirements for reconsideration, i.e. applications that only (1)
present evidence or information previously considered by the Board, (2)
present new evidence or information that is clearly not material to the
result in the case, (3) present new evidence or information that could
have been submitted earlier with the exercise of reasonable diligence,
or (4) make arguments as to legal or factual error that are clearly not
material to the result. The phrase ``otherwise comes to the attention
of the Board'' has been deleted, however, as unnecessary.
The proposed rule would provide that no Board member who considered
an applicant's original application for correction would participate in
the consideration of that person's application for reconsideration.
There will, to the extent practicable, be a related prohibition on the
staff member; the person who drafted the original decision would not
draft the reconsideration decision. In light of these safeguards, it
would not be necessary for the Secretary's designate to approve each
denial of a reconsideration request, thus expediting the review
process.
Section-by-Section Analysis
Section 52.67, Reconsideration, is rewritten to add the new
requirements outlined above, and to simplify the procedure on
reconsideration.
Paragraph (a) provides that reconsideration of an application may
occur if the applicant meets at least one of two sets of criteria. The
first of these, paragraph (a)(1), directs reconsideration if an
applicant presents evidence or information that was not previously
considered by the Board if that evidence or information could result in
a different determination and if it ``could not have been presented to
the Board prior to its original determination if the applicant had
exercised reasonable diligence.'' The second of these, paragraph
(a)(2), directs reconsideration if an applicant presents evidence or
information that the Board committed legal or factual error in the
original determination that could have resulted in a different result.
Paragraph (b) directs the Chairman to docket a reconsideration
request if it meets the requirements of paragraph (a)(1) or (a)(2). If
neither of these requirements is met, the Chairman shall not docket the
request, and shall return the application to the applicant with a
statement that no action is being taken due to a failure to meet the
threshold requirements for docketing.
Paragraph (c) provides that the Board shall consider each
application for reconsideration that has been docketed under paragraph
(b). This paragraph also provides that the final decision on
reconsideration shall involve a different Board than the one that
initially considered the application.
Paragraph (d) provides that the Board's final action on docketed
application for reconsideration shall be the same as if they were
original applications for correction.
Paragraph (e) provides that an applicant's request for
reconsideration must be filed within two years after the issuance of a
final decision, subject to other legal rules such as the Soldier's and
Sailor's Civil Relief Act. The two-year statute of limitations
parallels the time period allowed by Article 73 of the Uniform Code of
Military Justice for petitioning for a new trial after the approval of
a court-martial sentence on the grounds of newly discovered evidence or
fraud on the court. If the Chairman dockets an applicant's request for
reconsideration under paragraph (b), the two-year requirement may be
waived if the Board finds that it would be in the interest of justice
to consider the request despite its untimeliness.
Regulatory Process Matters
This NPRM does not propose a significant rule under Executive Order
12681 or the Department's Regulatory Policies and Procedures. The costs
of a purely procedural change in the Board's rule would be negligible.
The NPRM would not, if adopted, have a significant economic effect on a
substantial number of small entities, as defined in the Regulatory
Flexibility Act. There are no Federalism factors to warrant the
preparation of a Federalism assessment.
List of Subjects in 32 CFR Part 52
Administrative practice and procedure, Archives and records,
Military personnel, Military records.
[[Page 63491]]
Issued this 24th day of November at Washington, DC.
Mortimer L. Downey,
Deputy Secretary of Transportation.
For the reasons set forth in the preamble, the Office of the
Secretary of the U.S. Department of Transportation proposes to amend 33
CFR Part 52 as follows:
PART 52--[AMENDED]
1. The authority citation for Part 52 is revised to read as
follows:
Authority: 10 U.S.C. 1552; 49 U.S.C. 108; Pub. L. 101-225, 103
Stat. 1908, 1914.
2. Section 52.67 is revised to read as follows:
Sec. 52.67 Reconsideration.
(a) Reconsideration of an application for correction of a military
record shall occur if an applicant requests it and the request meets
the requirements set forth in paragraph (a)(1) or (a)(2) of this
section.
(1) An applicant presents evidence or information that was not
previously considered by the Board that could result in a determination
other than that originally made. Evidence or information may only be
considered if it could not have been presented to the Board prior to
its original determination if the applicant had exercised reasonable
diligence; or
(2) An applicant presents evidence or information that the Board,
or the Secretary as the case may be, committed legal or factual error
in the original determination that could have resulted in a
determination other than that originally made.
(b) The Chairman shall docket a request for reconsideration of a
final decision if it meets the requirements of paragraph (a)(1) or
(a)(2) of this section. If neither of these requirements is met, the
Chairman shall not docket such request.
(c) The Board shall consider each application for reconsideration
that has been docketed. None of the Board members who considered an
applicant's original application for correction shall participate in
the consideration of that applicant's application for reconsideration.
(d) Action by the Board on a docketed application for
reconsideration is subject to Sec. 52.64(b).
(e) An applicant's request for reconsideration must be filed within
two years after the issuance of a final decision, except as otherwise
required by law. If the Chairman dockets an applicant's request for
reconsideration, the two-year requirement may be waived if the Board
finds that it would be in the interest of justice to consider the
request despite its untimeliness.
[FR Doc. 95-29345 Filed 12-8-95; 8:45 am]
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