This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

59105

Vol. 65, No. 193

Wednesday, October 4, 2000

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272 and 274

[Amendment No. 390]

RIN 0584–AC44

Food Stamp Program, Regulatory

Review: Electronic Benefit Transfer

(EBT) Provisions of the Personal

Responsibility and Work Opportunity

Reconciliation Act of 1996

AGENCY: Food and Nutrition Service,

USDA.

ACTION: Final rule.

SUMMARY: This action provides final

rulemaking for a proposed rule

published May 27, 1999. It revises Food

Stamp Program regulations pertaining to

implementation of Electronic Benefit

Transfer (EBT) systems in accordance

with the Personal Responsibility and

Work Opportunity Reconciliation Act of

1996 (PRWORA) signed by the President

August 22, 1996. This rule implements

the EBT provisions found in Section 825

of PRWORA which are meant to

encourage implementation of EBT

systems to replace food stamp coupons.

DATES: This rule is effective November

3, 2000. State agencies may implement

the provisions anytime after the

effective date. However, EBT systems

must be in place no later than October

1, 2002, unless the State is granted a

waiver by the Secretary of Agriculture.

FOR FURTHER INFORMATION CONTACT:

Jeffrey N. Cohen, Chief, Electronic

Benefit Transfer Branch, Benefit

Redemption Division, Food and

Nutrition Service, USDA, room 718,

3101 Park Center Drive, Alexandria,

Virginia, 22302, or telephone (703) 305–

2517.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be

significant and was reviewed by the

Office of Management and Budget under

Executive Order 12866.

Executive Order 12372

The Food Stamp Program is listed in

the Catalog of Federal Domestic

Assistance under No. 10.551. For the

reasons set forth in the final rule in 7

CFR 3015, Subpart V and related Notice

(48 FR 29115), this Program is excluded

from the scope of Executive Order

12372 which requires intergovernmental

consultation with State and local

officials.

Executive Order 13132, Federalism

Executive Order 13132 requires

Federal agencies to consider the impact

of their regulatory actions on State and

local governments and consult with

them as they develop and carry out

those policy actions. The Food and

Nutrition Service (FNS) has considered

the impact of this rule which requires

mandatory implementation of Electronic

Benefit Transfer (EBT) systems to

deliver food stamp benefits in

accordance with non-discretionary

requirements set forth in the Personal

Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA).

In addition, FNS added the two

discretionary cost neutrality provisions

directly in response to State concerns.

FNS is not aware of any case where any

of these provisions would in fact

preempt State law and no comments

were made to that effect. Prior to

drafting this final rule, we received

input from State agencies at various

times. Since the Food Stamp Program

(FSP) is a State administered, federally

funded program, our national

headquarters staff and regional offices

have informal and formal discussions

with State and local officials on an

ongoing basis regarding EBT

implementation issues. This

arrangement allows State agencies to

provide feed back that form the basis for

many discretionary decisions in this

and other FSP rules. In addition, we

sent representatives to regional,

national, and professional conferences

to discuss our issues and receive

feedback on EBT implementation

timeframes, cost-neutrality issues and

other more general EBT concerns.

Lastly, the comments on the proposed

rule from State officials were carefully

considered in the drafting of this final

rule.

Regulatory Flexibility Act

This rule has been reviewed with

regard to the requirements of the

Regulatory Flexibility Act of 1980 (5

U.S.C. 601–612). Shirley R. Watkins,

Under Secretary for Food, Nutrition and

Consumer Services, has certified that

this rule will not have a significant

economic impact on a substantial

number of small entities. State and local

welfare agencies will be the most

affected to the extent that they

administer the Food Stamp Program.

Paperwork Reduction Act

This rule does not contain additional

reporting or recordkeeping requirements

other than those that have been

previously approved by the Office of

Management and Budget (OMB) under

the Paperwork Reduction Act of 1995

and assigned OMB control numbers

0584–0083 and 0505–0008.

Executive Order 12988

This rule has been reviewed under

Executive Order 12778, Civil Justice

Reform. This rule is intended to have

preemptive effect with respect to any

State or local laws, regulations or

policies which conflict with its

provisions or which would otherwise

impede its full implementation. This

rule is not intended to have retroactive

effect unless so specified in the DATES

paragraph of this preamble. Prior to any

judicial challenge to the provisions of

this rule or the application of its

provisions, all applicable administrative

procedures must be exhausted. In the

Food Stamp Program (FSP), the

administrative procedures are as

follows: (1) For Program benefit

recipients—State administrative

procedures issued pursuant to 7 U.S.C.

2020(e)(11) and 7 CFR 273.15; (2) for

State agencies—administrative

procedures issued pursuant to 7 U.S.C.

2023 set out at 7 CFR 276.7 (for rules

related to non-quality control (QC)

liabilities) or 7 CFR Part 283 (for rules

related to QC liabilities); (3) for Program

retailers and wholesalers—

administrative procedures issued

pursuant to 7 U.S.C. 2023 set out at 7

CFR 278.8.

59106 Federal Register / Vol. 65, No. 193 / Wednesday, October 4, 2000 / Rules and Regulations

Public Law 104–4

Title II of the Unfunded Mandates

Reform Act of 1995 (UMRA), Pub. L.

104–4, establishes requirements for

Federal agencies to assess the effects of

their regulatory actions on State, local,

and tribal governments and the private

sector. Under section 202 of the UMRA,

the Food and Nutrition Service (FNS)

generally must prepare a written

statement, including a cost-benefit

analysis, for proposed and final rules

with ‘‘Federal mandates’’ that may

result in expenditures to State, local, or

tribal governments in the aggregate, or

to the private sector, of $100 million or

more in any one year. When such a

statement is needed for a rule, section

205 of the UMRA generally requires

FNS to identify and consider a

reasonable number of regulatory

alternatives and adopt the least costly,

more cost-effective or least burdensome

alternative that achieves the objectives

of the rule.

This rule contains no Federal

mandates (under the regulatory

provisions of Title II of the UMRA) for

State, local, and tribal governments or

the private sector of $100 million or

more in any one year. Thus this rule is

not subject to the requirements of

sections 202 and 205 of the UMRA.

Background

Proposed rules were published in the

Federal Register on May 27, 1999 at 64

FR 28763 to implement the provisions

of section 825 of the PRWORA (Pub. L.

104–193) which amended Section 7 of

the Food Stamp Act of 1977, as

amended (7 U.S.C. 2016) (the FSA).

Comments on the proposed rule were

solicited through July 26, 1999. This

final action takes the comments

received into account. Readers are

referred to the proposed regulation for a

more complete understanding of this

final action.

Eighteen comment letters were

received in response to the proposed

rule. Individual comments were

received from 8 State agencies. Of the

remaining letters, 2 were from retailer

associations, 2 were from banking

associations, 2 were from Public Interest

Groups, 1 was from an EBT processor,

1 was from an EBT industry trade group,

1 was from a planning company, and 1

was from an alliance of States,

networks, contractors, financial

institutions and retailers.

In general, the commenters supported

EBT and the Department’s efforts to

encourage implementation. Various

provisions of this rule: mandate EBT

systems for food stamps; allow for

implementation of off-line EBT systems;

relax cost-neutrality requirements; allow

collection of EBT replacement card fees

from client household benefit accounts;

and identify operational limitations for

including client photographs on EBT

cards. The specific provisions are

discussed below.

Mandate EBT

The proposed rule would mandate

that each State agency fully implement

EBT statewide for issuance of food

stamp benefits no later than October 1,

2002, unless the Secretary provided a

waiver because a State agency faced

unusual barriers to implementing an

EBT system. Each State agency was

encouraged to implement an EBT

system as soon as practicable. Although

a majority of the commenters supported

the EBT mandate in general, several had

serious concerns with this requirement.

Three comments reflected a concern

that the lack of competition in the

current EBT environment will impede

full implementation efforts. Three

commenters expressed concern that the

Department’s interpretation of the

legislation was too stringent in requiring

that State agencies be fully implemented

statewide by October 1, 2002. They felt

that if a State agency is actively moving

toward statewide implementation by the

deadline, the regulatory requirement

should be satisfied. One commenter

suggested allowing an extra six months

for full implementation, while another

suggested short-term waivers to ensure

that systems will be ready for reliable

operation within a few months after the

October 1, 2002 date. One commenter

felt that there should be a prohibition on

implementations and system changes

between October 1999 and the first

quarter of 2000 because of Y2K

considerations.

The Department was impressed by the

show of concern from State agencies

and other interested parties about the

requirement for full implementation by

October 1, 2002. However, Congress was

clear in its intent that State agencies

must implement EBT for food stamps

statewide by the deadline of October 1,

2002, unless they receive a waiver

granted by the Secretary because of

unusual barriers to full implementation.

Three commenters felt that the rule

should specify what will qualify as

‘‘unusual barriers’’ to implementation,

and thus warrant a waiver. Without

knowing what, if any, obstacles State

agencies might face, the Department is

not able to specify what kinds of

problems would justify a waiver from

the Secretary. The Department will need

to evaluate any waiver requests

submitted on an individual basis.

However, the Department does not

foresee any obstacles that cannot be

overcome in order to meet the

requirements that State agencies

implement EBT systems statewide by

October 1, 2002.

The preamble of the proposed rule

also stated that any State agency not

granted a waiver and not having fully

implemented EBT statewide by October

1, 2002, will be out of compliance with

these rules and may be subject to

disallowance of administrative funds

pursuant to the provisions of 7 CFR

276.4. Two commenters requested

clarification with respect to penalties

that would result if States had not

implemented EBT by the deadline. We

believe that the regulations, as cited

above, provide the State agencies

sufficient detail on the disallowance of

administrative funds to impart the

importance of complying with this

requirement.

Off-Line Technology

The proposed regulation would

implement the statutory amendment

which removed the prohibition against

State agencies implementing off-line

EBT systems. A majority of the

comments on this provision support the

change to allow off-line systems because

it provides State agencies greater

flexibility to determine the kind of

system suitable for their own needs.

However, one commenter recommended

that off-line technologies be

implemented transitionally to protect

existing investments by States and

retailers in on-line systems. Another felt

that, while off-line systems can make

the integration of cash and non-cash

benefits more efficient and convenient

for recipients, costs must come down

before the technology can be widely

implemented. Another raised the

concern that retailers should not have to

bear the cost of the new technology. By

allowing off-line system

implementation, the Department is

offering State agencies more flexibility

but is not endorsing off-line technology

over magnetic stripe on-line technology.

We recognize that the cost implications

for State agencies and for retailers will

largely drive the degree to which this

technology is adopted over time.

The proposed rule also defines an offline EBT system as a benefit delivery

system in which a benefit allotment can

be stored on a card and used to

purchase authorized items at a point-ofsale terminal without real-time

authorization from a central processor.

One commenter suggested modifying

the definition of off-line systems to

‘‘* * * a benefit delivery system in

which a benefit allotment can be stored

on a card or in a card access device.

Federal Register / Vol. 65, No. 193 / Wednesday, October 4, 2000 / Rules and Regulations 59107

* * *’’ We are incorporating the

language of the suggested definition into

the regulation to convey that in some

cases with an off-line system, benefits

must be downloaded onto a card at the

point-of-sale terminal or some other

card access device.

Another commenter wanted us to

specify that off-line systems not be

permitted to retain information on

recipients, including food choices, for

privacy reasons. Off-line systems are

held to the same privacy requirements

as on-line systems as found in current

Food Stamp regulations at 7 CFR

274.12(e)(1)(ix), (redesignated by this

publication as 7 CFR 274.12(f)(1)(ix)).

This provision states that State agencies

shall ensure the privacy of household

data and provide benefit and data

security. Retailers, for instance, are not

permitted to store any information on

EBT cards or accounts, on-line or offline. Because of the existing protections,

we have not made any further changes

to the rule with regard to this issue.

The rule did not propose standards

specific to off-line systems but did

solicit comments from the public to

provide input into our decision

regarding what standards we should

propose in the future. One commenter

disagreed with this approach and

suggested that national uniform

standards must be developed before offline systems can be implemented. The

Department has already tested off-line

technology for EBT and sees no reason

not to allow State agencies to move in

this direction if they choose. However,

we understand the limitations of not

having standards in place and will

continue to work with the State agencies

and other interested parties to keep

apprised of advances being made

toward standards in the off-line industry

as it evolves.

Cost Neutrality

This rule implements two

discretionary changes (offers option of a

national issuance cost cap and allows

for prospective certification of EBT

systems), and one non-discretionary

change (removes requirement that EBT

systems be cost neutral in any one year)

to the EBT cost neutrality requirements

of 7 CFR 274.12(c). Most of the

comments that we received on the

proposed rule were in response to the

cost neutrality section. In general, the

comments reflect that cost neutrality

continues to be a source of concern and

frustration for State agencies and other

stakeholders, even as we strive to make

the requirements less burdensome.

Three of the commenters

acknowledged general support of these

provisions because they offer State

agencies more flexibility to determine

and track cost neutrality; however, a

majority of the commenters expressed

the belief that the Department needs to

go further to reduce the impact of cost

neutrality requirements. Four

commenters recommend exempting

certain EBT activities and associated

costs from the cost neutrality

determination, such as farmers’ market

participation in the FSP. Similarly, two

commenters complained that the cost

cap does not take into consideration

certain State costs which are not related

to coupon issuance but are required for

EBT or by FSP regulations, e.g., an

annual Statement of Auditing Standards

(SAS) 70 audit of EBT systems. Three

commenters said that FNS should take

into consideration the increased costs to

operate EBT and the States’ limited

financial resources. Four commenters

mentioned that the lack of EBT

competition has meant higher costs;

therefore, further relaxation of cost

neutrality requirements are needed. One

commenter suggests that State agencies

with smaller caseloads need flexibility

in choosing a contractor, because it is

harder for them to be cost neutral.

The Department has similar concerns

about the costs related to EBT and how

they impact on a State’s cost neutrality.

For instance, the Department has

decided to exempt all SAS 70 audit

costs from State agencies’ cost neutrality

determinations, and we will continue to

examine activities and costs with an eye

to whether they should be part of EBT

cost neutrality consideration. However,

we believe that, by implementing the

changes in this rule, a majority of the

concerns about the implications of

Federal cost neutrality can be overcome.

Two comments specifically welcomed

the non-discretionary change to remove

the annual cost neutrality assessment of

EBT compared to paper systems.

However, one comment letter reflected

some misunderstanding by questioning

whether there is any change to the time

periods for calculating cost neutrality

under an EBT contract since there are so

few billable case months in the first year

or so of a first generation EBT system.

With the legislative removal of the

annual cost neutrality requirement,

State agencies will now assess the cost

neutrality of the entire contract period,

not year to year. This provision should

greatly reduce the likelihood that State

agencies are held responsible for costs

exceeding the cost cap, because they are

able to spread them out over the full

contract period.

The national cap is a case-month

issuance amount calculated by FNS to

be $2.42 for fiscal year 2000. The

amount is based on nationwide State

and Federal coupon issuance costs as

validated by FNS. State agencies may

opt for this method for determining the

cost neutrality of their EBT systems

rather than derive their own coupon

issuance cost cap. One commenter

generally supported the provision.

Another commenter suggested that the

national cap be lowered or eliminated if

it becomes apparent that EBT

contractors are tying project bids to the

cap rather than competing aggressively.

This also included the suggestion of not

publishing the national cap for this

reason. The Department does not foresee

this being a problem because each State

agency has its own cost constraints to

doing EBT that may in fact be lower

than the national cost cap. Contractors

will have to be sensitive to how much

the individual States can spend on an

EBT system when submitting bid

proposals, regardless of the national cost

cap.

Only one commenter reacted

specifically to the proposal on

prospective certification. The

commenter suggested that FNS deny

prospective certification to State

agencies with contracts containing

troublesome provisions such as a

contractor’s ability to increase unit costs

if caseloads fall below expectations but

not reducing those unit costs in the

event a recession or other event causes

caseloads to rise. The Department agrees

that these contract provisions can

sometimes be questionable; however,

the State agency would have to take

such contractual impacts into account

when submitting the prospective

analysis for FNS approval.

Three comments requested

clarification on how the proposed cost

neutrality changes will impact on a rebid contract. The Department does not

foresee making any distinction between

first time contracts and re-bid contracts

when doing cost neutrality assessments.

In both cases, the State agency will

choose to either: (1) calculate their own

State cost cap which is based on

individual States’ statewide coupon

issuance costs, multiplied by the

percentage of Federal financial

participation, plus Federal only coupon

issuance costs, and then validated by

FNS; or (2) use the national cap which

is calculated by FNS. The State agency

then projects the costs of the EBT

system for the life of the system; i.e., the

contract period. If the State agency can

demonstrate up front that the system

will be cost neutral, no further cost

assessment of the project during the

contract period is necessary, unless the

State agency makes significant changes

to the system which increase contract or

59108 Federal Register / Vol. 65, No. 193 / Wednesday, October 4, 2000 / Rules and Regulations

other costs enough to warrant a

reassessment.

Clarification was requested by several

other commenters. One commenter

wanted to know if validated cost caps

would have to be recalculated. If the

State agency already has a validated cost

cap, it may use that cap or switch to the

national cap, whichever it wants to use.

Another commenter wanted to be able

to exclude residual coupon costs from

assessment when the State agency is

operating statewide. In fact, this is

already permitted. State agencies may

request that residual coupon costs be

taken into consideration as they are

rolling out an EBT system, but there are

no residual coupon costs once the EBT

system is implemented statewide.

Another commenter wanted a more

equitable method of determining the

cost of off-line systems since off-line

systems suffer under current

requirements. The Department does not

intend to change cost neutrality

requirements to fit off-line systems. We

recognize that those systems still tend to

cost more than on-line systems, but this

will likely change if off-line technology

advances in the market place.

Two commenters specifically

requested clarification of the distinction

between direct and indirect costs. After

review of the comments, we have

determined that the level of detail on

direct and indirect costs in the proposed

rule, as well as much of the detail on

process and procedures related to

calculating cost neutrality, is more

appropriately handled through guidance

to the State agencies. FNS is currently

developing the cost neutrality guidance

for distribution to the State agencies

shortly after publication of this rule. We

have revised the cost neutrality section

of the final regulation extensively to

reflect this.

Differentiate Food Stamp Eligible Items

As discussed in the preamble of the

proposed rule, PRWORA requires, to the

extent practicable, the establishment of

system approval standards for measures

that permit a system to differentiate

items of food that may be bought using

food stamps from items that may not be

bought using food stamps. This resulted

in a report to Congress in August of

1998 explaining that we would have to

require scanners at all authorized food

stamp retailers to accomplish this and,

while it is technically feasible, it is cost

prohibitive to do so at this time. No

regulatory change was proposed. We

received seven comments supporting

this position.

Replacement Card Fee

The proposed rule would provide

State agencies with the option to collect

a charge for replacement of an EBT card

by reducing the monthly allotment of

the household. We received five

comments generally supporting this

provision. Two commenters suggested

that we allow collection of future

months’ benefits for replacement cards.

The Department does not see why it

should be necessary for a State agency

to collect a replacement card fee from a

household’s future months’ benefits.

There is currently no prohibition against

waiting until funds are available in the

benefit account before collecting the fee

for replacing the card.

One commenter felt that, since

replacing cards is an administrative

function, this should not be considered

program income. All administrative

functions are shared costs and,

therefore, if the State agency is being

reimbursed for a cost that the

Department has already shared in

through payment to the EBT contractor,

the fee collected must be treated as

program income and shared with the

Department. Another commenter

suggested that State agencies should

offer one free replacement per year

similar to the credit card industry. State

agencies have the flexibility to

implement a provision with this kind of

leniency if they wish, but the

Department will not mandate it.

One commenter had several

suggestions to restrict the provision in

ways to further protect food stamp

households. One point was that, in

order to be in compliance with the

Americans with Disabilities Act of 1990,

as amended (ADA), State agencies

should not charge fees to clients with

disabilities who frequently request

replacement cards, because this is an

indication that the client needs better

training or help obtaining an authorized

representative. It was further

recommended that State agencies be

required to waive the replacement fee if

a client shows good cause.

The Department shares the

commenter’s concerns for recipients

that experience difficulties keeping up

with their EBT cards because of

disabilities or those that can otherwise

show good cause reasons for requesting

a replacement card. Therefore, we

strongly urge State agencies to consider

the circumstances surrounding the

recipients’ need for a replacement card.

Furthermore, we recommend that each

State agency develop their own good

cause policy for card replacement fees.

Such policies would allow free

replacement cards in instances of fires

or other household emergencies,

robbery or other crimes, and for

recipients with disabilities that

significantly impair their ability to

secure the card. We have added

regulatory language to emphasize these

concerns.

It should be noted, however, that EBT

card replacement is significantly

different from replacement of coupons

lost as a result of household

emergencies or mail theft. When

coupons are replaced, the actual

benefits which were lost are replaced.

When a household reports an EBT card

lost or stolen, a hold is placed on the

benefits remaining on that card, thereby

protecting the household from

unauthorized access to those benefits.

When the card is replaced, the

household will have access to the

benefits that were on the card at the

time it was reported lost or stolen.

Another suggestion was to establish a

cap on the fee amount which would be

announced annually and for FNS to

refuse to grant training waivers (i.e.,

allow States to mail EBT training to food

stamp households rather than conduct

hands-on sessions) to State agencies that

charge a fee. The Department does not

believe that these recommendations are

necessary or required under the law.

Therefore, we are not changing the

regulatory language further in response

to this comment. However, FNS will

continue to review State agencies’ plans

for replacement card fee collection to

ensure that households are not being

charged exorbitant fees and are not

being treated unfairly.

Photograph on EBT Card

The proposed regulation specifies that

State agencies may require that EBT

cards contain a photograph of one or

more members of a household but that

the State agency must establish

procedures to ensure that any other

appropriate member of the household or

any authorized representative of the

household may utilize the EBT card if

a photo is used. Four commenters

generally supported the provision to use

a photo on the card at State agency

option. One comment specifically

supported the Department’s concern

that all eligible household members

must still be able to use the card. One

commenter remarked that putting a

photo on the card may reduce card

replacements and selling of cards to

non-beneficiaries and that any State

doing so would need to have uniform

procedures in place as part of their EBT

program.

One commenter suggested that State

agencies be required to place photos on

the EBT card similar to how photos

Federal Register / Vol. 65, No. 193 / Wednesday, October 4, 2000 / Rules and Regulations 59109

appear on credit cards so as not to make

it obvious that a client is using a food

stamp card. The Department does not

intend to dictate how the photo should

be placed on the EBT card.

Another commenter suggested that

placing a photo on the card will create

confusion for retailers and shift burden

of policing the program to the stores.

The Department has no intention of

shifting the burden of monitoring the

compliance of food stamp program

recipients to the retail community. That

is why the regulation is explicit in

requiring State agencies to have a plan

in place to ensure that all appropriate

household members or authorized

representatives can access benefits from

the account as necessary. This plan

might include retailer training to ensure

that they understand someone other

than the client pictured on the card may

be entitled to use the card.

Anti-tying Restrictions

In the preamble of the proposed rule

we discussed the anti-tying provision in

PRWORA and the Department’s

response to it. To summarize, after

consulting with the Federal Reserve

System Board of Governors, the

Department learned that anti-tying

prevents the conditioning of any service

on the purchase of another service or

product. Since EBT is non-conditioned

and, therefore, must be offered to

retailers at no cost, the Federal Reserve

agrees that the existing anti-tying laws

are not relevant in the EBT

environment. A majority of the

commenters to this section agreed with

the Department’s position.

Two commenters did not agree and

felt that USDA needs to do more to find

a means to implement the intent of

section 825 pertaining to anti-tying for

the sake of promoting competition for

Point of Sale (POS) services. They

suggest that the Department use its

expertise to ensure maximum

competition and that perhaps

prohibiting EBT contractors from

offering commercial equipment in the

States where they hold contracts is a

cost effective and a pro-competitive

approach. The Department has no

evidence that this is a problem in the

current EBT environment, a position

which is supported by the Federal

Reserve Board of Governors, as well as

a majority of the commenters. However,

we will continue to look at this issue to

determine if further action may be

necessary in the future.

System Compatibility

The preamble language in the

proposed rule spoke to the sense of

Congress that State agencies should

operate their EBT systems in a manner

that makes them compatible with one

another. It further went on to say that,

since current rules already require

system compatibility, no regulatory

change was necessary. Several

commenters wanted us to interpret the

term ‘‘system compatibility’’ to be

synonymous with system

interoperability and took this

opportunity to express their support of

system interoperability; i.e., the ability

for food stamp households in one State

to use their EBT benefits in another

State.

Three comments say we must achieve

or require interoperability. Two other

commenters want the Department to

require interoperability and to specify

who pays for it. One commenter

supports interoperability and believes

the Department should pay for it.

Another three commenters merely state

their support of interoperability while

one other noted that without

interoperability, cash-out should be

allowed when recipients move from

State to State. Interoperability

legislation has now been passed by

Congress and the Department published

an interim rule on interoperability in

the Federal Register August 15, 2000 at

65 FR 49719, entitled Food Stamp

Program: EBT Systems Interoperability

and Portability.

Three commenters expressed concern

about transaction processing standards

being inconsistent with commercial

standards. The Department continues to

work with State agencies, EBT

processors, and other interested parties

through forums like the EBT Industry

Council, a subgroup of the Electronic

Funds Transfer Association (EFTA), and

the National Automated Clearing House

Association (NACHA) to see if better

standards for transaction processing can

be developed. Under current regulations

at 7 CFR 273.12(h), State agencies do

have the option to request prior written

approval from FNS to use the prevailing

regional industry standards rather than

the standards specified in this section.

One commenter expressed concern that

customer service and help line

performance standards are also

inconsistent with commercial standards.

FNS does not prescribe standards in

these areas, giving State agencies the

flexibility to set their own requirements

in individual contracts for EBT services.

One commenter requested FNS

consider reviewing the pay-phone

access issue and adjustments with an

eye toward system compatibility.

Another comment said that we need to

ensure that other programs like the State

food stamp programs can be added to

existing systems in a cost effective

manner. A final comment suggested that

nationwide system compatibility at all

levels would greatly enhance EBT

systems. We appreciate these broader

comments but felt they did not fit

within the scope of this rule. The

Department will, however, continue to

look at how system compatibility can be

enhanced with the ongoing evolution of

EBT.

Regulation E

As stated in the preamble of the

proposed regulation, Section 907 of the

PRWORA amends Section 904 of the

Electronic Funds Transfer Act,

commonly known as Regulation E, to

exempt from coverage government EBT

accounts held for recipients of Stateadministered needs-tested assistance

programs, including the FSP. Because

this provision does not amend the FSA,

we did not propose changes to our

current regulations. We received only

two comments on this issue. One

commenter supported FNS’s position;

the other believed we must reserve

further action on this issue until the

effects of abrogating Reg E are clear.

Implementation

This rule is effective November 3,

2000. State agencies may implement the

provisions anytime after the effective

date. However, EBT systems must be in

place statewide no later than October 1,

2002, unless the State is granted a

waiver by the Secretary of Agriculture.

List of Subjects

7 CFR Part 272

Alaska, Civil Rights, Food Stamps,

Grant Programs-social programs,

Reporting and recordkeeping

requirements.

7 CFR Part 274

Administrative practice and

procedure, Food stamps, Fraud, Grant

programs-social programs, Reporting

and recordkeeping requirements, State

liabilities.

Accordingly, for the reasons set forth

in the preamble, 7 CFR parts 272 and

274 are amended as follows:

1. The authority citation for 7 CFR

parts 272 and 274 continues to read as

follows:

Authority: 7 U.S.C. 2011–2036.

PART 272—REQUIREMENTS FOR

PARTICIPATING STATE AGENCIES

2. In § 272.1, paragraph (g)(164) is

added to read as follows:

§ 272.1 General terms and conditions.

* * * * *

(g) Implementation. ***

59110 Federal Register / Vol. 65, No. 193 / Wednesday, October 4, 2000 / Rules and Regulations

(164) Amendment No. 390. The

provisions of Amendment No. 390 are

effective November 3, 2000. State

agencies may implement the provisions

anytime after the effective date.

However, Electronic Benefit Transfer

(EBT) systems must be in place

statewide no later than October 1, 2002,

as required by the Personal

Responsibility and Work Opportunity

Reconciliation Act of 1996.

PART 274—ISSUANCE AND USE OF

COUPONS

3. In § 274.3, a new paragraph (a)(5)

is added to read as follows:

§ 274.3 Issuance systems.

(a) * * *

(5) An off-line Electronic Benefit

Transfer system in which benefit

allotments can be stored on a card or in

a card access device and used to

purchase authorized items at a point-ofsale terminal without real-time

authorization from a central processor.

* * * * *

4. In § 274.12:

a. Paragraph (a) is revised.

b. Paragraph (b)(1) is amended by

removing the second sentence and by

removing the words ‘‘However the’’ and

adding ‘‘The’’ in its place in the third

sentence.

c. Paragraphs (c)(3)(i) through

(c)(3)(vi) are removed.

d. Paragraphs (e), (f), (g), (h), (i), (j),

(k), (l), and (m) are redesignated as

paragraphs (f), (g), (h), (i), (j), (k), (l), (m),

and (n), respectively, and a new

paragraph (e) is added.

e. Newly redesignated paragraph

(g)(5)(v) is revised.

f. In newly redesignated paragraph (i),

a new paragraph (i)(6)(iv) is added.

g. Newly redesignated paragraph (l)(6)

is removed.

The revisions and additions read as

follows:

§ 274.12 Electronic Benefit Transfer

issuance system approval standards.

(a) General. This section establishes

rules for the approval, implementation

and operation of Electronic Benefit

Transfer (EBT) systems for the Food

Stamp Program as an alternative to

issuing food stamp coupons. By October

1, 2002, State agencies must have EBT

systems implemented statewide, unless

the Secretary provides a waiver for a

State agency that faces unusual barriers

to implementing an EBT system. In

general, these rules apply to both online and off-line EBT systems, unless

stated otherwise herein, or unless FNS

determines otherwise for off-line

systems during the system planning and

development process.

* * * * *

(e) Cost neutrality. To receive full

Federal reimbursement for food stamp

administrative costs, the State agency

must operate its EBT system in a costneutral manner, whereby the Federal

cost of issuing benefits in the State after

implementation of the EBT system does

not exceed the Federal cost of delivering

coupon benefits under the previous

coupon issuance system. The issuance

cost cap is expressed in terms of a cost

per case month derived by dividing the

annual total cost of issuance by the total

number of households issued food

stamp benefits during the year the costs

were incurred. In determining its

coupon issuance cap, the State agency

shall use either: the National Coupon

Issuance Cap, as determined by FNS, or

calculate a State Coupon Issuance Cap

based on the State agency’s statewide

issuance costs under the coupon

issuance system. FNS will not

reimburse the State agency for any costs

incurred above the approved coupon

issuance cap.

(1) The National Coupon Issuance Cap

is a case-month issuance amount, as

calculated by FNS.

(2) A State Coupon Issuance Cap is a

case-month issuance amount, as

calculated by the State agency based on

guidance provided by FNS. The State

agency must provide narrative

explanations and satisfactory supporting

documentation to clarify each cost item,

its relationship to the coupon issuance

function, and how it was calculated. All

issuance costs included in the State

coupon issuance cap must have been

charged to the Federal government and

are subject to validation by FNS.

(3) The State agency shall submit its

State coupon issuance cap or indicate it

has opted to use the National Coupon

Issuance Cap as part of the

Implementation APD process. The State

coupon issuance cap must be approved

by FNS prior to implementation of the

pilot, and shall be effective from the

first date benefits are issued to

households through the EBT system

during the pilot project.

(4) Each State agency’s approved State

issuance coupon cap and the National

Coupon Issuance Cap will be adjusted

each Federal fiscal year based on the

percentage change in the most recently

published Gross Domestic Product

Implicit Price Deflator Index (GDP Price

Deflator) calculated from the percentage

change in the index between the first

quarter of the current calendar year and

the first quarter of the previous year, as

published each June by the Bureau of

Economic Analysis.

(5) The determination of cost

neutrality will be assessed on a

prospective basis; that is, FNS will make

a determination whether the EBT

system will be cost neutral based on a

comparison of the coupon issuance

costs to the projected costs of the EBT

system. The State agency may choose

how they determine coupon issuance

costs either according to paragraph

(e)(1) or paragraph (e)(2) of this section.

After approval of its coupon cost cap,

the State agency shall submit to FNS an

analysis, completed according to FNS

guidance, comparing the coupon

issuance costs to the projected EBT

costs over the contract period for system

operation which defines the life of the

system. If the State agency uses the

National Coupon Issuance Cap,

Statewide cost projections for issuance

costs after EBT implementation must

include all contract costs and all other

direct EBT issuance costs. If the State

agency develops their own State

issuance cost cap, Statewide cost

projections for issuance costs after EBT

implementation must include all of the

direct EBT costs, and projections for all

categories of allocated costs which were

included in the coupon cost cap

calculation using the same allocation

methodology as in the cost cap

calculation.

(i) EBT planning costs are to be

excluded from the cost neutrality

assessment and shall include costs

attributed to the preparation of the

Planning APD, all activities leading to

the development of the EBT

implementation plan, and the

completion of the documentation

contained in the FNS approved

Implementation APD.

(ii) The cost neutrality assessment

must include pre-issuance costs, which

can include system design, development

and start-up costs, and operations costs.

The operations phase is defined as

beginning with the first EBT issuance in

the pilot area.

(iii) If the comparison demonstrates

the proposed system will cost less than

the coupon issuance system, no further

measurement will be required for the

life of the system unless there is a

substantial increase in EBT costs

requiring prior approval as described in

§ 277.18 (c)(2)(ii)(C) of this chapter and

the submittal of an Implementation APD

Update as outlined in the FNS

Handbook 901 (APD Handbook).

(iv) Any State agency that cannot

demonstrate cost neutrality

prospectively will be required to track

EBT costs throughout the life of the

system according to FNS guidance, and

reimburse FNS for any excess at the end

of the defined system life.

Federal Register / Vol. 65, No. 193 / Wednesday, October 4, 2000 / Rules and Regulations 59111

1Standards For Business Practices Of Interstate

Natural Gas Pipelines, Order No. 587–L, 65 FR

41873 (July 7, 2000), III FERC Stats. & Regs.

Regulations Preambles ¶ 31,100 (June 30, 2000).

2 18 CFR 284.12(c)(2)(ii).

3Regulation of Short-Term Natural Gas

Transportation Services and Regulation of Interstate

Natural Gas Transportation Services, Order No.

637–A, 65 FR 35706, 35736 (Jun. 5, 2000), III FERC

Stats. & Regs. Regulations Preambles ¶ 31,099, at

31,600–601 (May 19, 2000).

(6) The State agency is required to

provide an updated cost neutrality

assessment for all subsequent EBT

systems developed or implemented,

incorporating the revised costs of the

new system.

* * * * *

(g) * * *

(5) * * *

(v) The State agency may impose a

replacement fee by reducing the

monthly allotment of the household

receiving the replacement card;

however, the fee may not exceed the

cost to replace the card. If the State

agency intends to collect the fee by

reducing the monthly allotment, it must

follow FNS reporting procedures for

collecting program income. State

agencies currently operating EBT

systems must inform FNS of their

proposed collection operations. State

agencies in the process of developing an

EBT system must include the procedure

for collection of the fee in their system

design document. All plans must

specify how the State agency intends to

account for card replacement fees and

include identification of the

replacement threshold, frequency, and

circumstances in which the fee shall be

applicable. State agencies may establish

good cause policies that provide

exception rules for cases where

replacement card fees will not be

collected.

* * * * *

(i) * * *

(6) * * *

(iv) State agencies may require the use

of a photograph of one or more

household members on the card. If the

State agency does require the EBT cards

to contain a photo, it must establish

procedures to ensure that all

appropriate household members or

authorized representatives are able to

access benefits from the account as

necessary.

* * * * *

Dated: September 21, 2000.

Shirley R. Watkins,

Under Secretary for Food, Nutrition and

Consumer Services.

[FR Doc. 00–25364 Filed 10–3–00; 8:45 am]

BILLING CODE 3410–30–P

DEPARTMENT OF ENERGY

Federal Energy Regulatory

Commission

18 CFR Part 284

[Docket No. RM96–1–016]

Standards For Business Practices Of

Interstate Natural Gas Pipelines

Issued September 28, 2000.

AGENCY: Federal Energy Regulatory

Commission.

ACTION: Final rule; Order Granting

Clarification.

SUMMARY: The Federal Energy

Regulatory Commission is granting

clarification of Order No. 587–L (65 FR

41873), which established November 1,

2000, as the date by which pipelines are

required to comply with the regulation

requiring them to permit shippers to

offset imbalances on different contracts

held by the shipper and to trade

imbalances. (18 CFR 284.12(c)(2)(ii)).

The order clarifies that pipelines on

which shippers do not incur imbalances

and are not subject to imbalance

penalties need not implement

imbalance trading on their systems.

DATES: Pipelines seeking an exemption

from the imbalance trading requirement

must file within 15 days of the order to

show why they should not be required

to implement imbalance trading.

ADDRESSES: Federal Energy Regulatory

Commission, 888 First Street, NE.,

Washington DC 20426.

FOR FURTHER INFORMATION CONTACT:

Michael Goldenberg, Office of the

General Counsel, Federal Energy

Regulatory Commission, 888 First

Street, NE., Washington, DC 20426,

(202) 208–2294.

Marvin Rosenberg, Office of Markets,

Tariffs, and Rates, Federal Energy

Regulatory Commission, 888 First

Street, NE., Washington, DC 20426,

(202) 208–1283.

Kay Morice, Office of Markets, Tariffs,

and Rates, Federal Energy Regulatory

Commission, 888 First Street, NE.,

Washington, DC 20426, (202) 208–

0507.

SUPPLEMENTARY INFORMATION:

Before Commissioners: James J. Hoecker,

Chairman; William L. Massey, Linda

Breathitt, and Curt Hebert, Jr.

Order Granting Clarification

Issued September 28, 2000.

Iroquois Gas Transmission System,

L.P. (Iroquois) and Michigan Gas

Storage Company (Michigan) filed

requests for clarification or rehearing of

Order No. 587–L. 1 Order No. 587–L

established November 1, 2000 as the

date by which pipelines are required to

implement section 284.12(c)(2)(ii) of the

Commission’s regulations requiring

pipelines to implement imbalance

netting and trading on their systems.2

Pipelines are required to file tariff sheets

to implement imbalance trading in

sufficient time for the tariff changes to

become effective November 1, 2000.

Iroquois and Michigan request

clarification that pipelines on which

shippers do not incur imbalances and

are not subject to imbalance penalties

are not required to implement

imbalance trading on their systems.

Iroquois and Michigan state that, in

Order No. 637–A,3 the Commission

determined that pipelines without

imbalance penalties would not be

required to offer imbalance management

services, and contend that the same

rationale should apply to imbalance

trading.

The Commission agrees that pipelines

on which shippers do not incur

imbalances and are not subject to

imbalance penalties need not

implement imbalance trading on their

systems. The purpose of requiring

imbalance trading was to establish a

mechanism by which shippers can

avoid imbalance charges. If shippers

cannot incur imbalances, then shippers

do not need to trade imbalances.

However, the Commission cannot

make a determination in a generic

rulemaking proceeding as to whether

the circumstances on an individual

pipeline permit an exemption from the

requirement to provide imbalance

trading. Shippers on the individual

systems should be given the opportunity

to respond to any request for such an

exemption. Accordingly, pipelines that

seek an exemption from the imbalance

trading requirement must file within 15

days of this order showing why they

should not be required to implement

imbalance trading on their systems.

The Commission Orders

(A) The requests for clarification are

granted, in part, as discussed in the

body of the order.

(B) Pipelines seeking an exemption

from the imbalance trading requirement

are required to file within 15 days of the