        DEPARTMENT OF ENERGY
        Office of Energy Efficiency and Renewable Energy
        10 CFR Part 430
        [EERE-2017-BT-TP-0012]
        Energy Conservation Program: Test Procedure for Room Air Conditioners

          AGENCY:
          Office of Energy Efficiency and Renewable Energy, Department of Energy.

          ACTION:
          Request for information (RFI).

          SUMMARY:
          The U.S. Department of Energy (“DOE”) is initiating a data collection process through this request for information to consider whether to amend DOE's test procedure for room air conditioners (“room ACs”). To inform interested parties and to facilitate this process, DOE has gathered data, identifying several issues associated with the currently applicable test procedure on which DOE is interested in receiving comment. The issues outlined in this document mainly concern issues initially identified in an RFI issued in 2015 considering amendments to the current energy conservation standards and test procedure for room ACs; harmonization with the recently established portable air conditioner (“portable AC”) test procedure; clarification of the test setup and testing conditions; updated industry test procedures for room ACs; and any additional topics that may inform DOE's decisions in a future test procedure rulemaking, including methods to reduce regulatory burden while ensuring the procedure's accuracy. DOE welcomes written comments from the public on any subject within the scope of this document (including topics not raised in this RFI).

          DATES:
          Written comments and information are requested on or before September 5, 2017.

          ADDRESSES:

          Interested persons are encouraged to submit comments using the Federal eRulemaking Portal at http://www.regulations.gov. Follow the instructions for submitting comments. Alternatively, interested persons may submit comments, identified by docket number EERE-2017-BT-TP-0012, by any of the following methods:
          • Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
          • Email: RoomAC2017TP0012@ee.doe.gov. Include the docket number EERE-2017-BT-TP-0012 in the subject line of the message.
          • Postal Mail: Appliance and Equipment Standards Program, U.S. Department of Energy, Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue SW., Washington, DC 20585-0121. If possible, please submit all items on a compact disc (“CD”), in which case it is not necessary to include printed copies.
          • Hand Delivery/Courier: Appliance and Equipment Standards Program, U.S. Department of Energy, Building Technologies Office, 950 L'Enfant Plaza SW., Suite 600, Washington, DC 20024. Telephone: (202) 586-6636. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies.
          No telefacsimilies (faxes) will be accepted. For detailed instructions on submitting comments and additional information on this process, see section III of this document.

            Docket: The docket for this activity, which includes Federal Register notices, comments, and other supporting documents/materials, is available for review at http://www.regulations.gov. All documents in the docket are listed in the http://www.regulations.gov index. However, some documents listed in the index, such as those containing information that is exempt from public disclosure, may not be publicly available.
          The docket Web page can be found at https://www.regulations.gov/docket?D=EERE-2017-BT-TP-0012. The docket Web page will contain simple instructions on how to access all documents, including public comments, in the docket. See section III for information on how to submit comments through http://www.regulations.gov.

          FOR FURTHER INFORMATION CONTACT:

          Mr. Bryan Berringer, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Office, EE-5B, 1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 586-0371. Email: ApplianceStandardsQuestions@ee.doe.gov.

          Ms. Sarah Butler, U.S. Department of Energy, Office of the General Counsel, GC-33, 1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 586-1777. Email: Sarah.Butler@hq.doe.gov.

          For further information on how to submit a comment or review other public comments and the docket, contact the Appliance and Equipment Standards Program staff at (202) 586-6636 or by email: ApplianceStandardsQuestions@ee.doe.gov.

        SUPPLEMENTARY INFORMATION:

        Table of Contents

          I. Introduction
          A. Authority and Background
          B. Rulemaking History
          1. The January 2011 Final Rule
          2. The June 2015 Request for Information
          II. Request for Information and Comments
          A. Harmonization with the Portable Air Conditioners Test Procedure
          1. Test Conditions
          2. Installation Heat Transfer and Leakage
          3. Off-Cycle Mode
          B. Test Setup and Air Sampling
          C. Room Air Conditioner Referenced Test Procedures
          1. American National Standards Institute/Association of Home Appliance Manufacturers RAC-1
          2. American National Standards Institute/American Society of Heating, Refrigerating, and Air-Conditioning Engineers Standard 16
          D. Other Test Procedure Topics
          III. Submission of Comments

        I. Introduction

        Room ACs are included in the list of “covered products” for which DOE is authorized to establish and amend energy conservation standards and test procedures. (42 U.S.C. 6292(a)(2)) DOE's test procedure for room ACs appears at title 10 of the Code of Federal Regulations (“CFR”) part 430, subpart B, appendix F (“appendix F”). The following sections discuss DOE's authority to establish and amend the test procedure for room ACs, as well as relevant background information regarding DOE's consideration of test procedures for this product.

        A. Authority and Background
        The Energy Policy and Conservation Act of 1975 (“EPCA” or “the Act”),1
           Public Law 94-163 (42 U.S.C. 6291-6317, as codified), among other things, authorizes DOE to regulate the energy efficiency of a number of consumer products and industrial equipment. Title III, Part B 2
           of EPCA established the Energy Conservation Program for Consumer Products Other Than Automobiles, which sets forth a variety of provisions designed to improve energy efficiency. These products include room ACs, the subject of this RFI. (42 U.S.C. 6292(a)(2))

            1 All references to EPCA in this document refer to the statute as amended through the Energy Efficiency Improvement Act of 2015 (EEIA 2015), Public Law 114-11 (April 30, 2015).

            2 For editorial reasons, upon codification in the U.S. Code, Part B was redesignated Part A.

        Under EPCA, DOE's energy conservation program consists essentially of four parts: (1) Testing, (2) labeling, (3) Federal energy conservation standards, and (4) certification and enforcement procedures. Relevant provisions of the Act specifically include definitions (42 U.S.C. 6291), energy conservation standards (42 U.S.C. 6295), test procedures (42 U.S.C. 6293), labeling provisions (42 U.S.C. 6294), and the authority to require information and reports from manufacturers (42 U.S.C. 6296).
        Federal energy efficiency requirements for covered products established under EPCA generally supersede State laws and regulations concerning energy conservation testing, labeling, and standards. (See 42 U.S.C. 6297) DOE may, however, grant waivers of Federal preemption for particular State laws or regulations, in accordance with the procedures and other provisions of EPCA. (42 U.S.C. 6297(d))
        The Federal testing requirements consist of test procedures that manufacturers of covered products must use as the basis for: (1) Certifying to DOE that their products comply with the applicable energy conservation standards adopted pursuant to EPCA (42 U.S.C. 6295(s)), and (2) making representations about the efficiency of those consumer products (42 U.S.C. 6293(c)). Similarly, DOE must use these test procedures to determine whether the products comply with relevant standards promulgated under EPCA. (42 U.S.C. 6295(s))
        Under 42 U.S.C. 6293, EPCA sets forth the criteria and procedures DOE must follow when prescribing or amending test procedures for covered products. EPCA requires that any test procedures prescribed or amended under this section shall be reasonably designed to produce test results which measure energy efficiency, energy use or estimated annual operating cost of a covered product during a representative average use cycle or period of use and shall not be unduly burdensome to conduct. (42 U.S.C. 6293(b)(3))
        In addition, if DOE determines that a test procedure amendment is warranted, it must publish a proposed test procedure and offer the public an opportunity to present oral and written comments on them. (42 U.S.C. 6293(b)(2))
        EPCA also requires that, at least once every 7 years, DOE evaluate test procedures for each type of covered equipment, including room ACs, to determine whether amended test procedures would more accurately or fully comply with the requirements for the test procedures to not be unduly burdensome to conduct and be reasonably designed to produce test results that reflect energy efficiency, energy use, and estimated operating costs during a representative average use cycle. (42 U.S.C. 6293(b)(1)(A)) If amended test procedures are appropriate, DOE must publish a final rule to incorporate the amendments. If DOE determines that test procedure revisions are not appropriate, DOE must publish its determination not to amend the test procedures. DOE is publishing this RFI to collect data and information to inform a potential test procedure rulemaking to satisfy the 7-year review requirement specified in EPCA, which requires that DOE publish, by January 6, 2018, either a final rule amending the test procedures or a determination that amended test procedures are not required. (42 U.S.C. 6293(b)(1)(A))
        B. Rulemaking History
        DOE's current test procedures for room ACs are codified at appendix F and the room AC performance metric calculations are codified at 10 CFR 430.23(f). Test procedures for room ACs were established on June 1, 1977, and were subsequently redesignated and editorially amended on June 29, 1979. 42 FR 27898 (June 1, 1977); 44 FR 37938 (June 29, 1979).
        1. The January 2011 Final Rule
        The Energy Independence and Security Act of 2007 (“EISA 2007”) amended EPCA, directing DOE to amend its energy efficiency test procedures for all covered products to include measures of standby mode and off mode energy consumption. (42 U.S.C. 6295(gg)(2)(A)) In compliance with the EISA 2007 requirements, on January 6, 2011, DOE published a final rule amending the room AC test procedure to include measurements of standby mode and off mode energy consumption and to introduce a new combined efficiency metric, Combined Energy Efficiency Ratio (“CEER”), that accounts for energy consumption in active mode, standby mode, and off mode. 76 FR 972. DOE also incorporated a new standard, International Electrotechnical Commission (“IEC”) Standard 62301, to measure the standby and off mode energy consumption. Id. In addition to IEC Standard 62301, the final rule updated the references to standards developed by the American National Standards Institute (“ANSI”), the Association of Home Appliance Manufacturers (“AHAM”), and the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (“ASHRAE”). Id. In sum, the current room AC test procedure incorporates by reference three industry test standards: (1) ANSI/AHAM RAC-1-2008, “Room Air Conditioners” (“ANSI/AHAM RAC-1”); 3
           (2) ANSI/ASHRAE Standard 16-1983 (RA 2009), “Method of Testing for Rating Room Air Conditioners and Packaged Terminal Air Conditioners” (“ANSI/ASHRAE 16”); 4
           and (3) IEC Standard 62301, “Household electrical appliances—Measurement of standby power (first edition June 2005)”.5

            3 Copies can be purchased from http://webstore.ansi.org.

            4 Copies can be purchased from http://www.techstreet.com.

            5 Copies can be purchased from http://webstore.iec.ch.

        2. The June 2015 Request for Information

        DOE published an RFI (hereinafter the “June 2015 RFI”) regarding the energy conservation standards and the test procedures for room ACs. 80 FR 34843 (June 18, 2015). In addition to soliciting information regarding the energy conservations standards, the June 2015 RFI discussed and sought comment on the following test procedure related items: (1) Potential updates to the energy efficiency metric that would address performance in additional operating modes; (2) alternate methods for measuring cooling mode performance; (3) addressing heating mode performance and any relevant test methods, existing industry standards, operating conditions, and associated test burden; (4) methods for measuring part-load performance and the prevalence of units on the market with components optimized for efficient part-load operation; (5) testing and certification of units that can operate on multiple voltages; and (6) the energy usage associated with connected functionality. 80 FR 34843, 34846 34848. DOE received comments from interested parties pertaining to the test procedure in response to the June 2015 RFI.6

            6 All public comments are located in the energy conservation standards docket: http://www.regulations.gov/#!docketDetail;D=EERE-2014-BT-STD-0059.

        II. Request for Information and Comments
        In the following sections, DOE has identified a variety of issues on which it seeks input to aid in the development of the technical and economic analyses regarding whether amended test procedures for room ACs may be warranted. Specifically, DOE is requesting comment on any opportunities to streamline and simplify testing requirements for room ACs.
        Additionally, DOE welcomes comments on other issues relevant to the conduct of this process that may not specifically be identified in this document. In particular, DOE notes that under Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs,” Executive Branch agencies such as DOE are directed to manage the costs associated with the imposition of expenditures required to comply with Federal regulations. See 82 FR 9339 (Feb. 3, 2017). Pursuant to that Executive Order, DOE encourages the public to provide input on measures DOE could take to lower the cost of its regulations applicable to room ACs consistent with the requirements of EPCA. DOE also requests comment on the benefits and burdens of adopting any industry/voluntary consensus-based or other appropriate test procedure, without modification.
        A. Harmonization With the Portable Air Conditioners Test Procedure
        As discussed in the June 2015 RFI, DOE believes that consumers regard portable ACs and room ACs as similar products with similar function and consumer utility, because both are self-encased products powered by single-phase electric current that utilize refrigerant to provide cooling to defined spaces, and their product usage is broadly similar. See 80 FR 34843, 34845. Consequently, DOE believes that consumers are inclined to compare the two products based on their rated capacity and efficiency. Thus, harmonizing the test conditions for room ACs and portable ACs may allow consumers to make a more accurate comparison of the energy use or efficiency of the two products.
        DOE published a test procedure final rule for portable ACs on June 1, 2016 (hereinafter the “June 2016 Portable AC Final Rule”), in which DOE established test procedures for portable ACs in 10 CFR part 430, subpart B, appendix CC (“appendix CC”). 81 FR 35242. DOE assessed both the new portable AC test procedure and the room AC test procedure to determine whether any significant differences would impede an accurate consumer comparison of measured performance of the two covered products. DOE notes that the portable AC test procedure differentiates between single-duct and dual-duct portable ACs, which require different test conditions. For the purposes of the comparison with room ACs, DOE specifically considered the dual-duct testing provisions in the portable AC test procedure, because dual-duct portable ACs are most similar to room ACs in that the condenser inlet air is drawn from the unconditioned space, unlike single-duct portable ACs that draw condenser inlet air from the conditioned space. DOE identified several key differences between the test procedures in appendix F and appendix CC that lead to incomparable results. Specifically, the portable AC test procedure includes (1) two sets of test conditions for dual-duct portable ACs, one at 95 degrees Fahrenheit (“°F”) dry-bulb and 75 °F wet-bulb outdoor temperature (identical to the room AC test procedure) and the other at 83 °F dry-bulb and 67.5 °F wet-bulb outdoor temperature; 7
           (2) a requirement that the test unit be set up and tested with all manufacturer-provided materials and the associated heat losses be accounted for in the energy efficiency metric; and (3) the consideration of energy consumption in off-cycle mode (as defined in appendix CC). In light of these differences, DOE is requesting feedback in this RFI on whether amendments to the room AC test procedure are warranted to harmonize the two test procedures in order to enable a more accurate comparison of portable AC and room AC performance. In the following subsections, DOE describes the differences between the two test procedures in greater detail and requests information on key topics related to their harmonization.

            7 For single-duct portable ACs, testing is only required at the 95 °F dry-bulb and 75 °F wet-bulb outdoor test condition. Single-duct portable ACs do not intake air from the unconditioned space and therefore performance of the unit while testing would be unchanged by the adjustment in outdoor test conditions. Thus, DOE requires numerical adjustments for the 83 °F dry-bulb and 67.5 °F wet-bulb outdoor condition when determining the seasonally adjusted cooling capacity and CEER for single-duct portable ACs. This approach minimizes test burden yet ensures that the performance of a single-duct and dual-duct portable AC can be compared.

        1. Test Conditions
        In a portable AC test procedure supplemental notice of proposed rulemaking (“SNOPR”), published on November 27, 2015 (hereinafter the “November 2015 Portable AC SNOPR”), DOE developed a climate analysis to determine the ideal cooling mode test conditions for portable ACs. 80 FR 74020, 74026. DOE considered 2012 climate data from the National Centers for Environmental Information (“NCEI”) 8
           of the National Oceanic and Atmospheric Administration (“NOAA”) to determine the average dry-bulb temperature and relative humidity associated with the hottest 750 hours of the year in each state for which data were available.9
           DOE then reviewed room AC ownership data from the 2009 Residential Energy Consumption Survey (“RECS”) 10
           to identify room AC ownership by geographic region, as a proxy for portable AC ownership.11
           Based on these data, DOE used a weighted-average approach to combine the average temperature and humidity for each state to determine a national average test condition representative of the hottest 750 hours of the year. DOE found that the national average dry-bulb temperature and relative humidity associated with the hottest 750 hours are 83 °F and 45 percent, respectively. DOE then proposed two cooling mode test conditions for dual-duct portable ACs in the November 2015 Portable AC SNOPR: (1) A higher outdoor temperature condition based on AHAM PAC-1-2015, “Portable Air Conditioners” (95 °F dry-bulb and 75 °F wet-bulb temperature), representing high-temperature conditions when cooling is most needed; and (2) the lower outdoor temperature condition based on the weighted-average temperature and humidity observed during the hottest 750 hours (83 °F dry-bulb and 67.5 °F wet-bulb temperature). Id. In the June 2016 Portable AC Final Rule, DOE adopted in appendix CC the cooling mode test conditions proposed in the November 2015 Portable AC SNOPR. 81 FR 35242, 35249-35251.

            8 The NCEI was formerly known as the National Climate Data Center.

            9 NCEI climate data are available online at: https://www.ncdc.noaa.gov/crn/qcdatasets.html.

            10 RECS data are available online at: http://www.eia.gov/consumption/residential/data/2009/.

            11 DOE utilized RECS data for room ACs because such data were not available for portable ACs.

        In the June 2016 Portable AC Final Rule, DOE also established an energy efficiency metric, CEER, which provides a representative measure of overall portable AC performance that accounts for the variability in performance during the cooling season. CEER for dual-duct portable ACs is calculated as follows:

          EP04AU17.018

          Where:

          ACC95 = adjusted cooling capacity measured at an outdoor temperature of 95 °F in British thermal units per hour (Btu/h);
          ACC83 = adjusted cooling capacity measured at an outdoor temperature of 83 °F in Btu/h;
          AEC95 = total annual energy consumption in cooling mode at an outdoor temperature of 95 °F in kilowatt-hours per hear (kWh/year);
          AEC83 = total annual energy consumption in cooling mode at an outdoor temperature of 83 °F in kWh/year;
          k = 0.001 kWh/Wh conversion factor for watt-hours to kilowatt-hours;
          t = number of hours per year, 8,760.
          81 FR 35242, 35268.

        Room ACs are currently tested with a single outdoor test condition, 95 °F dry-bulb and 75 °F wet-bulb temperature, which aligns with only one of the two cooling mode test conditions for dual-duct portable ACs. Considering the similarities between the two products (i.e., consumer utility, internal components, etc.) and the potential for consumers to compare the energy use or efficiency of both products, DOE seeks comment on whether it would be appropriate to harmonize the two test procedures by including an additional test condition for room AC cooling mode testing (83 °F dry-bulb and 67.5 °F wet-bulb temperature). Should this harmonization of test conditions occur, DOE would also investigate the applicability of the portable AC energy metric and determine if any modifications would be necessary for its application to room ACs.
        As noted in the June 2015 RFI, the current room AC test procedure measures only the full-load performance at outdoor ambient conditions of 95 °F dry-bulb and 75 °F wet-bulb temperature. 80 FR 34843, 34848. Therefore, available technologies that improve part-load performance, such as variable-speed compressors and variable-opening expansion devices, are not considered in the determination of the rated performance of a room AC under the current test procedure. Id. DOE expects that harmonizing the room AC test procedure with the portable AC test procedure by including an additional cooling mode test condition potentially would ensure the room AC efficiency metric is more representative of actual use, and it will capture benefits associated with variable-speed compressors and other components that improve part-load performance.

          Issue A.1.1 DOE seeks feedback on the harmonization of the room AC test procedure with the DOE test procedure for dual-duct portable ACs, specifically related to the inclusion of an additional cooling mode test condition.

          Issue A.1.2 DOE seeks information on the test burden and other potential impacts associated with the inclusion of an additional cooling mode test condition in the room AC test procedure.

          Issue A.1.3 DOE seeks information on the merits and limitations of utilizing the CEER efficiency metric adopted for dual-duct portable ACs for the purposes of rating room ACs.

          Issue A.1.4 DOE seeks information on the implementation and operation of variable-speed compressors and other components that will improve part-load performance for room ACs, and whether the dual rating conditions specified for testing of dual-duct portable ACs would capture benefits of these technologies for room ACs and be included in the revised test procedure.
        2. Installation Heat Transfer and Leakage
        The portable AC test procedure in appendix CC requires that the test unit be set up and tested with all manufacturer-provided materials (including the ducts, connectors for attaching the duct(s) to the test unit, sealing, insulation, and window mounting fixtures) to ensure that the performance measured during the test is reflective of actual installation and operation. The portable AC test procedure also accounts for the impacts of infiltration air, which is caused by negative pressure in the conditioned space created by the unit's operation, thereby driving unconditioned air into the space and impacting the overall cooling provided by the unit to the conditioned space.
        Room ACs are typically installed with side curtains or other window or wall mounting installation materials that, during typical operation, may allow air to leak through or around the materials and would impact the cooling provided to the conditioned space. However, DOE notes that when conducting the calorimeter test prescribed in ANSI/ASHRAE Standard 16 (as referenced by the current DOE room AC test procedure), the test unit is set up so all air leakage around the unit that would normally be present in a typical installation is precluded by means of sealing.
        Considering the requirements of EPCA for DOE to adopt test procedures that are representative of an average use cycle, which would encompass typical installation and operation, DOE requests comment on testing in accordance with the manufacturer-provided installation materials.

          Issue A.2.1 DOE seeks feedback on the harmonization of the room AC test set up requirements with those in the portable AC test procedure, specifically related to installation with all manufacturer-provided installation materials.

          Issue A.2.2 DOE requests information and data related to air and heat leakage through and around room AC installation materials, specifically side curtains and wall sleeves, which the current room AC test procedure does not capture. DOE request comment on whether these losses should be considered given the requirements of EPCA.
        3. Off-Cycle Mode
        In the June 2016 Portable AC Final Rule, DOE adopted a definition for “off-cycle mode” as a mode in which the portable air conditioner: (1) Has cycled off its main cooling or heating function by thermostat or temperature sensor signal; (2) may or may not operate its fan or blower; and (3) will reactivate the main function according to the thermostat or temperature sensor signal. 81 FR 35242, 35265. DOE notes that this off-cycle mode definition for portable ACs is different from an off-cycle mode definition that DOE proposed on December 9, 2008, in a NOPR for the previous room AC test procedure rulemaking, which explicitly excluded fan operation from the off-cycle mode.12

          73 FR 74639, 74645 (Dec. 9, 2008) (hereinafter the “December 2008 NOPR”). By excluding the periods of fan operation from off-cycle mode that would be expected for a typical installation and usage, the definition proposed in the December 2008 NOPR excluded potentially significant energy consumption when compared to the definition adopted for portable ACs.

            12 DOE notes that the definition for off-cycle mode proposed in the December 2008 NOPR was not adopted in the June 2011 Final Rule.

        DOE also established provisions for determining the average off-cycle mode power in the June 2016 Portable AC Final Rule. 81 FR 35242, 35267. The portable AC off-cycle mode test is conducted following the cooling mode test under the same ambient conditions, and includes a 5-minute delay prior to measuring power consumption to allow for a brief period of fan operation while the evaporator returns to its non-cooling state. Because the evaporator is still cool at the end of compressor operation following cooling mode, additional room cooling is possible through continued fan operation at relatively low energy consumption. Therefore, DOE included the 5-minute delay before the start of off-cycle mode testing to prevent penalizing manufacturers for utilizing the cooling potential of the evaporator following the compressor cycle.
        In the June 2015 RFI, DOE requested comment on the merits and/or limitations of accounting for energy modes not currently included in the room AC test procedure, including off-cycle mode, referencing the definition proposed in the December 2008 NOPR. 80 FR 34843, 34846. In response to the June 2015 RFI, DOE received a comment opposed to the inclusion of off-cycle mode in the DOE test procedure for room ACs. However, due to the significant difference between that definition and the definition of off-cycle mode established in the portable AC test procedure, DOE is requesting feedback on including provisions for measuring average off-cycle mode power in the room AC test procedure, consistent with the portable AC test procedure.

          Issue A.3.1 DOE seeks feedback on the harmonization of the room AC test procedure with the portable AC test procedure, specifically related to the inclusion of off-cycle mode in the room AC test procedure.

          Issue A.3.2 DOE seeks feedback on the applicability of the portable AC off-cycle mode definition, provisions to measure average off-cycle mode power, and the inclusion of off-cycle mode in the efficiency metric for room ACs.

          Issue A.3.3 DOE requests information and data related to off-cycle mode, including input power levels, fan operation, time spent in that mode, etc.

        B. Test Setup and Air Sampling
        The current DOE room AC test procedure references certain sections of ANSI/AHAM RAC-1 and ANSI/ASHRAE 16 for the room AC cooling mode test conditions and test methods. Section 4.2.7 of ANSI/ASHRAE 16 requires the calorimeter chamber conditions to be verified by air sampled from a location that is representative of the temperatures surrounding the unit and that simulate the conditions in which the unit operates in the field. DOE notes that there is no procedure to verify if the measured chamber temperature reading is representative of conditions at the test unit condenser and evaporator inlet, which may be affected by recirculation from the condenser and evaporator exhaust, respectively, thereby potentially reducing test repeatability and reproducibility. As a result, DOE is seeking comment on this issue and any potential modifications to the test procedure that should be considered as part of this investigative effort.

          Issue B.1 DOE welcomes information on more specific requirements for air sampling device positioning within the calorimeter chamber to improve test repeatability.
        C. Room Air Conditioner Referenced Test Procedures
        1. American National Standards Institute/Association of Home Appliance Manufacturers RAC-1
        The cooling mode test in appendix F is conducted in accordance with the testing conditions, methods, and calculations in sections 4, 5, 6.1, and 6.5 of the 2008 version of ANSI/AHAM RAC-1. Since DOE last revised its room AC test procedure in 2011, ANSI/AHAM RAC-1 has been updated and the current standard was released in 2015 (ANSI/AHAM RAC-1-2015, “Room Air Conditioners”). Based on review of the 2015 standard, DOE believes that the updates to ANSI/AHAM RAC-1 provide added specificity, but do not substantively impact the results of DOE's cooling mode test. Accordingly, DOE does not expect that updating the references to ANSI/AHAM RAC-1 in the room AC test procedure at appendix F would substantively affect testing results. DOE further notes that the 2015 update to ANSI/AHAM RAC-1 included adjustments to section organization, and DOE would consider updating section references as necessary if the 2015 version of ANSI/AHAM RAC-1 is incorporated by reference in the room AC test procedure at appendix F.

          Issue C.1.1 DOE seeks feedback on whether the references to ANSI/AHAM RAC-1-2008 in its test procedure at appendix F should be updated to certain sections of the most current version of ANSI/AHAM RAC-1, ANSI/AHAM RAC-1-2015.
        2. American National Standards Institute/American Society of Heating, Refrigerating, and Air-Conditioning Engineers Standard 16
        Appendix F currently references in its provisions for cooling mode test conditions, methods, and calculations the 1983 version of ANSI/ASHRAE 16, which was reaffirmed in 2009. ANSI/AHAM RAC-1-2015 also references the 1983 version of ANSI/ASHRAE 16 reaffirmed in 2009. A new version of ANSI/ASHRAE 16 was published in 2016, which includes many significant updates to the standard, including heating mode testing and an air enthalpy test approach as an alternative to the calorimeter approach, while the general cooling mode methodology remains unchanged.

          Issue C.2.1 DOE seeks feedback on the applicability of the recent updates to ANSI/ASHRAE 16 to the room AC test procedure in appendix F.

          Issue C.2.2 DOE welcomes feedback on whether the test procedure in appendix F should continue to reference the version of ANSI/ASHRAE 16 that was reaffirmed in 2009, consistent with the referenced version in both ANSI/AHAM RAC-1-2008 and ANSI/AHAM RAC-1-2015, or if appendix F should reference the 2016 version of ANSI/ASHRAE 16. If appendix F were to reference the 2016 version of ANSI/ASHRAE 16, DOE seeks information on modified instructions that would be required in appendix F to continue to reference certain sections of ANSI/AHAM RAC-1.
        D. Other Test Procedure Topics
        In addition to the issues identified earlier in this document, DOE welcomes comment on any other aspect of the existing test procedure for room ACs not already addressed by the specific areas identified in this document. DOE particularly seeks information that would improve the repeatability, reproducibility, and consumer representativeness of the test procedure. DOE also requests information that would help DOE create a procedure that would limit manufacturer test burden through streamlining or simplifying testing requirements. Comments regarding the repeatability and reproducibility are also welcome.

        DOE also requests feedback on any potential amendments to the existing test procedure that could be considered to address impacts on manufacturers, including small businesses. Regarding the Federal test method, DOE seeks comment on the degree to which the DOE test procedure should consider and be harmonized with the most recent relevant industry standards for room ACs and whether there are any changes to the Federal test method that would provide additional benefits to the public.
        Additionally, DOE requests comment on whether the existing test procedure limits a manufacturer's ability to provide additional features to consumers on room ACs. DOE particularly seeks information on how the test procedure could be amended to reduce the cost of new or additional features and make it more likely that such features are included on room ACs.
        III. Submission of Comments
        DOE invites all interested parties to submit in writing by September 5, 2017, comments and information on matters addressed in this RFI and on other matters relevant to DOE's test procedure for room ACs. These comments and information will aid in the development of a test procedure NOPR for room ACs if DOE determines that amended test procedures may be appropriate for these products.
        Submitting comments via http://www.regulations.gov. The http://www.regulations.gov Web page will require you to provide your name and contact information. Your contact information will be viewable to DOE Building Technologies staff only. Your contact information will not be publicly viewable except for your first and last names, organization name (if any), and submitter representative name (if any). If your comment is not processed properly because of technical difficulties, DOE will use this information to contact you. If DOE cannot read your comment due to technical difficulties and cannot contact you for clarification, DOE may not be able to consider your comment.
        However, your contact information will be publicly viewable if you include it in the comment or in any documents attached to your comment. Any information that you do not want to be publicly viewable should not be included in your comment, nor in any document attached to your comment. Persons viewing comments will see only first and last names, organization names, correspondence containing comments, and any documents submitted with the comments.
        Do not submit to http://www.regulations.gov information for which disclosure is restricted by statute, such as trade secrets and commercial or financial information (hereinafter referred to as Confidential Business Information (“CBI”)). Comments submitted through http://www.regulations.gov cannot be claimed as CBI. Comments received through the Web site will waive any CBI claims for the information submitted. For information on submitting CBI, see the Confidential Business Information section.
        DOE processes submissions made through http://www.regulations.gov before posting. Normally, comments will be posted within a few days of being submitted. However, if large volumes of comments are being processed simultaneously, your comment may not be viewable for up to several weeks. Please keep the comment tracking number that http://www.regulations.gov provides after you have successfully uploaded your comment.

        Submitting comments via email, hand delivery, or mail. Comments and documents submitted via email, hand delivery, or mail also will be posted to http://www.regulations.gov. If you do not want your personal contact information to be publicly viewable, do not include it in your comment or any accompanying documents. Instead, provide your contact information on a cover letter. Include your first and last names, email address, telephone number, and optional mailing address. The cover letter will not be publicly viewable as long as it does not include any comments.
        Include contact information each time you submit comments, data, documents, and other information to DOE. If you submit via mail or hand delivery, please provide all items on a CD, if feasible. It is not necessary to submit printed copies. No facsimiles (faxes) will be accepted.
        Comments, data, and other information submitted to DOE electronically should be provided in PDF (preferred), Microsoft Word or Excel, WordPerfect, or text (ASCII) file format. Provide documents that are not secured, written in English and free of any defects or viruses. Documents should not contain special characters or any form of encryption and, if possible, they should carry the electronic signature of the author.
        Campaign form letters. Please submit campaign form letters by the originating organization in batches of between 50 to 500 form letters per PDF or as one form letter with a list of supporters' names compiled into one or more PDFs. This reduces comment processing and posting time.
        Confidential Business Information. According to 10 CFR 1004.11, any person submitting information that he or she believes to be confidential and exempt by law from public disclosure should submit via email, postal mail, or hand delivery two well-marked copies: one copy of the document marked confidential including all the information believed to be confidential, and one copy of the document marked “non-confidential” with the information believed to be confidential deleted. Submit these documents via email or on a CD, if feasible. DOE will make its own determination about the confidential status of the information and treat it according to its determination.
        Factors of interest to DOE when evaluating requests to treat submitted information as confidential include (1) a description of the items, (2) whether and why such items are customarily treated as confidential within the industry, (3) whether the information is generally known by or available from other sources, (4) whether the information has previously been made available to others without obligation concerning its confidentiality, (5) an explanation of the competitive injury to the submitting person which would result from public disclosure, (6) when such information might lose its confidential character due to the passage of time, and (7) why disclosure of the information would be contrary to the public interest.
        It is DOE's policy that all comments may be included in the public docket, without change and as received, including any personal information provided in the comments (except information deemed to be exempt from public disclosure).

        DOE considers public participation to be a very important part of the process for developing test procedures. DOE actively encourages the participation and interaction of the public during the comment period in each stage of the rulemaking process. Interactions with and between members of the public provide a balanced discussion of the issues and assist DOE in the rulemaking process. Anyone who wishes to be added to the DOE mailing list to receive future notices and information about this process or would like to request a public meeting should contact Appliance and Equipment Standards Program staff at (202) 586-6636 or via email at ApplianceStandardsQuestions@ee.doe.gov.

          Issued in Washington, DC, on July 27, 2017.
          Kathleen Hogan, Ph.D.,
          Deputy Assistant Secretary for Energy Efficiency, Energy Efficiency and Renewable Energy.

      [FR Doc. 2017-16441 Filed 8-3-17; 8:45 am]
       BILLING CODE -P


        DEPARTMENT OF THE TREASURY
        Internal Revenue Service
        26 CFR Part 1
        [REG-128590-03]
        RIN 1545-BC23
        Special Consolidated Return Rules for the Disallowance of Interest Expense Deductions Under Section 265(a)(2)

          AGENCY:
          Internal Revenue Service (IRS), Treasury.

          ACTION:
          Notice of proposed rulemaking.

          SUMMARY:
          This document contains proposed regulations under section 265(a)(2) that affect corporations filing consolidated returns. These regulations provide special rules for the treatment of certain intercompany transactions involving interest on intercompany obligations.

          DATES:
          Written or electronic comments and requests for a public hearing must be received by August 5, 2004.

          ADDRESSES:

          Send submissions to: CC:PA:LPD:PR (REG-128590-03), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-128590-03), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC. Alternatively, taxpayers may submit comments electronically via the IRS Internet site at www.irs.gov/regs or via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-128590-03).

          FOR FURTHER INFORMATION CONTACT:
          Concerning the proposed regulations, Frances L. Kelly, (202) 622-7770; concerning submissions of comments and/or requests for a public hearing, Guy Traynor, (202) 622-7180 (not toll-free numbers).

        SUPPLEMENTARY INFORMATION:

        Background
        Section 265(a)(2)
        Section 163(a) generally allows a deduction for all interest paid or accrued within the taxable year on indebtedness. Under section 265(a)(2), however, no deduction is allowed for interest on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from Federal income taxes.
        Rev. Proc. 72-18 (1972-1 C.B. 740) provides guidelines for the application of section 265(a)(2) to taxpayers holding tax-exempt obligations. Section 3.01 of the revenue procedure states that the application of section 265(a)(2) requires a determination, based upon all the facts and circumstances, of the taxpayer's purpose in incurring or continuing each item of indebtedness. Such purpose may be established by either direct or circumstantial evidence. Direct evidence includes direct tracing of borrowed funds to investments in tax-exempt obligations and the pledging of tax-exempt obligations as security for the indebtedness. To the extent that there is direct evidence establishing a purpose to purchase or carry tax-exempt obligations, the interest paid or incurred on such indebtedness may not be deducted. In certain other cases when an interest deduction is disallowed (for example, when amounts borrowed by a dealer in tax-exempt obligations are not directly traceable to tax-exempt obligations), section 7 of Rev. Proc. 72-18 sets forth a formula to calculate the disallowed interest deduction. That formula provides that the amount of the disallowed interest deduction is determined by multiplying the total interest on the indebtedness by a fraction, the numerator of which is the average amount during the taxable year of the taxpayer's tax-exempt obligations (valued at their adjusted bases), and the denominator of which is the average amount during the taxable year of the taxpayer's total assets (valued at their adjusted bases) minus the amount of any indebtedness the interest deduction on which is not subject to disallowance to any extent under Rev. Proc. 72-18.
        In H Enterprises International, Inc. v. Commissioner, 75 T.C.M. (CCH) 1948 (1998), aff'd, 183 F.3d 907 (8th Cir. 1999), a parent and a subsidiary were members of the same consolidated group of corporations. The subsidiary declared a dividend and, a few days later, borrowed funds and immediately used part of those funds to make the dividend distribution to the parent. A portion of the distributed funds was disbursed to two investment divisions of the parent, which used the funds to acquire investments including tax-exempt obligations.
        The court held that a portion of the subsidiary's indebtedness was incurred for the purpose of purchasing or carrying tax-exempt obligations (held in the parent's investment divisions) and, therefore, no deduction was allowed for the interest on this portion of the indebtedness under section 265(a)(2). To establish the required purposive connection under section 265(a)(2), the court reasoned that the activities of the parent corporation were relevant in determining the subsidiary's purpose for borrowing the funds. The court stated that if the analysis only focused on the borrower and not the transferee, then the purpose of the borrower corporation would always be acceptable, frustrating the legislative intent of section 265(a)(2).

        Rev. Rul. 2004-47 (2004-21 I.R.B.) provides guidance on the application of section 265(a)(2) in a number of situations in which a member of an affiliated group borrows money from an unrelated party and transfers funds to another member of the group that is a dealer in tax-exempt obligations. In Situation 4, P and S are members of the same affiliated group but file separate tax returns. P borrows funds from L, an unrelated bank, and lends the borrowed funds to S, a dealer in tax-exempt obligations. S uses the borrowed funds in its business. The ruling examines the obligation from L to P and the obligation from P to S for the application of section 265(a)(2). With regard to the loan from L to P, P uses the borrowed funds to make a loan to S, and P separately accounts for the taxable interest income from the obligation. The ruling concludes that P does not have a purpose of using the borrowed funds to purchase or carry tax-exempt obligations within the meaning of section 265(a)(2). With regard to the loan from P to S, although the borrowed funds are not directly traceable to S's purchase or carry of tax-exempt obligations, the ruling concludes that section 265(a)(2) applies to disallow a deduction for a portion of S's interest expense. The portion of S's interest deduction that is disallowed is determined pursuant to the formula of section 7 of Rev. Proc. 72-18.
        The Intercompany Transaction Regulations
        Section 1.1502-13 prescribes rules relating to the treatment of transactions between members of a consolidated group. With respect to intercompany obligations, the intercompany transaction rules generally operate to match the debtor member's items with the lending member's items from the intercompany obligation.

        Under § 1.1502-13(c)(6)(i), if section 265(a)(2) permanently and explicitly disallows a debtor member's interest deduction with respect to a debt to another member, the lending member's interest income is treated as excluded from gross income. See § 1.1502-13(g)(5), Example 1(d). In cases when a member of the group borrows from another member to purchase or carry tax-exempt obligations, and the lending member has not borrowed from sources outside of the group to fund the intercompany obligation, the result reached under the § 1.1502-13(c)(6)(i) exclusion rule is appropriate in that it reflects that intercompany lending transactions do not alter the net worth of the group and, thus, should not affect consolidated taxable income.
        However, when the lending member borrows from a nonmember, the lending member lends those funds to the debtor member, and the debtor member uses those funds to purchase or carry tax-exempt obligations, the application of the § 1.1502-13(c)(6)(i) exclusion rule may produce inappropriate results. For example, assume P borrows $100 from L, a nonmember, for the purpose of lending the $100 to S under the same terms, and S's purpose for borrowing $60 of the intercompany loan from P is to purchase $60 of tax-exempt obligations. Under section 265(a)(2), a deduction would be disallowed for a portion of S's interest expense on the intercompany obligation and a portion of P's interest income would be excluded from P's gross income under § 1.1502-13(c)(6)(i). Accordingly, section 265(a)(2) may have no effect on the group's taxable income, even though the group has borrowed to purchase tax-exempt obligations.
        Explanation of Provisions
        The IRS and Treasury Department believe that, when a member's indebtedness to a nonmember is directly traceable to an intercompany obligation and another member of the group uses the funds borrowed from the nonmember to purchase or carry tax-exempt obligations, the net tax effect of these transactions for the group should be a disallowance of a deduction for interest under section 265(a)(2).
        These proposed regulations reflect that when a member (P) borrows funds from a nonmember and lends all of those funds to another member (S) that uses those funds to purchase tax-exempt obligations, section 265(a)(2) will apply to disallow a deduction for the interest on S's obligation to P, not P's obligation to the nonmember. These proposed regulations provide that, if a member of a consolidated group incurs or continues indebtedness to a nonmember, that indebtedness to the nonmember is directly traceable to all or a portion of an intercompany obligation extended to a member of the group (the borrowing member) by another member of the group (the lending member), and section 265(a)(2) applies to disallow a deduction for all or a portion of the borrowing member's interest expense incurred with respect to the intercompany obligation, then § 1.1502-13(c)(6)(i) will not apply to exclude an amount of the lending member's interest income with respect to the intercompany obligation that equals the amount of the borrowing member's disallowed interest deduction. This override of the exclusion rule is subject, however, to a limitation. In particular, the amount of interest income not excluded cannot exceed the interest expense on the portion of the nonmember indebtedness that is directly traceable to the intercompany obligation. This limitation ensures that applying section 265(a)(2) to disallow an interest deduction with respect to an intercompany obligation that can be directly traced to nonmember indebtedness does not result in a worse overall tax position for the group than applying section 265(a)(2) to disallow a deduction for the interest paid to the nonmember.
        Therefore, subject to the limitation discussed above, if the proceeds of P's borrowing from a nonmember can be directly traced to a P-S intercompany obligation and all or a portion of S's interest expense on the P-S intercompany obligation is disallowed as a deduction under section 265(a)(2), these proposed regulations require that all or a portion of P's interest income on the intercompany obligation not be excluded under § 1.1502-13(c)(6)(i).

        In an Advance Notice of Proposed Rulemaking (REG-128572-03) in this issue of the Federal Register, the IRS and Treasury Department are soliciting comments regarding whether regulations under section 7701(f) should address the application of sections 265(a)(2) and 246A in transactions involving related parties, pass-thru entities, or other intermediaries, and suggestions as to the approach that should be taken by those regulations. It is possible that those comments and any regulations proposed under section 7701(f) will result in amendments to the rules set forth in these proposed regulations.
        Proposed Effective Date

        These regulations are proposed to apply to taxable years beginning on or after the date these regulations are published as final regulations in the Federal Register.
        Special Analysis
        It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 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. This certification is based upon the fact that these regulations will primarily affect affiliated groups of corporations that have elected to file consolidated returns, which tend to be larger businesses. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, these regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.
        Comments and Requests for a Public Hearing

        Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.
        Drafting Information
        The principal author of these proposed regulations is Frances L. Kelly, Office of the Associate Chief Counsel (Corporate). 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
          1. The authority citation for part 1 is amended by adding an entry in numerical order to read in part as follows:

            Authority:
            26 U.S.C. 7805 * * *

            Section 1.265-2 also issued under 26 U.S.C. 1502 and 7701(f). * * *

          2. In § 1.265-2, paragraph (c) is added to read as follows:

            § 1.265-2
            Interest relating to tax-exempt income.

            (c) Special rule for consolidated groups—(1) Treatment of intercompany obligations—(i) Direct tracing to nonmember indebtedness. If a member of a consolidated group incurs or continues indebtedness to a nonmember, that indebtedness is directly traceable to all or a portion of an intercompany obligation (as defined in § 1.1502-13(g)(2)(ii)) extended to a member of the group (B) by another member of the group (S), and section 265(a)(2) applies to disallow a deduction for all or a portion of B's interest expense incurred with respect to the intercompany obligation, then § 1.1502-13(c)(6)(i) will not apply to exclude an amount of S's interest income with respect to the intercompany obligation that equals the amount of B's disallowed interest deduction.
            (ii) Limitation. The amount of interest income to which § 1.1502-13(c)(6)(i) will not apply as a result of the application of paragraph (c)(1)(i) of this section cannot exceed the interest expense on the portion of the indebtedness to the nonmember that is directly traceable to the intercompany obligation.
            (2) Examples. The rules of this paragraph (c) are illustrated by the following examples. For purposes of these examples, unless otherwise stated, P and S are members of a consolidated group of which P is the common parent. P owns all of the outstanding stock of S. The taxable year of the P group is the calendar year and all members of the P group use the accrual method of accounting. L is a bank unrelated to any member of the consolidated group. All obligations are on the same terms and conditions, remain outstanding at the end of the applicable year, and provide for payments of interest on December 31 of each year that are greater than the appropriate applicable Federal rate (AFR). The examples are as follows:

              Example 1.
              (i) Facts. On January 1, 2005, P borrows $100x from L and lends the entire $100x of borrowed proceeds to S. S uses the $100x of borrowed proceeds to purchase tax-exempt securities. P's indebtedness to L is directly traceable to the intercompany obligation between P and S. In addition, there is direct evidence that the proceeds of S's intercompany obligation to P were used to fund S's purchase or carrying of tax-exempt obligations. During the 2005 taxable year, P incurs $10x of interest expense on its loan from L, and S incurs $10x of interest expense on its loan from P. Under section 265(a)(2), the entire $10x of S's interest expense on the intercompany obligation to P is disallowed as a deduction.
              (ii) Analysis. Because section 265(a)(2) permanently and explicitly disallows $10x of S's interest expense, ordinarily $10x of P's interest income on the intercompany obligation would be redetermined to be excluded from P's gross income under § 1.1502-13(c)(6)(i). However, under this paragraph (c), § 1.1502-13(c)(6)(i) will not apply to exclude P's interest income with respect to the intercompany obligation in an amount that equals S's disallowed interest deduction with respect to the intercompany obligation. Accordingly, § 1.1502-13(c)(6)(i) will not apply to exclude P's $10x of interest income on the intercompany obligation and P must include in income $10x of interest income from the intercompany obligation.

              Example 2.
              (i) Facts. The facts are the same as in Example 1, except that P incurs only $8x of interest expense on its loan from L.
              (ii) Analysis. Section 1.1502-13(c)(6)(i) will apply to exclude only a portion of P's $10x of interest income on the intercompany obligation. Under paragraph (c)(1)(ii) of this section, the amount of P's interest income that § 1.1502-13(c)(6)(i) will not apply to exclude is $8x, the total interest expense incurred by P on its indebtedness to L. Consequently, P must include in income $8x of interest income from the intercompany obligation and § 1.1502-13(c)(6)(i) will apply to exclude $2x of interest income from the intercompany obligation.

            (3) Effective date. The provisions of this section shall apply to taxable years beginning on or after the date these regulations are published as final regulations in the Federal Register.
            3. Section 1.1502-13 is amended by:
            1. Adding a sentence after the second sentence of paragraph (c)(6)(ii)(A).
            2. Adding paragraph (c)(6)(iii).
            3. Revising the first sentence of Example 1(d) of paragraph (g)(5).
            The revisions and additions read as follows:

            § 1.1502-13
            Intercompany transactions.

            (c) * * *
            (6) * * *
            (ii) * * *
            (A) * * * However, see § 1.265-2(c) for special rules related to the application of paragraph (c)(6)(i) of this section to interest income with respect to certain intercompany obligations the interest deduction on which is disallowed under section 265(a)(2). * * *

            (iii) Effective date. The third sentence of paragraph (c)(6)(ii)(A) of this section shall apply to taxable years beginning on or after the date these regulations are published as final regulations in the Federal Register.

            (g) * * *
            (5) * * *

              Example 1 * * *

            (d) Tax-exempt income. The facts are the same as in paragraph (a) of this Example 1, except that B's borrowing from S is allocable under section 265 to B's purchase of state and local bonds to which section 103 applies and § 1.265-2(c) does not apply. * * *

            Mark E. Matthews,
            Deputy Commissioner for Services and Enforcement.

      [FR Doc. 04-10477 Filed 5-6-04; 8:45 am]
      BILLING CODE 4830-01-P


        DEPARTMENT OF THE INTERIOR
        National Park Service
        36 CFR Part 7
        RIN 1024-AC82
        Special Regulations, Areas of the National Park System

          AGENCY:
          National Park Service, Interior.

          ACTION:
          Proposed rule.

          SUMMARY:
          The National Park Service (NPS) is proposing to amend regulations specific to Rocky Mountain National Park that designate snowmobile routes inside the park. The routes currently designated are inconsistent with the protection of the resources and values of this park, management objectives, with the requirements of two executive orders, and NPS general regulations that govern snowmobile use in the National Park System. This amendment would eliminate three of the four routes currently designated for snowmobile use and bring the remaining route into compliance with the general regulations.

          DATES:
          Written comments will be accepted through March 6, 2001.

          ADDRESSES:
          Comments should be addressed to: National Park Service, Ranger Activities Division, 1849 C Street, NW., Room 7408, Washington, DC 20240. Fax (202) 208-6756. Email: WASO_Regulations@nps.gov.

          FOR FURTHER INFORMATION CONTACT:
          Kym Hall, Regulations Program Manager, National Park Service, 1849 C Street, N.W., Room 7413, Washington, DC 20240. Telephone: (202) 208-4206; Fax: (202) 208-6756; Email: Kym_Hall@nps.gov.

        SUPPLEMENTARY INFORMATION:
        Background
        In January 1999, the NPS received a petition for rulemaking from the Bluewater Network, representing some 60 conservation organizations, requesting that we begin immediate rulemaking to prohibit snowmobile use within units of the National Park System. To gather information on how to respond, NPS conducted a survey of those parks in which snowmobile use is currently allowed. The survey gathered information from each relevant park on such matters as the basis on which a decision was originally made to allow snowmobile use in that park; how extensive that use is; what is known about the impacts of that use on park resources and values, including the enjoyment of other visitors; and what monitoring, if any, is conducted to determine those impacts. Additionally, the NPS held a two-day snowmobile “summit” in January 2000 at which officials from the Department of the Interior (including the Office of the Solicitor) and the National Park Service (including all but one affected park) reviewed the snowmobile use now occurring in the National Park System. We learned through the survey and the snowmobile “summit” that much of the snowmobile use that occurs in the National Park System is not consistent with management objectives or the protection of park resources and value, and is not in compliance with the requirements of the two executive orders and the NPS general regulations on snowmobile use.
        In April 2000, the Department and NPS publicly announced an intention to propose changes in the snowmobile use allowed in parks, to protect park resources and values, to meet management objectives and to come into compliance with the legal requirements applying to that use. Consistent with that announcement, this is a proposed regulatory action to make those changes in the park-specific regulations governing snowmobile use in Rocky Mountain National Park, by repealing the current designation of three routes in the park as open to snowmobiles. Only one of those routes is currently open to snowmobile use. For the other two, this proposal would amend the park-specific regulations to conform to previous decisions by the park management to close the routes to snowmobile use. This proposed rule will leave one route in the park, the North Supply Creek Snowmobile Access Trail, designated for snowmobile use. An environmental analysis and a draft economic analysis have been prepared.
        Existing Regulations
        Executive Order 11644, issued by President Nixon in 1972, provides, among other things, that snowmobile use may be allowed in the National Park System only on areas and trails designated by NPS for that purpose, and only if NPS determines that the snowmobile use on those areas and trails will not adversely affect the park's natural, aesthetic, or scenic values. It requires NPS to monitor the effects of authorized snowmobile use in parks. It also requires NPS, on the basis of the information gathered through that monitoring, to amend or rescind designations of those areas and trails open to snowmobile use as necessary to avoid adverse effects on the park's natural, aesthetic, or scenic values.
        Executive Order 11989, issued by President Carter in 1977, requires NPS, whenever it determines that the use of snowmobiles will cause or is causing considerable adverse effects on the natural resources of a park, to take steps to prevent those effects, including immediately halting that use.
        NPS general regulations on snowmobile use, 36 CFR 2.18(c), state that:

          The use of snowmobiles is prohibited, except on designated routes and water surfaces that are used by motor vehicles or motorboats during other seasons. Routes and waters surfaces designated for snowmobile use shall be promulgated as special regulations. Snowmobiles are prohibited except where designated and only when their use is consistent with the park's natural, cultural, scenic and aesthetic values, safety considerations, park management objectives, and will not disturb wildlife or damage park resources.

        Rocky Mountain National Park currently has four routes where snowmobile use has been designated via a special regulation: the Summerland Park Snowmobile Trail; the North Supply Creek Access Snowmobile Trail (identified in the regulation as the Supply Creek Snowmobile Access Trail); sixteen miles of Trail Ridge Road, including both a plowed stretch from the Kawuneeche Visitor Center to the Timber Lake Trailhead (ten miles) that is also open to other motor vehicles and an unplowed stretch (six miles) from the Timber Lake Trailhead to Milner Pass (these stretches are identified as separate routes in the current special regulation for the park); and the Bowen Gulch Access Route. All of these routes are in the Colorado River District, or western portion, of the park.
        Two of these routes, the Bowen Gulch Access Route and the Summerland Park Snowmobile Trail, are not now open to snowmobile use, since they have been closed by prior park action reflected in the Superintendent's compendium.
        On the two designated trails that are open to snowmobile use, 28,417 snowmobiles entered the park in the winter of 1999-2000, making Rocky Mountain one of the parks with the highest levels of snowmobile use in the national park system. By contrast, 88 snowmobiles entered the park in 1967, the first year for which use figures are available. Approximately 85 percent of the current use occurs on the North Supply Creek Snowmobile Access Trail, a route of approximately two miles in length that provides snowmobile access to adjacent national forest lands. The remainder of the use occurs on Trail Ridge Road, which provides snowmobile access into the interior of the park.
        This proposed rule would repeal the designations of all designated snowmobile routes in Rocky Mountain other than the North Supply Creek Access Trail.
        Explanation of Rule
        Repealing the designations of all routes except the North Supply Creek Access Trail is necessary to comply with the requirements of the applicable Executive Orders and NPS's general regulation on snowmobile use, 36 CFR 2.18, to protect park resources and values, and to meet park management objectives.
        Repealing the designations of the Bowen Gulch Access Trail and the Summerland Park Snowmobile Trail is justified for the same reasons that snowmobile use has not been allowed on those routes since 1981 and 1997, respectively. The Bowen Gulch Access Route historically provided snowmobile access to adjacent national forest lands that were open to snowmobile use, but that adjacent use ended in 1980 when Congress designated the national forest lands as part of the Never Summer Wilderness. The Summerland Park Snowmobile Trail was closed in 1997, because its inaccessibility made the area difficult for park rangers to patrol and monitor; its use led to off-road snowmobile use in violation of NPS regulations; and its use led to incidents of trespass onto adjacent private lands.
        Ending snowmobile use on Trail Ridge Road will reduce the adverse impacts of snowmobile noise on the natural soundscape of the park, on wildlife, and on other visitors to the park. Natural quiet will be restored to the area that extends from the Timber Lake Trailhead parking lot to Milner Pass. The long-term integrity of wilderness values in the Kawuneeche Valley in the vicinity of Trail Ridge Road will be protected and enhanced. The restored natural quiet will allow wildlife to exist in a more natural setting. Bighorn sheep that may have been avoiding Milner Pass during the winter because of noisy snowmobiles may return. The many visitors who come to Rocky Mountain in the winter seeking solitude, serenity, and tranquility (as documented by visitor use surveys) will have their enjoyment of the park enhanced.
        Eliminating snowmobile use on Trail Ridge Road will also reduce air pollution in the interior of the park, eliminate any possible impacts to soils or vegetation from snowmobile use along this route, and eliminate emissions that settle onto the snow and get carried into the park's streams and lakes by snowmelt.
        In addition, the dual use of the lower, plowed stretch of Trail Ridge Road by snowmobiles and other motor vehicles, on the same road surface, also presents safety concerns. The State of Colorado prohibits dual use by snowmobiles and other motor vehicles of the same road surface, on roads under state jurisdiction. On the lower stretch of Trail Ridge Road, the NPS has been allowing such dual use. Closing this stretch of road to snowmobile use is consistent with the state policy, and will improve public safety. In December 1999, there was a collision between a snowmobile and a minivan, with the snowmobile sliding on the ice and striking the van.
        Continuing to allow snowmobile use on the North Supply Creek Access Trail is consistent with applicable Executive Orders, the NPS's general snowmobile regulation, the protection of park resources and values, and park management considerations.
        The North Supply Creek Access Trail is a two-mile trail that provides access to adjacent national forest lands that are heavily used by snowmobiles. The first 0.87 mile of the trail within the park follows a utility corridor right of way, which is open to NPS, county, and public utility vehicles, and which is maintained as a fire access road. The remaining 1.13 miles follows the Sun Valley Road, which is a county road. This snowmobile trail provides the only safe and reasonable access between the town of Grand Lake and national forest lands west of the park that contain 17 named snowmobile routes with a total length of 92.3 miles. Limiting snowmobile use in the park to the North Supply Access Trail will limit any impacts of that use (primarily any impacts from noise) to this small portion of the park (where noise is already audible from snowmobiles in use on adjacent national forest lands).
        When final, this rule would become effective for the winter use season of 2002-2003. In a consolidated appropriations bill given final Congressional approval on December 15, 2000, Congress has provided that, in promulgating any new rules to reduce snowmobile use in units of the national park system, the NPS may not establish an effective date for the reductions any earlier than the winter season of 2002-2003.
        Compliance With Other Laws
        Regulatory Planning and Review (E.O. 12866)
        This document is a significant rule and has been reviewed by the Office of Management and Budget under Executive Order 12866.
        (1) This rule will not have an effect of $100 million or more on the economy. It will not adversely affect in a material way the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities.

        Nonetheless, the NPS has prepared a draft study on the economic effects of this proposal on, among others, small businesses. “Proposed Restrictions on Snowmobile Riding in Rocky Mountain National Park: Draft Report” (LawGibb Group, Arcadis JSA, and Research Triangle Institute, November 2000).
        This draft report indicates that the proposed regulation is expected to lead to a reduction in the number of visitor days spent by snowmobilers in Rocky Mountain in the winter, as they would no longer be able to use Trail Ridge Road. There may or may not be a reduction in visitation to the gateway community of Grand Lake, Colorado, depending on (1) how many people who used to snowmobile on Trail Ridge Road will continue to come to the area to snowmobile on other routes, and (2) whether there is an increase in other winter visitors to the park who will have a more enjoyable winter experience there without snowmobile use on Trail Ridge Road.
        Examining a likely range of possible reductions in winter visitation to Grand Lake, the report indicates that the total impact on businesses in Grand Lake could range from an annual decrease of $265,800 to $728,200 in business revenues. Approximately two-thirds of any impact will be on snowmobile rental businesses, followed by lodging (17.5 percent), restaurants and bars (9.2 percent), gas and oil, souvenirs and other retail trade, and grocery businesses.
        You may obtain a copy of the draft economic report by one of several ways:
        —Internet: http://www.nps.gov/romo/
        —By mail: Bruce Peacock, National Park Service, 1849 C Street, NW., Room 2749, Washington, DC 20240.
        —By email: Bruce_Peacock@nps.gov

        Public comments regarding the economic report may be submitted to Bruce Peacock at one of the addresses above.
        (2) This rule will not create a serious inconsistency or otherwise interfere with an action taken or planned by another agency.
        This rule deals specifically with Rocky Mountain National Park, which is administered solely by the NPS, and any rules regarding snowmobile use there would affect only the NPS and not other agencies.
        (3) This rule does not alter the budgetary effects or entitlements, grants, user fees, or loan programs or the rights or obligations of their recipients.
        There are no budgetary constraints or funding issues associated with this rulemaking at all. This rule pertains only to the recreational uses of areas within the park.
        (4) This rule may raise novel legal or policy issues.
        Though this rule is but a portion of the total snowmobile use within the NPS system, the specific issue of snowmobile restrictions in any of the NPS areas has raised concerns from the public regarding policies. Generally the effect of this rulemaking would be a small percentage of change in use patterns within the park.
        Regulatory Flexibility Act

        The Department of the Interior certifies that this document will not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
        Nonetheless, the NPS has prepared a draft study on the economic effects of this proposal on, among others, small entities. “Proposed Restrictions on Snowmobile Riding in Rocky Mountain National Park: Draft Report” (LawGibb Group, Arcadis JSA, and Research Triangle Institute, November 2000). Small entities potentially affected will be all six snowmobile rental shops in the Grand Lake area, and all governmental jurisdictions in the area.
        For snowmobile rental shops, the proposed regulation could lead to a loss of annual revenue ranging from $159,554 to $398,885. This represents nine to 22 percent of their estimated total winter revenue. However, there appears to be excess demand for snowmobile rentals in Grand Lake, with the rental businesses typically renting all available machines on weekends, weather permitting, and during holiday weeks. This could mean that the effects on the rental shops could be less than the ranges estimated.
        The town of Grand Lake does not collect a sales and use tax on snowmobile rentals. The range in reductions in winter visitation examined in the study would lead to a decline in the town's sales and use tax receipts from retail sales ranging between $2,479 and $8,430.
        The NPS solicits comments on any alternative approach to the proposed regulation—such as a limitation on the number of snowmobiles that may use Trail Ridge Road, a limitation on the hours of use of such snowmobiles, a restriction on use of snowmobiles to a smaller portion of Trail Ridge Road, technical or mechanical changes to snowmobiles that could be required to reduce air and noise emissions from snowmobiles so as to enable their use on Trail Ridge Road, use fees or other market-based regulatory mechanisms, or a delay in the effective date of the regulations—that could both accomplish the objectives and fulfill the requirements of the laws, executive orders, and regulations applying to snowmobile use in the park and minimize any possible adverse economic impact of the proposed regulation on small businesses.
        Additionally, we solicit comments on the potential impacts that this rule may have on small entities. We welcome comments with information regarding the number and types of entities impacted, the specific costs that may be imposed by this rule on small entities, and whether and why these impacts may be considered significant.
        Small Business Regulatory Enforcement Fairness Act (SBREFA)
        This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule:
        a. Does not have an annual effect on the economy of $100 million or more.
        This rule has been estimated to have a potential impact on small businesses (six rental shops) from approximately $160,000 to $400,000 annually.
        b. Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions.
        There are not likely to be cost increases associated with this rulemaking. The potential economic effect would be a minimal loss of revenue to small businesses and tax revenue to local governments.
        c. Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S-based enterprises to compete with foreign-based enterprises.
        This rule only pertains to recreational uses within a park unit and does not have effects on production between the United States and foreign entities.
        Unfunded Mandates Reform Act
        This rule does not impose an unfunded mandate on State, local, or tribal governments or the private sector of more than $100 million per year. The rule does not have a significant or unique effect on State, local or tribal governments or the private sector.
        This rule poses regulatory requirements only on those visitors that choose to operate a snowmobile within Rocky Mountain National Park, and it does not require any additional expenditures of money by them. Potential impacts to local government could be in the loss of tax revenue estimated between $2000 and $8000 annually.
        Takings (E.O. 12630)

        In accordance with 12630, the rule does not have significant takings implications.

        This rulemaking affects only those areas within Rocky Mountain National Park and has no effects on external ownership of lands outside the park boundary.
        Federalism (E.O. 13132)
        In accordance with Executive Order 13132, the rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.
        This rulemaking only affects users who choose to operate snowmobiles within the park. There are no obvious effects on the State of Colorado.
        Civil Justice Reform (E.O. 12988)
        In accordance with Executive Order 12988, the Office of the Solicitor has determined that this rule does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order.
        Paperwork Reduction Act
        This regulation does not require an information collection from 10 or more parties and a submission under the Paperwork Reduction Act is not required. An OMB form 83-I is not required.
        National Environmental Policy Act
        This rule does not constitute a major federal action significantly affecting the quality of the human environment. A draft Environmental Assessment has been completed. Copies of that assessment may be obtained through one of several methods.

        —Internet: http://www.nps.gov/romo/
        —By email: romo_superintendent@nps.gov
        —By mail: Superintendent, Rocky Mountain National Park, 1000 U.S. Highway 36, Estes Park, Colorado 80517.

        Public comments regarding the Environmental Assessment may be submitted to Rocky Mountain National Park at one of the addresses above. Public comments will be accepted at the park through January 13, 2001.
        Government-to-Government Relationship with Tribes
        In accordance with the president's memorandum of April 29, 1994, “Government -to-Government Relations with Native American Tribal Governments” (59 FR 22951) and 512 DM 2, we have evaluated potential effects on federally recognized Indian tribes and have determined that there are no potential effects.
        This rulemaking would not involve any lands or resources administered by Native American Tribes. This rule only addresses routes inside the boundaries of Rocky Mountain National Park.
        Clarity of This Regulation

        Executive Order 12866 requires each agency to write regulations that are easy to understand. We invite your comments on how to make this rule easier to understand, including answers to questions such as the following: (1) Are the requirements in the rule clearly stated? (2) Does the rule contain technical language or jargon that interferes with its clarity? (3) Does the format of the rule (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce its clarity? (4) Would the rule be easier to understand if it were divided into more (but shorter) sections? A “section” appears in body type and is preceded by the symbol “§ ” and a numbered heading; for example, § 7.7 [amended]. (5) Is the description of the rule in the Supplementary Information section of the preamble helpful in understanding the proposed rule? What else could we do to make the rule easier to understand?
        Send a copy of any comments that concern how we could make this rule easier to understand to: Office of Regulatory Affairs, Department of the Interior, Room 7229, 1849 C Street NW, Washington, DC 20240. You may also e-mail the comments to this address: Exsec@ios.doi.gov

          Public Participation: If you wish to comment, you may submit your comments by any one of several methods. You may mail comments to the National Park Service, Ranger Activities Division, 1849 C Street, NW., Washington, DC 20240. You may also comment via the Internet to WASO;_Regulations@nps.gov. Please submit Internet comments as an ASCII file avoiding the use of special characters and any form of encryption. Please also include “Attn: 1024-AC82” in the subject line and your name and return address in the body of your Internet message. Finally, you may hand deliver comments to Kym Hall, Regulations Program Manager, National Park Service, 1849 C Street, N.W., Room 7413, Washington DC. Our practice is to make comments, including names and addresses of respondents, available for public review during regular business hours. Individual respondents may request that we withhold their home address for the rulemaking record, which we will honor to the extent allowable by law. If you wish us to withhold your name and/or address, you must state this prominently at the beginning of your comment. However, we will not consider anonymous comments. We will make all submissions from organizations or businesses and from individuals identifying themselves as representatives or officials of organizations or businesses, available for public inspection in their entirety.

          List of Subjects in 36 CFR Part 7

        District of Columbia, National parks, Reporting and recordkeeping requirements

        Accordingly, we propose to amend Part 7 of 36 CFR as set forth below:

          PART 7—SPECIAL REGULATIONS; AREAS OF THE NATIONAL PARK SYSTEM
          1. The authority for Part 7 continues to read as follows:

            Authority:
            16 U.S.C. 1, 3, 9a, 460(q), 462(k); Sec. 7.96 also issued under D.C. Code 8-137 (1981) and D.C. Code 40-721 (1981).

            § 7.7
            [Amended]
            2. Revise § 7.7(e) to read as follows:

            (e) Snowmobiles—(1) On what route may I operate a snowmobile? Snowmobiles may be operated on the North Supply Creek Snowmobile Access Trail solely for the purpose of gaining access between national forest lands on the west side of the park and the town of Grand Lake. Use of this trail for other purposes is not permitted. This trail will be marked by signs, snow poles or other appropriate means.
            (2) When may I operate a snowmobile on the North Supply Creek Snowmobile Access Trail? The Superintendent shall determine the opening and closing dates for use of the North Supply Creek Snowmobile Access Trail each year, taking into consideration the location of wintering wildlife, appropriate snow cover, and other factors that may relate to public safety. The Superintendent will notify the public of such dates through normal news media channels. Temporary closure of this route will be initiated through the posting of appropriate signs and/or barriers. This route will be open to snowmobile travel when it is considered to be safe for travel but not necessarily free of safety hazards. Snowmobilers may travel this route with the permission of the Superintendent, but at their own risk.

            Dated: December 22, 2000.
            Stephen C. Saunders,
            Acting Assistant Secretary, Fish and Wildlife and Parks.

      [FR Doc. 01-377 Filed 1-4-01; 8:45 am]
      BILLING CODE 4310-70-P