Update of Linear Right-of-Way Rent Schedule

AGENCY:

Bureau of Land Management, Interior.

ACTION:

Final rule.

SUMMARY:

The Bureau of Land Management (BLM) is amending its right-of-way regulations to update the linear right-of-way rent schedule in 43 CFR parts 2800 and 2880. The rent schedule covers most linear rights-of-way granted under Title V of the Federal Land Policy and Management Act of 1976, as amended (FLPMA), and Section 28 of the Mineral Leasing Act of 1920, as amended (MLA). Those laws require the holder of a right-of-way grant to pay annually, in advance, the fair market value to occupy, use, or traverse public lands for facilities such as power lines, fiber optic lines, pipelines, roads, and ditches.

Section 367 of the Energy Policy Act of 2005 (the Act) directs the Secretary of the Interior to update the per acre rent schedule found in 43 CFR 2806.20. The Act requires that the BLM revise the per acre rental fee zone value schedule by state, county, and type of linear right-of-way use to reflect current land values in each zone. The Act also requires the Secretary of Agriculture (Forest Service) to make the same revisions for rights-of-way on National Forest System (NFS) lands.

DATES:

This final rule is effective December 1, 2008.

FOR FURTHER INFORMATION CONTACT:

For information on the substance of the final rule, please contact Bil Weigand at (208) 373-3862 or Rick Stamm at (202) 452-5185. For information on procedural matters, please contact Ian Senio at (202) 452-5049. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 to contact the above individuals during business hours. FIRS is available twenty-four hours a day, seven days a week, to leave a message or question with the above individuals. You will receive a reply during normal business hours.

SUPPLEMENTARY INFORMATION:

I. Background

II. Final Rule as Adopted and Response to Comments

III. Procedural Matters

I. Background

Statutory: Section 367 of the Act, entitled “Fair Market Value Determinations for Linear Rights-of-Way Across Public Lands and National Forests,” directs the Secretary of the Interior to: (1) Update 43 CFR 2806.20, which contains the per acre rent schedule for linear rights-of-way; and (2) Revise the per acre rental fee zone value schedule by state, county, and type of linear right-of-way uses to reflect current values of land in each zone. In addition, pursuant to section 367(a) and (b), the Secretary of Agriculture is adopting BLM's rent schedule in 43 CFR subpart 2806, as updated by Section 367, for linear rights-of-way granted, issued, or renewed for use of National Forest System lands under Title V of FLPMA or Section 28 of the MLA.

Advance Notice of Proposed Rulemaking: The BLM published an advance notice of proposed rulemaking (ANPR) in the Federal Register on April 27, 2006 (71 FR 24836). The comment period for the ANPR ended on May 30, 2006. The purpose of the ANPR was to encourage members of the public to provide comments and suggestions to help with updating the BLM's and the Forest Service's (FS) rent schedule, as described in the Act. The BLM received ten responses to the ANPR, including comments on six specific questions posed there. The BLM utilized the comments received from the ANPR extensively in the development of the proposed and final rule.

Proposed Rule: The BLM published a proposed rule in the Federal Register on December 11, 2007 (72 FR 70376). The comment period for the proposed rule ended on February 11, 2008. The purpose of the proposed rule was to provide members of the public an opportunity to comment on the BLM's proposal to update the linear rent schedule, as described in the Act. The BLM received twelve responses to the proposed rule, including comments on six specific questions posed there. The BLM utilized the comments received on the proposed rule extensively in the development of the final rule.

Previous (1987) Linear Rent Schedule: On July 8, 1987, and September 30, 1987, the BLM published regulations establishing rent schedules for linear rights-of-way granted under Section 28 of the MLA and Title V of FLPMA (52 FR 25818 and 52 FR 36576). The FS used these same schedules to charge rent for rights-of-way across NFS lands. The update to these previous schedules contained in this final rule also affects the FS and users of NFS lands.

The 1987 rent schedule was developed to set fair market rent and minimize the need for individual real estate appraisals for each right-of-way requiring rent payments, as well as to avoid the costs, delays, and unpredictability of the appraisal process in reasonably setting fair market rent.

The 1987 rent schedule established eight fee zones based on the distribution of average land values by county in Puerto Rico and in each of the states, except Alaska and Hawaii. (The 1987 rent schedule did not apply to Alaska and Hawaii; however, the rent schedule in this final rule applies to all 50 states and the commonwealth of Puerto Rico. Linear right-of-way rental fees in Alaska were previously determined on a case-by-case basis based on local market values. There are no linear rights-of-way in Hawaii currently administered by either the BLM or the FS). Under the 1987 regulations, a county was assigned to one of the eight zone values, based on average land values in the county: lower-value counties were assigned lower-numbered zones. The eight zone values contained in the 1987 schedule were set at $50, $100, $200, $300, $400, $500, $600, and $1,000 per acre. A county's zone value was translated into a per acre zone rent by use of the adjustment formula described below. To calculate the annual right-of-way rental payment, the zone rent was multiplied by the total acreage within the right-of-way. The formula for zone rent was:

Zone rent = (zone value) × (impact adjustment) × (Treasury Security Rate) × (annual adjustment factor)

The zone value term in the formula was the land value that was established for each of the eight zones. The zone values established in 1987 were never updated, although it is generally recognized that land values increased significantly in most areas from 1987 to the present.

The impact adjustment term (or encumbrance factor) in the formula reflected the differences in land-use impacts between: (1) Oil, gas, and other energy-related pipelines, roads, ditches, and canals; and (2) Electrical transmission and distribution lines, telephone lines, and non-energy related pipelines. Energy-related pipelines and roads were considered as having a greater surface disturbance impact on the land, and were adjusted to 80 percent of the zone value. Electrical transmission and distribution lines, phone lines, and non-energy related pipelines with a smaller area of disturbance were adjusted to 70 percent of the zone value.

The Treasury Security term in the formula reflected a reasonable rate of return to the United States for the use of the land within the right-of-way. The 1987 regulations were based on a rate of return of 6.41 percent for a 1-year Treasury Security.

The zone rent was adjusted annually by the change in the Gross Domestic Product, Implicit Price Deflator index.

BLM Right-of-Way Program and Revenues: The BLM administers 96,000 rights-of-way, of which 66,000 are authorized under FLPMA and 30,000 are authorized under the MLA. However, only 48,600 are subject to a rental payment. Wyoming and New Mexico together account for slightly more than 30,000 of the rights-of-way subject to rent. The BLM collected approximately $20.6 million in right-of-way rental receipts for fiscal year 2007. This total includes receipts from both linear and site-type rights-of-way. Seventy-seven percent of all right-of-way rent receipts were collected by five BLM State Offices. These five State Offices and the revenues collected are listed in Table 1.

Rent receipts from communication uses, which have their own rent schedule, totaled approximately $5 million, while receipts from other site-type rights-of-way, which normally require an appraisal to determine rent, and/or initial ad hoc billings, totaled approximately $9 million.

In fiscal year 2007, the BLM collected $6.5 million total rent for 12,545 linear rights-of-ways using the previous schedule. Of this amount, only 133 bills (for $52,400) were for rental payment periods (the length of time for which the holder is paying rent) of less than 1 year. The largest number of bills (5,864) was issued for one-year rental payment periods. The rent collected from these one-year bills totaled $4,781,000 ($815 per bill) and included approximately $852,000 for linear rights-of-way located in high value areas, such as in Clark County, Nevada, near the city of Las Vegas. The rent for these bills was generated using a similar methodology as the linear rent schedule, but was calculated using higher land values supported by appraisal data (used to develop “unique zones” with annual per acre rent values ranging from $280 to $6,000). Another 4,993 bills were issued for $133,172, covering a 5-year rental payment period. The average 5-year bill totaled $27, or less than $6 per bill on an annual basis. Lastly, a total of $89,000 was billed for rental payment periods of between 6 and 30 years.

To summarize, in fiscal year 2007 the BLM collected a total of $20.6 million in right-of-way rent receipts, but of that only $5.6 million was calculated using the previous Per Acre Rent Schedule. Another $852,000 was calculated using similar methodology as the Per Acre Rent Schedule, but was calculated using higher land values (unique zones) supported by appraisal data. In addition, over half of all bills generated for linear right-of-way grants in fiscal year 2007 were for multi-year periods of 2 years or more.

Interagency Coordination: The United States Department of Agriculture, Forest Service (FS), will adopt without rulemaking the revisions to the linear right-of-way rent schedule at 43 CFR 2806.20 promulgated by the BLM through this final rule. To enhance consistency between the BLM and the FS, the FS has indicated that it will incorporate some of the procedural or otherwise nonsubstantive changes into its directive system. The FS will be publishing a notice of its adoption of BLM's rental schedule pursuant to this rule and its incorporation of other changes in subpart 2806.

II. Final Rule as Adopted and Response to Comments

Part 2800 Rights-of-Way Under FLPMA

The BLM is amending the Per Acre Rent Schedule in its right-of-way regulations in 43 CFR parts 2800 and 2880. The rent schedule covers most linear rights-of-way granted under Title V of FLPMA and Section 28 of the MLA. These laws require the holder of a right-of-way grant to pay annually, in advance, the fair market value to occupy, use, or traverse public lands for facilities such as power lines, fiber optic lines, pipelines, roads, and ditches.

As mentioned above, the Act directs the Secretary of the Interior to update the per acre rent schedule in the BLM's previous regulations at 43 CFR 2806.20. The Act specifically requires that the BLM revise the per acre rental fee zone value schedule by state, county, and type of linear right-of-way use to reflect current land values in each zone. The Per Acre Rent Schedule applies to linear rights-of-way the BLM issues under 43 CFR parts 2800 and 2880. So as not to be redundant, we discuss the components and application of the rent schedule primarily in part 2800 and will not repeat those discussions in part 2880. However, we will note any differences in part 2880 that are necessary based upon specific statutory provisions of the MLA.

In addition to revising the Per Acre Rent Schedule, the final rule makes minor amendments to parts 2800 and 2880 to bring the previous regulations into compliance with the statutory rent schedule changes. Finally, there are a number of minor corrections and changes in the final rule that are not directly related to the rent schedule. These changes are limited in scope and address trespass and the new rental payments, land status changes, annual rental payments, MLA hardship provisions, and reimbursements of monitoring costs and processing fees. These latter items correct some errors in the previous regulations and clarify others. This final rule:

(1) Makes clear that the rent exemptions listed in section 2806.14 do not apply if the applicant/holder is in trespass;

(2) Provides that only the Per Acre Rent Schedule will be used to determine rent for linear right-of-way grants, unless the land encumbered by the grant is to be transferred out of Federal ownership;

(3) Provides for an annual rent payment term when the annual rent for non-individuals is $500 or more;

(4) Provides for a one-time rent payment for grants and easements when the land encumbered by the grant or easement is to be transferred out of Federal ownership;

(5) Provides for a limited phase-in provision to all holders for calendar year 2009, and, a possible additional phase-in period upon revision of the rent schedule under sections 2806.22(b) and 2885.19(a);

(6) Revises section 2920.6 to require reimbursement of processing and monitoring costs under sections 2804.14 and 2805.16 for applications for leases and permits issued under Title III of FLPMA;

(7) Amends section 2920.8(b) to assess a non-refundable processing fee and monitoring fee under sections 2804.14 and 2805.16 for each request for renewal, transfer, or assignment of a lease or easement;

(8) Amends sections 2805.11(b)(2) and 2885.11(a) so that all grants, except those issued for a term of 3 years or less and those issued in perpetuity under FLPMA, expire on December 31 of the final year of the grant; and

(9) Amends sections 2805.14(f) and 2885.12(e) to make it clear that you may assign your grant, without the BLM's prior written approval, if your authorization so provides.

We received many comments on the proposed rule that addressed issues common to both the part 2800 and part 2880 regulations. So as not to be redundant, we address the comments only in the section they pertain to in the part 2800 regulations. Comments that specifically address the part 2880 regulations are discussed in that section of the preamble.

Subpart 2805—Terms and Conditions of Grants

The BLM is making two minor amendments in 2 sections in subpart 2805, which addresses the terms and conditions of FLPMA right-of-way authorizations.

Section 2805.11 What does a grant contain?

Previous section 2805.11(b)(2) stated that all grants, except those issued for a term of less than 1 year and those issued in perpetuity, expire on December 31 of the final year of the grant. The BLM uses the calendar year, not the fiscal year or the anniversary date, to establish the rental period for grants. Expiration of grants on December 31 allows for consistency and ease of administration, because after the initial billing period only full calendar years are included in subsequent billing periods. However, the BLM often issues short-term right-of-way grants for 3 years or less to allow the holder to conduct temporary activities on public land. Previous section 2806.23(b) and final section 2806.24(c) both explain that the BLM considers the first partial calendar year in the rent payment period to be the first year of the rental term. Therefore, under previous section 2805.11(b)(2), a 3-year grant actually had a term period of 2 years plus the time period remaining in the calendar year of issuance. A 2-year grant had a term period of 1 year plus the time period remaining in the calendar year of issuance. Depending on when the grant was issued, the actual term could have been just over 2 years for a 3-year grant and could have been just over 1 year for a 2-year grant. Under the final rule, all grants, except those issued for a term of 3 years or less and those issued in perpetuity, expire on December 31 of the final year of the grant. The changes to this section allow holders to use short-term grants for the full period of the grant. For example, if a 3-year grant is issued under the final rule on October 1, 2008, it would expire on September 30, 2011, instead of December 31, 2010, under the previous rule. If a 2-year grant is issued under the final rule on October 1, 2008, it expires on September 30, 2010, instead of December 31, 2009, under the previous rule. In most cases, the BLM would assess a one-time rental bill for the term of the grant, which would reduce any administrative impact which might otherwise result from this change. We received no comments on the proposed changes to this section, and the final rule adopts the proposed section without change.

Section 2805.14 What rights does a grant convey?

Previous section 2805.14(f) stated that you had a right to assign your grant to another, provided that you obtained the BLM's prior written approval. The BLM proposed adding the phrase “unless your grant specifically states that such approval is unnecessary” at the end of this sentence to indicate that BLM's prior written approval may be unnecessary in certain cases. In most cases, assignments would continue to be subject to the BLM's written approval. However, with this change, the BLM could amend existing grants to allow future assignments without the BLM's prior written approval. This may be especially important to the future administration of a grant when the land encumbered by a grant is being transferred out of Federal ownership, and there is a request to convert an existing grant to an easement or a perpetual grant under section 2807.15(c). We received no comments on the proposed changes to this section and the final rule adopts the proposed section without change.

Subpart 2806—Rents

Sections 2806.10 through 2806.16 of subpart 2806 contain general rent provisions that apply to grants. No changes were proposed to these general provisions except to section 2806.14.

Section 2806.14 Under what circumstances am I exempt from paying rent?

Previous section 2806.14 identified those circumstances where a holder or facility is exempt from paying rent. None of the previous circumstances change under the final rule. We have, however, added a provision (final section 2806.14(b)) that states that the exemptions in this section do not apply if you are in trespass. The addition of this provision makes it clear that the penalties specified in subpart 2808—Trespass, which include the assessment of rent for use of the public land, and possible additional penalties based upon the rent value, apply to all entities in trespass, even those entities that may otherwise be exempt from paying rent under section 2806.14. This is consistent with how trespass penalties are assessed under current policy, and provides for consistency with similar provisions in subpart 2888—Trespass. Current section 2888.10(c) states that the BLM will administer trespass actions for MLA grants and temporary use permits (TUPs) as set forth in sections 2808.10(c) and 2808.11, except that the rental exemption provisions of part 2800 do not apply to grants issued under part 2880. Adding a new provision at section 2806.14(b) makes it clear that the rental exemption provisions do not apply to trespass situations covered under subpart 2808, as they likewise do not apply to trespass situations covered under subpart 2888. The final rule removes the existing phrase “except that the rental exemption provisions of part 2800 (section 2806.14) do not apply to grants issued under this part” from section 2888.10(c), because the cross reference is no longer necessary (see preamble discussion for proposed section 2888.10(c)). We received no comments on the proposed changes to this section and the final rule adopts the proposed section without change.

Section 2806.20 What is the rent for a linear right-of-way grant?

This section explains that the BLM will use the Per Acre Rent Schedule, except as described in section 2806.26, to calculate annual rent for linear right-of-way grants. The per acre rent from the schedule (for all types of linear right-of-way facilities regardless of the granting authority, e.g., FLPMA, MLA, and their predecessors) is the product of 4 factors: The per acre zone value multiplied by the encumbrance factor multiplied by the rate of return multiplied by the annual adjustment factor. The following discussion explains how the BLM adjusted these factors in the previous and proposed Per Acre Rent Schedule to arrive at the Per Acre Rent Schedule in the final rule, including the determination of per acre land values by county, as directed by the Act.

Use of a Schedule

Section 367 of the Act directs the Secretary of the Interior to “revise the per acre rental fee zone value schedule by State, county, and type of linear right-of-way use to reflect current values of land in each zone.” Therefore, the final rule retains the use of a schedule and no alternative rental fee options were considered.

County Land Values—Use of Published Data

In the 1987 rent schedule, the average per acre land value for each county was based upon a review of the typical per acre value for the types of lands that the BLM and the FS had allocated to various utility and right-of-way facilities. These values were mapped, reviewed, and adjusted, resulting in the placement of each county (except Coconino County, Arizona, which was split by the Colorado River) in one of eight zones ranging in value from $50 to $1,000 per acre.

In the ANPR, the BLM requested comments regarding what available published information, statistical data, or reports the BLM should use to update the current linear right-of-way rental fee zone values. The BLM stated in the ANPR that it was considering using existing published information or statistical data for updating the rent schedule, such as information published by the National Agricultural Statistics Service (NASS). The NASS publishes two reports:

(1) The Census of Agriculture, published every 5 years (NASS Census); and

(2) The annual Land Values and Cash Rents Summary (Annual Report).

The NASS Census provides average per acre land and building values by county, or other geographical areas, for each state. The land values are reported individually for cropland (including irrigated and non-irrigated cropland), woodland, pastureland, and rangeland, and an “other” category that includes non-commercial, non-residential building lots, wasteland, and land with roads and ponds. The average per acre land and building values do not include any value for the crop, forage, or woodland products produced from the land.

The NASS data in the Annual Report, as compared to the data in the NASS Census (see previous paragraph), includes average per acre values for cropland, pastureland, and farm real estate, but only on a regional or statewide basis, and not on a countywide basis. Another difference between the Annual Report and the NASS Census is the absence of any data for Alaska, Hawaii, and Puerto Rico in the Annual Report. You can find more detailed information about the NASS Census and the Annual Report at the NASS Web site at: http://www.nass.usda.gov/index.asp.

The BLM received four comments in response to our request in the ANPR for comment on the use of available published information. One commenter said that the NASS data is appropriate. Two commenters recommended using the NASS Census of Agriculture (5-year census) for county-level data. One commenter stated that the NASS data seems appropriate for updating the schedule, so long as agricultural uses are not reflected in the land values used.

In the development of the proposed rule, the BLM generally agreed with the commenters on the ANPR that supported the use of the NASS Census data to determine the average per acre value for each county, except for the commenter that supported its use so long as agricultural uses are not reflected in the land values used. The NASS publishes average per acre land and building values, by state and county, each 5-year period in its NASS Census report. The most recent county values are from the 2002 NASS Census, which was published in June 2004. The next NASS Census report will provide 2007 data, and it is due to be published in June 2009. However, the NASS county per acre land and building value data is reflective of the types of agricultural uses generally occurring in that county, including land value data reported for cropland (including irrigated and non-irrigated cropland), woodland, pastureland, and rangeland, and an “other” category that includes non-commercial, non-residential building lots, wasteland, and land with roads and ponds. Land administered by the BLM and FS have many of the same agricultural values (grazing, commercial timber production, woodland and vegetative sales (Christmas trees, firewood, mushrooms, pine nuts, seed crops from native species, etc.). The average per acre land and building values do not include any value for the crop, forage, or woodland product produced from the land. In the proposed rule, we further explained that other Federal and state agencies regularly use the NASS Census data when it is necessary to obtain average per acre land value for a particular state or county. In addition, Congress specifically endorsed the use of this data for rental determination purposes when it passed the “National Forest Organizational Camp Fee Improvement Act of 2003” (Pub. L. 108-7) (16 U.S.C. 6231). This law established a formula for determining rent for organizational camps located on NFS lands by applying a 5 percent rate of return to the average per acre land and building value, by state and county, as reported in the most recent NASS Census. That law also provided for a process to update the per acre land values annually based on the change in per acre land value, by county, from one census period to another. The law does not mandate the use of zones or a schedule, which eliminates the need for an annual index adjustment to keep the schedule or zones current. However, the range between the high and low county values which results from using the components mandated under Public Law 108-7, including the use of a 100 percent encumbrance factor, is significantly greater than the range between the high and low zone values which result from using the components established under either the proposed or final rule.

The proposed rule used the entire average per acre land and building value (by state and county) from the 2002 NASS Census to place the county or geographical area into the proper zone value in the rent schedule. We used the entire average per acre land and building value to be consistent with how Congress used the same data in determining annual per acre rent for organizational camps located on NFS lands as described above. We also used the entire per acre land and building value from the NASS Census because both BLM and FS lands have many of the same agricultural values reflected in the NASS Census data.

The BLM received several comments on the proposed rule's use of the entire average per acre land and building value (by state and county) from the NASS Census to place the county or geographical area into the proper zone value in the rent schedule. The majority of the commenters stated that the average per acre land and building value should be reduced to remove land with buildings or other improvements, but offered no recommendations on how this should be accomplished. Some of the commenters stated that irrigated cropland should also be removed from the average per acre land and building value, pointing out that in most cases the average per acre value of irrigated land is significantly higher than non-irrigated land. These commenters recommended reducing the average per acre land and building value in the NASS Census by 50 percent, but offered no data to support a 50 percent reduction, except to state that lands administered by the BLM and FS are not used for irrigated cropland production, nor do they contain rural farm buildings, and therefore, the average per acre land and building value should be reduced by at least 50 percent.

We agree that the average per acre land and building value for each county should be reduced by an amount that reflects the value of irrigated cropland and land encumbered by buildings because BLM- and FS-administered lands do not include these land categories. The BLM consulted with officials from the NASS on an appropriate methodology to arrive at this figure. The NASS advised us that this calculation can be accomplished by comparing the total value of irrigated acres and acres in the “other” category, to the total value of all farmland acres. In 2002, there were a total of 938,300,000 acres of rural farmland, composed of 434,200,000 acres of cropland (50,300 acres irrigated); 395,300,000 acres of pasture/rangeland (5,000,000 acres irrigated); 75,900,000 acres of woodland; and 32,900,000 acres in an “other” category (roads, ponds, wasteland, and land encumbered by non-commercial/non-residential buildings). In 2007, the average per acre value of all land in all categories equaled $2,160 for a total farm real estate value of $2,026,728,000,000. This compares to an average per acre land value of $4,736 for all irrigated cropland (a total value of $261,900,000,000 for the 55.3 million acres of irrigated cropland) or approximately 12.9 percent of the total value of all farmland. Thus, to eliminate the irrigated cropland value from the average per acre land and building value of each county, a 13 percent reduction is necessary.

To determine a similar value for the “building” component of the average per acre land and building value is more difficult, since only the total number of acres in the “other” category is known (32.9 million acres, which includes acres encumbered by roads, ponds, non-commercial/non-residential buildings, and wastelands). In addition, unlike the average per acre values that have been determined by NASS for pastureland/rangeland ($1,160), all cropland ($2,700), irrigated cropland ($4,736) and all farm real estate ($2,160), the average per acre value for the “other” category is not available. However, since the lands in this category are basically non-productive, their average per acre value is likely less than the average per acre value for pastureland/rangeland ($1,160). Even so, if all 32.9 million acres were valued at $1,160 per acre, the total value of all lands in the “other” category would equal $38,164,000,000, or less than 2 percent of the total value of all farm real estate. If all lands in the “other” category are valued the same as irrigated cropland ($4,736), their total value would still only be 7.7 percent of all farm real estate. Therefore, in the final rule we reduced the average per acre land and building value by 20 percent (a 13 percent reduction for all irrigated acres and a 7 percent reduction for all lands in the “other” category which includes all improved land or land encumbered by buildings) to eliminate the value of all land that could possibly be encumbered by buildings or which could possibly have been developed, improved, or irrigated.

One commenter suggested that the value for non-irrigated cropland should also be deleted from the average per acre land and building value because of its commercial nature and its dissimilarity to public and NFS lands. The BLM disagrees with this comment. In the 2007 Annual Report, the NASS provided the average value per acre of non-irrigated land in 20 states, including most of the states in the west with large acreages of public and NFS lands, except for the states of Arizona and Nevada where there is very little cropland that is not irrigated. The average value per acre of non-irrigated land is $1,963, and the average value per acre of pasture land in these same 20 states (excluding Arizona and Nevada) is $1,976. If the average per acre pastureland values were included for Arizona and Nevada, the average value per acre of pasture land for all 22 states is $1,926. Thus, there is little difference in the mid-western and western states between the average per acre values of non-irrigated cropland and pastureland/rangeland. In the eastern United States, Federal land holdings, including NFS lands, have largely been acquired from the private sector (primarily farm real estate) and would likely fall into the same land categories covered by the NASS Census. As a result, no further reductions to the average per acre land and building value (other than the 20 percent reduction discussed above for irrigated lands and buildings) are made in the final rule.

In the ANPR the BLM requested comments regarding whether the proposed Per Acre Rent Schedule should split some states and counties into more than one zone. The BLM received three ANPR comments addressing whether some counties should be split into more than one zone. One commenter said that any consideration of splitting states or counties into more than one zone should involve discussions with stakeholders. One commenter said that zones smaller than a single county may lead to undue administrative burden for the BLM (establishing boundaries and collecting data). For very high-valued lands, rent could be based on 25 percent of the assessed value, according to one commenter. Alternatively, high-valued BLM lands could be sold or exchanged. One commenter said that wide variations in land values within a state or county may require applying the zone methodology at the sub-state or sub-county level. In the proposed rule, the BLM did not split any county into more than one zone because there was no published data, easily obtainable, that would support making such a split. We received one comment on the proposed rule suggesting that multiple zones be established where land values vary greatly within a single county. However, the commenter did not indicate how such variations in land values could be easily obtained or identified within each county entity. The BLM believes that it is not possible to make easy or accurate determinations of variations in land values within each county, and therefore the final rule does not split any county into more than one zone.

The BLM also requested in the ANPR comments regarding whether the proposed Per Acre Rent Schedule should apply to Alaska. One commenter stated that the new linear right-of-way rent schedule should apply to public and NFS lands in Alaska if similar published data for land values is available for Alaska as for the lower 48 states and the data produces a reasonable per acre rental value. As a result, we proposed that the schedule apply to Alaska since the NASS Census does include average per acre land and building values for 5 Alaska areas: Fairbanks; Anchorage; Kenai Peninsula; Aleutian Islands; and Juneau. These NASS data produce a reasonable per acre rental value and are comparable to the per acre rental values from contracted appraisals and/or local rent schedules now in effect in some BLM and FS offices. The NASS Census data does not define the actual boundaries for the 5 areas, and therefore we specifically asked for comments to assist the BLM and the FS in determining and identifying the on-the-ground area to be included in each of the 5 Alaska areas in the NASS Census. For example, the NASS Census average per acre land and building value for the Fairbanks “area” could be used for all public lands administered by the BLM Fairbanks District Office and the NASS Census average per acre land and building value for the Anchorage “area” could apply to all public lands administered by the BLM Anchorage District Office, and so forth. Another approach, which both the BLM and the FS prefer, would be to identify specific geographic or management areas and apply the most appropriate per acre land and building value from the 5 Alaska NASS Census areas to the BLM/FS identified geographic or management areas based on similar landscapes and/or similar average per acre land values. The proposed rule stated that the FS planned to use the NASS census data for the Kenai Peninsula for all NFS lands in Alaska, except for NFS lands located in the Anchorage and Juneau areas. For NFS lands located in the Municipality of Anchorage, the NASS Census data for the Anchorage area would apply. For NFS lands in the downtown Juneau area (Juneau voting precincts 1, 2, and 3), the NASS Census data for the Juneau area would apply.

The BLM received 2 comments on how the NASS Census data should be applied to public and NFS lands in Alaska. Both commenters generally supported the methodology of the proposed per acre rent schedule (with minor exceptions), but varied slightly in the geographical application of the five NASS Census areas for Alaska. One commenter agreed with the proposal of using the NASS Census data for the Kenai Peninsula for all NFS lands in Alaska, except for NFS lands located in the Anchorage and Juneau area. The commenter stated that for NFS lands located in the Municipality of Anchorage, the NASS Census data for the Anchorage area should apply, and for NFS lands in the downtown Juneau area, the NASS Census data for the Juneau area should apply. For the BLM, the commenter proposed that the NASS Census data for the Kenai Peninsula (Zone 4) apply to all public lands within the BLM Anchorage District boundaries, except for public lands in the Anchorage (Zone 6 in the proposed rule; Zone 5 in the final rule due to the 20 percent reduction in the average per acre land and building value—see discussion above), Juneau (Zone 11), and the Aleutian Island Chain (Zone 1) areas. The commenter said that for public lands located in the Municipality of Anchorage, the NASS Census data for the Anchorage area (Zone 5 in the final rule) should apply and for public lands in the downtown Juneau area (Juneau voting precincts 1,2, and 3), the NASS Census data for the Juneau area (Zone 11) should apply. For public lands in the Aleutian Island Chain, the NASS Census data for the Aleutian Islands Area (Zone 1) should apply. In addition, the NASS Census data for the Fairbanks Area (Zone 3) should apply to all public lands within the BLM Fairbanks District boundaries. The commenter stated that these zone definitions and values would be consistent with both the suggestion in the proposed rule and the general fee schedule previously developed by the Appraisal Services Directorate (ASD), Alaska, for the BLM and the United States Fish and Wildlife Service. The BLM agrees with the commenter's suggestions because these zone definitions and values closely match previous rent schedules/values developed by the ASD for these same geographical areas. Therefore, in the final rule the BLM will apply the NASS Census data for Alaska to the geographical and administrative areas as follows:

Aleutian Islands Area—all lands within the Aleutian Islands Chain—Zone 1;

Fairbanks Area—all lands within the BLM Fairbanks District boundaries—Zone 3;

Kenai Peninsula Area—all lands within the BLM Anchorage District boundaries excluding the Aleutian Islands Chain, the Anchorage Area, and the Juneau Area—Zone 4;

Anchorage Area—all lands within the Municipality of Anchorage—Zone 5; and

Juneau Area—all lands within downtown Juneau (Juneau voting precincts 1, 2 and 3)—Zone 11.

The second commenter, while disagreeing with some of the individual elements in the formula, stated that the rent formula, when taken as a whole, is well structured and should be extended, as described, to Alaska. This commenter did note, however, that the 2002 appraisal completed for the Trans-Alaska Pipeline System (TAPS) right-of-way set a $391 per acre land value for Federal lands north of the Yukon River and suggested that the BLM use this as justification to place these lands into Zone 2 instead of Zone 3, as proposed. We do not dispute the per acre value of Federal lands north of the Yukon River as determined by the 2002 TAPS appraisal. We do, however, note that in arriving at an annual per acre rental value for these lands, the 2002 TAPS appraisal utilized an encumbrance factor of 100 percent (later reduced to approximately 86.49 percent) and an 8 percent rate of return. When taken together, these components of the TAPS appraisal produced an annual per acre rental value of approximately $31 (later reduced to $27) for Federal lands north of the Yukon River and an average per acre rental value of approximately $35 (later reduced to $30) for all Federal lands along the TAPS corridor. In comparison, the proposed rent schedule would have generated an annual per acre rental value of $32.35 in 2002, while the final rule would have generated $26.35. Therefore, the BLM agrees with the commenter, that while issue can be taken with individual elements of the final per acre rent schedule, when taken as a whole, the schedule is well constructed and produces a reasonable per acre rent for all zones. In the final rule, the TAPS will be assessed Zone 3 rates for all public land acres within the BLM Fairbanks District boundaries, and Zone 4 rates for all public land and NFS land acres within the BLM Anchorage District boundaries and the Chugach National Forest.

Puerto Rico, which has no public lands administered by the BLM, is not divided into counties. However, the NASS publishes average farmland values for the entire Commonwealth of Puerto Rico. The proposed rule stated that the FS planned to use the NASS average farmland values ($5,866 per acre in 2002) for linear right-of-way authorizations located on NFS lands in Puerto Rico. The BLM included this same amount ($5,866 per acre in 2002) for Puerto Rico in the proposed rule for use by the BLM in the event that the BLM were to issue and administer future linear authorizations in Puerto Rico (for example, a MLA grant which involved lands administered by two or more Federal agencies could be issued/administered by the BLM). We received no comments on this issue and made no changes to the final rule.

Per Acre Zone Values

The 1987 linear rent schedule contained eight separate zones representing average per acre land value from $50 per acre to a $1,000 per acre. The schedule contained two zones with a $50 range, five zones with a $100 range, and one zone with a $400 range. All the counties in the 48 contiguous states, except one, and Puerto Rico were in one of the eight zones based on their estimated average per acre land value. The lone exception was Coconino County, Arizona, where the area north of the Colorado River was in one zone, and the area south of the river was in a different zone.

In the ANPR, the BLM requested comments regarding the appropriate number of rental zones for the revised rent schedule, and received three comments. One commenter said that the number of zones (8) in the current schedule is sufficient. Two commenters said that the number of zones should not be changed, unless the NASS Census data indicates the need for a change.

In the proposed rule, the number of zones was increased from the previous 8 to 12 in order to accommodate the range of 3,080 county land values contained in the NASS Census. For the same reason, it was necessary to increase the dollar value per zone. In the 2002 NASS Census, the county land and building value per acre ranged from a low of $75 to a high of $98,954. To accommodate such a wide range in average per acre land values, the BLM proposed 2 zones with $250 increments, 3 zones with $500 increments, 1 zone with a $1,000 increment, 1 zone with a $2,000 increment, 1 zone with a $5,000 increment, 2 zones with $10,000 increments, 1 zone with a $20,000 increment, and 1 zone with a $50,000 increment (see Table 2—Zone Thresholds).

The proposed rule's zones accommodate the per acre land and building values of 100 percent of the total number of counties in the 2002 NASS Census (see Table 3). As land values increase or decrease, it may be necessary to adjust the number of zones and/or the dollar value per zone. The proposed rule allowed adjustments to the number of zones and/or the dollar value per zone after the publication of every other NASS Census (once each ten-year period). The adjustments must accommodate 100 percent of the county per acre land and building values reflected in the 5-Year Census. In the proposed rule, the BLM specifically asked for comments on whether 100 percent of the counties should be covered by the per acre rent schedule.

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The BLM received several comments that supported the number of zones, the zone values, and the placement of all NASS counties within the appropriate zone value. One commenter encouraged the BLM and the FS to verify that the zone values reflect actual undeveloped, non-irrigated land values in rural areas of the country adjacent to the public and NFS lands, to ensure that the land values within each zone are appropriate, and the zones assigned to different counties are accurate. We believe that we have addressed this concern by removing all irrigated land and land encumbered by buildings from the calculation of land value and reducing the average per acre land and building values by 20 percent from those shown in the proposed rule. Even with this reduction, we do not believe that the number of zones or the zone values require adjustment. There are still several counties that would fall into Zone 12, even with the 20 percent reduction.

Another commenter suggested that the BLM should discard the zone brackets entirely and use the actual NASS Census land and building value for each county. The BLM considered this option in the development of the proposed rule, but did not believe it conformed to the Congressional mandate provided in Section 367 of the Act to revise the existing schedule by state, county, and type of uses to reflect current land values in each zone. The commenter also suggested that in lieu of using the actual NASS Census value for each county, the BLM should utilize the midpoint of the zone value to base its calculations instead of the upper limit value of each zone. Again, the BLM considered this option in the development of the proposed rule, but did not adopt it because this calculation change would have been significantly different from the methodology used in the previous schedule (which utilized the upper zone amount and not the midpoint in making the per acre rental calculations) and its use would have generated significantly lower per acre rent amounts, while land values have generally increased. As a result, we made no adjustments to the number of zones in the final rent schedule, the zone amounts, or the methodology used in the calculation of the per acre rent for each zone.

The 2002 NASS Census per acre land and building value for each county (or similar area) and the corresponding zone number in the Per Acre Rent Schedule (based on 80 percent of the 2002 NASS Census per acre land and building value for each county) are listed for informational purposes at the end of this final rule. Most of the areas subject to the Per Acre Rent Schedule are called “counties.” Exceptions include Alaska “areas,” the “Commonwealth” of Puerto Rico, and Louisiana “parishes.” To make the terminology uniform in this rule, all such areas are referred to as counties.

Encumbrance Factor

The BLM proposed an encumbrance factor (EF) of 50 percent for all types of linear right-of-way facilities. This is a change from the previous rule where the EF for roads and energy-related pipelines and other facilities was 80 percent and the EF for telephone and electrical transmission facilities was 70 percent. The proposed change is the result of public comments on the ANPR, a review of industry practices in the private sector, and a review of the Department of the Interior (DOI) appraisal methodology for right-of-way facilities located on Federal lands.

The EF is a measure of the degree that a particular type of facility encumbers the right-of-way area or excludes other types of land uses. If the EF is 100 percent, the right-of-way facility (and its operation) is encumbering the right-of-way area to the exclusion of all other uses. The land use rent for such a facility would be calculated on the full value of the subject land (annual rent = full value of land X rate of return). If the EF is 40 percent, the right-of-way facility (and its operation) is only partially encumbering the right-of-way area so that other uses could co-exist alongside the right-of-way facility. The land use rent for such a facility would be calculated on only 40 percent of the full value of the subject land (annual rent = full value of land × 40 percent × rate of return).

Two comments received on the ANPR on this topic suggested that an EF could be as low as 10-15 percent if the right-of-way facility is located on undevelopable terrain; a 25 percent EF be used for a transmission line that does not affect development of land (“set-back areas”); a 50 percent EF be used if development is restricted, but not prohibited, or if other land uses are still possible; and a 70 percent EF be used if development or other uses are severely restricted. Another ANPR commenter stated that the EF should be lowered to 25-50 percent for power lines, because in the private sector, an electrical utility typically makes a one-time payment of 50 percent fair market land value for a perpetual easement, allowing other use(s) within the corridor as long as the use(s) do not interfere with the power line. The commenter also stated that most of the uses that the BLM authorizes can also be conducted within a power line corridor without interfering with the power line and without restricting the additional use. One ANPR commenter encouraged the BLM to use a lower EF than 70 percent, based on common real estate practice relating to utility easements. The commenter stated that when utilities negotiate the purchase price for easements on private land, they typically apply a factor of 50 percent or less to the fee simple value of the land involved, to reflect that the utility easement is less than fee ownership and has a reduced impact. This commenter further stated that the BLM should use a 50 percent or lower encumbrance (impact adjustment) factor and should allow a right-of-way applicant to demonstrate that an even lower impact factor should apply.

In preparing the proposed rule, the BLM reviewed several appraisal reports (prepared by the DOI's Appraisal Services Directorate) for right-of-way facilities located on Federal lands. These appraisal reports showed an EF ranging from 25 percent (for buried telephone lines) to 100 percent (for major oil pipelines and electrical transmission lines). The BLM also reviewed one appraisal report that was prepared by a contractor for the BLM. The contractor did an independent solicitation of industry practices regarding this factor and again found anecdotal evidence that EFs vary from 25 percent to 100 percent, with 50 to 75 percent being the most common. One holder provided anecdotal evidence that its company typically used a 40 percent EF for buried facilities and a 60 percent EF for above ground facilities when negotiating land use rental terms for its facilities across private lands. One BLM grant-holder contracted with a private appraisal firm to determine an appropriate EF for a major pipeline and found that a 75 percent EF is fairly typical for major projects. Finally, our review showed that many state and Federal agencies have established an EF by statute or by policy, usually in the 70 percent to 100 percent range. In the proposed rule, the BLM specifically asked for comments regarding the proposed use of a 50 percent EF, especially since this was a reduction from the 80 percent and 70 percent EFs used in the previous per acre rent schedule.

We received many comments on the proposed rule supporting the reduction of the EF to 50 percent from the 80 percent and 70 percent in the previous per acre rent schedule. A few commenters specifically stated that the EF should be limited in all cases to no higher than 50 percent. One commenter stated that the BLM has traditionally appraised the acquisition of non-exclusive road easements (the equivalent of a BLM right-of-way) using a 50 percent encumbrance factor and that a maximum 50 percent EF should be used whether or not the EF is applied to the upper limit of each zone value or the mid-point value of each zone. One commenter suggested that the EF should be reduced to as little as 10 percent, arguing that a transmission facility located on public lands devalues the land much less than would an easement on private land and that the rights obtained under a grant are also less than those obtained under an easement. Another commenter, while supporting an EF of 50 percent, believed that the final rule should provide holders the option to seek lower EFs via an appraisal. In addition, one commenter suggested that the EF be reduced below 50 percent in those cases where a new right-of-way is granted within an existing road right-of-way or patent reservation for roads or utility purposes.

The BLM agrees with the commenters that state that there are situations and circumstances where an EF of less than 50 percent may be appropriate, whether due to the type of facility, the rights obtained or granted, the impact of the facility on the land, or the co-location of multiple facilities within the same utility corridor. However, there is convincing evidence of situations where an EF greater than 50 percent is warranted. In fact, for large right-of-way facilities, such as interstate pipelines and electrical transmission lines greater than 138 kilovolts in size, the annual rent or one-time easement payment is typically determined using 100 percent of the land value (100 percent EF). These major right-of-way facilities not only encumber the greatest number of acres, but can have significant and continuing impacts on public land resources, including impacts to visual, open space, wildlife, vegetative, cultural, recreation, and other public land resources. In addition to the documented cases cited above supporting EFs greater than 50 percent, two articles published in a professional right-of-way journal also show that a 50 percent EF is indicative of a balanced-use by both the land owner and right-of-way/easement holder (see Donald Sherwood, Easement Valuation, Right-of-Way Magazine, May/June 2006 at 33). More telling are several quotes from utility company officials stating that the typical amount of compensation for permanent easements is 50 percent of the underlying land value, but that this amount can increase up to 100 percent depending on the size of the transmission line or right-of-way facility being sited (see William R. Lang and Brett A. Smith, Valuing a Gas Pipeline Easement, Right-of-Way Magazine, September/October 1998 at 32). The BLM recognizes that the EF is closely related to the type of right-of-way facility authorized, as well as how it is operated and administered. However, to assign a specific EF for each type of facility, or type of terrain, or to allow the holder the option of completing an appraisal that may establish a lower EF would be counter-productive to the purpose of using a schedule in the first place, i.e., administrative simplicity and the cost savings that a schedule provides to both the BLM and the applicant/holder in determining rent for right-of-way facilities on public lands. (We note that under this final rule the holder has the option to complete an appraisal report to determine one-time rent for perpetual grants or easements under sections 2806.25, 2806.26, and 2885.22. In these cases, involving lands to be transferred out of Federal ownership, the appraisal report could establish an EF lower than 50 percent (see section 2806.25(d)). In determining an appropriate EF for the final rule, the BLM has also given consideration to the fact that the BLM grants rights-of-way for a specified term, usually 20 to 30 years and that the rights granted are subject to renewal, relinquishment, abandonment, termination, or modification during the term of the grant. We also recognize that the grants issued for right-of-way facilities are non-exclusive, i.e., the BLM reserves the right to authorize other uses within a right-of-way area, as long as the uses are compatible. Given these considerations, and the research and analysis cited above, along with consideration of public comments and published information, the BLM has determined that a 50 percent EF is a reasonable and appropriate component for use in the rent formula for linear right-of-way facilities located on public lands.

Rate of Return

The rate of return component used in the Per Acre Rent Schedule reflects the relationship of income to property value, as modified by any adjustments to property value, such as the EF discussed above. The BLM reviewed a number of appraisal reports that indicated that the rate of return for land can vary from 7 to 12 percent, and is typically around 10 percent. These rates take into account certain risk considerations, i.e., the possibility of not receiving or losing future income benefits, and do not normally include an allowance for inflation. However, a holder seeking a right-of-way from the BLM must show that it is financially able to construct and operate the facility. In addition, the BLM can require surety or performance bonds from the holder to ensure compliance with the terms and conditions of the authorization, including any rental obligations. This reduces the risk and should allow the BLM to use a “safe rate of return” e.g., the prevailing rate on insured savings accounts or guaranteed government securities that include an allowance for inflation.

The rate of return for the previous rent schedule was 6.41 percent, which was the 1-year Treasury Securities “Constant Maturity” rate for June 30, 1986. In response to the ANPR, two commenters stated that this rate of return is an acceptable rate of return for right-of-way uses on public lands. Another ANPR commenter stated that the Treasury-bill (T-bill) rate of 6.41 percent in the current rent schedule is not unreasonably high given current T-bill rates around 5 percent. This commenter also stated that an annual adjustment of the T-bill rate would lead to uncertainty in rental fees, which would have a negative impact on utilities and customers, and duplicates the changes reflected in the Gross Domestic Product (GDP) index. Land values tend to move opposite to the T-bill rate, the commenter noted, so including this update in the formula would lead to overly-large rental rates. According to this commenter, a better approach would be to use the 10-year average of the 1-year T-bill rates. Three commenters supported updating the rate of return annually, using some multi-year average of the 1-year T-bill rates. The ANPR commenters said that this approach would provide for a current rate of return, while avoiding abrupt changes.

Given the above considerations, the BLM proposed that an initial rate of return based on the 10-year average (1992-2001) of the U.S. 30-year Treasury bond yield rate would be reasonable since most right-of-way authorizations are issued for a term of 30 years. The BLM chose the 10-year period from 1992-2001 since it was the 10-year period immediately preceding the establishment of the 2002 base rent schedule. The “initial” rate in the proposed rule (6.47 percent) would have been effective through 2011, and then would have adjusted automatically to the then-existing 10-year average (2002-2011) of the U.S. 30-year Treasury bond yield rate. This method of establishing the rate of return eliminates a “one-point-in-time” high or low rate with a rate that reflects an average over the preceding decade. The proposed rule would have allowed for use of the 10-year average of the U.S. 20-year Treasury bond yield rate if the 30-year U.S. Treasury bond yield rate were not available. In the proposed rule, the BLM specifically asked for comment regarding the method that we proposed to establish the initial rate of return and how we proposed to update it every ten years.

We received several comments in support of the proposed 6.47 percent rate of return and the use of the 10-year average of the U.S. 30-year Treasury bond yield rate to establish the initial rate of return. However, two commenters suggested using more current rates: One recommended using the one-year Treasury bill rate, while the other recommended using the most current 30-year Treasury bond yield. The BLM agrees that we should use the most current rates, so that the rate of return reflects the most recent value of money, but a 10-year average is more appropriate than a rate selected from one point in time. As a result, in the final rule, the BLM revised the rate of return downward from 6.47 percent (the 10-year average from 1992 to 2001 of the 30-year Treasury bond yield) to 5.27 percent, which is the most current 10-year average (1998-2008) of the 30-year and 20-year Treasury bond yield rate.

The BLM also agrees with the commenter who stated that a periodic adjustment of the T-bill rate, as proposed in section 2806.22(c), would lead to uncertainty in rental fees, which would have a negative impact on utilities and customers and duplicate the changes reflected in the GDP index. The commenter stated that land values tend to move in opposite directions to the T-bill rate, so including this variable in the formula could lead to overly-large rental rate increases when compared to other economic forces, instead of reflecting current land values as directed by the Act. The BLM agrees and since the rate of return is established by this rule, we will not adjust the 5.27 percent rate of return in the final rule except through new rulemaking.

2002 (Base Year) Per Acre Rent Schedule

Based upon the above discussion establishing the final per acre zone values, encumbrance factor, and rate of return, the Per Acre Rent Schedule for the base year, calendar year 2002, is shown in Table 4:

As discussed above, the most recent NASS Census data available is for calendar year 2002 and those data, in conjunction with the final per acre zone values, encumbrance factor, and rate of return, are used to develop the initial or base Per Acre Rent Schedule. In summary, final section 2806.20 explains that the base 2002 Per Acre Rent Schedule will be adjusted annually in accordance with section 2806.22(a) and revised at the end of each 10-year period (starting with the base year of 2002) in accordance with section 2806.22(b). These adjustments to the 2002 Per Acre Rent Schedule, as well as the Per Acre Rent Schedule for calendar years 2008 through 2015, are discussed below.

Section 2806.20 further explains that counties (or other geographical areas) would be assigned to an appropriate zone under section 2806.21. The reference to proposed section 2806.22(c) has been removed from final section 2806.20 because proposed section 2806.22(c) has not been adopted in the final rule. Proposed section 2806.22(c) allowed for the rate of return to be adjusted at the end of each 10-year period. In the final rule, the rate of return will remain at 5.27 percent unless revised through new rulemaking. The reasons for this change are provided in the “Rate of Return” section above, as well as in final section 2806.22 below.

Finally, section 2806.20 explains that you may obtain a copy of the current Per Acre Rent Schedule from any BLM state or field office or by writing: Director, BLM, 1849 C St., NW., Mail Stop 1000 LS, Washington, DC 20240. The BLM also posts the current rent schedule on the BLM Homepage on the Internet at http://www.blm.gov. Because current schedules are easily available, the BLM does not intend to publish an updated Per Acre Rent Schedule each year in the Federal Register.

Section 2806.21 When and how are counties or other geographical areas assigned to a County Zone Number and Per Acre Zone Value?

This section explains that counties (or other geographical areas) are assigned a county zone number and per acre zone value in the Per Acre Rent Schedule based upon 80 percent of their per acre land and building value published in the Census of Agriculture by the NASS (see discussion above regarding this 80 percent figure). The initial assignment of counties to the zones will cover years 2006 through 2010 of the Per Acre Rent Schedule and is based on data contained in the most recent NASS Census (2002). We use the year 2006 as the initial year for the assignment of counties because it takes 18 months for the NASS to compile and publish Census data, and in the final rule we provide 18 months of advanced notice prior to any possible re-assignment of counties using new NASS Census data (for a total of 3 years). Therefore, the initial assignment of counties based on the 2002 NASS Census data could not have occurred until 2006. For example, San Juan County, New Mexico, has a 2002 NASS Census per acre land and building value of $324. Since 80 percent of this amount ($259) falls between $251 and $500, San Juan County is assigned to Zone 2 on the Per Acre Rent Schedule for the 5-year time period from 2006 through 2010. This section also explains that subsequent re-assignments of counties are possible every 5 years (2011, 2016, 2021, 2026, and so forth) following the publication of the NASS Census.

As discussed previously, we received many comments requesting a reduction in the NASS Census per acre land and building value. However, several commenters also stated that the re-assignment of counties each five-year period with less than one year's notice would expose utility and pipeline companies to frequent and potentially unpredictable fee adjustments. Other commenters stated that utility companies needed more advance notice of any re-assignment of counties to new zones on the rent schedule than the proposed rule allowed (less than one year) to allow adequate planning, budgeting, and recovery of costs associated with potentially large fee increases. The BLM agrees with the commenters that it is reasonable to allow additional time between the publication of the NASS Census data and any re-assignment of counties to their proper rental zones to allow companies to adjust budgets and recover costs associated with the increases. We considered several time periods (from 1 to 5 additional years) and concluded that 1 additional year is sufficient advance notice to plan, budget, and recover any additional costs associated with the re-assignment of counties. As a result, we used the year 2006 as the initial year for the assignment of counties based on the 2002 NASS Census data (see above discussion). Likewise, the next scheduled NASS Census will be for calendar year 2007, but the data will not be published until approximately June 2009. Any re-assignment of the counties under the proposed rule would have occurred in rental year 2010. However, in the final rule, the re-assignment of counties will occur in year 2011, providing a full 18 months of notice as compared to only 6 months of advance notice under the proposed rule. For example, if 80 percent of the average per acre land and building value of San Juan County stays between $251 and $500 in the 2007 NASS Census, San Juan County would remain in Zone 2 on the Per Acre Rent Schedule for calendar years 2011 through 2015. However, if 80 percent of the average per acre land and building value were to drop to $240, San Juan County would be re-assigned to Zone 1 on the Per Acre Rent Schedule for calendar years 2011 through 2015, instead of calendar years 2010 through 2014, as proposed. Likewise, if 80 percent of the average per acre land and building value were to increase to $640, San Juan County would be re-assigned to Zone 3 on the Per Acre Rent Schedule for calendar years 2011 through 2015.

In summary, we revised proposed section 2806.21 in the final rule to account for the assignment of counties into the zones on the linear rent schedule based on 80 percent of the average per acre land and building value contained in the NASS Census, instead of 100 percent. In addition, the re-assignment of counties to the zones in the per acre rent schedule has been delayed by one year (as discussed above) to provide adequate time for holders to budget and recover any additional costs that may result from being placed into a higher zone based upon new NASS Census data each five-year period.

The adjusted 2002 NASS Census per acre land and building value for each county and the corresponding zone number in the Per Acre Rent Schedule (based on 80 percent of the NASS Census data) are listed for informational purposes at the end of this final rule.

Section 2806.22 When and how does the Per Acre Rent Schedule change?

This section explains that the BLM will adjust the per acre rent in section 2806.20 for all types of linear right-of-way facilities in each zone each calendar year based on the average annual change in the Implicit Price Deflator-Gross Domestic Product (IPD-GDP) for the 10-year period immediately preceding the year that the NASS Census data becomes available. For example, the average annual change in the IPD-GDP from 1994 to 2003 (the 10-year period immediately preceding the year (2004) that the 2002 NASS Census data became available) is 1.9 percent. This annual adjustment factor is applied to years 2006 through 2015 of the Per Acre Rent Schedule to coincide with the time periods that counties are assigned a county zone number and per acre zone value in the Per Acre Rent Schedule based first on the 2002 NASS Census data (2006-2010) and secondly, on the 2007 NASS Census data (2011-2015). Likewise, the average annual change in the IPD-GDP from 2004 to 2013 (the 10-year period immediately preceding the year (2014) when the 2012 NASS Census data will become available) will be applied to years 2016 through 2025 of the Per Acre Rent Schedule. The annual price index component used in the Per Acre Rent Schedule allows the rent per acre amount to stay current with inflationary or deflationary trends. If the rent schedule were not based on the “zone” concept, where county per acre land values were placed into a corresponding zone value, the price index adjustment would not be necessary, assuming the county per acre land values were kept current. However, since the Act directs the BLM to “revise the per acre rental fee zone value schedule by state, county, and type of linear right-of-way use to reflect current values of land in each zone,” the final rule retains the zone concept as well as the annual price index adjustment.

The previous Per Acre Rent Schedule was adjusted annually by the change in the IPD-GDP index from the second quarter to the second quarter. From the initial rent schedule in 1987 to the rent schedule for 2007, the change in the IPD-GDP index increased the rent per acre amounts by 62.2 percent. In comparison, the Consumer Price Index—for all Urban Consumers (CPI-U) index increased 85.8 percent for the same period. Because the growth rate for the IPD-GDP is generally less than that for the CPI-U, one ANPR commenter suggested using half of the CPI-U index rather than the current 100 percent of the IPD-GDP as the CPI-U is more easily available. The commenter said that halving the CPI-U number is in line with the lesser IPD-GDP and allows for a normalization of the annual index adjustment while still allowing for increases with inflation.

Two ANPR commenters stated that the payment due date (January 1) comes less than one month after the payment amount is announced in December. The commenters recommended using an earlier-published index than the current one (July of each year). Another ANPR commenter stated that the IPD-GDP is reported as a national number only and does not reflect any potential regional changes in the price level.

In the proposed rule, we chose the CPI-U because it is one of the most common indexes used by economists and the Federal Government to reflect inflationary and deflationary trends in the economy as a whole. It is also one of the most recognizable and familiar indexes to the American consumer and it can be easily obtained from published sources by both Federal agencies and the American public.

The BLM received several comments on the proposed use of the CPI-U index instead of the IPD-GDP. Nearly all commenters on the proposed rule supported the continued use of the IPD-GDP instead of the CPI-U index. Two commenters stated that the CPI-U only measures inflation felt by consumers and does not include price inflation for other parts of the economy. The commenters stated that the IPD-GDP reflects a much broader range of inflation and is more appropriate to track increases in land values. In addition, several commenters stated that holders whose rental obligations exceed several million dollars annually must have more advance notice (or predictability) of their obligations for proper planning, budgeting, and recovery of these fees.

The BLM made two changes in the annual index adjustment factor from the proposed rule to the final rule. First, we changed the annual index adjustment factor from the CPI-U to the IPD-GDP because we agree with some of the commenters that the IPD-GDP index tracks increases in land values as well as, if not better than, the CPI-U. For example, in the last 5 years when land values have risen nearly 80 percent nationally, the IPD-GDP (which normally lags behind the CPI-U) has increased slightly more than the CPI-U (14 percent to 13.6 percent, respectively). In addition, the IPD-GDP tracks a broader range of economic indicators than does the CPI-U, and is just as easy to track on an annual basis as the CPI-U. Secondly, in order to provide the predictability requested by several commenters (and which the BLM agrees is necessary), we changed how the annual index factor is calculated and how it is applied in the final rent schedule. In the final rule the annual index adjustment is based on the average annual change in the IPD-GDP for the 10-year period immediately preceding the year (2004) that the 2002 NASS Census data became available (or 1.9 percent). This figure (1.9 percent) can then be applied for calendar years 2006 through 2015 to provide the predictability in the rent schedule requested by many of the commenters. The BLM will recalculate the annual index adjustment in 2014 based on the average annual change in the IPD-GDP from 2004 to 2013 (the 10-year period immediately preceding the year (2014) when the 2012 NASS Census data will become available) and will apply it to years 2016 through 2025 of the Per Acre Rent Schedule to provide the predictability requested by many of the commenters. In summary, these changes provide the predictability advocated by several commenters and uses an index that better reflects changing land values and other broad indicators of economic trends.

Table 5 shows how the IPD-GDP index has been applied to the 2002 “Base Year” rent schedule (see Table 4) and subsequent years through 2007 to arrive at the final Per Acre Rent Schedules for years 2008 through 2015 (see Table 6). Table 5 is included here only to show how the final Per Acre Rent Schedule (Table 6) was developed. The BLM will not use the per acre rent values shown in Table 5 for any rent calculation purposes. (Rent paid for years 2002-2007 under the previous schedule would not be recalculated using the rates in Table 5).

We use 2002 as the base year, or beginning point, for the final rent schedule because the most recent NASS Census data is for 2002. The annual index adjustment for calendar years 2003 through 2005 is based on the previous year's change in the IPD-GDP, i.e., 2.1 percent, 2.9 percent, and 3.2 percent, respectively. However, in order to provide the predictability suggested by some commenters and as explained above, the annual index adjustment for calendar years 2006 through 2015 is based on the average annual change in the IPD-GDP for the 10-year period immediately preceding the year (2004) that the 2002 NASS Census data became available, or 1.9 percent. We can therefore extend the Per Acre Rent Schedule into the future through calendar year 2015 as shown in Table 6.

The annual index adjustment will then be recalculated in 2014 and each subsequent 10-year period based on the average annual change in the IPD-GDP for the 10-year period immediately preceding the year (2014, 2024, 2034, etc.) when the NASS Census data becomes available. For example, the annual index adjustment will next be recalculated in 2014 (when the 2012 NASS Census data becomes available) based on the average annual change in the IPD-GDP from 2004 to 2013 (the 10-year period immediately preceding the year (2014) when the 2012 NASS Census data becomes available) and will be applied annually to the Per Acre Rent Schedules for calendar years 2016 through 2025. In the event that the NASS Census stops being published, or is otherwise unavailable, then the only changes to the rent schedule will be the annual index adjustment (see section 2806.22(a)) until a new rent schedule is developed through rulemaking.

Section 2806.22 also explains that the BLM would review the NASS Census data from the 2012 NASS Census, and each subsequent 10-year period, and if appropriate, revise the number of county zones and the per acre zone value. Any revision must include 100 percent of the number of counties and listed geographical areas for all states and the Commonwealth of Puerto Rico and must reasonably reflect their average per acre land and building values (less the 20 percent reduction) contained in the NASS Census. The BLM may revise the number of zones and the per acre zone value in the 2002 base Per Acre Rent Schedule (section 2806.20(a)) following the publication of the 2012 NASS Census. Since the 2012 NASS Census data will not be available until early to mid 2014, based on current timeframes, any revision would be applicable to the calendar year 2016 rent schedule. Although the NASS Census occurs at 5-year intervals, the revision of the number of zones and the per acre zone value will occur each 10-year period after publication of the NASS Census data in 2012, 2022, 2032, and so forth. Based on historic trends in average per acre land values, the BLM does not foresee that it would be necessary to revise the Per Acre Rent Schedule after each NASS Census period. The BLM finds, however, that it would likely be necessary to revise the Per Acre Rent Schedule after every other NASS Census period (each 10-year period) in order to keep the schedule current with existing per acre land values.

The one-year delay (2016) in implementing the revised rent schedule based on data from the 2012 NASS Census is a change from the proposed rule, which stated that the revised schedule would be effective in calendar year 2015. We revised the final rule to provide holders with more notice and time to plan, budget, and recover potentially significant rent increases resulting from the revisions to the rent schedule at 10-year intervals. The one-year delay to 2016 in implementing the revised rent schedule based on data from the 2012 NASS Census is also consistent with the one-year delay in the reassignment of counties potentially made each 5 years after the availability of the NASS Census data. The re-assignment of counties will be effective for calendar years 2011, 2016, 2021, 2026, and so forth (see the discussion for section 2806.21).

We also revised final section 2806.22 by deleting proposed paragraph (c) which would have adjusted the rate of return after each 10-year period. We removed this provision based on the need (as expressed by several commenters) to provide greater predictability of future rental amounts and to ensure that future adjustments are primarily based on changes in land values and not other economic factors (see the discussion under “Rate of Return”).

The adjustments provided by this section will keep the Per Acre Rent Schedule current relative to average per acre land value as directed by the Act. In addition, since the adjustments provide one additional year of advance notice on county re-assignments (each 5-year period), and one additional year of advance notice on the revision of the number of zones and zone values (each 10-year period), the changes should not be either burdensome to administer or surprising in their outcome.

Section 2806.23 How will BLM calculate my rent for linear rights-of-way the Per Acre Rent Schedule covers?

Final section 2806.23(a) explains that (except as provided by sections 2806.25 and 2806.26) the BLM calculates rent by multiplying the rent per acre for the appropriate county (or other geographical area) zone from the current schedule by the number of acres (as rounded up to the nearest tenth of an acre) in the right-of-way area that fall in each zone and multiplying the result by the number of years in the rental payment period. The final rent calculation methodology is identical to the proposed methodology except for changing the phrase “rental period” to “rental payment period” (the length of time for which the holder is paying rent) to make the rule clearer. An example explaining how the methodology will be applied follows: An existing pipeline right-of-way in New Mexico occupies 0.74 acres of public land in McKinley County and 4.8 acres of public land in San Juan County. The 2002 NASS Census indicates that the average per acre land and building value for McKinley County is $75 (Zone 1 on the Per Acre Rent Schedule ($75 × .80 = $60)) and $324 for San Juan County (or Zone 2 ($324 × .80 = $259) on the Per Acre Rent Schedule). The per acre rent value for calendar year 2008 for Zone 1 is $7.56 and for Zone 2 it is $15.11. The 2008 annual rent for the portion of the right-of-way in Zone 1 (McKinley County) is $6.05 (0.74 acres (rounded up to 0.8 acres) multiplied by $7.56 = $6.05). The 2008 annual rent for the portion of the right-of-way in Zone 2 (San Juan County) is $72.53 (4.8 acres multiplied by $15.11 = $72.53). The total 2008 rent for the entire grant would be $78.58. Regardless of whether the holder is an individual or business entity, given that the annual rent is $100 or less, the holder can only pay for the entire remaining term of the grant, or pay rent at 10-year intervals, not to exceed the term of the grant (see section 2806.24).

Final section 2806.23(b) provides for the phase-in of the initial implementation of the Per Acre Rent Schedule by reducing the 2009 per acre rent by 25 percent. Lastly, this section explains that if the BLM has not previously used the rent schedule to calculate your rent, we may do so after giving you reasonable written notice.

We received two comments on this proposed section. Both commenters suggested that we include the word “payment” when referring to the “rental period” in section 2806.23(a) so that the phrase reads “rental payment period” to denote the length of time for which the holder is paying rent. The commenters stated that some holders may confuse the phrase “rental period” to be the term of the grant instead of the length of time for which the holder is paying rent. We agree that this change improves clarity and have made this change in the final rule.

We received no other comments on this section, but we did request comments in the proposed rule at section 2885.20 on the need for a phase-in provision for FLPMA and MLA grants. As a result of those comments (see discussion for section 2885.20(b)), we have added final section 2806.23(b) which provides for a phase-in of the initial implementation of the Per Acre Rent Schedule by reducing the 2009 per acre rent by 25 percent. In calendar year 2009, all holders will pay 75 percent of the scheduled rental rates, and thereafter, 100 percent of the scheduled rental rates.

The BLM does not expect the rental increases to be financially burdensome for most holders. We believe that several provisions added to the final rule (an additional 1-year advance notice of potentially large rental increases, reducing the NASS Census land and building value for each county by 20 percent, reducing the rate of return by 18.5 percent (from 6.47 percent to 5.27 percent), reducing the threshold from $1,000 to $500 for payment of annual rent instead of 10-year rental payments, and waiving 25 percent of the calendar year 2009 rental rates for all authorization holders), in conjunction with the more flexible rent payment options described in final sections 2806.24 and 2885.21, as well as the existing hardship provision found at section 2806.15(c), will provide appropriate relief from any large, unexpected increases in rent payments that are due to implementation of the revised linear rent schedule.

Section 2806.24 How must I make rental payments for a linear grant?

Final section 2806.24(a) explains that for linear grants, except those issued in perpetuity, you must make either nonrefundable annual payments or a nonrefundable payment for more than 1 year, as follows:

(1) One-time payments. You may pay in advance the total rent amount for the entire term of the grant or any remaining years.

(2) Multiple payments. If you choose not to make a one-time payment, you must pay according to one of the following methods:

(i) Payments by individuals. If your annual rent is $100 or less, you must pay at 10-year intervals, not to exceed the term of the grant. If your annual rent is greater than $100, you may pay annually or at 10-year intervals, not to exceed the term of the grant. For example, if you have a grant with a term of 30 years, you may pay in advance for 10 years, 20 years, or 30 years, but not 15 years.

(ii) Payments by all others. If your annual rent is $500 or less, you must pay rent at 10-year intervals, not to exceed the term of the grant. If your annual rent is greater than $500, you may pay annually or at 10-year intervals, not to exceed the term of the grant.

Final section 2806.24(a) replaces the rent payment options in previous section 2806.23(a). Previously, only individual grant-holders with annual rent in excess of $100 had the option to pay their rent annually or at multi-year intervals of their choice. All other grant holders had to pay a one-time rent payment for the term of the grant or pay rent at 10-year intervals not to exceed the term of the grant. These provisions were incorporated in the 2005 regulations to help reduce or eliminate costs associated with the billing and collection of annual rent to both the BLM and the holder. However, many holders pointed out that making rent payments, especially for existing grants, for 10- to 30-year terms (100 years for grants issued in perpetuity) can be an extreme financial hardship, especially for small business entities operating on limited annual budgets.

For FLPMA authorizations, the BLM has some ability to address these issues under the “undue hardship” provisions in current section 2806.15(c), but this process can be burdensome on the holders, requires approval of the appropriate BLM State Director, and is not available to holders of MLA authorizations. Several holders of MLA authorizations pointed out that the annual rent payment for some of their grants exceed $10,000, and in at least one case, the annual rent is in excess of $100,000, which would have required them to make minimum rent payments between $100,000 and $1,000,000 for a 10-year rental payment period. These holders have suggested that corporations and business entities be given rent payment options similar to those of individuals, except with a higher annual rental threshold of $500 or $1,000, instead of the $100 threshold available to individual holders.

Three commenters on the ANPR said they supported flexible term-payment schedules (annual payments, 5-year payments, 10-year payments) for all authorizations, especially those with annual rent greater than $500. Several commenters said that the BLM should include a 3- to 6- year phase-in period, along with more flexible rent payment periods, in order to provide relief from a large or unexpected increase in individual rental payments. One commenter on the proposed rule supported the rent payment periods as proposed, while one commenter said that the $1,000 threshold is too high and should be set no higher than $500. The commenter stated that there are more and more “other than individuals” entities that are very small operations for which the proposed regulations can cause a financial hardship. The BLM agrees that the $1,000 threshold may be excessive for some small business holders who would have to pay nearly $10,000 (for a 10-year period) if their annual bill were just less than $1,000. By reducing the threshold to $500, the maximum 10-year bill would be $4,990, an amount that may cause less financial hardship to small business operators. Therefore, in the final rule the $1,000 threshold for payment of annual rent has been reduced to $500. This change should have positive impacts to small businesses that may not have the necessary capital to make long-term rental payments.

In summary, under final section 2806.24(a), the holder retains the option to pay rent for the entire term of the grant, except for grants issued in perpetuity. No changes in rent payment options are made for those holders who are considered “individuals” with the exception that if the annual rent is greater than $100, you may pay annually or at 10-year intervals, not to exceed the term of the grant. The final rule eliminates the option for individuals with annual rent greater than $100 to pay at multiple-year intervals of their choice. An “individual” does not include any business entity, e.g., partnerships, corporations, associations, or any similar business arrangements. However, the BLM agrees that “non-individuals” need to have more flexible rent payment options, especially those holders whose annual rent payment is in excess of $500. Under the final rule, when this threshold is met, the holder (non-individual) has the option to pay its rent on an annual basis, or at 10-year intervals, not to exceed the term of the grant. For example, the holder of a 25-year grant (a grant issued on May 25, 2005, for a 25-year period would expire on December 31, 2029) whose annual rent is $2,000 would have the option upon grant issuance to make annual payments of $2,000 plus annual index adjustments (the initial rent period would be for a 7-month period or a rent payment of $1,166.67). The holder could also choose to make a payment in advance for 10 years (total payment of $19,166.67 (9 years + 7 months); for 20 years (total payment of $39,166.67 (19 years + 7 months); or for the entire 25 years (total payment of $49,166.67 (24 years + 7 months), but not for any other multi-year period. If the holder's annual rent is $500 or less, the holder (non-individual) must pay rent at 10-year intervals, not to exceed the term of the grant. If rent is not paid for the full term, subsequent rental payments will be based on the changes to the rental schedule as described in section 2806.21 (the re-assignment of counties each 5-year period) and section 2806.22 (the annual CPI-U index adjustment and/or the adjustment to the number and value of rental zones each 10-year period), but the $100 and $500 thresholds used to determine the eligibility for annual payments by individuals and business entities, respectively, will not be adjusted.

Final section 2806.24(b) explains that for linear grants issued in perpetuity (except as noted in sections 2806.25 and 2806.26), you must make either nonrefundable annual payments or a nonrefundable payment for more than 1 year, as follows:

(1) Payments by individuals. If your annual rent is $100 or less, you must pay at 10-year intervals, not to exceed 30 years. Under this provision, you have the option to pay for a 10-year term, a 20-year term, or a 30-year term. No other terms are available. If your annual rent is greater than $100, you may pay annually or at 10-year intervals (10-year term, 20-year term, or 30-year term), not to exceed 30 years. Again, no other terms are available.

(2) Payments by all others. If your annual rent is $500 or less, you must pay rent at 10-year intervals, not to exceed 30 years. Under this section, you have the option to pay for a 10-year term, a 20-year term, or a 30-year term. No other terms are available. If your annual rent is greater than $500, you may pay annually or at 10-year intervals (10-year term, 20-year term, or 30-year term), not to exceed 30 years. No other terms are available.

Final section 2806.24(b) replaces previous section 2806.23(c), which gave non-individual holders of a perpetual grant only one rent payment option, that is, a one-time payment based on the annual rent (either determined from the Per Acre Rent Schedule or from an appraisal) multiplied by 100. Holders (non-individuals) of perpetual grants had no other option under previous rules but to pay a one-time payment that many found to be burdensome. Under the 1987 regulations (43 CFR 2803.1-2(a)), holders of grants, including perpetual grants, paid either annually or for a 5-year period, but could not make a one-time payment. This was especially problematic when public land encumbered by a perpetual grant was transferred out of Federal ownership. The 2005 regulations provided for the one-time payment option (see section 2806.23(c)), but did not offer other rent payment options, which are necessary for proper administration of those perpetual grants already in existence prior to 2005, and which encumber land that the BLM intends to administer. Although the term of a FLPMA grant can be any length, it is the BLM's policy to adhere strictly to the factors listed in current section 2805.11(b) to establish a reasonable term. The factors that must be considered in establishing a reasonable term include the: (1) Public purpose served; (2) Cost and useful life of the facility; (3) Time limitations imposed by licenses or permits required by other Federal agencies and state, tribal, or local governments; and (4) Time necessary to accomplish the purpose of the grant. The BLM's own land use planning horizon is generally only 20 to 30 years, so it is seldom in the public interest to issue land use authorizations which exceed this horizon. In addition, the term of MLA grants cannot exceed 30 years (see current section 2885.11(a)).

Although the BLM now rarely issue grants in perpetuity, except when the land encumbered by the grant is being transferred out of Federal ownership (see final section 2806.25), we must still be able to effectively administer grants that were issued in perpetuity under prior authorities (generally pre-FLPMA authorities and the MLA prior to 1973). Holders of these grants have requested flexible rent payment options. Final section 2806.24(b) provides rent payment options which are deemed necessary for proper administration of perpetual grants when the land is not being transferred out of Federal ownership. In addition, final sections 2806.25 and 2806.26 allow you to make a one-time payment for perpetual grants and perpetual easements, respectively, when the land encumbered by the grant or easement is being transferred out of Federal ownership.

We received two comments of support for the rent payment options in proposed section 2806.24(b). However, a third commenter suggested that holders of perpetual grants should always have the option to make a one-time payment, even if the encumbered land is not being transferred out of Federal ownership. The BLM disagrees with this suggestion because a one-time rental payment for a perpetual grant is not significantly greater (in some cases it could even be less) than a one-time payment for a grant with a term of 30 years. Therefore, it is not in the public's interest, in the case of Federally-owned land, to forfeit possible future revenues for uses (the siting of right-of-way facilities on public land) that may ultimately extend beyond a 30-year time period. These subsequent rental receipts will far exceed the administrative costs of issuing a new rental bill each 30-year period and will continue to provide needed revenues to the U.S. Treasury, and to state and local governments (who receive 50 percent of MLA rental receipts). Final section 2806.24(b) is the same as proposed.

Final section 2806.24(c) is also the same as proposed section 2806.24(c) and previous section 2806.23(b), which explains that the BLM considers the first partial calendar year in the initial rent payment period to be the first year of the term. The BLM prorates the first year rental amount based on the number of months left in the calendar year after the effective date of the grant. We received no comments on this section and it remains as proposed.

Section 2806.25 How may I make rental payments when land encumbered by my perpetual linear grant (other than an easement issued under § 2807.15(b)) is being transferred out of Federal ownership?

Final section 2806.25 explains how you may make one-time rental payments for your perpetual linear grant (other than an easement issued under section 2807.15(b) (see section 2806.26)) when land encumbered by your grant is being transferred out of Federal ownership. Section 2806.25(a) explains that if you have an existing perpetual grant (whether issued under FLPMA or its predecessors) and the land your grant encumbers is being transferred out of Federal ownership, you may make a one-time rental payment. You are not required to make a one-time rental payment, but if you choose to do so, the BLM will determine your one-time payment for a perpetual right-of-way grant by dividing the current annual rent for the subject property by an overall capitalization rate calculated from market data. Under this calculation, the overall capitalization rate is the difference between a market yield rate and a percent annual rent increase as described in the formula below. The formula for this calculation is: One-time rental payment = annual rent/(Y−CR), where:

(1) Annual rent = current annual rent applicable to the subject property from the Per Acre Rent Schedule;

(2) Y = yield rate (rate of return) from the Per Acre Rent Schedule (5.27 percent); and

(3) CR = annual percent change in rent as determined by the most recent 10-year average of the difference in the IPD-GDP Index from January of one year to January of the following year.

Section 2806.25(b) explains how you must make a one-time payment for term grants converted to a perpetual grant under section 2807.15(b). If the land your grant encumbers is being transferred out of Federal ownership and you request a conversion of your term grant to a perpetual right-of-way grant, you will be required to make a one-time rental payment in accordance with section 2806.25(a).

Section 2806.25(c) explains that in paragraphs (a) and (b) of this section, the annual rent is determined from the Per Acre Rent Schedule (see section 2806.20(c)) as updated under section 2806.22. However, the per acre zone value and zone number used in this annual rental determination will be based on the per acre zone value from acceptable market information or an appraisal, if any, for the land transfer action and not the county average per acre land and building value from the NASS Census. This section also explains that you may submit an appraisal report on your own initiative in accordance with paragraph (d).

Section 2806.25(d) explains that when no acceptable market information is available or when no appraisal has been completed for the land transfer action or when the BLM requests it, you must prepare an appraisal report in accordance with Federal appraisal standards.

Section 2806.25 is a new section that explains how one-time rental payments will be determined for perpetual grants (other than an easement issued under section 2807.15(b)) when the land your grant encumbers is being transferred out of Federal ownership. It is important to note that you are under no obligation to make a one-time rental payment for your existing perpetual grant when the land your grant encumbers is being transferred out of Federal ownership. If you have an existing term or perpetual grant and you have made either annual or multi-year payments under section 2806.24, and the land your grant encumbers is to be transferred out of Federal ownership, and you choose not to make a one-time rental payment to the BLM, you would negotiate future rental payments for your grant with the new land owner at the appropriate time. However, if you desire to make a one-time payment to the BLM prior to the transfer of the land, and you have an existing perpetual grant, section 2806.25(a) allows the BLM to determine the one-time rental payment by dividing the current annual rent for the subject property by an overall capitalization rate calculated from market data. Under this calculation, the overall capitalization rate is the difference between a market yield rate and a percent annual rent increase as described in the formula below. The formula for this calculation is: One-time rental payment = annual rent/(Y−CR), where:

(1) Annual rent = current annual rent applicable to the subject property from the Per Acre Rent Schedule;

(2) Y = yield rate (rate of return) from the Per Acre Rent Schedule (5.27 percent); and

(3) CR = annual percent change in rent as determined by the most recent 10-year average of the difference in the IPD-GDP Index from January of one year to January of the following year.

For example, if the most recent 10-year average of the difference in the IPD-GDP index from January of one year to January of the following year is 1.27 percent, and since the rate of return is a standard 5.27 percent, then the overall capitalization rate is 4.0 percent (5.27 − 1.27 = 4.0). The one-time rental payment for a perpetual right-of-way grant with an annual rent of $36.63 would be determined by dividing the annual rent ($36.63) by the overall capitalization rate (.04), or $915.75. This methodology of calculating rent is known as the income capitalization approach.

In the proposed rule, the BLM also considered other methods to determine a one-time rental payment, including an administrative approach similar to previous section 2806.23(c)(1), where a one-time payment is determined by multiplying the annual rent by 100. Under this approach, a one-time payment for the same right-of-way grant described above with an annual rent payment of $36.63 would be $3,663 ($36.63 multiplied by 100), instead of $915.75. While this approach was reasonable when using the previous per acre rent schedule, it would have generated an excessively high one-time payment when using current land values as directed by the Act. The BLM also considered using a discounted cash flow (DCF) method to calculate the present value of the projected annual rent payments over a 100-year term, assuming annual rent payments are made in advance. The DCF approach would generate a one-time payment similar to the income capitalization approach. In the above example, a one-time rental payment using the DCF method for the same annual rent payment figure of $36.63 would be $953.24 compared to $915.75 using the income capitalization approach. In general, the DCF formula is more complex and prone to rounding inconsistencies, as compared to the income capitalization formula, which is fairly straightforward and simple to use.

The BLM received only a few comments on proposed section 2806.25(a). Most commenters supported the income capitalization approach to determine the one-time rent payment for perpetual grants as reasonable. However, two commenters stated that the “Income Approach” for valuing land is not typically used or allowed under standard appraisal practices. The BLM disagrees with the latter comments since rental receipts for right-of-way uses (especially rental receipts that are specifically based on rural land values as is the case of the Per Acre Rent Schedule) are an acceptable indicator of land values under Federal appraisal standards.

Given the above considerations, the BLM believes that the income capitalization approach is the most reasonable methodology for converting an annual rent payment (with an annual adjustment factor) to a one-time payment for a perpetual term. The only variable in the final formula is the annual percent change in rent, which could be determined on a case-by-case basis. However, to provide some certainty, and since the Per Acre Rent Schedule already utilizes this component, the BLM believes that using a 10-year average of the annual difference in the IPD-GDP index will normalize this variable and avoid either abnormally high or low values that can result from using a one point-in-time figure. Other than changing the annual index from the CPI-U to the IPD-GDP, to be consistent with the annual indexing used in the final Per Acre Rent Schedule, the only other change to paragraph (a) is the method used to determine the yield rate (or “Y” in the formula). In the proposed rule, the yield rate would have been determined by the most recent 10-year average of the annual 30-year Treasury Bond Rate as of January of each year. In the final rule, the yield rate (Y) used in the income capitalization formula in sections 2806.25(a) and 2885.22(a) is a constant 5.27 percent, again to be consistent with the constant rate of return utilized in the final Per Acre Rent Schedule. As such, the rate of return will not be adjusted in this formula except by new rulemaking, or whenever a separate appraisal report is completed and approved by the BLM under paragraph (d) of this section.

Section 2806.25(b) addresses the situation where there is an existing term grant and you ask BLM to convert it to a perpetual FLPMA grant under final section 2807.15(b). If you make this request, the BLM will treat it as an application for an amendment under current section 2807.20. If the BLM approves your request to change the term of your grant, the BLM will determine the mandatory one-time rental payment as explained in paragraph (a) of this section. We received no comments on this paragraph and made no changes to the final rule, except to change the reference to section 2807.15(c) to 2807.15(b) because of the consolidation of proposed paragraph (c) with existing paragraph (b).

Section 2806.25(c) provides that if the land your grant encumbers is being transferred out of Federal ownership and you have a perpetual grant and have requested a one-time rental payment, or you have requested the BLM to amend your grant to a perpetual grant and seek a one-time rental payment, the BLM would base the per acre zone value and zone number used in the annual rental determination on the per acre land value from the market information or appraisal report used for the land transfer action and not the county average per acre land and building value from the NASS Census. The BLM believes that when the land a grant encumbers is being transferred out of Federal ownership, the most accurate and current market data should be used to determine the one-time rental payment. For example, for Clark County, Nevada, 80 percent of the average per acre land and building value from the 2002 NASS Census is $2,854 (Zone 6 on the 2002 Per Acre Rent Schedule or $79.05 per acre rent). If an appraisal report for a competitive sale concluded that the 2002 average per acre land value is instead $175,000 per acre, then the annual per acre rent would be $2,635 (or Zone 12 on the per acre rent schedule). The BLM would not use the actual appraised per acre value or the actual per acre sale value to determine the annual per acre rent, but instead would use the actual appraised per acre value to determine the appropriate zone number on the Per Acre Rent Schedule. The zone number then determines the appropriate per acre rent under final section 2806.25. A few commenters suggested that holders should always have the option to conduct their own appraisal under section 2806.25(d). The BLM agrees with these comments and has therefore revised final section 2806.25(c) to specify that holders may prepare their own appraisal report under section 2806.25(d).

Section 2806.25(d) explains that when no acceptable market information is available, and no appraisal has been completed for the land transfer action, or when the BLM requests it, you must prepare an appraisal report, at your expense, in accordance with Federal appraisal standards. The BLM will only require you to prepare an appraisal report when other acceptable market data is not available. If you must provide an appraisal report, the DOI's Appraisal Policy Manual, dated October 1, 2006, sets forth the DOI's appraisal policies. Addendum Number 3 to DOI's Appraisal Policy Manual specifically provides guidance concerning land valuation, alternative methods of valuation, and appraisal reports prepared by third (i.e., non-Federal) parties. It is the DOI's policy that all valuation services (whether performed by DOI appraisers or by non-DOI appraisers providing valuation services under a DOI contract or on behalf of a private third party, such as a right-of-way holder) must conform to the current Uniform Standards of Professional Appraisal Practice (USPAP) and the current Uniform Standards for Federal Land Acquisitions (USFLA).

If you have provided an appraisal report, the BLM State Director will refer it to the DOI's Appraisal Services Directorate (ASD). The ASD will review the appraisal report to determine if it meets USPAP and USFLA standards and advise the BLM State Director accordingly. If these standards are met, the BLM State Director will then use the data in the appraisal report to determine the zone value and zone number used in the calculation of the one-time rent payment provided by paragraphs (a) and (b). However, if your appraisal report uses a different EF or yield rate from those in the formula in section 2806.25(a) or section 2885.22(a), then the actual per acre land value as determined by the appraisal report must be used in the determination of the one-time rent payment, even if it exceeds the highest per acre land value from the rent schedule.

The BLM specifically requested comments on whether an appraisal report, if required, should also address the appropriate EF, in addition to determining per acre land values. The EF from an appraisal report could be different from the 50 percent used in the Per Acre Rent Schedule, depending on the type of facility being authorized (see EF discussion earlier in the preamble). The rate of return (5.27 percent—see Table 4) could also change, if the one-time rental payment for a perpetual grant were determined on a case-by-case basis under final paragraph 2806.25(d). For example, if the average per acre land and building value from the NASS Census is $700 (Zone 3 on the 2002 Per Acre Rent Schedule or $26.35 per acre rent) and an appraisal report concluded that the 2002 per acre land value is instead $400 per acre (Zone 2 or a $13.18 per acre rent), but the appraisal report determines that the EF is 85 percent, then the annual per acre rent would equal $17.92 ($400 multiplied by .85 multiplied by 5.27 percent). Similar variations in the final per acre rent value could also occur if the appraisal report were to determine a higher or lower rate of return. In the above example, if the appraisal report determined that the per acre land value is $400, the EF is 85 percent, and the rate of return is 8 percent (instead of 5.27 percent), then the annual per acre rent would equal $27.20 ($400 multiplied by .85 multiplied by 8.0 percent). Once the annual rent is calculated, then the one-time payment would then be determined under section 2806.25(a).

The BLM received several comments on paragraph (d) of this section. Most advocated that the holder always have the opportunity to conduct an appraisal report under this paragraph, and that the appraisal report consider all factors in arriving at a one-time rental payment. Some commenters also advocated the use of appraisal reports, but with limits on the amount of the EF, i.e., the EF should never exceed 50 percent. Another commenter asked whether the BLM, in lieu of an appraisal report, would be able to utilize a process to determine per acre land values similar to that used in lower value Federal land acquisitions, known as waiver valuations.

Final section 2806.25(d) specifies that when no acceptable market information is available and no appraisal report has been completed for the land transfer action or when the BLM requests it, you must prepare an appraisal report using Federal appraisal standards that explains how you estimated the land value per acre, the rate of return, and the EF. The final rule places no restrictions on the amount of the EF or the rate of return, but will let the market conditions set these amounts (e.g., comparable sales data), which in turn determines the annual rent value and/or the one-time rental payment. The proposed rule would have mandated that the yield rate be determined by using the 10-year average of the most recent 30-year Treasury Bond rate. In the final rule, the yield rate will be determined by current market conditions as documented in the appraisal report. To place arbitrary and artificial limits on any of the market conditions used to determine a fair market value rent would be in violation of Federal appraisal standards (see Addendum Number 3 to DOI's Appraisal Policy Manual).

The BLM will use the final Per Acre Rent Schedule to determine rent for all linear facilities (except as provided by sections 2806.25, 2806.26, and 2885.22), even when those facilities occupy minimal acreage on low value land. We do not foresee any case where “waiver valuations” would be appropriate for use in determining rent for linear facilities, as suggested by one commenter, although this process is available to BLM offices to determine (minimum) rental values for non-linear facilities located on small and/or low valued acreages (see section 2806.50).

Sections 2806.25(c) and (d) replace sections 2806.20(c) and (d) of the previous regulations which allowed the BLM to use an alternate means to compute your rent, if the rent determined by comparable commercial practices or by an appraisal would be 10 or more times the rent from the schedule. We made these changes in the final rule to comply with the Act, which requires the BLM to use a Per Acre Rent Schedule based upon land values to determine rent for linear right-of-way grants located on public land.

Section 2806.26 How may I make rental payments when land encumbered by my perpetual easement issued under § 2807.15(b) is being transferred out of Federal ownership?

Section 2806.26(a) addresses the situation where there is an existing term or perpetual grant and you ask BLM to convert it to a perpetual easement as provided by section 2807.15(b). If you make this request, the BLM will treat it as an application for an amendment under current section 2807.20. Under the final rule, if the BLM approved your request to convert your term or perpetual grant to a perpetual easement, the BLM will use the appraisal data from the DOI's Appraisal Services Directorate for the land transfer action (i.e., direct or indirect land sales, land exchanges, and other land disposal actions) and other market information to determine the one-time rental payment for perpetual easements.

Section 2806.26(b) explains that when no appraisal or acceptable market information is available for the land transfer action or when the BLM requests it, you must prepare a report required under section 2806.25(d). A new addition to this paragraph in the final rule allows you to submit an appraisal report on your own initiative in accordance with section 2806.25(d).

Section 2806.26 is a new section made necessary by the BLM's recent policy to provide for perpetual easements to existing right-of-way holders who want to convert their term or perpetual grant to an easement when the land their grant encumbers is to be transferred out of Federal ownership under section 2807.15(b). The BLM has worked closely with its right-of-way customers and holders to develop an easement document (and policy) similar to the easement document that a utility company might acquire across private land. Under this policy, easements (similar to easements that utility companies would acquire for similar purposes across private land) will only be issued to you when land your grant encumbers is to be transferred out of Federal ownership. Since in these cases the BLM will not administer the easement (because the land your easement encumbers will no longer be public land), the BLM believes that the one-time payment should be determined by an appraisal or acceptable market information used to determine the per acre land value for the land disposal action. The one-time rental payment determined in this manner will reflect the value of the rights transferred to you based upon similar transactions in the private sector, and may or may not be the same as a one-time payment for a perpetual grant determined under section 2806.25(b).

In the proposed rule, the BLM asked for specific comments on the need for perpetual easements when encumbered lands are to be transferred out of Federal ownership as well as whether the BLM has authority to issue a term easement under the MLA in those circumstances when encumbered land is to be transferred out of Federal ownership.

The term “right-of-way” is defined by FLPMA (43 U.S.C. 1702(f)) to include easements, leases, permits, or licenses to occupy, use, or traverse public lands granted for the purposes listed in Title V of FLPMA. Most grants that the BLM issues under FLPMA are set forth on standard form 2800-14 and denoted “Right-of-Way Grant/Temporary Use Permit.” These grants are not regarded as easements by the agency, absent some indication to the contrary. Section 506 of FLPMA, 43 U.S.C. 1766, however, clearly contemplates the issuance of easements and provides that any effort to suspend or terminate these instruments be accompanied by the procedural safeguards of 5 U.S.C. 554. On the other hand, the provisions of the MLA at 30 U.S.C. 185 do not expressly authorize the grant of easements, unlike FLPMA's provisions at 43 U.S.C. 1702(f), 1761(a), and 1766. Both statutes do provide for the procedural safeguards of 5 U.S.C. 554 in the event of suspension or termination of the authorization. However, under the MLA the procedural safeguards of 5 U.S.C. 554 apply to all grants (see 43 U.S.C. 185(o)(1)), whereas, under FLPMA, these safeguards only apply to those authorizations considered to be easements (43 U.S.C. 1766).

Several commenters stated that permanent easements are necessary to protect their facilities when encumbered lands are transferred out of Federal ownership. Other commenters cited instances where the new land owner demanded unreasonable compensation for continued use of the right-of-way area, which may then affect delivery costs, as well as increase product costs to the end users. Commenters also stated that “easements” are “understood” in the private sector and that there is an enormous body of case law on the application and interpretation of easements, while a BLM right-of-way grant is an oddity that is often misunderstood by the private sector. The same commenter said that the ability to have an easement rather than a BLM grant will greatly simplify management of the facility by all parties in the long run.

Many commenters on the proposed rule also supported the conversion of existing term grants to term or permanent easements under the MLA. Commenters stated that the issuance of a “term easement” is consistent with the current definition of “grant” found at 43 CFR 2881.5 (“Grant means any instrument or authorization the BLM issues under section 28 of the MLA * * * to use Federal lands to construct, operate, maintain, or terminate a pipeline”). Furthermore, the commenters stated that the BLM has existing policy allowing for MLA “term easements” and the final rule should support and endorse this policy. One commenter also stated that the one-time rent payment for a “term easement” issued under the MLA should be determined by an appraisal or market data for the land transfer action, similar to the one-time payment for a FLPMA easement described under section 2806.26.

The BLM agrees with most of the commenters regarding their desire to be able to convert existing grants to permanent and term easements when land encumbered by their FLPMA grant is transferred out of Federal ownership. However, in the final rule we have limited this section to the determination of one-time rental payments for easements issued under the FLPMA, and not the MLA. We made this decision because the term “right-of-way” is defined by FLPMA (43 U.S.C. 1702(f)) specifically to include “easements” (as well as leases, permits, or licenses) to occupy, use, or traverse public lands granted for the purposes listed in Title V of FLPMA, while the provisions of the MLA at 30 U.S.C. 185 do not expressly authorize the grant of easements, and limit the term of any grant to 30 years or less. In addition, none of the commenters provided legal support for the issuance of term easements under Section 28 of the MLA. The BLM also disagrees that the definition of “grant” found at 43 CFR 2881.5 (“Grant means any instrument or authorization the BLM issues under section 28 of the MLA * * * to use Federal lands to construct, operate, maintain, or terminate a pipeline”) is sufficient basis by itself for the issuance of “term easements” because “easements” are not specifically provided for in Section 28 of the MLA.

In summary, final section 2806.26(a) is the same as proposed, except for revising the paragraph cited in section 2807.15 from paragraph (c) in the proposed rule to paragraph (b) in the final rule. Section 2806.26(b) also remains the same as proposed, except the final rule specifically allows holders to submit an appraisal report on their own initiative under section 2806.25(d). We made this change to be consistent with similar changes made in section 2806.25(c).

Subpart 2807—Grant Administration and Operation

The BLM is proposing changes to the section of this subpart that deals with administration and operation of grants.

Section 2807.15 How is grant administration affected if the land my grant encumbers is transferred to another Federal agency or out of Federal ownership?

This section explains how grant administration is affected if the land your grant encumbers is transferred to another Federal agency or out of Federal ownership.

Final section 2807.15(a) explains that if there is a proposal to transfer the land your grant encumbers to another Federal agency, the BLM may, after reasonable notice to you, transfer administration of your grant for the lands the BLM formerly administered to another Federal agency, unless doing so would diminish your rights. If the BLM determined your rights would be diminished by such a transfer, the BLM can still transfer the land, but retain administration of your grant under existing terms and conditions.

We proposed no changes to section 2807.15(b), but we have revised it in the final rule based upon several comments that the content and formatting of proposed paragraphs (b) and (c) were confusing. Final section 2807.15(b) is revised to incorporate the intent of proposed paragraph (c). Final section 2807.15(b) explains that the BLM will provide reasonable notice to you if there is a proposal to transfer the land your grant encumbers out of Federal ownership. If you request it, the BLM will negotiate new grant terms and conditions with you. This may include increasing the term of your grant to a perpetual grant or providing for an easement. These changes become effective prior to the time the land is transferred out of Federal ownership. The BLM may then, in conformance with existing policies and procedures:

(1) Transfer the land subject to your grant. In this case, administration of your grant for the lands the BLM formerly administered is transferred to the new owner of the land;

(2) Transfer the land, but the BLM retains administration of your grant; or

(3) Reserve to the United States the land your grant encumbers, and the BLM retains administration of your grant.

Proposed section 2807.15(c) explained that if there is a proposal to transfer the land your grant encumbers out of Federal ownership, you may negotiate new grant terms and conditions with the BLM. This may include increasing the term of your grant, should you request it, to a perpetual grant or providing for an easement. These changes would become effective prior to the time the land is transferred out of Federal ownership. The proposed rule also removed from section 2807.15(c) the cross-reference to previous section 2806.23(c), which specified how you made rental payments for perpetual grants. The BLM received several comments stating that this paragraph appears to replace existing paragraph 2807.15(b). However, the proposed rule did not remove or replace paragraph 2807.15(b). One commenter stated that the proposed section 2807.15(c) does not require the BLM to provide written notice to the grant holder of a land transfer under paragraph (c) as does paragraph (b). The commenter stated that notification should be required under both situations. Two commenters stated that holders should be given at least 60 days advance written notice while another commenter recommended at least 180 days of advance notice. Two commenters provided alternative language to combine previous paragraph (b) and proposed paragraph (c) of section 2807.15 into a new paragraph 2807.15(b). Proposed paragraph (d) would then become final paragraph (c). The recommended language submitted by these commenters to replace previous paragraph (b) and proposed paragraph (c) with a combined paragraph (b) primarily states that the BLM must provide written notification of at least 60 days prior to any proposed transfer date so that new grant terms and conditions can be negotiated. In addition, any new grant terms and conditions negotiated must be comparable to those normally found in an easement or other similar document used for utility facilities on private lands.

The BLM agrees with the commenters that proposed section 2807.15(c) is confusing because we failed to state that the action discussed in (c) would actually occur after the reasonable notification period specified in paragraph (b) and prior to the 3 options specified in paragraph (b) for completing the land transaction. We have therefore combined proposed paragraph (c) with previous paragraph (b) as explained above. This assures that reasonable notice is provided to all holders of a pending land transfer action and allows, at the holder's request, the conversion of existing FLPMA term grants to perpetual grants or easements. The land transfer action is then completed by:

(1) Transferring the land subject to your grant. In this case, administration of your grant for the lands the BLM formerly administered is transferred to the new owner of the land;

(2) Transferring the land, with the BLM retaining administration of your grant; or

(3) Reserving to the United States the land your grant encumbers, and with the BLM retaining administration of your grant.

We did not adopt the specific language submitted by the two commenters for paragraph (b) because we do not agree that a certain number of days be specified in the rule, since each land transaction will be governed by its own timeline. However, the final rule does specify that reasonable notice will be provided to the holder so that any amended application to an existing grant may be completed prior to the transfer of land out of Federal ownership. We also did not adopt the language submitted for paragraph (b) because it failed to include the three alternatives (see previous paragraph above) for treating encumbrances when land is transferred out of Federal ownership.

Proposed section 2807.15(d) explained that you and the new owner of the land may agree to negotiate new grant terms and conditions at any time after the land encumbered by your grant is transferred out of Federal ownership. In the final rule, proposed paragraph (d) is renumbered as final paragraph (c) because, as discussed above, we incorporated proposed paragraph (c) into final paragraph (b). No other changes were made to this section.

Part 2880—Rights-of-Way Under The Mineral Leasing Act

Subpart 2885—Terms and Conditions of MLA Grants and TUPs

This final rule revises 5 existing sections of this subpart and adds 2 new sections.

Section 2885.11 What terms and conditions must I comply with?

Final section 2885.11(a) explains that all grants, except those issued for a term of 3 years or less, will expire on December 31 of the final year of the grant. Previous section 2885.11(a) stated that all grants with a term of 1 year or longer would terminate on December 31 of the final year of the grant. This correction allows short-term grants and TUPs to expire on the day before their anniversary date. This revision also provides the holder of a 3-year grant or TUP with a full 3-year term to conduct activities authorized by the short-term right-of-way grant or TUP, instead of the 2 full years plus the partial first year under the previous section. Final section 2885.21(c) explains that the BLM considers the first partial calendar year in the initial rent payment period to be the first year of the term. Therefore, a 3-year grant or TUP, issued under the previous regulations, had a term period of 2 years plus the time period remaining in the calendar year of issuance. A 2-year grant or TUP had a term period of 1 year plus the time period remaining in the calendar year of issuance. Depending on when the grant or TUP was issued, the actual term could have been just over 2 years for a 3-year grant or TUP and could have been just over 1 year for a 2-year grant or TUP. Under the final rule, all grants and TUPs, except those issued for a term of 3 years or less expire on December 31 of the final year of the grant or TUP. The changes to this section allow the holder to use short-term grants and TUPs for the full period of the grant. For example, if a 3-year grant or TUP is issued under the final rule on October 1, 2008, it terminates on September 30, 2011, instead of December 31, 2010, under the previous rule. If a 2-year grant or TUP is issued under the final rule on October 1, 2008, it terminates on September 30, 2010, instead of December 31, 2009, under the previous rule. In most cases, the BLM will assess a one-time rental bill for the term of the grant, which reduces any administrative impact which might otherwise result from this revision. This change is also consistent with final section 2805.11(b)(2). Please refer to the preamble discussion for final section 2805.11(b)(2) for further information on this revision. We received no comments on the proposed changes to this section and the final rule adopts the proposed section without change.

Section 2885.12 What rights does a grant or TUP convey?

Prior section 2885.12(e) stated that you have a right to assign your grant or TUP to another, provided that you obtain the BLM's prior written approval. The BLM added the phrase “unless your grant or TUP specifically states that such approval is unnecessary” to this section to indicate that the BLM's prior written approval may be unnecessary in certain cases. In most cases, assignments continue to be subject to the BLM's written approval. However, with this change, the BLM can amend existing grants and TUPs to allow future assignments without the BLM's prior written approval. This may be especially important to the future administration of a grant when the land encumbered by a grant or TUP is being transferred out of Federal ownership, and there is a request to increase the term of your grant or TUP under section 2886.15(b). We received one comment that specifically supported this change. The final rule adopts the proposed section without change.

Section 2885.19 What is the rent for a linear right-of-way grant?

Final section 2885.19 replaces previous section 2885.19. Final section 2885.19(a) explains that the BLM will use the Per Acre Rent Schedule to calculate the rent. In addition, paragraph (a) explains that counties (or other geographical areas) will be assigned to a county zone number and per acre zone value based upon 80 percent of their per acre land and building value published in the NASS Census. The initial assignment of counties to the zones covers years 2006 through 2010 of the Per Acre Rent Schedule, and is based upon data contained in the most recent NASS Census (2002). Subsequent assignments of counties will occur every 5 years following the publication of the NASS Census. Paragraph (a) further explains that the Per Acre Rent Schedule will be adjusted periodically as follows:

(1) The BLM will adjust the per acre rent in section 2885.19(b) for all types of linear right-of-way facilities in each zone each calendar year based on the average annual change in the IPD-GDP for the 10-year period immediately preceding the year that the NASS Census data becomes available. For example, the average annual change in the IPD-GDP from 1994 to 2003 (the 10-year period immediately preceding the year (2004) that the 2002 NASS Census data became available) is 1.9 percent. This annual adjustment factor is applied to years 2006 through 2015 of the Per Acre Rent Schedule. Likewise, the average annual change in the IPD-GDP from 2004 to 2013 (the 10-year period immediately preceding the year (2014) when the 2012 NASS Census data will become available) will be applied to years 2016 through 2025 of the Per Acre Rent Schedule.

(2) The BLM will review the NASS Census data from the 2012 NASS Census, and each subsequent 10-year period, and as appropriate, revise the number of county zones and the per acre zone values. Any revision will include 100 percent of the number of counties and listed geographical areas for all states and the Commonwealth of Puerto Rico and will reasonably reflect their average per acre land and building values contained in the NASS Census.

The above revision mechanisms replace previous paragraphs (b) and (c) of section 2885.19.

Final section 2885.19(b) replaces previous section 2885.19(d) and explains that you may obtain a copy of the current Per Acre Rent Schedule from any BLM state or field office or by writing to the BLM and requesting a copy. The BLM also posts the current rent schedule on the BLM Homepage on the Internet at http://www.blm.gov .

The Per Acre Rent Schedule (and its various components) referred to in this section is the same as found in final sections 2806.20, 2806.21, and 2806.22. The BLM received several comments on the components of the Per Acre Rent Schedule in proposed sections 2806.20, 2806.21, and 2806.22. Based on those comments, counties will be assigned to a zone in the Per Acre Rent Schedule based on 80 percent of the average per acre land and building value as found in the NASS Census instead of 100 percent of that value. The rate of return will be a constant 5.27 percent which is the 10-year average of the 30-year Treasury Bond yield from 1998-2008. In addition, the annual index adjustment will be based on the average annual change in the IPD-GDP instead of the annual change in the CPI-U. No change was made in how the BLM will revise the Per Acre Rent Schedule each 10 years other than delaying its effectiveness by 1 year. The comments to proposed sections 2806.20, 2806.21, and 2806.22 and the BLM's response to those comments (as reflected in final sections 2806.20, 2806.21 and 2806.22) are applicable to this section as well and are discussed in greater detail above.

Section 2885.20 How will BLM calculate my rent for linear rights-of-way the Per Acre Rent Schedule covers?

Final sections 2885.20(a) and (c) are similar to and replace previous sections 2885.20(a) and (b), respectively. Final section 2885.20(a) explains that, except as provided by section 2885.22, the BLM calculates your rent by multiplying the rent per acre for the appropriate county (or other geographical area) zone from the current schedule by the number of acres (as rounded up to the nearest tenth of an acre) in the right-of-way or TUP area that fall in each zone multiplied by the number of years in the rental payment period (the length of time for which the holder is paying rent). The final rent calculation methodology is identical to the previous rent calculation methodology; only the components (average per acre land values, county zones, the EF, and rate of return) have been revised. Please refer to the preamble discussion for section 2806.23(a) for details and examples of how this process works. Final section 2885.20(c) explains that if the BLM has not previously used the rent schedule to calculate your rent, we may do so after giving you reasonable written notice. Except for a minor edit, we made no substantive changes to these two sections from what was proposed.

Final section 2885.20(b) provides for the phase-in of the initial implementation of the Per Acre Rent Schedule by reducing the 2009 per acre rent by 25 percent, and by providing a limited 2-year phase-in period as the result of revisions to the rent schedule under section 2885.19(a)(2) if payment of the new rent causes the holder undue hardship and it is in the public interest to approve the phase-in period.

In the ANPR and the proposed rule, the BLM specifically requested comments on whether any phase-in provision is necessary, and if so, what alternative information, including holder qualifications or thresholds other than the percentage increase, might the BLM use to support a longer phase-in period, or to support a phase-in model that specifically addresses financial hardship due to potentially large rental increases. The BLM received 6 comments in response to the ANPR which generally supported a phase-in provision. Three commenters said that any rental increases greater than $1,000 should be phased-in over 5 years. One commenter said that a 6-year phase-in period would be appropriate for all rental increases. The commenter suggested no change for the first year, followed by five 20 percent annual increases. One commenter supported a phase-in period and potential relief from increased payment amounts, but offered no specific options.

In the proposed rule, the BLM proposed a limited one-time, 2-year phase-in provision which would provide the holders of MLA authorizations hardship provisions similar to those currently available to holders of FLPMA authorizations. The proposed MLA phase-in provision would only apply in situations where rent is paid on an annual basis, and the increase in the rental fee is so substantial (500 percent or greater increase) that payment of the new rental amount would likely cause undue financial hardship.

Almost all commenters on the proposed rule stated that some type of phase-in provision is necessary for all authorization holders in order to allow sufficient time to absorb the additional fee increases. One commenter said that the lack of a comprehensive phase-in provision for holders of FLPMA authorizations was the most unreasonable element of the proposed rule. Many commenters supported a 5- or 6-year phase-in period, and one commenter proposed limiting potential fee increases each year to no more than 10 percent of the initial per acre rental rate at the time the grant was issued. One commenter said that it was critical that the new rates not be implemented prior to January 2009.

The BLM does not agree with the commenters that a specific long-term phase-in provision is always necessary or reasonable when implementing a new or revised rent schedule, especially when other existing avenues to mitigate large rental increases are available to most holders. Under current section 2806.15(c), the BLM State Director may waive or reduce your rent payment, if the BLM determines that: (1) Paying the full rent for your FLPMA grant will cause you undue hardship; and (2) it is in the public interest to waive or reduce your rent. However, this provision has never been available to holders of MLA authorizations, nor was it included in the proposed rule. To provide some relief for MLA holders, final section 2885.20(b)(1) provides for a phase-in of the initial implementation of the Per Acre Rent Schedule by reducing the 2009 per acre rent by 25 percent. A similar provision has been added for holders of FLPMA grants at section 2806.23(b). In calendar year 2009, all holders will pay 75 percent of the scheduled rental rates, and thereafter, 100 percent of the scheduled rental rates.

Final section 2885.20(b)(2) will allow a 2-year phase-in period to holders of MLA grants if, as the result of any revisions made to the Per Acre Rent Schedule under section 2885.19(a)(2), the payment of the new annual rental amount would cause a specific MLA holder undue hardship and it is in the public interest to approve the phase-in. Holders of FLPMA grants have the same opportunity for a similar phase-in provision under existing section 2806.15(c).

The phase-in provision in final section 2885.20(b)(2), however, is limited only to MLA holders that qualify as small business entities (as that term is defined by the Small Business Administration (SBA) regulations). It is estimated that only 5.3 percent of existing MLA grantees may be eligible for SBA programs (see 70 FR 21056). In addition, the two-year phase-in period will only be available once each 10-year period when revisions are made to the Per Acre Rent Schedule under section 2885.19(a)(2). Final section 2885.19(a)(2) provides for the revision of the rent schedule (including the number of county zones and the per acre zone values) based upon the NASS Census data from the 2012 NASS Census and each subsequent 10-year period. Therefore, the earliest year that final section 2885.20(b)(2) (the MLA phase-in provision based on hardship) will be available for use is 2016, since the 2012 NASS Census data will not be available until 2014 and any revised rent schedule based upon the 2012 NASS Census data will not be implemented until 2016 (see preamble discussion for section 2806.22). After 2016, final section 2885.20(b)(2) will not be available for use again until 2026, and then not until 2036, and so forth.

In addition to meeting the above criteria, the holder must also prove that payment of the new annual rental amount would cause undue hardship, that is, be such an expense that payment would cause the holder significant difficulty in the continued near-term operation of the subject business or right-of-way facility. Undue hardship is not shown by allegations of financial difficulty, but requires proof that the holder would suffer significant financial difficulty, i.e., severe, unique, or extraordinary difficulty, in the continued near-term operation of the subject business or right-of-way facility. The determination of undue hardship must therefore be made on a case by case basis. The BLM will require the holder to submit information which supports the claim of undue hardship. At a minimum, this information must include a credit bureau report and a financial statement. In addition, the holder must submit information that clearly documents the holder's financial capability to pay the full rental amount due in year two of the phase-in period, if approved. The BLM State Director makes the determination that undue hardship exists based upon a financial analysis of the information submitted which supports the undue hardship claim. If the BLM State Director finds that undue hardship exists and that an additional phase-in is in the public interest, payment of the amount in excess of the previous year's rent will be phased-in by equal increments over a 2-year period. In addition, the BLM will adjust the total calculated rent for year 2 of the phase-in period by the annual index provided by section 2885.19(a)(1).

The BLM believes that many of the concerns expressed by commenters regarding the lack of a comprehensive phase-in provision in the proposed rule have thus been addressed in the final rule by providing more advance notice of potentially large rental increases, reducing the NASS Census land and building value for each county by 20 percent, reducing the rate of return by 18.5 percent (from 6.47 percent to 5.27 percent), reducing the threshold from $1,000 to $500 for payment of annual rent instead of 10-year rental payments, and by waiving 25 percent of the calendar year 2009 rental rates for all authorization holders. These actions combined have eliminated the need for a 5-or 6-year phase-in period because the amount of the increase in rent receipts has been significantly reduced in the final rule. Holders will save nearly $10 million (or 54 percent) when comparing the rates/phase-in provisions contained in the proposed rule with the rates/phase-in provisions contained in the final rule (using actual acres billed for calendar year 2007). The proposed rates would have generated a total of $18,570,871 in 2007 if all acres were billed annually. Under the final rule, including the initial, one-time, 25 percent phase-in provision in rental rates, total rental receipts drop to $8,635,023. Without the initial, one-time, 25 percent phase-in provision, the total rental receipts would have been $11,512,757, or a 38 percent reduction in rental receipts from the proposed rule.

The BLM does not agree with the commenter that proposed limiting potential fee increases each year to no more than 10 percent of the initial per acre rental rate at the time the grant was issued. First, once the final schedule is implemented, increases in rent will be limited to the change in the annual IPD-GDP adjustment (which has historically averaged around 2 to 3 percent). Every 5 years, holders could experience additional rent increases because of the re-assignment of counties to new zones on the rent schedule. However, holders will have approximately 18 months of advance notice to prepare for any potential increases. Thus, most annual rent increases will be significantly less than 10 percent and holders will have adequate notice to prepare for any major increases that might result from counties being assigned to new rental zones based on new NASS Census data.

Secondly, the BLM believes it would be an extreme administrative burden to cap potential annual rent increases at 10 percent per authorization, as this commenter suggested, because grants are always subject to amendments and assignments that can affect the acres subject to rent. It would be very difficult and expensive for the BLM to adequately administer these potential changes and limit rent increases only in response to adjustments in the rent schedule itself, as compared to actual changes in the number of acres billed for that authorization from year to year.

Lastly, the BLM partially agrees with the commenter that said it was critical that the new rates not be implemented prior to January 2009. All existing grants should be billed on the calendar year basis and not their anniversary date. Therefore, the earliest the new rent schedule will apply to existing grants is January 2009, which is consistent with the suggestion of this commenter. However, if the new rent schedule becomes effective in calendar year 2008, the initial rent for new authorizations will be determined in accordance with the new rent schedule, even if the issuance date of the new grant is prior to January 2009.

The BLM does not expect the rental increases to be financially burdensome for most holders. The changes made in the Per Acre Rent Schedule in the final rule represent a permanent reduction of nearly 40 percent over the proposed rates (reducing the NASS Census land and building value for each county by 20 percent and reducing the rate of return by 18.5 percent (from 6.47 percent to 5.27 percent)). We believe that these changes, along with an additional 1-year advance notice of potentially large rental increases, reducing the threshold from $1,000 to $500 for payment of annual rent instead of 10-year rental payments, and by waiving 25 percent of the calendar year 2009 rental rates for all authorization holders, in conjunction with the more flexible rent payment options described in final sections 2806.24 and 2885.21, will provide appropriate relief from any large, unexpected increases in rent payments that are due to implementation of the revised linear rent schedule.

Section 2885.21 How must I make rental payments for a linear grant or TUP?

Final section 2885.21(a) explains that for TUPs you must make a one-time nonrefundable payment for the term of the TUP. For grants, except those that have been issued in perpetuity, you must make either nonrefundable annual payments or a nonrefundable payment for more than 1 year, as follows:

(1) One-time payments. You may pay in advance the total rent amount for the entire term of the grant or any remaining years;

(2) Multiple payments. If you choose not to make a one-time payment, you must pay according to one of the following methods:

(i) Payments by individuals. If your annual rent is $100 or less, you must pay at 10-year intervals not to exceed the term of the grant. If your annual rent is greater than $100, you may pay annually or at 10-year intervals, not to exceed the term of the grant. For example, if you have a grant with a remaining term of 30 years, you may pay in advance for 10 years, 20 years, or 30 years, but not any other multi-year period.

(ii) Payments by all others. If your annual rent is $500 or less, you must pay rent at 10-year intervals, not to exceed the term of the grant. If your annual rent is greater than $500, you may pay annually or at 10-year intervals, not to exceed the term of the grant.

Final section 2885.21(a) replaces the rent payment options in previous section 2885.21(a). The primary difference is that under final section 2885.21(a), individuals who hold a grant with an annual rent greater than $100 would have the option to pay annually or at 10-year intervals, not to exceed the term of the grant. For example, if you have a grant with a term of 30 years, you may pay in advance for 10 years, 20 years, or 30 years, but not any other multi-year period. Previously, individuals that held a grant with an annual rent greater than $100 would have had the option to pay annually or for any multi-year period. The BLM made this change to make the rent payment options for individuals consistent with those available to non-individuals, except for the annual threshold levels of $100 and $500, respectively. If rent is not paid for the full term, subsequent rental payments will be based on the changes to the rental schedule as described in section 2885.19 (the annual CPI-U index adjustment; the re-assignment of counties each 5-year period; and/or the adjustment to the number and value of rental zones each 10-year period), but the $100 and $500 thresholds used to determine the eligibility for annual payments by individuals and business entities, respectively, will not be adjusted.

Final section 2885.21(b) explains how you must make rent payments for perpetual grants issued prior to November 16, 1973, except as provided by final section 2885.22(a). Previous section 2885.21 did not recognize that MLA grants issued prior to November 16, 1973, could have been issued for any term period, including a perpetual term. Under the MLA, grants issued after November 16, 1973, have a maximum term of 30 years. We added final section 2885.21(b) to explain that if you have an existing perpetual grant, you must make either nonrefundable annual payments or a nonrefundable payment for more than 1 year, as follows:

(1) Payments by individuals. If your annual rent is $100 or less, you must pay at 10-year intervals, not to exceed 30 years. If your annual rent is greater than $100, you may pay annually or at 10-year intervals, not to exceed 30 years.

(2) Payments by all others. If your annual rent is $500 or less, you must pay rent at 10-year intervals, not to exceed 30 years. If your annual rent is greater than $500, you may pay annually or at 10-year intervals, not to exceed 30 years.

Final section 2885.21(c) is nearly identical to previous section 2885.21(b). This section explains that the BLM considers the first partial calendar year in the initial rental payment period to be the first year of the term. The BLM prorates the first year rental amount based on the number of months left in the calendar year after the effective date of the grant.

Please refer to the preamble discussion for final section 2806.24 for an explanation of the revisions to this section and examples of various rent payment periods, as well as a discussion of any comments received on this section and the BLM's response to those comments.

Section 2885.22 How may I make rental payments when land encumbered by my term or perpetual linear grant is being transferred out of Federal ownership?

Final section 2885.22 explains how you would make one-time rental payments for your term or perpetual linear grant when land encumbered by your grant is being transferred out of Federal ownership.

Final section 2885.22(a) explains how the BLM would determine a one-time rent payment for perpetual MLA grants issued prior to November 16, 1973, when land encumbered by your grant is being transferred out of Federal ownership. If you have a perpetual grant and the land your grant encumbers is being transferred out of Federal ownership, you may choose to make a one-time rental payment. The BLM will determine the one-time payment for perpetual right-of-way grants by dividing the current annual rent for the subject property by an overall capitalization rate calculated from market data. The overall capitalization rate is the difference between a market yield rate and a percent annual rent increase as described in the formula below. The formula for this calculation is: One-time payment = annual rent/(Y−CR), where:

(1) Annual rent = current annual rent applicable to a subject property from the Per Acre Rent Schedule;

(2) Y = yield rate (rate of return) from the Per Acre Rent Schedule (5.27 percent); and

(3) CR = annual percent change in rent as determined by the most recent 10-year average of the difference in the IPD-GDP Index from January of one year to January of the following year.

The annual rent will be determined from the Per Acre Rent Schedule (see section 2885.19(b)), as updated under section 2885.19(a)(1) and (2). However, as final section 2885.22(b) explains, the per acre zone value and zone number used in the annual rental determination is based on the per acre value from acceptable market information or an appraisal, if any, for the land transfer action and not the county average per acre land and building value from the NASS Census. You may also submit an appraisal report on your own initiative under section 2806.25(d).

One commenter recommended that if the BLM uses the appraised land value (as provided by final section 2885.22(b)) to determine the appropriate zone on the rent schedule, then the formula to determine the one-time rent payment, as determined under final section 2885.22(a), should be modified to use the yield rate (Y) rather than the yield rate less the annual percent change in rent (CR). The formula would then be: one-time rent payment = Annual Rent/Y; rather than the one-time payment = Annual Rent/(Y−CR). The commenter said that this change is necessary to avoid the situation where the one-time payment under the appraisal method is greater than the one-time payment under the yield method. The commenter said that the change in the annual index is not necessary since the appraisal method already reflects the current land values for the purposes of calculating the one-time payment. The BLM understands the basis for this comment, but disagrees that it would be an appropriate change to make in this instance. The commenter claims that if appraisal data is used to assign land to a zone on the Per Acre Rent Schedule, then the annual rent adjustment index (CR in the formula) should be excluded from the formula when determining one-time rent. We disagree because the Per Acre Rent Schedule is still being used to establish the annual per acre rental value and the annual adjustment factor is an inherent component of the schedule. For example, if appraisal data were to be used each 5-year period to re-assign counties to their appropriate zones on the rent schedule, the annual adjustment factor (the annual percent change in rent as determined by the most recent 10-year average of the difference in the IPD-GDP Index from January of one year to January of the following year) would still be applied to determine subsequent year's per acre rent value and would continue until the next appraisal. In situations where the rent schedule is not used in any way to determine the one-time rental payment (such as for easements pursuant to section 2806.26) it might be appropriate to exclude the annual adjustment factor from the above formula, but only if the appraisal report did not provide for an annual adjustment factor. In this circumstance, the Per Acre Rent Schedule (and its various components, including the annual adjustment factor) is still used to determine the annual per acre rent value, which in turn, is used in the income capitalization formula to determine the one-time rent payment.

Final section 2885.22(c) explains that, when no acceptable market information is available and no appraisal has been completed for the land transfer action, or when the BLM requests it, you must prepare an appraisal report as required under section 2806.25(d) of this chapter. We received one comment on this section stating that holders should always have the opportunity to submit their own appraisal report to determine one-time rent for perpetual right-of-way grants when land encumbered by the grant is transferred out of Federal ownership. We agree with the commenter (see discussion for section 2806.25(c) for rationale) and allow for this in the final rule (see section 2885.22(b)). Otherwise, final section 2885.22(c) is the same as proposed.

Section 2885.22(d) is new to the final rule, and explains how rent for a term grant is determined when the land encumbered by the grant is being transferred out of Federal ownership. This section also explains that the amount determined must not exceed the one-time rent payment for a perpetual grant as determined under paragraphs (a) and (b). The BLM added this paragraph to the final rule based upon a comment that stated that in a rare occurrence, the one-time rent payment for term grants could exceed the one-time payment for a perpetual grant. The BLM agrees that, although unlikely, this could occur, but only when one-time rents are being calculated for MLA grants under this section. This situation could not occur for FLPMA authorizations since the holder always has the option of obtaining a perpetual grant, nor would it occur for rents calculated under section 2885.21, since term and perpetual grants are treated equally under that section.

Please refer to the preamble discussion for final section 2806.25 for additional details regarding one-time rent payments for perpetual grants when the land your grant encumbers is being transferred out of Federal ownership.

Subpart 2886—Operations on MLA Grants and TUPs

The BLM is amending one section of this subpart which deals with administration and operations of grants and TUPs.

Section 2886.15 How is grant or TUP administration affected if the BLM land my grant or TUP encumbers is transferred to another Federal agency or out of Federal ownership?

This section explains how grant administration is affected if the BLM land your grant or TUP encumbers is transferred to another Federal agency or out of Federal ownership. We proposed no changes to previous paragraphs (a) and (b) of this section. However, previous paragraph (c) was split into proposed paragraphs (c) and (d) to make it clearer.

Although we proposed no changes to section 2886.15(b), we have revised it in the final rule based upon several comments that the proposed formatting of paragraphs (b) and (c) was extremely confusing. We therefore combined proposed paragraph (c) with previous paragraph (b) as follows. Final section 2886.15(b) has been revised to incorporate the intent of proposed paragraph (c) and explains that the BLM will provide reasonable notice to you if there is a proposal to transfer the land your grant or TUP encumbers out of Federal ownership. Furthermore, if you request, the BLM will negotiate new grant or TUP terms and conditions with you. This may include increasing the term of your grant to a 30-year term or replacing your TUP with a grant. These changes, if any, become effective prior to the time the land is transferred out of Federal ownership. The BLM may then, in conformance with existing policies and procedures:

(1) Transfer the land subject to your grant or TUP. In this case, administration of your grant or TUP for the lands the BLM formerly administered is transferred to the new owner of the land;

(2) Transfer the land, but the BLM retains administration of your grant or TUP; or

(3) Reserve to the United States the land your grant or TUP encumbers, and the BLM retains administration of your grant or TUP.

The above changes provide assurance that reasonable notice will be given to all holders of a pending land transfer action and allows, at the holder's request, the opportunity to negotiate new grant or TUP terms and conditions with the BLM. This may include increasing the term of a grant to a 30-year term or replacing a TUP with a grant. Please refer to the preamble discussion in section 2806.26 for the comments received on the issuance of term easements under MLA and the rationale for not providing for term easements in this section. Please refer to the preamble discussion in section 2807.15 above for the comments received on proposed sections 2807.15 and 2886.15 and the rationale for the changes described herein.

Proposed section 2886.15(d) explained that you and the new owner of the land may agree to negotiate new grant terms and conditions at any time after the land encumbered by your grant or TUP is transferred out of Federal ownership. In the final rule, proposed paragraph (d) is renumbered as final paragraph (c) because we incorporated proposed paragraph (c) into final paragraph (b) as discussed above. No other changes were made to this section.

Subpart 2888—Trespass

This rule revises one section of this subpart which pertains to trespass.

Section 2888.10 What is trespass?

Final section 2888.10 is identical to previous section 2888.10 except for a minor edit to paragraph (c). Final section 2888.10(c) does not include the previous reference in section 2888.10 that the rental exemption provisions of part 2800 do not apply to grants issued under this part. This reference is no longer necessary because we added language to final section 2806.14(b), which explains that the rent exemptions listed in final section 2806.14 do not apply if you are in trespass. This includes trespass actions covered under final section 2888.10. Please refer to the preamble discussion for final section 2806.14(b) for further details on the reasons for this change.

Part 2920—Leases, Permits, and Easements

Subpart 2920—Lease, Permits, and Easements: General Provisions

The rule amends two sections of this subpart, which addresses fees and reimbursement of costs.

Section 2920.6 Reimbursement of Costs

Previous section 2920.6(b) has been amended by deleting from the second sentence the phrase “except that any permit whose total rental is less than $250 shall be exempt from reimbursement of costs requirements.” Final section 2920.6(b) explains that the reimbursement of costs for authorizations issued under part 2920 will be in accordance with sections 2804.14 and 2805.16, which provide for the reimbursement of processing and monitoring costs. Previously, any permit whose total rent was less than $250 would have been exempt from reimbursement of processing and monitoring costs.

Section 2920.8 Fees

Previously, section 2920.8(b) provided that each request for renewal, transfer, or assignment of a lease or easement be accompanied by a non-refundable processing fee of $25. Also, the authorized officer could waive or reduce this fee for requests for permit renewals that could be processed with a minimal amount of work. Final section 2920.8(b) amends the previous section by making each request for renewal, transfer, or assignment of a lease or easement subject to both a non-refundable processing and monitoring fee determined under section 2804.14 and section 2805.16. The second sentence of the previous section, which allowed the authorized officer to waive or reduce this fee for permit renewals, is also deleted because fees for actions processed with a minimal amount of work are accounted for in current sections 2804.14 and 2805.16. These revisions are corrections to the 2005 right-of-way rule, which established a schedule for processing and monitoring fees for applications and grants issued under parts 2800, 2880, and 2920. These revisions are necessary to provide the correct cross references to the appropriate processing and monitoring fees found in sections 2804.14 and 2805.16 for actions taken under part 2920.

III. Procedural Matters

Executive Order 12866, Regulatory Planning and Review

In accordance with the criteria in Executive Order 12866, this rule is not a significant regulatory action. The Office of Management and Budget makes the final determination as to its significance under Executive Order 12866.

a. This rule does not have an annual 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. A cost-benefit and economic analysis has not been prepared. However, the following economic analysis and calculations supports this conclusion.

Estimated Economic Effects. The rule could potentially increase rental revenues collected by the BLM and, conversely, increase costs to grant holders, by an estimated average of $14.7 million each year (plus annual IPD-GDP adjustments).

Background

The definition of the baseline is an important step in evaluating the economic effects of a regulation. The baseline is taken to be the regulations previously in place. A baseline assumption is that under the status quo, right-of-way activity on Federal lands would continue at least at current levels. Given that the final rule incorporates many suggestions received from industry on the ANPR and the proposed rule, continued right-of-way activity on Federal lands seems a reasonable assumption.

Current Right-of-Way Activity

In 2007 the BLM administered 12,500 rights-of-way subject to linear rent, held by over 1,600 entities, covering approximately 373,000 acres in 15 states. Some right-of-way holders have a single grant, while others hold hundreds of individual grants. Individual right-of-way holdings may be as small as 0.01 acre or larger than 22,000 acres. The top 18 grant-holders (by acreage) account for more than one-half of the total acreage. Eighty percent of the total right-of-way acreage is held by about 4 percent of all grant-holders, while the smallest 1,000 grant-holders account for less than 1 percent of total right-of-way acreage. The breakdown by rental payments is similar to the breakdown by acreage.

Original Rent Schedule

The original 1987 rent schedule was intended to reduce the need for individual appraisals, establish consistent rationale for determination of rental, reduce the differences between procedures used by the FS and the BLM, resolve conflicts which led to numerous appeals of rental determinations, and reduce both government and industry administrative costs. The right-of-way rental rates assessed in 2007 were derived from the 1987 rule's schedule, presented in Tables 7 and 8.

Table 7—Previous per Acre Rent Schedule for electric transmission and distribution lines, telephone lines, non-energy related pipelines, and other linear rights-of-way.

Table 8—Previous per Acre Rent Schedule for oil, gas, and other energy-related pipelines, roads, ditches, and canals.

Zone rent for 2007 is based on zone rent for 1987. Zone rent per acre for 1987 is found by determining the correct zone for a right-of-way, then multiplying the zone value (i.e., the upper bracket for land values per acre within a zone) by the EF (70 percent for electric and telephone lines; 80 percent for energy-related pipelines and roads) and the return on investment (6.41 percent). This 1987 zone rent is converted to 2007 zone rent using the change in the IPD-GDP between 1987 and 2007 (approximately a 62 percent increase).

Final Rent Schedule

The zone brackets in the schedule in this final rule are set to accommodate all U.S. counties and the Commonwealth of Puerto Rico, based upon 80 percent of their average per acre land and building value published in the most recent NASS Census. The average per acre land and building values for the 3,080 counties identified in the NASS Census range from a low of $75 to a high of nearly $100,000. Table 9 shows the zone brackets for the 12 zones in the final rule.

For the BLM's purposes, each of the 3,080 counties identified in the NASS Census is assigned to a zone, based on 80 percent of the average per acre land and building value as determined by the most recent NASS Census. At the time of this final rule, the most current NASS Census provides 2002 data. The next NASS Census will provide 2007 data, and is due to be published in 2009.

Determining Right-of-Way Rent

Annual right-of-way rent for 2002 is based on the following factors:

1. Schedule zone, determined by 80 percent of the county's 2002 average per acre land and building value;

2. EF (set at 50 percent for all linear rights-of-way);

3. Government's rate of return, set at the average of the 30-year Treasury bond rate, taken over the 10 years from 1998 to 2008; and

4. Total acreage within the right-of-way area.

The zone rent is adjusted annually by the change in the Gross Domestic Product, Implicit Price Deflator index.

Table 10 shows the right-of-way rent per acre for each zone for the 2002 base rent year. The annual per acre rent in this table is determined by multiplying the county zone value (upper limit) by the EF and the rate of return. The EF is a measure of the degree that a particular type of facility encumbers a right-of-way area or excludes other types of land uses and is set at 50 percent. The rate of return represents the return the Government could reasonably expect for the use of public assets, and is set at the average of the 30-year Treasury bond taken over the previous 10 years from 1998 to 2008 or 5.27 percent. Table 5 also displays the per acre rent values for each county zone for the 2002 base year and each subsequent year after application of the annual index.

The total amount a right-of-way grant holder is billed also depends on the number of acres within the right-of-way area that fall within each zone and the years in the rent payment period. Once the per-acre rent has been determined for a particular right-of-way, this amount is multiplied by the total acreage in the right-of-way, and by the number of years in the rent payment period.

Phase-In Provision

The BLM has added an initial phase-in provision for all holders.. The BLM will phase-in the initial implementation of the Per Acre Rent Schedule by reducing the 2009 per acre rent by 25 percent. In calendar year 2009, all holders will pay 75 percent of the scheduled rental rates, and thereafter, 100 percent of the scheduled rental rates. An additional 2-year phase-in period may be granted to holders of MLA grants if, as the result of any revisions made to the Per Acre Rent Schedule under section 2885.19(a)(2), the payment of the new annual rental amount would cause a specific holder undue hardship and it is in the public interest to approve the phase-in. However, only holders of MLA grants that qualify as a small business entity (as that term is defined by the Small Business Administration regulations) will be eligible for this additional phase-in period. Holders of FLPMA grants have the same opportunity for a similar phase-in provision under existing section 2806.15(c).

Estimated Impacts of the Final Schedule

The increase in rental fees could have potential impacts on all holders of right-of-way grants, as well as the energy industry and, ultimately, energy consumers. To the extent that right-of-way grant-holders continue to maintain facilities on public land whose value has increased since 1987, there will also be an increase in rental fees to the U.S. Treasury. Some of the increase in fees may be passed on to energy consumers in the form of higher utility bills, but we expect that if there is any increase, as explained below, it will be minimal.

Tierney and Hibbard (2006) conducted a study (see Tierney, S.F., and Hibbard, P.J., 2006, Energy Policy Act Section 1813 Comments: Report of the Ute Indian Tribe of the Uintah and Ouray Reservation for Submission to the U.S. Departments of Energy and Interior, Boston, MA) of the contribution of right-of-way costs to end-user energy prices, finding that:

1. Right-of-way costs in general are a minor component of regulated electric transmission and gas transportation rates, regardless of how land value changes by location or with time;

2. When viewed from the perspective of end-use consumer prices, the costs to acquire rights-of-way are de minimis; and

3. In the case of gas markets and competitive electricity markets, changes to right-of-way costs generally affect commodity supplier profits, not retail prices.

Based on this analysis, there will likely be no significant impact on consumers as a result of the changes this rule makes to previous regulations.

Estimated Costs Under the Final Schedule

The expected response to an increase in a good's price is a decrease in the quantity demanded of that good. Thus, if the net effect of the rule is to raise a right-of-way grant holder's full cost of maintaining a right-of-way on public land, it would be reasonable to predict a decrease in the number of right-of-way applications. Nevertheless, given the finding by Tierney and Hibbard (2006) that right-of-way costs in general (not restricted to Federal lands) are a minor portion of total energy transportation costs, no significant decrease in energy right-of-way activity is expected. The BLM also believes for the same reasons that no significant decrease in non-energy right-of-way activity would occur due to the increase in right-of-way costs.

Assuming that right-of-way activity is relatively insensitive to the rental fee, it is possible to estimate the payments that would have been due to the BLM (U.S. Treasury) in FY 2007 had the final schedule been in effect. The following analyses are based on data from the BLM's automated lands billing system (Land and Realty Authorization Module).

In 2007, the BLM issued bills for 12,545 linear right-of-way grants. Approximately half of these bills were for rent payment periods of 5 years or more. The total amount billed for these linear grants was $6.5 million. Had these rights-of-way been paid under the new schedule (for the same rent payment periods), the total collected would have been $14 million, an increase of approximately $7.5 million, or 115 percent. The BLM expects that it will continue to issue approximately the same number of bills for the same number of annual authorizations each year, while the number of bills for multi-year rental payments will continue to decline. It is expected that those authorizations with annual rental payments in excess of $500 will continue to be billed on an annual basis, although the holder has the option to pay for 10-year terms or the entire term of the grant. Under the final rule, the holder will have to pay for a minimum 10-year period if the annual rental payment is $500 or less for a non-individual or $100 or less for an individual. Under the 1987 regulations, the maximum rental payment term was 5 years. The 2005 rule required the holder to pay for the term of the grant, or at 10-year intervals, unless the holder was an individual whose annual rent was greater than $100, in which case, annual payments could have been made.

Table 11 lists the 15 states and the total linear right-of-way acreage within each state that was billed for rent in 2007. If this acreage (373,000) were billed on just an annual basis, the total rent assessed using the previous Per Acre Rent Schedule and previous regulations would be $5.1 million. If this same acreage were assessed annual rent in 2007 using the Per Acre Rent Schedule of this final rule, the total rent would have been $11.5 million, an increase of $6.4 million. Changes in rental payments are due in large part to changes in land values underlying the rights-of-way that have occurred since the previous per acre rent schedule was implemented in 1987. According to the 2006 NASS annual report, between 1987 and 2002, U.S. per acre farm real estate values increased by 102 percent on average. Table 11 shows an increase in annual rent payments of 126 percent. However, if the $11.5 million in 2007 rent receipts were reduced by 11 percent (the percent change in the annual index factor (IPD-GDP) between 2002 and 2007) to $10.2 million, the increase in annual rent payments is 101 percent, or nearly identical to the change in land values in the United States from 1987 to 2002.

The 2007 NASS annual report shows an additional 79 percent increase in U.S. per acre farm real estate values from 2002 to 2007. We expect rent receipts to increase proportionately in 2011, which will be the year that the counties are re-assigned to their proper zone on the Per Acre Rent Schedule based upon 80 percent of their per acre land and building value from the 2007 NASS Census. As mentioned previously, the 2007 NASS Census data will not be available until June 2009 and will not be used to re-assign the counties to their appropriate rent zone until 2011.

Table 12 provides the percent change in land values and the percent change in rent receipts for the 15 counties having over 5,000 billed acres in rights-of-way, as of 2007. Taken together, these 15 counties account for over 53 percent of all right-of-way acres billed by the BLM in 2007, and over 55 percent of the rent collected for 2007. San Bernardino County, California (see Table 12), is a good example of how land values in some counties have risen dramatically in the last 20 years. This southern California county had 24,822 acres of public land encumbered by authorized right-of-way facilities that were billed for rent in 2007 using the previous rent schedule. The previous schedule was based on a 1987 land value of $200 per acre for San Bernardino County, meaning that these holdings were valued at a total of $5 million in 1987. Applying the IPD-GDP factor used in the previous schedule increased the value of this land to $7.1 million in 2002. The 2002 NASS land and building data lists San Bernardino County at $2,144 per acre, for a total value of $53.2 million. This data indicates that in this example the Federal Government was basing linear right-of-way rents on only 13.3 percent of the 2002 land value, largely due to the rapid increase in land values in southern California since 1987. Furthermore, the NASS annual reports show that between 2002 and 2007 farm real estate values have increased an average of 79 percent nationwide. A continued trend of rising real estate values would have led to further undervaluation by the previous schedule. As a result, had the BLM used the Per Acre Rent Schedule of this final rule to assess rent for linear right-of-way acres in San Bernardino County in FY 2007, rental receipts would have increased nearly 300 percent (see Table 12).

In contrast, land values in most counties in New Mexico and Wyoming, where the majority of linear rights-of-way are located, have increased at a much slower rate than the national average. Had the final rent schedule been in effect for 2007, most counties in these 2 states would have experienced only modest increases in rents due, or even decreases. For example, in San Juan County, New Mexico, where between 1987 and 2002 the value of land increased by over 200 percent, rents would have increased by 79 percent. In Sweetwater County, Wyoming, where between 1987 (per BLM's per acre rent schedule) and 2002 (per the NASS Census data) land values have actually fallen, rents would have been almost flat, decreasing by 7 percent. These lower land values in New Mexico and Wyoming would result in only a 14 percent and a 55 percent increase, respectively, in the total rental receipts, statewide, for 2007 (as compared to a 286 percent increase for California and a 126 percent increase for all BLM states) when using the Per Acre Rent Schedule of this final rule as compared with the total rental receipts for 2007 when using the previous Per Acre Rent Schedule (see Table 11).

While the land values in certain counties in New Mexico and Wyoming increased modestly from 1987 to 2002, the land values in Clark County, Nevada, as shown in Table 12, increased dramatically (7,034 percent) during this time period. Much of this increase can be attributed to the tremendous growth rate and demand for undeveloped land in and surrounding Las Vegas, Nevada, the largest city in Clark County as well as the state of Nevada. In recognition of these higher land values in the Las Vegas area, a “unique zone” Per Acre Rent Schedule with 8 zones whose land values ranged from $4,000 to $75,000 per acre was established in 1987 under the 1987 regulations. The annual per acre rent values ranged from approximately $300 to $6,000 (in 2007). The BLM used the “unique zone” Per Acre Rent Schedule (see Section I Background of this preamble for additional information on the “unique zone” Per Acre Rent Schedule) to assess rent ($853,000 in 2007) for approximately 80 right-of-way grants in the Las Vegas area which were issued within the “unique zone” areas prior to 2002. In addition, another 225 rights-of-way were located within the Las Vegas “unique zone” area, but the BLM used the 1987 Per Acre Rent Schedule to determine annual rent for these rights-of-way in accordance with Washington Office Instruction Memorandum 2002-172. Had the BLM used the “unique zone” rates to determine rent for these 225 grants, an additional $2.4 million would have been collected in 2007 (based on an average annual rent payment of $10,663 for each of the 80 right-of-way grants subject to the “unique zone” rates in 2007). So instead of $51,676 in assessed rent for linear rights-of-way in Clark County for 2007, as shown in Table 12, a more appropriate figure for comparison purposes, using the “unique zone” rates for all 305 rights-of-way located within these high land value areas, would have been approximately $3.3 million. Under the Per Acre Rent Schedule of this final rule, that figure would have then decreased to $1.23 million, resulting in a 63 percent decrease in rental receipts, instead of the 2,273 percent increase as shown in Table 12. However, the actual percent increase in rent receipts in Clark County is only 46 percent when total receipts collected from the previous rent schedules ($904,142) are compared to what would have been collected using the Per Acre Rent Schedule of this final rule for 2007 ($1,304,400).

In summary, the final rule will increase rental revenues collected by the BLM and, conversely, increase costs to grant holders by approximately $6.4 million, based on 2007 billing data. The BLM assessed rent for rights-of-way on 373,000 acres of public land in 2007 (see Table 11). If this acreage had been billed only on an annual basis, the BLM would have assessed rent in the amount of $5,088,433 using the previous Per Acre Rent Schedule. Under the final rule, the BLM would have assessed rent in the amount of $11,512,757 (with no phase-in provision), or an increase of $6,424,325. These increases in rental receipts would have reasonably reflected the increase in land values that also occurred from 1987 to 2002. Likewise, the BLM estimates that the maximum amount that rental receipts will increase under the final rule is an average of $14.7 million each year (plus annual IPD GDP adjustments) when all authorizations and rent payment periods are considered (using 2007 as a sample year). This amount ($14.7 million) is based on average estimated rental receipts of $21 million per year over a 5-year period (2009-2013), less the $6.3 million in actual rental receipts collected in 2007 for all authorizations and rent payment periods billed ($21 million−$6.3 million = $14.7 million).

In addition to revising the previous Per Acre Rent Schedule, the final rule makes minor revisions to parts 2800 and 2880 of the previous regulations so that the final regulations are consistent with the statutory rent schedule changes discussed above. There are also a number of minor corrections and changes made in the final rule that are not directly related to the rent schedule. These changes are limited in scope and address trespass penalties, new rent payment options (including how one-time payments are to be determined for perpetual right-of-way grants and easements), annual rental payments, limited phase-in provisions for all holders, and reimbursements of monitoring costs and processing fees for leases and permits issued under 43 CFR part 2920. These latter items correct some errors in the previous regulations and clarify other regulations. All these changes are within the scope of the BLM's existing authority to administer rights-of-way under the FLPMA and the MLA and will have only minor economic impact.

b. This rule will not create serious inconsistencies or otherwise interfere with other agencies' actions. Since 1987, the BLM and the FS have both used the same Per Acre Rent Schedule to establish rent for linear right-of-way facilities located on public land and NFS land. The Act requires both the BLM and the FS to make the same revisions to the 1987 per acre rental fee zone value schedule by State, county, and type of linear right-of-way use to reflect current values of land in each zone. The BLM has worked closely with the FS in assuring the maximum consistency possible between the policies of the two agencies with respect to approving and administering linear rights-of-way, including the assessment of rent for these facilities. The FS plans to adopt the BLM Per Acre Rent Schedule.

c. The final rule will not materially affect entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients. This rule does increase rental fees, but only in amounts necessary to ensure compliance with the Act. The increases in rental fees will not be retroactive, but they will apply to new authorizations and to existing grant-holders who hold grants subject to rent at the grant's next rental due payment period. Flexible rent payment options and phase-in provisions will significantly reduce any impact that increased rental fees may have on grant-holders. Rent exemption and reduction provisions found in the current rule still apply. However, the final rule makes it clear that if an entity is found to be in trespass on public land, the rental exemptions and/or waiver of rent provisions will not apply to settlement of the trespass action.

d. The final rule will not raise novel legal or policy issues. The Act requires the BLM and the FS to update and revise previous per acre rent schedules to reflect current land values. Both agencies previously collected rental fees for linear rights-of-way using a per acre rent schedule established in 1987. The Act does not specify how to revise the land values or what data should be used. The final rule uses average per acre land and building values published every 5 years in the NASS Census. Other Federal and state agencies regularly use the NASS Census data when necessary to use average per acre land values for a particular State or county. Congress, likewise, endorsed the use of this data for rental determination purposes when it passed the “National Forest Organizational Camp Fee Improvement Act of 2003” (Public Law 108-7) (16 U.S.C. 6231). The BLM believes that the rental fees arrived at by the use of the NASS Census data is the most efficient and reasonable method of revising the previous Per Acre Rent Schedule, as well as meeting other mandates under FLPMA and the MLA that require that the U.S. receive fair market value of the use of the public lands.

Clarity of the Regulations

Executive Order 12866 requires each agency to write regulations that are simple and easy to understand. In the proposed rule, we invited your comments on how to make these regulations easier to understand, including answers to questions such as the following:

1. Are the requirements in the proposed regulations clearly stated?

2. Do the proposed regulations contain technical language or jargon that interferes with their clarity?

3. Does the format of the proposed regulations (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce their clarity?

4. Would the regulations be easier to understand if they were divided into more (but shorter) sections? (A “section” appears in bold type and is preceded by the symbol “§ ” and a numbered heading, for example: § 2806.20 What is the rent for a linear right-of-way grant?).

5. Is the description of the proposed regulations in the SUPPLEMENTARY INFORMATION section of this preamble helpful in understanding the proposed regulations? How could this description be more helpful in making the proposed regulations easier to understand?

We received no specific comments in response to the above 5 questions. However, we received several comments suggesting that we clarify the language in proposed sections 2807.15 and 2886.15, which we have accomplished in this final rule. In addition, one commenter requested clarification of the meaning of the phrase “When no acceptable market information is available” as used in proposed section 2806.25(d) and asked whether the lack of acceptable market data would allow the BLM to utilize a process to determine per acre land values similar to that used in lower value Federal land acquisitions known as “waiver valuations.” We provided that clarification in the preamble discussion to that section.

National Environmental Policy Act (NEPA)

The BLM has determined that this final rule, which primarily updates the previous linear rent schedule, is of an administrative, financial, and/or procedural nature whose environmental effects are too broad, speculative, or conjectural to lend themselves to meaningful analysis and will later be subject to the NEPA process, either collectively or case-by-case. Therefore, it is categorically excluded from environmental review under section 102(2)(C) of NEPA, pursuant to 516 Departmental Manual (DM), Chapter 2, Appendix 1, Number 1.10. In addition, the final rule does not meet any of the 12 criteria for extraordinary circumstances listed in 516 DM, Chapter 2, Appendix 2. Pursuant to Council on Environmental Quality regulations (40 CFR 1508.4) and the environmental policies and procedures of the Department of the Interior, the term “categorical exclusions” means a category of actions which do not individually or cumulatively have a significant effect on the human environment and that have been found to have no such effect in procedures adopted by a Federal agency and for which neither an environmental assessment nor an environmental impact statement is required.

We have also examined this rule to determine whether it requires consultation under Section 7 of the Endangered Species Act (ESA) (16 U.S.C. 1532). The ESA requires an agency to consult with the Fish and Wildlife Service or National Marine Fisheries Service to insure that any action it authorizes, funds, or carries out is not likely to jeopardize the continued existence of any listed species or result in the destruction or adverse modification of critical habitat.

We have determined that this rule will have no effect on listed or proposed species or on designated or proposed critical habitat under the ESA and therefore consultation under section 7 of the ESA is not required. Our determination is based in part on the fact that nothing in the rule changes existing processes and procedures that ensure the protection of listed or proposed species or designated or proposed critical habitat. Existing processes and procedures have been in effect since BLM promulgated right-of-way regulations in 1979-80. Any further compliance with the ESA will occur when an application for a right-of-way is filed with the BLM.

Regulatory Flexibility Act

Congress enacted the Regulatory Flexibility Act of 1980 (RFA), as amended, 5 U.S.C. 601-612, to ensure that Government regulations do not unnecessarily or disproportionately burden small entities. The RFA requires a regulatory flexibility analysis if a rule would have a significant economic impact, either detrimental or beneficial, on a substantial number of small entities. The BLM has estimated that approximately 18 percent of all applicants and grantees (approximately 5 percent of MLA applicants and grantees and approximately 23 percent of FLPMA applicants and grantees) may qualify as small entities. As discussed above, rental fees, in most cases, are not a significant cost for the industries affected, including small entities.

Table 13 shows the small business size standards for industries that may be affected by these rules. This table lists industry size standards for eligibility for Small Business Administration (SBA) programs from SBA regulations (see 13 CFR 121.201). The SBA size standards are typically stated either as the average number of employees, or the average annual receipts of a business concern. Standards are grouped using the North American Industrial Classification System 2002 (NAICS). This listing is based on descriptions from the U.S. Bureau of the Census 2002 NAICS codes and is not exhaustive.

The BLM does not officially track right-of-way costs, but grant holders in 2003 estimated that construction costs for pipeline facilities were between $300,000 (12″ pipeline) and $1.5 million per mile (36″ pipeline); construction costs for rocked logging roads were between $40,000/mile for a ridge top road to $150,000/mile for a full bench road or an average of $70,000/mile for a road through moderate terrain; and construction costs for electric distribution and transmission lines were between $24,000/mile (24kV distribution line) to $1 million/mile (500kV transmission line). Larger projects would typically require more land area to site than minor projects. Since rent is based on the number of acres that the right-of-way facility encumbers, larger projects would involve higher rental payments than would minor projects. However, compared to the cost of constructing a typical right-of-way facility, total rent and the rental fee increases under the final rule are relatively small (see 70 FR 21056 for further information on typical project costs).

Any of the industries listed in Table 13 may hold right-of-way grants with the BLM, under either FLPMA or MLA, as a part of their business practices. For example, bulk electric power transmission firms will use rights-of-way to distribute their electricity. Firms may be eligible for various SBA programs, but the size-limit is specific to each industry, and identified by the industry codes. The limit may be based on gross sales, the number of employees, or other factors. It is estimated that about 5.3 percent (or 1,416 of 26,711) of existing MLA grantees may be eligible for SBA programs and about 22.9 percent (or 14,280 of 62,358) of FLPMA grantees may be eligible for SBA programs (see 70 FR 21056). Whether they choose to join the SBA programs is strictly an individual firm's decision.

The proportion of grantees eligible for SBA programs indicates that there is an opportunity for small businesses in BLM's right-of-way program. However, the burden of increased rental fees will not have a significant economic impact on a substantial number of small entities or fall disproportionately on small businesses. Moreover, any entity that believes that it might be adversely affected by the rental fee increases to its FLPMA right-of-way grant may qualify for a waiver or reduction of rental fees under any of the provisions, including hardship, found at section 2806.15. Therefore, the BLM has determined under the RFA that this final rule does not have a significant economic impact on a substantial number of small entities.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

This rule is not a “major rule” as defined at 5 U.S.C. 804(2). This rule:

a. Does not have an annual effect on the economy of $100 million or more. See the Executive Order 12866 discussion above.

b. Will not result in major cost or price increases for consumers, industries, government agencies, or regions. As discussed above, when compared to the cost of constructing a right-of-way project, the rental fee increases contained in this rule are relatively small and therefore will not cause any major increase in costs or prices. In addition, any applicant or holder of a FLPMA authorization that believes that the rental fee increases will cause difficulty may benefit from the rent waiver or reduction provisions under section 2806.15, especially the hardship provision.

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. The rule should result in no change in any of the above factors. See the Executive Order 12866 discussion above regarding the economic effects of the rental fee increases. In general, the rental fee increases are small in comparison with the overall costs of constructing, maintaining, operating, and terminating large projects located within right-of-way areas. With the possible exception of MLA grants for pipelines, the projects located on right-of-way grants support domestic, not foreign, activities and do not involve products and services that are exported. The MLA pipelines may transport oil and gas and their related products destined for foreign markets, but the overall increase in rental fees, compared to the cost of, and profits from, running an oil and gas pipeline that would feed into a foreign market, is minimal.

Unfunded Mandates Reform Act

This rule does not impose an unfunded mandate on state, local, or tribal governments, in the aggregate, or the private sector, of $100 million or more per year; nor does this rule have a significant or unique effect on small governments. The rule imposes no requirements approaching $100 million annually on any of these entities. We have already shown, in the previous paragraphs of this section of the preamble, that this rule does not have effects approaching $100 million per year on the economy. Therefore, the BLM is not required to prepare a statement containing the information required by the Unfunded Mandates Reform Act at 2 U.S.C. 1532.

Executive Order 12630, Governmental Actions and Interference With Constitutionally Protected Property Rights (Takings)

The rule does not have takings implications and is not government action capable of interfering with constitutionally protected property rights. A right-of-way application is not private property. The BLM has discretion under the governing statutes to issue a grant or not (see 30 U.S.C. 185(a) and 43 U.S.C. 1761(a)). Once a grant is issued, a holder's continued use of the Federal land covered by the grant is conditioned upon compliance with various statutes, regulations, and terms and conditions, including the payment of rent. Consistent with FLPMA and the MLA, violation of the relevant statutes, regulations, or terms and conditions of the grant can result in termination of the grant before the end of the grant's term. The holder of a grant acknowledges this possibility in accepting a grant. Therefore, the Department of the Interior has determined that the rule will not cause a taking of private property or require further discussion of takings implications under this Executive Order.

Executive Order 13132, Federalism

The rule will not have a substantial direct effect on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the levels of government. Qualifying states and local governments continue to be exempt from paying rent for a right-of-way grant issued under FLPMA. Therefore, in accordance with Executive Order 13132, the BLM has determined that this rule does not have sufficient Federalism implications to warrant preparation of a Federalism Assessment.

Executive Order 12988, Civil Justice Reform

Under Executive Order 12988, we have determined that this rule will not unduly burden the judicial system and that it meets the requirements of sections 3(a) and 3(b)(2) of the Order.

Executive Order 13175, Consultation and Coordination With Indian Tribal Governments

In accordance with Executive Order 13175, we have found that this rule does not include policies that have tribal implications. The BLM may only issue right-of-way grants across public lands that it manages or across Federal lands held by two or more Federal agencies. Indian tribes have jurisdiction over their own lands, subject to the Secretary's trust responsibility. To our knowledge, no Indian tribes are involved in any multi-agency grants.

Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use

In accordance with Executive Order 13211, the BLM has determined that the final rule is not a significant energy action. The rule is not a significant regulatory action under Executive Order 12866 and is not likely to have a significant effect on energy supply, distribution or use, including a shortfall in supply or price increase. In addition, the rule has not been designated as a significant energy action by the Chief of the Office of Information and Regulatory Affairs. However, since the final rent schedule is based on average per acre land values which have generally increased over the past 20 years, rental receipts are expected to increase in a like proportion, but still remain a minor component of overall costs and/or rates. In addition, the rule preserves existing rental exemption and waiver provisions for holders of FLPMA authorizations, provides an initial phase-in period to all holders, and provides more flexible rent payment options that were lacking in the previous regulation.

Executive Order 13352, Facilitation of Cooperative Conservation

In accordance with Executive Order 13352, the BLM has determined that this rule does not impede facilitating cooperative conservation; takes appropriate account of and considers the interests of persons with ownership or other legally recognized interests in land or other natural resources; properly accommodates local participation in the Federal decision-making process; and provides that the programs, projects, and activities are consistent with protecting public health and safety. This rule does not change any provision of the BLM's previous right-of-way rule which facilitates cooperative conservation in the authorization and administration of right-of-way facilities on public lands. The rule maintains all alternatives for maximum protection of right-of-way facilities when the land encumbered by the facilities is proposed for transfer out of Federal ownership. The grant holder will also have the opportunity to negotiate new terms and conditions with the new land owner, if the holder so desires. The rule does not reduce or eliminate any current provision that requires the BLM to coordinate and consult with other affected and/or interested parties in the granting or administering of right-of-way facilities on public land, including the requirements that the BLM places on right-of-way holders to protect public health and safety, as well as public resources and environmental quality.

Paperwork Reduction Act

The Office of Management and Budget has approved the information collection requirements in the final rule under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq., and has assigned clearance number 1004-0189, which expires on November 30, 2008.

Authors

The principal authors of this rule are Bil Weigand, BLM Idaho State Office, and Rick Stamm, BLM Washington Office, assisted by Ian Senio of BLM's Division of Regulatory Affairs, Washington Office, and Michael Hickey of the Office of the Solicitor.

List of Subjects

43 CFR Part 2800

• Communications
• Electric power
• Highways and roads
• Penalties
• Public lands and rights-of-way, and Reporting and recordkeeping requirements

43 CFR Part 2880

• Administrative practice and procedures
• Common carriers
• Pipelines
• Public lands rights-of-way, and Reporting and recordkeeping requirements

43 CFR Part 2920

• Penalties
• Public lands, and Reporting and recordkeeping requirements

Accordingly, for the reasons stated in the preamble and under the authorities identified below, the BLM amends 43 CFR parts 2800, 2880, and 2920 as set forth below:

PART 2800—RIGHTS-OF-WAY UNDER THE FEDERAL LAND POLICY MANAGEMENT ACT

1. The authority citation for part 2800 continues to read as follows:

Authority: 43 U.S.C. 1733, 1740, 1763, and 1764.

Subpart 2805—Terms and Conditions of Grants

2. Amend § 2805.11 by revising paragraph (b)(2) to read as follows:

3. Amend § 2805.14 by revising paragraph (f) to read as follows:

Subpart 2806—Rents

4. Amend § 2806.14 by redesignating the introductory text and paragraphs (a), (b), (b)(1), (b)(2), (c), and (d) as paragraphs (a) introductory text, (a)(1), (a)(2), (a)(2)(i), (a)(2)(ii), (a)(3), and (a)(4), respectively, and by adding a new paragraph (b) to read as follows:

5. Revise § 2806.20 to read as follows:

6. Redesignate §§ 2806.21, 2806.22, and 2806.23 as §§ 2806.22, 2806.23, and 2806.24, respectively, and add new § 2806.21 to read as follows:

7. Revise redesignated § 2806.22 to read as follows:

8. Revise redesignated § 2806.23 to read as follows:

9. Revise redesignated § 2806.24 to read as follows:

10. Add new §§ 2806.25 and 2806.26 to read as follows:

Subpart 2807—Grant Administration and Operation

11. Amend § 2807.15 by revising paragraph (b) and paragraph (c) to read as follows:

PART 2880—RIGHTS-OF-WAY UNDER THE MINERAL LEASING ACT

12. The authority citation for part 2880 continues to read as follows:

Authority: 30 U.S.C. 185 and 189.

Subpart 2885—Terms and Conditions of MLA Grants and TUPs

13. Amend § 2885.11 by revising the first sentence of paragraph (a) to read as follows:

14. Amend § 2885.12 by revising paragraph (e) to read as follows:

15. Revise § 2885.19 to read as follows:

16. Revise § 2885.20 to read as follows:

17. Revise § 2885.21 to read as follows:

18. Redesignate §§ 2885.22, 2885.23, and 2885.24 as §§ 2885.23, 2885.24, and 2885.25, respectively, and add new § 2885.22 to read as follows:

Subpart 2886—Operations On MLA Grants and TUPs

19. Amend § 2886.15 by revising paragraphs (b) and (c) to read as follows:

Subpart 2888—Trespass

20. Amend § 2888.10 by revising paragraph (c) to read as follows:

PART 2920—LEASES, PERMITS, AND EASEMENTS

21. The authority citation for part 2920 continues to read as follows:

Authority: 43 U.S.C. 1740.

Subpart 2920—Leases, Permits, and Easements: General Provisions

22. Amend § 2920.6(b) by revising the second sentence of paragraph (b) to read as follows:

23. Amend § 2920.8 by revising paragraph (b) to read as follows: