[Federal Register: December 30, 2004 (Volume 69, Number 250)]
[Proposed Rules]
[Page 78351-78355]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de04-23]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 1124
[Docket No. AO-368-A30; DA-01-08-PNW]
Milk in the Pacific Northwest Marketing Area; Decision on
Proposed Amendments to Marketing Agreement and to Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
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SUMMARY: This document proposes to adopt as a final rule, order
language contained in the interim final rule published in the Federal
Register on January 12, 2004, concerning pooling provisions of the
Pacific Northwest Federal milk order. This document also sets forth the
final decision of the Department and is subject to approval by
producers. Specifically, the final decision adopts an amendment that
would continue to amend the Producer milk provision which will
eliminate the ability to simultaneously pool the same milk on the order
and on a State-operated order that provides for marketwide pooling.
FOR FURTHER INFORMATION CONTACT: Gino M. Tosi, Marketing Specialist,
USDA/AMS/Dairy Programs, Order Formulation and Enforcement Branch, Room
2968, 1400 Independence Avenue, SW., STOP 0231, Washington, DC 20250-
0231, (202) 690-1366, e-mail address gino.tosi@usda.gov.
SUPPLEMENTARY INFORMATION: This administrative action is governed by
the provisions of sections 556 and 557 of Title 5 of the United States
Code and therefore is excluded from the requirements of Executive Order
12866.
These proposed amendments have been reviewed under Executive Order
12988, Civil Justice Reform. This proposed rule is not intended to have
a retroactive effect. If adopted, this proposed rule will not preempt
any state or local laws, regulations, or policies, unless they present
an irreconcilable conflict with this rule.
The Agricultural Marketing Agreement Act of 1937, as amended (7
U.S.C. 601-674), provides that administrative proceedings must be
exhausted before parties may file suit in court. Under Section
608c(15)(A) of the Act, any handler subject to an order may request
modification or exemption from such order by filing with the Secretary
a petition stating that the order, any provision of the order, or any
obligation imposed in connection with the order is not in accordance
with the law. A handler is afforded the opportunity for a hearing on
the petition. After a hearing, the Secretary would rule on the
petition. The Act provides that the district court of the United States
in any district in which the handler is an inhabitant, or has its
principal place of business, has jurisdiction in equity to review the
Secretary's ruling on the petition, provided a bill in equity is filed
not later than 20 days after the date of the entry of the ruling.
Regulatory Flexibility Act and Paperwork Reduction Act
In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.), the Agricultural Marketing Service has considered the economic
impact of this action on small entities and has certified that this
proposed rule will not have a significant economic impact on a
substantial number of small entities. For the purpose of the Regulatory
Flexibility Act, a dairy farm is considered a ``small business'' if it
has an annual gross revenue of less than $750,000, and a dairy products
manufacturer is a ``small business'' if it has fewer than 500
employees. For the purposes of determining which dairy farms are
``small businesses,'' the $750,000 per year criterion was used to
establish a production guideline of 500,000 pounds per month. Although
this guideline does not factor in additional monies that may be
received by dairy producers, it should be an inclusive standard for
most ``small'' dairy farmers. For purposes of determining a handler's
size, if the plant is part of a larger company operating multiple
plants that collectively exceed the 500-employee limit, the plant will
be considered a large business even if the local plant has fewer than
500 employees.
In the Pacific Northwest Federal milk order, 805 of the 1,164 dairy
producers (farmers), or about 69 percent, whose milk was pooled under
the Pacific Northwest Federal milk order at the time of the hearing
(April 2002), would meet the definition of small businesses. On the
processing side, 9 of the 20 milk plants associated with the Pacific
Northwest milk order during April 2002 would qualify as ``small
businesses,'' constituting about 45 percent of the total.
The adoption of the proposed pooling standard serves to revise
established criteria that determine the producer milk that has a
reasonable association with--and consistently serves the fluid needs
of--the Pacific Northwest milk marketing area and is not associated
with other marketwide pools concerning the same milk. Criteria for
pooling are established on the basis of performance levels that are
considered adequate to meet the Class I fluid needs and by doing so
determine those that are eligible to share in the revenue that arises
from the classified pricing of milk. Criteria for pooling are
established without regard to the size of any dairy industry
organization or entity. The established criteria are applied in an
identical fashion to both large and small businesses and do not have
any different economic impact on small
[[Page 78352]]
entities as opposed to large entities. Therefore, the proposed
amendment will not have a significant economic impact on a substantial
number of small entities.
A review of reporting requirements was completed under the
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was
determined that these proposed amendments would have no impact on
reporting, recordkeeping, or other compliance requirements because they
would remain identical to the current requirements. No new forms are
proposed and no additional reporting requirements would be necessary.
This notice does not require additional information collection that
requires clearance by the Office of Management and Budget (OMB) beyond
currently approved information collection. The primary sources of data
used to complete the forms are routinely used in most business
transactions. Forms require only a minimal amount of information which
can be supplied without data processing equipment or a trained
statistical staff. Thus, the information collection and reporting
burden is relatively small. Requiring the same reports for all handlers
does not significantly disadvantage any handler that is smaller than
the industry average.
Prior Documents in This Proceeding:
Notice of Hearing: Issued February 26, 2002; published March 4,
2002 (67 FR 9622).
Correction to Notice of Hearing: Issued March 14, 2002; published
March 19, 2002 (67 FR 12488)
Tentative Final Decision: Issued August 8, 2003; published August
18, 2003 (68 FR 49375).
Interim Final Rule: Issued January 5, 2004; published January 12,
2004 (69 FR 1654).
Preliminary Statement
A public hearing was held upon proposed amendments to the marketing
agreement and the order regulating the handling of milk in the Pacific
Northwest marketing area. The hearing was held, pursuant to the
provisions of the Agricultural Marketing Agreement Act of 1937, as
amended (7 U.S.C. 601-674), and the applicable rules of practice (7 CFR
part 900), at Salt Lake City, Utah, on April 16-19, 2002, pursuant to a
Notice of Hearing issued February 26, 2002; published March 4, 2002 (67
FR 9622).
Upon the basis of the evidence introduced at the hearing and the
record thereof, the Administrator, on August 8, 2003, issued a
Tentative Final Decision containing notice of the opportunity to file
written exceptions thereto.
The material issues, findings and conclusions, rulings, and general
findings of the Recommended Decision are hereby approved and adopted
and are set forth herein. The material issue on the record of the
hearing relate to:
1. Simultaneous pooling of milk on the order and on a State-
operated milk order providing for marketwide pooling.
Findings and Conclusions
The following findings and conclusions on the material issues are
based on evidence presented at the hearing and the record thereof:
1. Simultaneous Pooling on a Federal and State-Operated Milk Order
Two proposals, published in the hearing notice as Proposals 1 and
10, seeking to exclude the same milk from being simultaneously pooled
on either the Pacific Northwest or the Western orders and any State-
operated order which provides for marketwide pooling, should be adopted
on a permanent basis. The practice of pooling milk on a Federal order
and simultaneously pooling the same milk on a State-operated order has
come to be referred to as ``double dipping''. The Pacific Northwest
order does not currently prohibit milk to be simultaneously pooled on
the order and a State-operated order that provides for marketwide
pooling. Proposals 1 and 10 were offered by Northwest Dairy Association
(NDA), a cooperative association that markets the milk of their dairy-
farmer members in the Pacific Northwest and Western milk marketing
areas. The Western order was terminated on April 1, 2004 (69 FR 1958).
Accordingly, proposal 10, applicable to the Western order, is no longer
considered.
A witness appearing on behalf of NDA, testified that ``double
dipping'' not only creates disorderly conditions in California, it also
results in competitive inequities in Federal milk order areas. The NDA
witness explained that once minimal pool qualification standards are
met, milk pooled via this manner rarely is delivered to a Federal order
marketing area.
The NDA witness provided evidence indicating that in 2001, over
$4.5 million was diverted from the Western Order pool and the producer
blend price was reduced by an average of 10 cents per hundredweight
(cwt) through ``double dipping''. The witness was of the opinion that
milk pooled through ``double dipping'' provided no service or delivery
of milk from California yet the California milk receives the benefit of
the Western order's blend price.
The NDA witness testified that there was no evidence of ``double
dipping'' presently occurring on the Pacific Northwest order. However,
the witness was of the opinion that the Pacific Northwest order would
be targeted. The witness drew this conclusion on the premise that as
soon as the ``double dipping'' loophole is closed in other orders,
California milk will be pooled on orders that do not yet prohibit the
practice.
Two witnesses, one representing Gossner Foods, Inc. (Gossner), an
ultra high temperature (UHT) fluid milk processor located in Utah, and
the second, Utah Dairymen's Association (UDA), a cooperative located in
Utah, also provided testimony in support of eliminating ``double
dipping''. The witnesses concurred that by eliminating ``double
dipping'', producers pooled on the order would benefit financially and
enhance their ability to stay in business.
A witness representing River Valley Milk Producers Inc. (River
Valley), a dairy farmer cooperative located in Southwestern Idaho,
testified in support of eliminating ``double dipping''. The witness was
of the opinion that producers from outside of the marketing area should
meet pooling standards by demonstrating actual performance in supplying
the Western marketing area as a condition for pooling their milk and
receiving the blend price. However, the witness stressed that producer
milk which already participates in a State marketwide pool should be
prohibited from participating in a Federal order pool.
The Commissioner of the Utah Department of Agriculture and Food
testified in support of eliminating ``double dipping'' on the Western
milk order. The witness testified that increasing volumes of California
milk are diluting the Class I utilization of the market and lowering
the blend price paid to producers. The witness found this to be
patently unfair and stressed that ``double dipping'' lowers the income
of Utah dairy farmers.
Three dairy farmers from Utah testified in support of prohibiting
``double dipping''. These witnesses stated that ``double dipping'' on
the Western order has had a significant negative impact on their pay
prices. They maintained that it is unfair and wrong for dairy farmers
to have their milk price reduced as a result of California milk being
pooled on the order. One dairy farmer witness also added that the loose
pooling provisions of the Western Order have resulted in unwarranted
financial gain to those who
[[Page 78353]]
do not supply the Class I milk market of the Western marketing area.
This witness indicated that this contributed to the financial ruin of a
quarter of Western Order dairy farmers over the past 4 years.
There was no direct opposition to eliminating or preventing
``double dipping''. However, a witness testifying on behalf of the
Dairy Farmers of America (DFA), a dairy farmer cooperative that markets
the milk of their members in the Pacific Northwest and in most other
Federal milk orders offered their own proposals. These proposals were
published in the hearing notice as Proposals 2, 3, 4, 5, 6, 7, 8, and
9, and are offered, said the witness, to address broader pooling
standards and concerns rather than focusing on the single pooling issue
of ``double dipping'.
For nearly 70 years, the Federal Government has operated the milk
marketing order program. The law authorizing the use of milk marketing
orders, the Agricultural Marketing Agreement Act of 1937 (AMAA), as
amended, provides authority for milk marketing orders as an instrument
which dairy farmers may voluntarily opt to use to achieve objectives
consistent with the AMAA and that are in the public interest. An
objective of the AMAA, as it relates to milk, was the stabilization of
market conditions in the dairy industry. The declaration of the AMAA is
specific: ``The disruption of the orderly exchange of commodities in
interstate commerce impairs the purchasing power of farmers and
destroys the value of agricultural assets which support the national
credit structure and that these conditions affect transactions in
agricultural commodities with a national public interest, and burden
and obstruct the normal channels of interstate commerce.''
The AMAA provides authority for employing several methods to
achieve more stable marketing conditions. Among these is classified
pricing which entails pricing milk according to its use by charging
processors differing prices on the basis of form and use. In addition,
the AMAA provides for specifying when and how processors are to account
for and make payments to dairy farmers. Plus, the AMAA requires that
milk prices established by an order be uniform to all processors and
that the price charged can be adjusted by, among other things, the
location at which milk is delivered by producers (section 608c(5)).
As these features and constraints provided for in the AMAA were
employed in establishing prices under Federal milk orders, some
important market stabilization goals were achieved. The most often
recognized goal was the near elimination of ruinous pricing practices
of handlers competing with each other on the basis of the price they
paid dairy farmers for milk and in price concessions made by dairy
farmers. The need for processors to compete with each other on the
price they paid for milk was significantly reduced because all
processors are charged the same minimum amount for milk, and processors
had assurance that their competitors were paying the same value-
adjusted minimum price.
The AMAA also authorizes the establishment of uniform prices to
producers as a method to achieve stable marketing conditions.
Marketwide pooling has been adopted in all Federal orders because of
its superior features of providing equity to both processors and
producers, thereby helping to prevent disorderly marketing conditions.
A marketwide pool, using the mechanism of a producer settlement fund to
equalize on the use-value of milk pooled on an order, meets that
objective of the AMAA of ensuring uniform prices to producers supplying
a market.
The California State milk order program clearly has objectives
similar to those of the AMAA. Exhibits presented at the hearing
indicate that the California State order program has a long history in
the development and evolution of a classified pricing plan and in
providing equity in pricing to handlers and producers. Important as
classified pricing has been in setting minimum prices, the issue of
equitable returns to producers for milk could not be satisfied by only
the use of a classified pricing plan. Some California plants had higher
Class I fluid milk use than did others and some plants processed little
or no fluid milk products. As with the Federal order system, producers
who were fortunate enough to be located nearer Class I processors had
been receiving a much larger return for their milk than producers
shipping to plants with lower Class I use or to plants whose main
business was the manufacturing of dairy products. Over time, disparate
price differences grew between producers located in the same production
area of the state which, in turn, led to disorderly marketing
conditions and practices. These included producers who became
increasingly willing to make price concessions with handlers by
accepting lower prices and in paying higher charges for services such
as hauling. Contracts between producers and handlers were the norm, but
the contracts were not long-term (rarely more than a single month) and
could not provide a stable marketing relationship from which the dairy
farmers could plan their operations.
In 1967, the California State legislature passed and enacted the
Gonsalves Milk Pooling Act. The law provided the authority for the
California Agriculture Secretary to develop and implement a pooling
plan, which was implemented in 1968. The California pooling plan
provides for the operation of a State-wide pool for all milk that is
produced in the State and delivered to California pool plants. It uses
an equalization fund that equalizes prices among all handlers and sets
minimum prices to be paid to all producers pooled on the State order.
While the pooling plan details vary somewhat from pooling details under
the Federal order program, the California pooling objectives are
basically identical to those of the Federal program.
It is clear from this review of the Federal and California State
programs that the orderly marketing of milk is intended in both
systems. Both plans provide a stable marketing relationship between
handlers and dairy farmers and both serve the public interest. It would
be incorrect to conclude that the Federal and California milk order
programs have differing purposes when the means, mechanisms, and goals
are so nearly identical. In fact, the Federal order program has
precedent in recognizing that the California State milk order program
has marketwide pooling. Under milk order provisions in effect prior to
milk order reform, and under Sec. 1000.76(c), a provision currently
applicable to all Federal milk marketing orders, the Department has
consistently recognized California as a State government program with
marketwide pooling.
Since the 1960's the Federal milk order program recognized the harm
and disorder that resulted to both producers and handlers when the same
milk of a producer was simultaneously pooled on more than one Federal
order. When this occurs, producers do not receive uniform minimum
prices, and handlers receive unfair competitive advantages. The need to
prevent ``double pooling'' became critically important as distribution
areas expanded and orders merged. The issue of California milk, already
pooled under its State-operated program and able to simultaneously be
pooled under a Federal order, has essentially the same undesirable
outcomes that Federal orders once experienced and subsequently
corrected. It is clear that the Pacific Northwest order should be
amended to prevent the ability of milk to be pooled
[[Page 78354]]
on more than one order when both orders employ marketwide pooling.
There are other State-operated milk order programs that provide for
marketwide pooling. For example, New York operates a milk order program
for the western region of that State. A key feature explaining why this
State-operated program has operated for years alongside the Federal
milk order program is the exclusion of milk from the State pool when
the same milk is already pooled under a Federal order. Because of the
impossibility of the same milk being pooled simultaneously, the Federal
order program has had no reason to specifically address ``double
dipping'' or ``double pooling'' issues, the disorderly marketing
conditions that arise from such practice, or the primacy of one
regulatory program over another. The other States with marketwide
pooling similarly do not double-pool Federal order milk.
The record supports that the Pacific Northwest order should be
similarly amended to preclude the ability to simultaneously pool the
same milk on the order if the same milk is already pooled on a State-
operated order that provides for marketwide pooling.
California milk should only be eligible for pooling on the Pacific
Northwest order when it is not pooled on the California State order and
when it meets the Pacific Northwest order's pooling standards. It is
the ability of milk from California to ``double dip'' that is a source
of disorderly marketing conditions and should be preempted in the case
of the Pacific Northwest order.
Proposal 1 offers a reasonable solution for prohibiting the same
milk to draw pool funds from Federal and State marketwide pools
simultaneously. It is consistent with the current prohibition against
the same milk pooling simultaneously in more than one Federal order
pool. Adoption of Proposal 1 will not establish any barrier to the
pooling of milk from any source that actually demonstrates performance
in supplying the Pacific Northwest market's Class I needs. Adoption of
Proposal 1 will specifically prohibit the practice of ``double
dipping'.
The amendatory language provided below had been modified by the
Department in the interim final rule but nevertheless accomplishes the
intent of Proposal 1. The amendment adopted in this final decision to
prohibit ``double dipping'' had been made in the order's Producer milk
definition. This change was made because milk marketing orders do not
regulate producers in their capacity as producers. Additionally, the
amendatory language adopted on a permanent basis is consistent with
that adopted in other milk orders where the practice of ``double
dipping'' has been eliminated.
Rulings on Proposed Findings and Conclusions
Briefs and proposed findings and conclusions were filed on behalf
of certain interested parties. These briefs, proposed findings and
conclusions and the evidence in the record were considered in making
the findings and conclusions set forth above. To the extent that the
suggested findings and conclusions filed by interested parties are
inconsistent with the findings and conclusions set forth herein, the
requests to make such findings or reach such conclusions are denied for
the reasons previously stated in this decision.
General Findings
The findings and determinations hereinafter set forth supplement
those that were made when the Pacific Northwest order was first issued.
The previous findings and determinations are hereby ratified and
confirmed, except where they may conflict with those set forth herein.
(a) The tentative marketing agreement and the order, as hereby
proposed to be amended, and all of the terms and conditions thereof,
will tend to effectuate the declared policy of the Act;
(b) The parity prices of milk as determined pursuant to section 2
of the Act are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in the marketing area, and the minimum
prices specified in the tentative marketing agreement and the order, as
hereby proposed to be amended, are such prices as will reflect the
aforesaid factors, insure a sufficient quantity of pure and wholesome
milk, and be in the public interest; and
(c) The tentative marketing agreement and the order, as hereby
proposed to be amended, will regulate the handling of milk in the same
manner as, and will be applicable only to persons in the respective
classes of industrial and commercial activity specified in, (a)
marketing agreement(s) upon which a hearing has been held.
Rulings on Exceptions
No exceptions to the tentative final decision were received.
Marketing Agreement and Order
Annexed hereto and made a part hereof are two documents, a
Marketing Agreement regulating the handling of milk, and an Order
amending the order regulating the handling of milk in the Pacific
Northwest marketing area. An interim amended order was approved by
producers and published in the Federal Register on January 12, 2004 (69
FR 1654), as an Interim Final Rule. Both of these documents have been
decided upon as the detailed and appropriate means of effectuating the
foregoing conclusions.
It is hereby ordered, that this entire decision and the two
documents annexed hereto be published in the Federal Register.
Determination of Producer Approval and Representative Period
February 2004 is hereby determined to be the representative period
for the purpose of ascertaining whether the issuance of the order, as
amended in the Interim Rule published in the Federal Register on
January 12, 2004 (69 FR 1654), regulating the handling of milk in the
Pacific Northwest marketing area is approved or favored by producers,
as defined under the terms of the order as amended and as hereby
proposed to be amended on a permanent basis who during such
representative period were engaged in the production of milk for sale
within the aforesaid marketing area.
List of Subjects in 7 CFR Part 1124
Milk marketing orders.
Dated: December 23, 2004.
A. J. Yates,
Administrator, Agricultural Marketing Service.
Order Amending the Order Regulating the Handling of Milk in the Pacific
Northwest Marketing Area(s)
This order shall not become effective unless and until the
requirements of Sec. 900.14 of the rules of practice and procedure
governing proceedings to formulate marketing agreements and marketing
orders have been met.
Findings and Determinations
The findings and determinations hereinafter set forth supplement
those that were made when the order was first issued and when it was
amended. The previous findings and determinations are hereby ratified
and confirmed, except where they may conflict with those set forth
herein.
(a) Findings. A public hearing was held upon the proposed amendment
to the tentative marketing agreement and to the order regulating the
handling of milk in the Pacific Northwest marketing area. The hearing
was held pursuant to the provisions of the Agricultural Marketing
Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the
[[Page 78355]]
applicable rules of practice and procedure (7 CFR part 900).
Upon the basis of the evidence introduced at such hearing and the
record thereof, it is found that:
(1) The said order as hereby amended, and all of the terms and
conditions thereof, will tend to effectuate the declared policy of the
Act;
(2) The parity prices of milk, as determined pursuant to Section 2
of the Act, are not reasonable in view of the price of feeds, available
supplies of feeds, and other economic conditions which affect market
supply and demand for milk in the aforesaid marketing area. The minimum
prices specified in the order as hereby amended are such prices as will
reflect the aforesaid factors, insure a sufficient quantity of pure and
wholesome milk, and be in the public interest; and
(3) The said order as hereby amended regulates the handling of milk
in the same manner as, and is applicable only to persons in the
respective classes of industrial or commercial activity specified in,
(a) marketing agreement(s) upon which a hearing has been held.
Order Relative to Handling
It is therefore ordered, that on and after the effective date
hereof, the handling of milk in the Pacific Northwest marketing area
shall be in conformity to and in compliance with the terms and
conditions of the order, as amended, and as hereby amended, as follows:
The provisions of the order amending the order contained in the
interim amendment of the order issued by the Administrator,
Agricultural Marketing Service, on January 5, 2004, and published in
the Federal Register on January 12, 2004 (69 FR 1654), shall be and are
the terms and provisions of this order.
[This marketing agreement will not appear in the Code of Federal
Regulations.]
Marketing Agreement Regulating the Handling of Milk in Pacific
Northwest Marketing Area
The parties hereto, in order to effectuate the declared policy
of the Act, and in accordance with the rules of practice and
procedure effective thereunder (7 CFR Part 900), desire to enter
into this marketing agreement and do hereby agree that the
provisions referred to in paragraph I hereof as augmented by the
provisions specified in paragraph II hereof, shall be and are the
provisions of this marketing agreement as if set out in full herein.
I. The findings and determinations, order relative to handling,
and the provisions of Sec. Sec. 1124.1 to 1124.86, all inclusive,
of the order regulating the handling of milk in the Pacific
Northwest marketing area (7 CFR part 1124 which is annexed hereto);
and
II. The following provisions: Record of milk handled and
authorization to correct typographical errors.
(a) Record of milk handled. The undersigned certifies that he/
she handled during the month of ------------ 2004, ------
hundredweight of milk covered by this marketing agreement.
(b) Authorization to correct typographical errors. The
undersigned hereby authorizes the Deputy Administrator, or Acting
Deputy Administrator, Dairy Programs, Agricultural Marketing
Service, to correct any typographical errors which may have been
made in this marketing agreement.
Effective date. This marketing agreement shall become effective
upon the execution of a counterpart hereof by the Secretary in
accordance with Section 900.14(a) of the aforesaid rules of practice
and procedure.
In Witness Whereof, The contracting handlers, acting under the
provisions of the Act, for the purposes and subject to the
limitations herein contained and not otherwise, have hereunto set
their respective hands and seals.
Signature
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By (Name)
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(Title)
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(Address)
(Seal)
Attest
[FR Doc. 04-28629 Filed 12-29-04; 8:45 am]
BILLING CODE 3410-02-P