[Federal Register Volume 68, Number 60 (Friday, March 28, 2003)]
[Rules and Regulations]
[Pages 15047-15050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7677]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AE84
Small Business Size Regulations; Petroleum Refiners
AGENCY: Small Business Administration (SBA).
ACTION: Final rule.
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SUMMARY: The U.S. Small Business Administration (SBA) is modifying the
small business size standard for petroleum refiners for purposes of
Federal government procurement. The modification consists of the
following: Increasing the capacity component of the standard from
75,000 barrels per day (bpd) to 125,000 barrels per calendar day
(bpcd); defining capacity in bpcd; and measuring a refiner's total
Operable Atmospheric Crude Oil Distillation Capacity. This is a better
definition of what size a refiner must be to qualify as a small refiner
for the Federal government's procurement of refined petroleum products.
SBA is not changing the 1,500 employee size standard for this industry.
DATES: This rule is effective April 28, 2003.
FOR FURTHER INFORMATION CONTACT: Carl J. Jordan, Office of Size
Standards, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION:
Introduction: SBA is modifying the small business size standard for
North American Industry Classification System (NAICS) 324110, Petroleum
Refineries, for purposes of the Federal Government's procurement of
refined petroleum products. The revised size standard replaces current
footnote 4 to SBA's Table of Small Business Size Standards, contained
in 13 CFR 121.201. The footnote will now read as follows:
NAICS code 324110--For purposes of Government procurement, the
petroleum refiner must be a concern that has no more than 1,500
employees nor more than 125,000 barrels per calendar day total
Operable Atmospheric Crude Oil Distillation capacity. Capacity
includes owned or leased facilities as well as facilities under a
processing agreement or an arrangement such as an exchange agreement
or a throughput. The total product to be delivered under the
contract must be at least 90 percent refined by the successful
bidder from either crude oil or bona fide feedstocks.
Background: On February 12, 2002, SBA proposed in the Federal
Register (67 FR 6437): (1) To increase the capacity component of the
standard from 75,000 bpd to 155,000 bpcd; (2) to clarify that the
capacity component is measured in bpcd as defined by the U.S.
Department of Energy, Energy Information Administration (EIA); and (3)
to clarify that the capacity component is a measure of a refiner's
total Operable Atmospheric Crude Oil Distillation Capacity, as used by
EIA. The proposed rule included the history of this small business size
standard, the reasons for the proposed changes, a description of how
SBA establishes and evaluates small business size standards, and
alternatives that SBA considered proposing.
Summary of Comments: SBA received 15 comments to the proposed rule,
which are discussed below. They were received from the following
organizations: one industry association, six small refiners, six-other-
than small refiners, one Federal agency, and a United States Senator.
The comments reflect no prevailing opinion about the level to which SBA
should increase the capacity component, nor even whether or not SBA
should increase it at all. Below SBA summarizes the four significant
issues raised by the comments and provides SBA's consideration of those
comments.
1. Whether SBA Should Retain Refiners' Capacity as a Component of the
Size Standard
Comments received: All commenters but one stated that capacity is a
valid and meaningful size measure for purposes of the Federal
government's procurement of refined petroleum products. One commenter
pointed out that other regulations, such as the Clean Air Act and the
Emergency Petroleum Allocation Act, define small refiners and small
refineries in terms of their capacity. Another commenter supported that
point by stating that it ``is always helpful to the public for Federal
agencies to clarify and standardize their definitions and measures.''
Another commenter stated that capacity is and has been the historical
basis for small business determinations in the refinery industry, and
believes that it is the best method for doing so.
SBA's position: SBA concurs with these commenters. Refining
capacity is a relevant measure for the petroleum refining industry.
Consistency with the historical size standard and with measurements
used by other Federal agencies such as EIA and the Environmental
Protection Agency (EPA) is important.
2. Whether SBA Should Replace ``Barrels Per Day'' With ``Barrels Per
Calendar Day''
Comments received: SBA received eight comments on this subject,
four of which support and four of which do not support the change of
term. Supporters favored the change as a useful standardization among
Federal government agencies. Opponents believed it could allow for
``gaming'' and permit other than small refiners to qualify as small by
reducing output, and that it relies too heavily on representations made
to EPA.
SBA's position: SBA does not agree that the use of ``barrels per
calendar day'' (bpcd) would necessarily lead to gaming. Bpcd measures a
refiner's present capacity to produce, not its actual production. It is
a static amount, that a refiner uses when it self-certifies that it is
small to a Federal procuring agency, which is generally when it submits
its initial offer including price (13 CFR 121.404). Since it could
change, it may or may not be the same as what it stated in its annual
certification to EIA. Nor is bpcd a measure of how much a refiner has
produced, but rather how much a refiner ``can process under usual
operating conditions * * * '' allowing for a number of limitations, as
stated in EIA's definition of ``Barrels Per Calendar Day.'' This term
is also consistent with the standard measure that EIA uses to rank U.S.
refiners by size, and that other agencies, such as EPA, use when
applicable to enforcement of their regulations.
Bpcd, which includes both the refiners' operating and idle
capacity, is an estimate (as are bpd and barrels per stream day),
taking into consideration anticipated downtime, etc. Further, EIA's
definition of ``Barrels Per Calendar Day'' takes into consideration, ``
* * * the environmental constraints associated with refinery
operations''
[[Page 15048]]
(see EIA's definition of ``Barrels per Calendar Day'' in the glossary
to Petroleum Supply Annual 2000, Vol. 1).
If a refiner believes that a successful bidder is not small when it
self-certifies as such, then that refiner, or any other interested
party, may file a size protest with the procuring agency's contracting
officer. Provisions and procedures for doing so are set forth in SBA's
Small Business Size Regulations, 13 CFR 121.1001-1010, ``Procedures for
Size Protests and Requests for Formal Size Determinations'' and the
Federal Acquisition Regulation (FAR) 48 CFR 19.302, ``Protesting a
small business representation.''
SBA believes that standardizing measurement units among Federal
agencies is an appropriate justification for this part of the rule,
because it is consistent with the type of information refiners furnish
EIA and that EIA reports. Additionally, the rule applies only to the
Federal government's procurement of refined petroleum products.
3. Whether SBA should increase the capacity component to 155,000 bpcd
Comments received: Eight commenters opposed SBA's proposed increase
to 155,000 bpcd. Three, including a national petroleum association,
opposed the increase to 155,000 bpcd, and suggested 125,000 bpcd as an
acceptable alternative because it would be sufficient to allow small
refiners to increase their capacity without affecting their small
refiner status. The association maintained that a 155,000 bpcd refiner
is not a small business, and that it is well above the level for
realizing economies of scale. In addition, noted the association, most
small refiners, under the current definition, are not disadvantaged
when competing in local and regional markets.
Four of the eight opposed any increase at all. The current size
standard is adequate, one argued, to allow expansion, mergers or
acquisition among existing small refiners. The commenter maintained
that there are economic benefits that accrue to the small refiner that
loses its eligibility as a small refiner by merger or acquisition.
Accordingly, such growth provides the economies of scale that were not
available to the small refiner and that will adequately compensate the
small refiner for its loss of small refiner status.
Commenters also had concerns, if SBA were to adopt the proposed
rule, with adding additional refiners to the existing universe of small
refiners. Since newly eligible refiners would be substantially larger
than currently small refiners, the adoption of the proposed rule could
adversely affect small refiners' ability to compete for Federal
government contracts and undermine their competitiveness. Some stated
that SBA's targeted 7.6 percent of domestic production capacity may not
be correct in today's economy, and that a smaller share for small
refiners may actually be more appropriate in today's competitive
environment. Some commenters were particularly concerned with the
possible effect on regional markets served by both small refiners and
those refineries below 75,000 bpcd that are affiliated with others, and
do not qualify as small refiners because of their total refiner
capacity.
Another commenter expressed concern that the proposed rule might
actually be detrimental to existing small refiners and result in less
fuel supply in one or more states, particularly because of the
inclusion of refiners that are significantly larger than the current
small refiners. The commenter is concerned that newly classified small
refiners would be located in geographic areas where there is now
significant small refiner participation. The commenter also questioned
SBA's targeted 7.6 percent share of domestic petroleum production.
Four commenters supported the increase to 155,000 bpcd as adequate
to meet the purposes of the proposed rule, and stated that size
standard should be no higher. A fifth, supporting an increase,
commented that SBA should increase the size standard more, to about
160,000 bpcd. In the proposed rule, SBA projected that there would be
no more than two refiners that would gain small refiner status if it
adopted the proposed rule. The commenter stated that, at 155,000 bpcd,
due to one refiner's increase in capacity that was not caused by
merger, acquisition, etc., there will be only one refiner with 1,500
employees or less that could qualify as a small refiner, not two. That
is, there would remain only one U.S. refiner with 1,500 employees or
less that would not qualify as a small refiner.
One of the five comments in support an increase in the size
standard noted that the reduced number of small refiners is due to
closures because small refiners could not compete with larger,
integrated refiners. Another stated that 155,000 bpd is consistent with
the EPA's definition of a small refiner and that this size standard
will restore small refiners' capacity to their historical levels.
155,000 bpd is below the average sized refiner, and allows for some
limited expansion by small refiners.
One refiner agreed with SBA that a size standard of 75,000 bpd is
too low. The refiner suggested eliminating the capacity requirement,
maintaining that it would be more far reaching than retaining a
capacity limit.
Commenters suggested other alternatives as well. One would qualify
a refiner as small if it has no more than 1,500 employees and/or no
refinery larger than 100,000 bpd. Because EPA has granted certain
compliance exemptions to refineries below 155,000 bpd and the
exemptions can run until 2010, the commenter also suggested that SBA
not increase the standard until the 2010 or when refineries have
complied, whichever occurs first.
Another commenter was not entirely opposed to the increase, but
offered an alternative--retain the 75,000 bpd capacity per refinery and
increase the limit to 155,000 bpd for the entire company. The refiner
also suggested including in the number of employees only those that are
employed in the refining activity of the refiner. This refiner
suggested eliminating the 1,500 employee size standard entirely, or
counting only those that are engaged in refining operations. The
commenter stated that the 1,500 employee size standard lacks meaning
when measuring a refiner's resources available for competing for
government contracts.
SBA's position: After evaluating all comments, SBA agrees that
increasing the capacity component to 155,000 bpcd would not provide the
best assistance for small refiners. SBA agrees with the position of the
commenters that recommended a smaller increase of 125,000 bpcd. SBA
accepts the position that refiners with 155,000 bpcd would be above the
level needed to realizing economies of scale that accrue to refiners of
that size and suffer no disadvantage when competing in local and
regional markets. Further, because SBA recognizes that most if not all
currently small refiners produce and market their products regionally,
adding significantly larger refineries owned by newly designated small
refiners to those regions could adversely affect small refiners'
ability to bid for and fulfill Federal government contracts as small
refiners. SBA accepts commenters' concerns that additional competition
from substantially larger refiners in their competitive areas might
adversely affect those refiners that are currently defined as small.
From EIA's Form EIA-820, ``Annual Refinery Report'' as of January 1,
2002, SBA determined that increasing the standard to 125,000 bpcd will
not characterize any refiners as small that are not small now.
Therefore, increasing the size standard to 125,000 bpcd will not by
itself increase the number of small refiners competing for Federal
[[Page 15049]]
government contracts. At that level, the small refiners' share of total
U.S. petroleum refining will not be restored to the 7.6 percent share
attained by the 1992 revision to the size standard. In its proposed
rule, SBA did not intend to present the attainment of a particular
small refiners' share as determinative of an appropriate size standard,
but rather as only a reference to prior Agency actions. The data on the
industry and the comments received on the proposed size standard taken
as a whole serve as the basis for SBA's final decision to adopt 125,000
bpcd as the size standard. Although increasing the size standard to
125,000 bpcd does not create additional small refiners, it provided a
significant increase in the size standard to allow current small
refiners to realize economies of scale through an expansion of their
operations or to merge with other small refiners.
SBA does not agree with the commenter that suggests more than one
capacity limit. SBA believes this approach would be overly complex as
well as a burdensome measure for Federal agencies to apply. Also, SBA
does not agree that employees should either be eliminated from the
standard or that only those employees in the refining industry be
counted. NAICS classifies petroleum refining as a manufacturing
industry, as did the Standard Industrial Classification system.
Consistent with section 3(a)(2) of the Small Business Act, SBA has
established size standards for all manufacturing concerns in terms of
number of employees. Further, to include only those employees involved
in refinery operations would conflict with SBA's Small Business Size
Regulations, 13 CFR 121.106, ``How does SBA calculate number of
employees?'' The regulation requires that all employees of the concern
be used to measure the size of a concern, including those of its
domestic and foreign affiliates, no matter how or where they are
employed.
SBA does not ``phase in'' size standards. This is because SBA's
size standards do not depend on whether or not a concern is small for
another agency's program, or on when it comes into compliance with
another agency's regulations. Some Federal agencies, such as EPA,
outside of their Federal government procurement activities, use small
business size standards mostly for regulatory enforcement. For
instance, under EPA's gasoline sulfur regulations at 40 CFR part 80, a
refiner is small if it had average crude capacity less than or equal to
155,000 bpcd for 1998. To delay applying a size standard for some
companies until they have complied with EPA's regulations, and not
delay applying it to others, is inconsistent with SBA's rules and
regulations. On a given Federal procurement, it does not treat all
bidders equitably. A further reason why delaying application of the
size standard until a refiner complies with environmental regulations
is not a factor is that a refiner's bpcd capacity takes into effect, as
noted above, ``* * * the environmental constraints associated with
refinery operations'' (see EIA's definition of ``Barrels per Calendar
Day'').
Small business size standards have their greatest incidence of
applicability in Federal procurement. This 125,000 bpcd size standard
relates only to the Federal government's procurement of refined
petroleum products, and refiners' participation in the program is
voluntary. Size standards for Federal procurement and for all Federal
programs apply to every concern in its industry, regardless of the
status of their compliance with rules and regulations that have
different purposes.
4. Whether SBA Should Incorporate ``Total Operable Atmospheric Crude
Oil Distillation Capacity'' into Its Small Business Definition
Comments received: Two commenters, an association and a refiner,
support the added language to standardize the measure within the
Federal government. Two other commenters, one a small refiner and the
other not, did not see the need for the added clarification. None of
the commenters, however, expressed a strong preference of one over the
other.
SBA's position: SBA believes that adding ``total Operable
Atmospheric Crude Oil Distillation Capacity'' does in fact add to the
specificity of the definition by distinguishing it from refiners'
``Downstream Charge Capacity.'' SBA's definition of a small refiner
should, where practical, use terms consistent with those of EIA to
avoid confusion among users of the definition. The phrase ``total
Operable Atmospheric Crude Oil Distillation Capacity'' therefore
clarifies and specifies the subject of measurement when determining a
refiner's small refiner status, because it does not include
``Downstream Charge Capacity.''
Compliance With Executive Orders 12866, 12988, and 13132, the
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork
Reduction Act (44 U.S.C. Ch. 35.)
The Office of Management and Budget (OMB) has determined that this
rule is a ``significant'' regulatory action for purposes of Executive
Order 12866. Size standards determine which businesses are eligible for
Federal small business programs. This is not a major rule under the
Congressional Review Act, 5 U.S.C. 800. For the purpose of the
Paperwork Reduction Act, 44 U.S.C. ch. 35, SBA has determined that this
rule would not impose new reporting or record keeping requirements,
other than those required of SBA. For purposes of Executive Order
13132, SBA has determined that this rule does not have any federalism
implications warranting the preparation of a Federalism Assessment. For
purposes of Executive Order 12988, SBA has determined that this rule is
drafted, to the extent practicable, in accordance with the standards
set forth in that order. Our Regulatory Impact Analysis follows.
Regulatory Impact Analysis
1. Is There a Need for This Regulatory Action?
SBA is chartered to aid and assist small businesses through a
variety of financial, procurement, business development, and advocacy
programs. To effectively assist intended beneficiaries of these
programs, SBA must establish distinct definitions of which businesses
are deemed small businesses. The Small Business Act (15 U.S.C. 632(a))
delegates to the SBA Administrator the responsibility for establishing
small business definitions. The Act also requires that small business
definitions vary to reflect industry differences. The supplementary
information to the proposed rule explained the approach SBA follows
when analyzing a size standard for a particular industry. Based on that
analysis and on the comments SBA received to the proposed rule, SBA
believes an increase is supportable, but to a 125,000 bpcd instead of
the proposed 155,000 bpcd.
2. What Are the Potential Benefits and Costs of This Regulatory Action?
The rule affects Federal government agencies purchasing refined
petroleum products and small refiners that compete to sell refined
petroleum products to the Federal government. Increasing the 75,000
bpcd size standard to 125,000 bpcd will enable small refiners to expand
their refining operations or to merge with other small refiners. They
can compete for larger Federal petroleum procurements set aside for
small businesses or for the 8(a) and HUBZone Empowerment Contracting
Programs, as well as those awarded through full and open competition
after application of the HUBZone or small disadvantaged
[[Page 15050]]
business price evaluation preference or adjustment. Federal agencies
will benefit from the higher size standards if more small refiners
compete for more set-aside petroleum procurements. This will increase
competition and lower the prices on set-aside petroleum procurements.
The higher size standard will also likely influence Federal agencies to
set aside more petroleum procurements. Price increases associated with
set-aside procurements will be minimal because set-asides must be
awarded at fair and reasonable prices. The increased size standard will
allow, and possibly encourage, small refiners to increase their
operational efficiencies without jeopardizing their small business
status. Currently small refiners will become more competitive and this
could result in lower prices to the Federal government and to private
sector customers.
The higher size standard may have distributional effects between
large and small refiners. The actual outcome of the gains and loses
between small and large refiners cannot be estimated with certainty.
Small refiners may obtain petroleum contracts from what would have been
awarded to refiners that are not small. Large refiners might lose some
Federal petroleum contracts to small refiners if Federal agencies
decide to set aside more petroleum procurements for small refiners. The
potential loss of contracts to large businesses would be limited to the
amount of petroleum that expanding small refiners were willing and able
to sell to the Federal government. Small nonmanufacturers can also
obtain additional petroleum contracts as a result of a higher petroleum
size standard. On set-aside petroleum procurements, a small
nonmanufacturer must supply the product of a small petroleum refiner.
With an effectively larger base of small refiners, nonmanufacturers
would have access to a larger supply of petroleum products from small
refiners. The potential gain in contracting opportunities for small
nonmanufacturers would be limited to the amount of petroleum the
expanded small refiners are willing and able to supply through a third
party as opposed to selling directly to the Federal government.
The revision to the current size standard for petroleum refineries
is consistent with SBA's statutory mandate to assist small business.
This regulatory action promotes the Administrator's objectives. One of
SBA's goals in support of the Administrator's objectives is to help
individual small businesses succeed through fair and equitable access
to capital and credit, government contracts, and management and
technical assistance. Reviewing and modifying size standards, when
appropriate, ensures that intended beneficiaries have access to small
business programs designed to assist them. Size standards do not
interfere with State, local, and tribal governments in the exercise of
their government functions. In a few cases, State and local governments
have voluntarily adopted SBA's size standards for their programs to
eliminate the need to establish an administrative mechanism to develop
their own size standards.
For purposes of the Regulatory Flexibility Act (RFA), SBA has
determined that this rule does not have a significant economic effect
on a substantial number of small entities. As stated in the
SUPPLEMENTARY INFORMATION section, SBA estimates that this rule will
create no additional small refiners. Accordingly, SBA does not believe
there will be significantly increased competition that could harm small
refiners. On the contrary, small refiners will be able to bid on and
perform more and larger Federal procurements using some of the same
business practices as the largest refiners (though on a smaller scale),
proportionate to their sizes. In addition, since Federal procurement
programs are voluntary, this rule will not impose any significant costs
on any small refiners participating in the Federal procurement of
petroleum programs. Further, the rule will not affect the amount of
refined petroleum purchased by the Federal government. Federal
government procurement dollars are expected to remain about the same.
In addition, since more small refiners will be able to share resources,
they will be eligible for more Federal procurement dollars.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs-business, Loan programs-business,
Reporting and recordkeeping requirements, Small businesses.
0
For the reasons stated in the preamble, SBA amends part 121 of title 13
of the Code of Federal Regulations as follows:
PART 121--SMALL BUSINESS SIZE REGUALTIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c), and
662(5); and sec. 304, Pub. L. 103-403,108 Stat. 4175, 4188.
0
2. In Sec. 121.201, revise footnote 4 at the end of the table titled
``Small Business Size Standards by NAICS industry'' to read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
FOOTNOTES
* * * * *
0
4. NAICS code 324110--For purposes of Government procurement, the
petroleum refiner must be a concern that has no more than 1,500
employees nor more than 125,000 barrels per calendar day total Operable
Atmospheric Crude Oil Distillation capacity. Capacity includes owned or
leased facilities as well as facilities under a processing agreement or
an arrangement such as an exchange agreement or a throughput. The total
product to be delivered under the contract must be at least 90 percent
refined by the successful bidder from either crude oil or bona fide
feedstocks.
* * * * *
Dated: February 5, 2003.
Hector V. Barreto,
Administrator.
[FR Doc. 03-7677 Filed 3-27-03; 8:45 am]
BILLING CODE 8025-01-P