Small Business Size Standards: Utilities, 77343-77351 [2013-30327]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 78, Number 246 (Monday, December 23, 2013)]
[Rules and Regulations]
[Pages 77343-77351]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30327]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG25


Small Business Size Standards: Utilities

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: The United States Small Business Administration (SBA) is 
revising the size standards for 13 industries in North American 
Industry Classification System (NAICS) Sector 22, Utilities. 
Specifically, SBA has increased receipts based size standards for three 
industries and changed the basis for measuring business size from 
megawatt hours to number of employees for the 10 electric power 
generation, transmission, and distribution industries. In addition, SBA 
is removing Footnote 1 from SBA's Table of Size Standards that applies 
to all of the NAICS codes in electric power generation, transmission, 
and distribution. As part of its ongoing comprehensive size standards 
review, SBA evaluated all megawatt hour and receipts based size 
standards for industries in NAICS Sector 22 to determine whether they 
should be retained or revised. SBA did not review the employee based 
size standard for Natural Gas Distribution, NAICS 221210, in this rule, 
but will review it in the near future with other employee based size 
standards.

DATES: This rule is effective January 22, 2014.

FOR FURTHER INFORMATION CONTACT: Dr. Jorge Laboy-Bruno, Economist, 
Office of Standards, by phone at (202) 205-6618 or email at 
sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance programs, SBA establishes small business size 
definitions (referred to as size standards) for private sector 
industries in the United States. SBA's existing size standards use two 
primary measures of business size--average annual receipts and number 
of employees. Financial assets, electric output and refining capacity 
are used as size measures for a few specialized industries. In 
addition, SBA's Small Business Investment Company (SBIC), 7(a), and 
Certified Development Company (CDC or 504) Loan Programs determine 
small business eligibility using either the industry based size 
standards or alternative tangible net worth and net income based size 
standards. At the start of the current comprehensive review of SBA's 
small business size standards, there were 41 different size standards 
levels, covering 1,141 NAICS industries and 18 sub-industry activities 
(i.e., ``exceptions'' in SBA's Table of Size Standards). Of these, 31 
were based on average annual receipts, seven based on number of 
employees, and three based on other measures. Presently, there are a 
total of 1,047 size standards, 533 of which are based on average annual 
receipts, 499 on number of employees, 10 on megawatt hours, and five on 
average assets.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy, in particular the changes 
in the Federal contracting marketplace and industry structure. SBA last 
conducted a comprehensive review of size standards during the late 
1970s and early 1980s. Since then, most reviews of size standards have 
been limited to a few specific industries in response to requests from 
the public and Federal agencies. SBA also makes periodic inflation 
adjustments to its monetary based size standards. The latest inflation 
adjustment to size standards was published in the Federal Register on 
July 18, 2008 (73 FR 41237).
    SBA recognizes that changes in industry structure and Federal 
marketplace since the last overall review have rendered existing size 
standards for some industries no longer supported by current data. 
Accordingly, in 2007, SBA began a comprehensive review of its size 
standards to determine whether existing size standards have supportable 
bases relative to the current data, and to revise them, where 
necessary.
    In addition, on September 27, 2010, the President of the United 
States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs 
Act directs SBA to conduct a detailed review of all size standards and 
to make appropriate adjustments to reflect market conditions. 
Specifically, the Jobs Act requires SBA to review at least one-third of 
all size standards during every 18-month period from the date of its 
enactment and review all size standards not less frequently than once 
every 5 years thereafter. Reviewing existing small business size 
standards and making appropriate adjustments based on current data is 
also consistent with Executive Order 13563 on improving regulation and 
regulatory review.
    SBA has chosen not to review all size standards at one time. 
Rather, it is reviewing the size standards for groups of related 
industries on a Sector by Sector basis.
    As part of SBA's comprehensive review of size standards, the Agency 
reviewed all electric power generation, transmission and distribution 
industries with electric output (megawatt hours) based size standards 
and three industries with receipts based size standards in NAICS Sector 
22, Utilities, to determine whether the existing size standards should 
be retained or revised. On July 19, 2012, SBA published a proposed rule 
in the Federal Register (77 FR 42441) seeking public comments on its 
proposal to revise the size standards for nine industries. In that 
rule, SBA did not review one industry, namely NAICS 221210, Natural Gas 
Distribution, with an employee based size standard which SBA will 
review at a later date together with other employee based size 
standards. The proposed rule was one of a series of rules that examines 
industries grouped by NAICS Sector.
    In conjunction with the comprehensive size standards review, SBA 
developed a ``Size Standards Methodology'' for developing, reviewing, 
and modifying size standards, when necessary. SBA has published the 
document on its Web site at www.sba.gov/size for public review and 
comment and also included it as a supporting document in the electronic 
docket of the July 19, 2012 proposed rule at www.regulations.gov.
    In evaluating an industry's size standard, SBA examines its 
characteristics (such as average firm size, startup costs and entry 
barriers, industry competition and distribution of firms by size), and 
the level and small business share of Federal contract dollars in that 
industry. SBA also examines the potential impact a size standard 
revision might have on its financial assistance programs and whether a 
business concern under a revised size standard would be dominant in its 
industry.
    To develop the proposed rule, SBA analyzed the characteristics of 
each industry in NAICS Sector 22 that has either a megawatt hour or a 
receipts based size standard, mostly using a special tabulation 
obtained from the U.S. Bureau of the Census based on its 2007 Economic 
Census (the latest available) (www.census.gov/econ/census07/). To 
evaluate the structure of the electric power generation, transmission, 
and distribution

[[Page 77344]]

industries, SBA also analyzed electric output data for investor-owned 
utilities and power marketers for 1974-2009, which it obtained from the 
U.S. Energy Information Agency (https://www.eia.gov/electricity/data/detail-data.html).
    To evaluate Federal market conditions, SBA used Federal Procurement 
Data System--Next Generation (FPDS-NG) data for fiscal years 2008 to 
2010 (https://www.fpds.gov/fpdsng_cms/) to evaluate the small business 
share of Federal contracts in each industry.
    To evaluate the impact of changes to size standards on its loan 
programs, SBA analyzed internal data on its 7(a) and 504 Loan Programs 
for fiscal years 2008 to 2010.
    SBA's ``Size Standards Methodology'' provides a detailed 
description of its analyses of various industry and program factors and 
data sources, and how the Agency uses the results to derive size 
standards. In the proposed rule, SBA detailed how it applied its ``Size 
Standards Methodology'' to review and modify, where necessary, the 
existing electric output based size standards for electric power 
generation, transmission and distribution industries and receipts based 
size standards for three industries in NAICS Sector 22. SBA sought 
comments from the public on a number of issues concerning its ``Size 
Standards Methodology,'' such as whether there are alternative 
methodologies that SBA should consider; whether there are alternative 
or additional factors or data sources that SBA should evaluate; whether 
SBA's approach to establishing small business size standards makes 
sense in the current economic environment; whether SBA's applications 
of anchor size standards are appropriate in the current economy; 
whether there are gaps in SBA's methodology because of the lack of 
comprehensive data; and whether there are other facts or issues that 
SBA should consider.
    SBA sought comments on its proposal to change an electric output 
based size standard of 4 million megawatt hours for electric power 
generation, transmission and distribution to an employee based size 
standard of 500 employees and to increase receipts based size standards 
for three industries in NAICS Sector 22. SBA also invited comments on 
its proposal to remove Footnote 1 from its table of size standards. 
Specifically, SBA requested comments on whether the size standards for 
those industries should be revised as proposed and sought feedback and 
suggestions on alternative size standards if the proposed size 
standards were not appropriate. SBA also invited comments on whether 
its proposed eight fixed levels for receipts based size standard levels 
are appropriate, and whether it should adopt a common size standard for 
all industries involved in electric power generation, transmission, and 
distribution.

Summary of Comments

    SBA received eight comments from individual businesses, trade 
associations, and non-profit electric cooperatives both in support of 
and in opposition to its proposed size standard changes in NAICS Sector 
22. All eight comments focused on SBA's proposal to change the size 
standard for electric power generation, transmission, and distribution 
industries from 4 million megawatt hours to 500 employees and to remove 
Footnote 1 from the size standards table. There were no comments 
concerning the three proposed increases to receipts based size 
standards. These comments are summarized below.
    The first commenter did not support any of the proposed increases 
in the size standards in NAICS Sector 22. The commenter interpreted the 
SBA's proposal to change the size standard for electric power 
generation, transmission, and distribution industries from 4 million 
megawatt hours to 500 employees as an increase. The commenter stated 
that at that level a business is no longer considered small and that it 
does not support the intent of small business programs. He further 
noted that with the increases in size standards, the banks will focus 
more on larger loans by ignoring small businesses the SBA's loan 
program is intended to help. The commenter, however, did not include 
any data or analysis to support his argument that this would be an 
increase to the size standard. In addition, under the tangible net 
worth and net income based alternative size standard implemented for 
SBA's 7(a) and 504 Loan Programs implemented under the Jobs Act, 
businesses much larger than the industry based size standards may now 
qualify for SBA's loans. Accordingly, SBA has not adjusted the proposed 
size standards changes based on this comment.
    The next commenter also did not support the proposed 500-employee 
size standard. The commenter argued that it is difficult to cover 
employee benefits and costs for small businesses with fewer than 50 
employees and that it would be much more difficult at 500 employees. He 
noted that at 500 employees a firm is a large business in the 
construction industry. The commenter did not provide any industry data 
or analysis supporting his or her argument. Moreover, the comment was 
directed to the size of a business in the construction industry, not 
for industries in NAICS Sector 22. Thus, SBA did not consider this 
comment in finalizing the proposed size standards in NAICS Sector 22.
    The third comment was on behalf of a non-profit trade association 
representing the non-profit, publicly owned electric utilities in the 
U.S. While the association supported SBA's effort to account for 
changes in the electric power industry, it opposed its proposal to 
change the size standard for electric power generation, transmission 
and distribution utilities from the 4 million megawatt hours (MWh) to 
500 employees. Among the three proposals SBA considered in the proposed 
rule, the association preferred the proposal to increase the size 
standard from 4 million megawatt hours to 8 million megawatt hours and 
retain Footnote 1 in the table of size standards. It also supported the 
proposed revisions to Footnote 1 and stated that the revised footnote 
removes the ambiguity about affiliates in determining the firm's 
primary industry and size and is sufficient for maintaining a MWh-based 
size standard for the electric power industry. The association noted 
further that it would support an employee based size standard rather 
than the hybrid option of adding an employee based size standard to the 
MhW-based size standard as, it stated, it would add unnecessary 
complexity in measuring firm size for electric utilities.
    The association contended that the MWh-based measure is clear and 
unambiguous and widely used throughout the industry and by other 
Federal agencies that regulate the electric power industry. It added 
that electric output is less impacted by regional variation and market 
structure and that electric production data are readily available from 
the EIA for SBA to assess the appropriateness of the size standard for 
the electric industry. The association argued that an employee-based 
size standard would cause confusion, particularly for its members, and 
be very difficult to apply it to publicly owned utilities. 
Specifically, the association expressed concerns that in situations 
where the electric utility is a unit of the municipal government, and 
is overseen either by a city council or an independent utility board, 
all city employees would be counted towards the employee based size 
standard, even if they are not all involved in the provision of 
electric services. The

[[Page 77345]]

association added that counting the number of employees involved in 
electric services would be equally difficult in instances where the 
city operates multiple utilities (such as electricity, water, gas, 
sewer, etc.) and where various agencies and departments are involved in 
one combined utility. It argued that if SBA decides to adopt the 
employee based size standard, only the employees (or only the portion 
of time allotted to the electric department when an employee is 
associated with multiple utilities) involved in the generation, 
transmission and distribution should be counted towards the employee 
threshold for publicly owned utilities. It also suggested that SBA 
should provide clear guidance on counting employees for publicly owned 
electric providers and firms engaged in multiple industries to 
determine whether or not they are a small business under the employee 
based size standard.
    SBA agrees that electric output is the commonly used measure of 
business size in the electric industry and is aware that it is used by 
several Federal agencies for their regulatory purposes. SBA believes 
that Federal agencies use electric output mainly because many of them 
use SBA's electric output based size standard for their programs. 
During both the interagency review of the proposed rule and the public 
comment period, SBA did not receive any comments from Federal agencies 
against SBA's proposal to change the size standard for electric 
utilities from megawatt hours to the number of employees. SBA is very 
familiar with electric production data from EIA, which the Agency used 
to evaluate the structure of the industry in the current and previous 
reviews of these size standards. There are, however, two problems of 
using electric output as the size measure. First, as explained in the 
proposed rule, in situations where firms are engaged in electric power 
generation, transmission and/or distribution and in other industries as 
well, electric output cannot account for their total size. Similarly, 
in instances where a company is in the electric power generation, 
transmission, and/or distribution industry and is affiliated with 
another entity in a different industry, electric output will fail to 
account accurately for their aggregate size. Second, under an electric 
output based size standard, without Footnote 1, a large firm with very 
limited involvement in electric power generation, transmission, and/or 
distribution can qualify as small. However, requiring that a firm's 
primary industry be electric power generation, transmission, and/or 
distribution for it to qualify as small under the electric output size 
standard, disqualifies many firms that are engaged in electric power 
generation, transmission, and/or distribution and other industries, 
when electric power is not their primary industry. This is especially 
true among firms involved in electric power generation using renewable 
sources (such as solar, wind, biomass, geothermal) as well as other 
industries, where power generation is generally not their primary 
industry. Preventing them from Federal small business assistance simply 
because power generation is not their primary activity is counter to 
the Administration's programs and policies to promote renewable energy 
production in the country. For these reasons, SBA is adopting the 
employee based size standard for all electric power generation, 
transmission and distribution industries.
    SBA does not agree with the association's suggestion that SBA 
should allow to count only the employees (or only the portion of time 
allotted to the electric department when an employee is associated with 
multiple utilities) involved in the generation, transmission and 
distribution towards the employee threshold for publicly owned 
utilities. In determining number of employees for size standards 
purposes, SBA counts a concern's total employees from all industries, 
not just the number of employees for each industry separately. This is 
true for all industries that currently have an employee based size 
standard and will also apply to electric power generation, transmission 
and distribution industries. SBA provides detailed guidance to 
determine the number of employees in 13 CFR 121.106.
    It also appears that the association is not aware that a business 
concern has to be operated for profit to qualify as small under the 
SBA's size regulations (see 13 CFR 121.105). Accordingly, because 
publicly owned utilities are not-for-profit entities, they will not 
qualify as small, even if they meet the SBA's size threshold.
    The next commenter applauded SBA's proposal to remove Footnote 1 
and use a common 500-employee size standard for the electric production 
and distribution industries. He stated that the 500-employee size 
standard is appropriate for the renewable industries as they have a 
wide range of companies, from very large companies to single-person 
entities. The commenter questioned why SBA did not adopt the proposed 
size standards for the new NAICS codes for renewable energy industries 
created under NAICS 2012 when the Agency adopted them, although the 
changes to NAICS codes were made prior to that date. SBA did not do so 
because when SBA published the proposed rule on July 19, 2012, its size 
standards were based on NAICS 2007; and when SBA published the interim 
final rule to adopt NAICS 2012 on August 20, 2012 (effective October 1, 
2012), the proposed rule was still open for comments and not finalized. 
SBA was, therefore, unable to adopt the proposed size standard for new 
NAICS codes for renewable energy effective October 1, 2012.
    The next comment was from a national association representing non-
profit rural electric cooperatives. The association supported the SBA's 
proposal to change the electric utility size standard from 4 million 
MWh to 500 employees for electric power generation and transmission 
industries, but it did not support applying the same 500-employee size 
standard to NAICS 221122, Electric Power Distribution. The commenter 
highlighted that the electric power industry has changed dramatically 
since 1974, when SBA first established a size standard for the 
industry. The electric power generation, transmission, and distribution 
industries, while functionally integrated, have evolved into stand-
alone industries, each with a unique production function. While 
electric distribution and generation industries are both very capital 
intensive, distribution is much more labor intensive than the 
generation industry. This is because, the association explained, 
distribution utilities not only build and maintain electric 
distribution lines and the associated easements; they also read meters, 
process billing/payments, interact with customers, and provide many 
customer service functions. Thus, it concluded that applying a common 
size standard across all industries of the utility sector will not 
adequately control for the unique characteristics of each industry.
    Based on its analysis of the electric output data for distribution 
utilities from EIA combined with revenues and employment data for firms 
in NAICS 221122, Electric Power Distribution, from the 2007 Economic 
Census, the association recommended a 1,000-employee size standard for 
electric distribution. Additionally, the association brought to SBA's 
attention that one of its member cooperatives, which currently 
distributes less than 4 million MWh annually and has more than 500 
employees, will lose its small utility designation under the 500-
employee size standard.

[[Page 77346]]

    SBA agrees with the association's comments and analysis that the 
electric power for size standards purposes the distribution industry 
need to be analyzed on its own rather than combining it with generation 
and transmission industries. As discussed elsewhere in this rule, SBA 
analyzed the 2007 Economic Census data for this industry using its size 
standards methodology to evaluate employee based size standards. The 
results of this analysis supported a 1,000-employee size standard for 
NAICS 221122, as recommended by the association.
    The next commenter applauded SBA's effort to update the size 
standards for NAICS Sector 22 and agreed with its proposal to change 
the size standard for electric industries from megawatts hours to 
number of employees. He also agreed with the removal of Footnote 1. 
However, the commenter expressed concerns about SBA's proposal to apply 
the same size 500-employee size standard to renewable energy industries 
that it proposed for other electric power generation, transmission and 
distribution industries. The commenter stated that SBA's proposal 
violates the requirement that the size standard vary from industry to 
industry to reflect differing characteristics of the various 
industries. He added that the proposed size standard will incorrectly 
enable large renewable energy companies to qualify as small, thereby 
compromising the intent of SBA's mission to help small businesses.
    The commenter recommended that SBA reevaluate NAICS 221119 
separately using data only for renewable energy industries (such as 
solar, wind, etc.) rather than combining it with other power generation 
(such as nuclear, hydroelectric, and fossil fuel), transmission, and 
distribution industries. He added that renewable energy industries are 
comprised of many smaller companies with much smaller capital 
requirements compared to hydroelectric, nuclear and fossil fuel power 
generation industries. Arguing that NAICS 221119 cannot be likened to 
manufacturing as other electric power generation industries, the 
commenter opposed applying the 500-employee manufacturing anchor size 
standard for renewable energy industries. He argued that a receipts 
based size standard would be more appropriate for renewable energy 
industries because solar and wind energy systems generally involve 
assembly and installations of component parts and are more akin to 
NAICS 237130 (Power and Communication Line and Related Structures 
Construction) with a receipts based size standard. However, the 
commenter did not specify the value for the receipts based size 
standard to use nor did he provide specific industry data showing the 
similarities between NAICS 221119 and NAICS 237130 to justify the same 
receipts based size standard for both industries. In response to the 
comment, SBA has reevaluated NAICS 221119 only using the data for that 
industry from the 2007 Economic Census.
    The same commenter also provided some data on industry and 
contracting factors for NAICS 221119, mostly pertaining to solar firms, 
in support of a receipts based size standard without suggesting a 
specific value for such a size standard. He opposed the proposed 500-
employee size standard, because, as he claimed, it would classify very 
large renewable energy companies as small businesses. However, the 
commenter did not indicate if a smaller employee based size standard 
would be more appropriate, but he did not argue against using number of 
employees.
    The next comment was from a solar industry association concerning 
the proposed size standard for NAICS 221119, Other Electric Power 
Generation. The association supported the SBA's proposal to change the 
current MWh-based size standard to an employee based or revenue based 
size standard. It stated that many companies in the solar industry sell 
power through power purchase agreements (PPA) and it might be difficult 
for them to accurately assess the total electric output for their 
fleet. In addition, it also supported the proposed elimination of 
Footnote 1. It added the requirement that a firm must be ``primarily 
engaged'' in the generation, transmission and/or distribution of 
electric energy for sale to be small might unfairly exclude solar 
companies that sell systems under PPA or lease.
    However, like the previous commenter, the association expressed 
concerns about SBA's proposal to apply the same size 500-employee size 
standard to NAICS 221119 that it proposed for other electric power 
generation, transmission and distribution industries. It argued that 
renewable industries (solar, wind, etc.) are very different from the 
traditional hydroelectric, fossil fuel and nuclear power generation 
industries. The association added that while these traditional 
industries are multi-billion dollar industries with highly centralized 
facilities, renewable industries in NAICS 221119 are made of up many 
small and widely disbursed facilities. As the previous commenter, it 
also recommended that SBA reevaluate NAICS 221119 as a separate 
industry and not apply the same size standard proposed for traditional 
power generation industries. SBA agrees, and the industry data seem to 
support, the renewable energy industry is distinct from traditional 
electric utilities and it should be analyzed separately. The 
association argued that there exist similarities between the 
construction trade industry and the solar industry in determining the 
size of a business, but did not provide any data supporting its 
argument.
    The last commenter representing the solar industry commented on the 
proposed size standard for NAICS 221119. The commenter opposed the 
employee-based size standard in support of the current megawatt based 
size standard. He also supported revising Footnote 1 by broadening the 
``primarily engaged'' requirement and clarifying the size determination 
method rather than changing the size standard. The commenter contended 
the proposed employee based size standard for power generation, 
including NAICS 221119, would drastically increase the number of firms 
that would qualify as small, many of which would not necessarily be 
experienced or capable of power generation. This would, as the 
commenter argued, cause small businesses currently engaged in power 
generation to lose work to other firms not currently engaged in power 
generation and increase the risk of non-performance. However, he did 
not provide any explanation or data to support these arguments.
    To increase small business participation, this commenter 
recommended revising Footnote 1 by replacing the requirement that a 
firm be ``primarily engaged'' in power generation with the requirement 
that the firm obtain at least 40 percent of revenue from power 
generation. SBA does not accept this recommendation for two reasons. 
First, the commenter did not provide any analytical basis for choosing 
the 40 percent figure; it seems arbitrary. Second, the 40 percent 
revenue requirement will still exclude many firms that are involved in 
power generation as well as other industries, where power generation 
revenue accounts for less than 40 percent of the firm's total revenue. 
This is especially true in the case of renewable energy industries. 
Thus, for the reasons as explained in the proposed rule and elsewhere 
in this final rule, SBA is adopting an employee based size standard for 
all electric power generation, transmission and distribution industries 
and removing Footnote 1.

[[Page 77347]]

    In response to the above comments, particularly the comments that 
the electric power distribution industry is different from the electric 
power generation industries and that the renewable energy industry 
(NAICS 221119) is different from the traditional electric power 
generation, transmission and distribution industries, SBA reanalyzed 
each of these industries separately. For this, SBA analyzed the 2007 
Economic Census data for electric power generation, transmission and 
distribution data using its size standards methodology for employee 
based size standards to calculate industry factors and employee based 
size standards for each of those industries. The size standards derived 
from this analysis are summarized in Table 1, Employee Based size 
Standards for Electric Utilities Industries, below.

                    Table 1--Employee Based Size Standards for Electric Utilities Industries
----------------------------------------------------------------------------------------------------------------
                                                                                                  Size standard
                NAICS code                                  U.S. industry title                    (number of
                                                                                                   employees)
----------------------------------------------------------------------------------------------------------------
221111....................................  Hydroelectric Power Generation....................               500
221112....................................  Fossil Fuel Power Generation......................               750
221113....................................  Nuclear Power Generation..........................               750
221119....................................  Other Electric Power Generation...................               250
221121....................................  Electric Bulk Power Transmission and Control......               500
221122....................................  Electric Power Distribution.......................             1,000
----------------------------------------------------------------------------------------------------------------

    When SBA published the proposed rule on NAICS Sector 22, the SBA's 
table of size standards was based on NAICS 2007. In the NAICS 2012 
updates, considering the recent growth of renewable power in the 
electric generation industries, the Office of Management and Budget 
(OMB) replaced NAICS 221119 (Other Electric Power Generation) with five 
new industries: namely NAICS 221114 (Solar Electric Power Generation), 
NAICS 221115 (Wind Electric Power Generation), NAICS 221116 (Geothermal 
Electric Power Generation), NAICS 221117 (Biomass Electric Power 
Generation), and NAICS 221118 (Other Electric Power Generation). OMB 
implemented NAICS 2012 beginning January 1, 2012 and SBA adopted it for 
its table of size standards beginning October 1, 2012.
    Although OMB required all Federal statistical agencies to use 2012 
NAICS effective January 1, 2012, data using the new classification are 
still not available. The 2012 Economic Census data collection is 
currently underway. SBA will be able to evaluate each renewable 
industry separately once it receives special tabulations from the 2012 
Economic Census.
    The 2007 Economic Census, which is the primary source of industry 
data for the current comprehensive size standards review, does not 
include data for each of these newly created industry codes under NAICS 
2012; they are all combined into NAICS 221119 under NAICS 2007. Thus, 
given the lack of data, SBA has decided to apply the result for NAICS 
221119 to each of those new NAICS codes. Additionally, SBA evaluated 
simple and weighted average number of employees and the Gini 
coefficient using the 2012 first quarter Quarterly Census of Employment 
and Wages (QCEW) data from the Bureau of Analysis for new NAICS codes 
221114, 221115, 221116, 221117. These results also supported the same 
250-employee size standard for each of these industries that SBA 
obtained for NAICS 221119 using the 2007 Economic Census data. 
Accordingly, SBA is adopting 250 employees as the size standard for 
NAICS 221114 to 221118.
    The commenters opposing the application of the 500-employe size 
standard for NAICS 221119 suggested a revenue based size standard for 
that industry. However, in view of rapid growth and increased 
completion and their potential impacts on costs and in turn on revenues 
in renewable energy industries, SBA believes that the number of 
employees is a better measure of business size for firms in those 
industries. Moreover, the employee measure has the same advantages as 
the revenue measure over the MWh measure. Thus, SBA is adopting the 
employee based size standards for NAICS 221114 to 221118.
    Since there were no comments against proposed increases to three 
receipts based size standards in NAICS Sector 22, SBA is adopting the 
increases as proposed.
    All comments to the proposed rule are available for public review 
at https://www.regulations.gov.

Conclusion

    Based on SBA's analyses of relevant industry and program data and 
the public comments it received on the proposed rule, SBA is changing 
the small business size standards for 10 industries in electric power 
generation, transmission, and distribution from megawatt hours to 
number of employees and increasing the receipts based size standards 
for three industries in North American Industry Classification System 
(NAICS) Sector 22, Utilities. In addition, SBA is removing Footnote 
 1 from SBA's Table of Size Standards that applied to all of 
the NAICS codes in electric power generation, transmission and 
distribution. Those industries and their proposed and adopted size 
standards are shown in Table 2, Summary of Proposed and Adopted Size 
Standard Revisions in NAICS Sector 22, below.

               Table 2--Summary of Proposed and Adopted Size Standard Revisions in NAICS Sector 22
----------------------------------------------------------------------------------------------------------------
                                                  Current size         Proposed size
    NAICS  code         U.S. industry title         standards        standards  (NAICS    Adopted size standards
                                                  (NAICS 2012)             2007)                (NAICS 2012)
----------------------------------------------------------------------------------------------------------------
221111............  Hydroelectric Power         4 million         500 employees.........  500 employees.
                     Generation.                 megawatt hours.
221112............  Fossil Fuel Electric Power  4 million         500 employees.........  750 employees.
                     Generation.                 megawatt hours.
221113............  Nuclear Electric Power      4 million         500 employees.........  750 employees.
                     Generation.                 megawatt hours.
221119............  Other Electric Power        ................  500 employees.........  ......................
                     Generation.
221114............  Solar Electric Power        4 million         ......................  250 employees.
                     Generation.                 megawatt hours.

[[Page 77348]]

 
221115............  Wind Electric Power         4 million         ......................  250 employees.
                     Generation.                 megawatt hours.
221116............  Geothermal Electric Power   4 million         ......................  250 employees.
                     Generation.                 megawatt hours.
221117............  Biomass Electric Power      4 million         ......................  250 employees.
                     Generation.                 megawatt hours.
221118............  Other Electric Power        4 million         ......................  250 employees.
                     Generation.                 megawatt hours.
221121............  Electric Bulk Power         4 million         500 employees.........  500 employees.
                     Transmission and Control.   megawatt hours.
221122............  Electric Power              4 million         500 employees.........  1,000 employees.
                     Distribution.               megawatt hours.
221310............  Water Supply and            $7.0 million....  $25.5 million.........  $25.5 million.
                     Irrigation Systems.
221320............  Sewage Treatment            $7.0 million....  $19.0 million.........  $19.0 million.
                     Facilities.
221330............  Steam and Air-Conditioning  $12.5 million...  $14.0 million.........  $14.0 million.
                     Supply.
----------------------------------------------------------------------------------------------------------------

    SBA did not review the 500-employee size standard for Natural Gas 
Distribution, NAICS Code 221210. SBA will retain that size standard 
until the Agency reviews it with other employee based size standards.

Compliance With Executive Orders 12866, 13563, 12988 and 13132, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
final rule is not a ``significant regulatory action'' for purposes of 
Executive Order 12866. To help explain the need of this rule and the 
rule's potential benefits and costs, SBA is providing below a Cost 
Benefit Analysis. This is also not a ``major'' rule, under the 
Congressional Review Act, 5 U.S.C. 801, et seq.

Cost Benefit Analysis

1. Is there a need for the regulatory action?
    SBA believes that the revised size standards for a number of 
industries in NAICS Sector 22, Utilities, will better reflect the 
economic characteristics of small businesses and the Federal government 
marketplace in those industries. SBA's mission is to aid and assist 
small businesses through a variety of financial, procurement, business 
development and advocacy programs. To assist the 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 SBA's Administrator the responsibility for 
establishing small business definitions. The Act also requires that 
small business definitions vary to reflect industry differences. The 
recently enacted Small Business Jobs Act also requires SBA to review 
all size standards and make necessary adjustments to reflect market 
conditions. The supplementary information sections of the proposed rule 
and this final rule explains SBA's methodology for analyzing a size 
standard for a particular industry.
2. What are the potential benefits and costs of this regulatory action?
    The most significant benefit to businesses obtaining small business 
status because of this rule is gaining eligibility for Federal small 
business assistance programs. These include SBA's financial assistance 
programs, economic injury disaster loans, and Federal procurement 
programs intended for small businesses. Federal procurement programs 
provide targeted opportunities for small businesses under SBA's 
business development programs, such as 8(a), Small Disadvantaged 
Businesses (SDB), small businesses located in Historically 
Underutilized Business Zones (HUBZones), women-owned small businesses 
(WOSB), and service-disabled veteran-owned small business concerns 
(SDVO SBC). Federal agencies may also use SBA size standards for a 
variety of other regulatory and program purposes. These programs assist 
small businesses to become more knowledgeable, stable, and competitive. 
In the 10 industries for which SBA is changing the size standard from 
MWh to number of employees, SBA estimates that about 300 additional 
firms will obtain small business status and become eligible for these 
programs. Similarly, in the three industries for which SBA is 
increasing the receipts based size standard, about 100 firms, not small 
in the current size standard, will gain small business status. That 
represents approximately 8 percent of the total number of firms that 
are classified as small under the current standards in all industries 
within NAICS Sector 22 that are covered in this final rule. This will 
increase the small business share of total industry receipts from 
approximately 7 percent under the current size standards to 17 percent.
    SBA estimates that firms gaining small business status under the 
revised size standards could receive Federal contracts totaling $25 
million to $30 million annually under SBA's small business Programs.
    Three groups will benefit from the revised size standards: (1) Some 
businesses that are above the current size standards will gain small 
business status under the revised size standards, thereby enabling them 
to participate in Federal small business assistance programs; (2) 
growing small businesses that are close to exceeding the current size 
standards will be able to retain their small business status under the 
revised size standards, thereby enabling them to continue their 
participation in the programs; and (3) Federal agencies will have a 
larger pool of small businesses from which to draw for their small 
business procurement programs.
    Under SBA's 7(a) Business and 504 Loan Programs, based on the 
fiscal years 2008 to 2010 data, SBA estimates that around 10 to 12 
additional loans totaling about $2 million to $3 million in Federal 
loan guarantees could be made to these newly defined small businesses 
under the proposed size standards. Increasing the size standards will 
likely result in an increase in small business guaranteed loans to 
businesses in these industries, but it would be impractical to try to 
estimate exactly the extent of their number and total amount loaned. 
Under the Jobs Act, SBA can now guarantee substantially larger loans 
than in the past. In addition, the Jobs Act established an alternative 
size standard ($15 million in tangible net worth and $5 million in net 
income after income taxes) for business concerns that do not meet the 
size standards for their industry. Therefore, SBA finds it similarly 
difficult to quantify the impact of these proposed standards on its 
7(a) and 504 Loan Programs.
    Newly defined small businesses will also benefit from SBA's 
Economic Injury Disaster Loan (EIDL) Program. However,

[[Page 77349]]

since the benefit under this program is contingent on the occurrence 
and severity of a disaster, SBA cannot make a meaningful estimate of 
benefits for future disasters.
    To the extent that those 400 newly defined additional small firms 
could become active in Federal procurement programs under the revised 
size standards, may entail some additional administrative costs to the 
Federal Government associated with additional bidders for Federal small 
business procurement opportunities. In addition, there could be more 
firms seeking SBA guaranteed loans, more firms eligible for 
registration in the System of Award Management (SAM) Dynamic Small 
Business Search database and more firms seeking certification as 8(a) 
or HUBZone firms or those qualifying for small business, WOSB, SDVO 
SBC, and SDB status. Among those newly defined small businesses seeking 
SBA assistance, there could be some additional costs associated with 
compliance and verification of small business status and protests of 
small business status. These added costs will be minimal because 
mechanisms are already in place to handle these administrative 
requirements.
    Additionally, the costs to the Federal Government may be higher on 
some Federal contracts. With a greater number of businesses defined as 
small, Federal agencies may choose to set aside more contracts for 
competition among small businesses rather than using full and open 
competition. The movement from unrestricted to small business set-aside 
contracting might result in competition among fewer total bidders, 
although there will be more small businesses eligible to submit offers. 
However, the additional costs associated with fewer bidders, however, 
are expected to be minor since, as a matter of law, procurements may be 
set aside for small businesses or reserved for the 8(a), HUBZone, WOSB, 
or SDVO SBC Programs only if awards are expected to be made at fair and 
reasonable prices. In addition, higher costs may result if more full 
and open contracts are awarded to HUBZone businesses that receive price 
evaluation preferences.
    The revised size standards may have some distributional effects 
among large and small businesses. Although SBA cannot estimate with 
certainty the actual outcome of the gains and losses among small and 
large businesses, it can identify several probable impacts. There may 
be a transfer of some Federal contracts to small businesses from large 
businesses. Large businesses may have fewer Federal contract 
opportunities as Federal agencies decide to set aside more Federal 
contracts for small businesses. In addition, some Federal contracts may 
be awarded to HUBZone firms instead of large businesses since these 
firms may be eligible for a price evaluation preference for contracts 
when they compete on a full and open basis. Similarly, currently 
defined small businesses may obtain fewer Federal contracts due to the 
increased competition from more businesses defined as small. This 
transfer may be offset by a greater number of Federal procurements set 
aside for all small businesses. The number of newly defined and 
expanding small businesses that are willing and able to sell to the 
Federal Government will limit the potential transfer of contracts away 
from large and currently defined small businesses. SBA cannot estimate 
the potential distributional impacts of these transfers with any degree 
of precision. The revisions to the existing size standards for NAICS 
Sector 22, Utilities, are consistent with SBA's statutory mandate to 
assist small business. This regulatory action promotes the 
Administration's objectives. One of SBA's goals in support of the 
Administration'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 the small business programs 
designed to assist them.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action including possible distributional 
impacts that relate to Executive Order 13563 are included above in the 
Cost Benefit Analysis.
    In an effort to engage interested parties in this action, SBA has 
presented its size standards methodology (discussed above under 
Supplementary Information) to various industry associations and trade 
groups. SBA also met with various industry groups (including energy) to 
get their feedback on its methodology and other size standards issues. 
In addition, SBA presented its size standards methodology to businesses 
in 13 cities in the U.S. and sought their input as part of the Jobs Act 
Tours. The presentation included information on the status of the 
comprehensive size standards review and on how interested parties can 
provide SBA with input and feedback on size standards review.
    Additionally, SBA sent letters to the Directors of the Offices of 
Small and Disadvantaged Business Utilization (OSDBU) at several Federal 
agencies with considerable procurement responsibilities requesting 
their feedback on how the agencies use SBA size standards and whether 
current standards meet their programmatic needs (both procurement and 
non-procurement). SBA gave appropriate consideration to all input, 
suggestions, recommendations, and relevant information obtained from 
industry groups, individual businesses, and Federal agencies in 
preparing the proposed rule and this final rule.
    The review of size standards in NAICS Sector 22, Utilities, is 
consistent with Executive Order 13563, Section 6, calling for 
retrospective analyses of existing rules. As discussed previously, 
SBA's last comprehensive review of size standards was during the late 
1970s and early 1980s. Since then, except for periodic adjustments of 
monetary based size standards for inflation, most reviews were limited 
to a few specific industries in response to requests from the public 
and Federal agencies. SBA recognizes that changes in industry structure 
and the Federal marketplace over time have rendered existing size 
standards for some industries no longer supportable by current data. 
Accordingly, in 2007, SBA began a comprehensive review of its size 
standards to ensure that existing size standards have supportable bases 
and to revise them when necessary. In addition, on September 27, 2010, 
the President of the United States signed the Small Business Jobs Act 
of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed 
review of all size standards and to make appropriate adjustments to 
reflect market conditions. Specifically, the Jobs Act requires SBA to 
conduct a detailed review of at least one-third of all size standards 
during every 18-month period from the date of its enactment and do a 
complete review of all size standards not less frequently than once 
every 5 years thereafter.

Executive Order 12988

    This action meets applicable standards set forth in Sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice reforms, to 
minimize litigation, eliminate ambiguity, and reduce burden. The action 
does not have retroactive or preemptive effect.

Executive Order 13132

    For the purposes of Executive Order 13132, SBA has determined that 
this final rule will not have substantial,

[[Page 77350]]

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 various levels of government. Therefore, SBA 
has determined that this final rule has no federalism implications 
warranting preparation of a federalism assessment.

Paperwork Reduction Act

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this final rule will not impose new reporting 
or record keeping requirements.

Final Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this final rule may 
have a significant impact on a substantial number of small entities in 
NAICS Sector 22, Utilities. As described above, this rule may affect 
small entities seeking Federal contracts, loans under SBA's 7(a), 504 
and Economic Injury Disaster Loan Programs, and assistance under other 
Federal small business programs.
    Immediately below, SBA sets forth a final regulatory flexibility 
analysis of this final rule addressing the following questions: (1) 
What are the need for and objective of the rule? (2) What are SBA's 
description and estimate of the number of small entities to which the 
rule will apply? (3) What are the projected reporting, record keeping 
and other compliance requirements of the rule? (4) What are the 
relevant Federal rules that may duplicate, overlap or conflict with the 
rule? and (5) What alternatives will allow the Agency to accomplish its 
regulatory objectives while minimizing the impact on small entities?
1. What are the need for and objective of the rule?
    Most of the size standards in NAICS Sector 22, Utilities, have not 
been reviewed since the early 1980s. Technology, productivity growth, 
international competition, mergers and acquisitions, and updated 
industry definitions may have changed the structure of many industries 
in the Sector. Such changes can be sufficient to support a revision to 
size standards for some industries. Based on its analysis of the latest 
data available, SBA believes that the proposed size standards in this 
rule more appropriately reflect the size of businesses in those 
industries that need Federal assistance. The Small Business Jobs Act 
also requires SBA to review all size standards and make necessary 
adjustments to reflect market conditions.
2. What are SBA's description and estimate of the number of small 
entities to which the rule will apply?
    Under the revised size standards, SBA estimates that 400 additional 
firms will become small because of revisions to size standards in 13 
industries. That represents about 8 percent of total firms that are 
small under current size standards in all industries within NAICS 
Sector 22 covered by this final rule. This will result in an increase 
in the small business share of total industry receipts for those 
industries from about 7 percent under the current size standards to 
about 17 percent under the revised size standards. Under the revised 
size standards, more small businesses will be able to retain their 
small business status for a longer period. Many have lost their 
eligibility and find it difficult to compete at such low levels with 
companies that are significantly larger than they are. SBA believes the 
competitive impact will be positive for existing small businesses and 
for those that exceed the current size standards but are on the very 
low end of those that are not small. They might otherwise be called or 
referred to as mid-sized businesses, although SBA only defines what is 
small; entities that are not small for any reason are ``other than 
small.''
3. What are the projected reporting, record keeping and other 
compliance requirements of the rule?
    The revised size standards changes do not impose any additional 
reporting or record keeping requirements on small entities. However, 
qualifying for Federal procurement and a number of other Federal 
programs requires that entities register in the System of Award 
Management (SAM) database and certify at least annually that they are 
small in SAM. Therefore, businesses opting to participate in those 
programs must comply with SAM requirements. There are no costs 
associated with SAM registration or certification. Changing size 
standards alters eligibility for SBA programs that assist small 
businesses, but does not impose a regulatory burden as they neither 
regulate nor control business behavior.
4. What are the relevant Federal rules, which may duplicate, overlap or 
conflict with the rule?
    Under Sec.  3(a)(2)(C) of the Small Business Act, 15 U.S.C. 
632(a)(2)(c), Federal agencies must use SBA's size standards to define 
a small business, unless specifically authorized by statute to do 
otherwise. In 1995, SBA published in the Federal Register a list of 
statutory and regulatory size standards that identified the application 
of SBA's size standards as well as other size standards used by Federal 
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any 
Federal rule that would duplicate or conflict with establishing size 
standards.
    However, the Small Business Act and SBA's regulations allow Federal 
agencies to develop different size standards if they believe that SBA's 
size standards are not appropriate for their programs, with the 
approval of SBA's Administrator (13 CFR 121.903). Additionally, the 
Regulatory Flexibility Act authorizes an Agency to establish an 
alternative small business definition after consultation with the 
Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 
601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?
    By law, SBA is required to develop numerical size standards for 
establishing eligibility for Federal small business assistance 
programs. Other than varying size standards by industry and changing 
the size measures, no practical alternative exists to the systems of 
numerical size standards.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Grant programs--business, Individuals with 
disabilities, Loan programs--business, Reporting and recordkeeping 
requirements, Small businesses.

    For the reasons set forth in the preamble, SBA amends 13 CFR Part 
121 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
1. The authority citation for part 121 continues to read as follows: 
REGTEXT TITLE='13' PART='121'>

    Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).


0
2. In Sec.  121.201, in the table, revise the entries for ``221111'', 
``221112'', ``221113'', ``221114'' ``221115'', ``221116'', ``221117'', 
``221118'', ``221121'', ``221122'', ``221310'', ``221320'', and 
``221330'' to read as follows:


Sec.  121.201  What size standards has SBA identified by North American 
Industry Classification System codes?

* * * * *

[[Page 77351]]



                                 Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
                                                                               Size standards    Size standards
             NAICS  codes                    NAICS U.S. industry title         in millions of     in number of
                                                                                   dollars          employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
221111...............................  Hydroelectric Power Generation.......  ................               500
221112...............................  Fossil Fuel Electric Power Generation  ................               750
221113...............................  Nuclear Electric Power Generation....  ................               750
221114...............................  Solar Electric Power Generation......  ................               250
221115...............................  Wind Electric Power Generation.......  ................               250
221116...............................  Geothermal Electric Power Generation.  ................               250
221117...............................  Biomass Electric Power Generation....  ................               250
221118...............................  Other Electric Power Generation......  ................               250
221121...............................  Electric Bulk Power Transmission and   ................               500
                                        Control.
221122...............................  Electric Power Distribution..........  ................             1,000
 
                                                  * * * * * * *
221310...............................  Water Supply and Irrigation Systems..              25.5  ................
221320...............................  Sewage Treatment Facilities..........              19.0  ................
221330...............................  Steam and Air-Conditioning Supply....              14.0  ................
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------



0
3. In Sec.  121.201, at the end the table ``Small Business Size 
Standards by NAICS Industry,'' remove and reserve Footnote 1 to read as 
follows:.
* * * * *
FOOTNOTES
    1. [Reserved].
* * * * *

    Dated: August 16, 2013.
Karen G. Mills,
Administrator.
[FR Doc. 2013-30327 Filed 12-20-13; 8:45 am]
BILLING CODE 8025-01-P