[Federal Register Volume 67, Number 29 (Tuesday, February 12, 2002)]
[Proposed Rules]
[Pages 6437-6444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3344]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 67, No. 29 / Tuesday, February 12, 2002 /
Proposed Rules
[[Page 6437]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AE84
Small Business Size Regulations; Petroleum Refineries
AGENCY: Small Business Administration (SBA).
ACTION: Proposed rule.
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SUMMARY: The Small Business Administration (SBA) proposes to modify the
small business size standard for petroleum refiners for purposes of
Federal Government procurement. SBA proposes to increase the capacity
component of the size standard from 75,000 barrels per day (bpd) to
155,000 barrels per calendar day (bpcd); to define the capacity measure
in bpcd; and to measure a refiner's total Operable Atmospheric Crude
Oil Distillation Capacity. The proposed revision is a better definition
of the size of business in this industry that SBA believes should be
eligible as small refiners for Federal procurement programs.
DATES: SBA must receive comments on or before March 14, 2002. SBA will
make all public comments available to any person or concern upon
request.
ADDRESSES: Address all comments concerning this proposed rule to Gary
M. Jackson, Assistant Administrator for Size Standards, Office of Size
Standards, 409 3rd Street, SW., Washington, DC 20416, or via e-mail to
[email protected].
FOR FURTHER INFORMATION CONTACT: Carl Jordan, Office of Size Standards,
at (202) 205-6618. You may also e-mail [email protected].
SUPPLEMENTARY INFORMATION:
Introduction
SBA proposes to modify the small business size standard for
Petroleum Refineries (North American Industry Classification System
[NAICS] 324110) for purposes of Federal Government procurement. SBA
proposes (1) to increase the capacity component of the standard from
75,000 barrels per day (bpd) to 155,000 barrels per calendar day
(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), rather than bpd; 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 current small business size standard for NAICS 324110,
Petroleum Refineries (formerly Standard Industrial Classification [SIC]
2911, Petroleum Refining), is 1,500 employees.\1\ The 1,500 employee
size standard applies to all Federal Government programs that provide
benefits to concerns that qualify as a small business concern. SBA does
not propose to modify the 1,500 employee size standard.
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\1\ Effective January 1, 1997, the Federal Government, for
statistical purposes, replaced the SIC system with NAICS. For
purposes of small business size standards, SBA adopted the
definitions of NAICS for all industries effective October 1, 2000.
NAICS is a new statistical system, and there were changes to the
descriptions of many industry structures in the shift from SIC to
NAICS. According to North American Industry Classification System
United States, 1997, the entire SIC 2911 is related to NAICS 324110.
NAICS 324110 ``comprises establishments primarily engaged in
refining crude petroleum into refined petroleum. Petroleum refining
involves one or more of the following activities: (1) Fractionation;
(2) straight distillation of crude oil; and (3) cracking.'' The size
standard for NAICS 324110, Petroleum Refineries, remains the same as
it was for SIC 2911, Petroleum Refining.
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For purposes of Federal Government procurement, to qualify as a
small business, there is an additional size standard component that
specifies the maximum refining capacity of a small business. Footnote 4
to the Table of Small Business Size Standards (13 CFR 121.201) states:
NAICS code 324110--For purposes of Government procurement, the
firm may not have more than 1,500 employees nor more than 75,000
barrels per day capacity of petroleum-based inputs, including crude
oil or bona fide feedstocks. 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.
SBA received a request from a small petroleum refiner to delete the
bpd part of the size standard for Petroleum Refineries. The requestor
has two concerns. First, the requestor is concerned about the apparent
domination of the refining industry by large refiners. Over the past
ten years, larger refiners have merged with and acquired other
concerns, both large and small, and formed large joint ventures. The
requestor complained that under the current 75,000 bpd size standard,
many smaller refiners cannot grow, merge with or acquire other refiners
without losing their small business status. In the event a small
refiner does so, and thereby loses its small business status, it will
remain very small compared to larger refiners. Without the opportunity
to participate in Federal Government procurement as small businesses,
it would still be too small to compete successfully for larger Federal
contracts in the open market.
Second, the requestor is concerned about the decline in small
refiners' share of the U.S. total refining capacity. The requestor
states that small refiners' share of the total U.S. capacity has
declined from 7.8 percent in 1975, to 7.1 percent in 1984, to 6.7
percent in 1990, and to 4.1 percent in 1999. In twenty-four years, this
is a decline of almost 50 percent.
Based on these concerns, SBA believes it should re-evaluate the
capacity component of the Petroleum Refineries size standard as the
small petroleum refiner requested. However, it does not agree that the
refining capacity component should be eliminated from the size standard
for Federal Government procurement. When SBA had proposed eliminating
this component in 1991, comments strongly favored retaining it. Those
commenters stated that there is no meaningful relationship between
barrel capacity and the number of refinery employees. Thus, they
claimed, eliminating the bpd requirement would not accurately reflect a
small petroleum refiner. This was due to varying degrees of automation
among refineries as well as the extent to which firms are engaged in
non-refining activities. Based on SBA's industry analysis for this
proposed rule, SBA believes that this remains the general opinion of
most refiners.
Furthermore, refinery capacity is a standard reference for
measuring refiners among one another, and it is a measure that is
unique to the refining industry. EIA has used this measure for many
years, and SBA believes it
[[Page 6438]]
continues to be a useful and relevant size standard component for
Federal procurement purposes. The 1,500 employee size standard applies
to refiners for all other programs, but refinery capacity is directly
related to refiners' ability to respond to Federal procurement of their
petroleum products. Regardless of a refiner's number of employees, SBA
does not believe that to qualify as a small refiner competing against
other small refiners for Federal petroleum contracts that there should
be no limit to its refining capacity.
History of the Size Standard
SBA first established a small business size standard for Federal
Government procurement of petroleum products in 1955. The size standard
was 1,000 employees with a refining capacity not to exceed 30,000 bpd.
With this size standard, small businesses accounted for 7.8 percent of
the total U.S. refining capacity. By 1975, this small business share of
total capacity had fallen to 5.1 percent. Therefore, SBA increased the
size standard to 1,500 employees with a 50,000 bpd capacity. This
restored small business share to 7.8 percent of total U.S. capacity. By
1990, however, the small business share had again declined, to 6.7
percent of the total U.S. refining capacity.
On May 3, 1991, SBA proposed in the Federal Register to eliminate
the 50,000 bpd component of the size standard entirely (56 FR 20832).
SBA intended to simplify the size standard and make it the same as the
single size criterion used for other industries and for other Federal
Government programs. SBA believed that this would allow refining
concerns that were slightly below the capacity limit to expand their
refining facilities without losing their small business status. SBA
received 24 comments to this proposal, 22 of which argued to retain the
bpd component.
Therefore, on January 7, 1992, SBA proposed in the Federal Register
(57 FR 541) to increase the bpd component from 50,000 bpd to 75,000
bpd. SBA received comments to this proposal that were mixed on the
question of whether or not to increase the bpd component.
On May 1, 1992, SBA published in the Federal Register (57 FR 18808)
its final rule adopting the 75,000 bpd component of the size standard.
SBA did not change the 1,500 employee size standard. SBA has not
changed or proposed to change the petroleum refiner size standard since
then.
Size Standards Methodology
Congress grants SBA discretion on how to establish detailed small
business size standards. The Agency's Standard Operating Procedure
(SOP) 90 01 3, ``Size Determination Program,'' available on SBA's
website at http://www.sba.gov/library/soproom.html, sets out four
evaluation factors for establishing size standards:
1. Industry structure and economic characteristics;
2. The impact of different size standards on SBA programs and their
objectives;
3. Whether a size standard excludes businesses that are dominant in
the industry; and,
4. Other factors that SBA determines may also apply.
SBA's research, public comments, industry uniqueness, or how or to
what program(s) the size standard applies may require SBA to consider
special factors or to modify how it generally assesses a particular
size standard, but that is not the norm. If SBA does modify its
methodology, it explains both the general methodology and how SBA
assessed the size standard for the case at hand. SBA applies no
formulas or weighting to the industry factors it analyzes. Below SBA
explains how it analyzes the economic characteristics of an industry,
the impact of a size standard on SBA programs, and how it evaluates
whether a concern at or below a size standard could be considered
dominant in the industry under review.
Industry Analysis
The Small Business Act requires that size standards vary by
industry to the extent necessary to reflect differing industry
characteristics (U.S.C. 632(a)(3)). Two ``anchor size standards'' apply
to most industries--500 employees for manufacturing industries and $5
million for nonmanufacturing industries. Anchor size standards are
presumed appropriate for an industry unless larger concerns are much
more significant within that industry than the ``typical industry.''
Since this rule is evaluating the capacity component of the
Petroleum Refineries size standard, SBA cannot compare it to any other
industry. The industry analysis will evaluate changes in the Petroleum
Refineries industry over the last 10 years and their implications for
the current 75,000 bpd size standard. SBA's analysis assesses data on
the characteristics of the sixty-five refiners listed in Petroleum
Supply Annual 2000, Volume 1, Table 40, published by EIA. The Petroleum
Supply Annual 2000 is available on EIA's website, http://www.eia.doe.gov/. Table 40 ranks refiners by their total Operable Crude
Oil Distillation Capacity, as of January 1, 2001. Virtually all data
used to compare the relative sizes of refiners reflect refiners'
capacity. The analysis will consist of the same factors as other size
standard analyses.
In 13 CFR 121.102 (a) and (b), SBA lists the primary evaluation
factors that describe the structural characteristics of an industry--
average concern size, distribution of concerns by size, start-up costs
and industry competition. SBA also analyzes the possible impact of a
size standard revision on SBA programs. These five factors are the most
important ones that SBA evaluates when establishing a size standard.
However, SBA will also consider and evaluate other information that is
relevant to determining a size standard for a particular industry.
Public comments to proposed size standards are also an important source
of additional information that SBA closely reviews before making a
final decision on a size standard. Below is a brief description of each
of the five evaluation factors.
1. Average concern size. This is generally the total industry
receipts, number of employees, or other measure of size divided by the
number of concerns in the industry. The higher the average concern size
the higher size standard that can be supported for the industry. For
this proposed rule SBA has determined the average sized refiner from
Table 40, ``Refiners' Operable Atmospheric Crude Oil Distillation
Capacity as of January 1, 2001,'' from Petroleum Supply Annual 2000,
Volume 1, published by EIA.
2. Distribution of concerns by size. SBA usually examines the
proportion of industry receipts, employment or other economic activity
accounted for by concerns of different sizes in an industry. If the
preponderance of an industry's economic activity is by smaller
concerns, this tends to support adopting the anchor size standard. The
opposite is the case for an industry in which the distribution of
concerns indicates that economic activity is concentrated among the
largest concerns in an industry. In this rule SBA compares the size of
refiners based on their total petroleum refining capacity. To
demonstrate industry changes from when SBA last changed this size
standard in 1992, SBA also compares current data on the distribution of
refiners by size with data from 1989 and 1990.
3. Start-up costs. These affect a concern's initial size because
entrants to an industry must have sufficient capital to start and
maintain a viable business. To the extent that concerns entering an
industry have greater financial
[[Page 6439]]
requirements than concerns in other industries, SBA considers a higher
size standard. The requestor has stated that the bpd capacity
constrains small refiners' growth and expansion. In this rule, rather
than looking at refinery start-up costs, SBA considers refiners'
ability to consolidate their resources. This proposed rule, if adopted,
should assist them in expanding their resources, because they will be
able to share and thereby reduce the concomitant capital costs of
expansion.
4. Industry competition. SBA normally assesses this by measuring
the proportion or share of industry receipts obtained by concerns that
are among the largest concerns in an industry. In this proposed rule,
SBA compared the total capacity of the four and the eight largest
refiners. These comparisons are generally referred to as ``four-firm''
and ``eight-firm'' concentration ratios. When a significant proportion
of economic activity within the industry is concentrated among a few
relatively large producers, SBA tends to set a higher size standard.
5. Competition for Federal procurements and SBA Financial
Assistance. SBA evaluates the possible impact of a size standard on its
programs to determine whether small businesses defined under the
existing size standard are receiving a reasonable level of assistance.
This assessment most often focuses on the proportion or share of
Federal contract dollars awarded to small businesses in the industry in
question. In general, the lower the share of Federal contract dollars
awarded to small businesses in an industry which receives significant
Federal procurement revenues, the greater is the justification for a
size standard higher than the existing one.
SBA usually assesses the impact of a proposed size standard on
other SBA programs to determine whether the current size standard may
restrict the level of financial assistance to concerns in that
industry. The bpd capacity limit that this proposed rule addresses
applies only to the Federal Government's procurement of petroleum
products. Therefore, this proposed change, if adopted in final form,
will have no affect on SBA financial assistance or other programs.
Average Size Refiner and Refinery
Based on data published by EIA from 1990 to 2000, there was a
marked increase in the average refiner size, from 144,185 bpcd to
254,029 bpcd (see Table 1, below). Similarly, average refinery size
also increased significantly between these years, from 75,961 bpcd to
104,506 bpcd. These changes reflect both fewer refineries and fewer
refiners at the end of 2000 than in 1990 while total combined capacity
has increased. Over the last 10 years, mergers, acquisitions, joint
ventures, and shutdowns of refineries have resulted in fewer refiners.
The increases in average refinery and refiner size support an increase
to the current refinery capacity component of the size standard.
Table 1
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1990 2001 Percent change
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Number of Refiners.............................................. 108 65 (40.0)
Number of Operable Refineries................................... 205 158 (22.9)
Total U.S. Capacity (bpcd)...................................... 15,571,966 16,511,871 6.0
Average capacity per refiner (bpcd)............................. 144,185 254,029 76.2
Average capacity per refinery (bpcd)............................ 75,961 104,506 37.5
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Source: EIA, Annual Energy Review, Table 5.9, ``Refinery Capacity and Utilization, 1949-2000.''
Note: Table 1 data, and all further data in this proposed rule, are based on and refer to ``barrels per calendar
day'' (bpcd), as EIA defines the term, rather than ``bpd,'' as used in SBA's existing size standard.
Distribution of Refiners and Refineries by Size
The distribution of refiners by capacity since the last change to
the size standard shows a significant trend towards larger refiners in
the industry. Table 2, below, compares end of 1989 data used in the
1992 size standard change with data as of January 1, 2001.
Table 2
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Number of refiners Number of refineries Percent of total U.S. capacity
Bpcd -----------------------------------------------------------------------------------------------
1989 2001 1989 2001 1989 2001
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>1,000,000.............................................. 3 4 22 29 24.7 34.9
500,001-1,000,000....................................... 6 9 29 42 27.7 36.7
200,001-500,000......................................... 12 7 36 19 23.9 13.8
100,001-200,000......................................... 12 10 25 17 11.3 8.8
50,001 to 100,000....................................... 9 6 13 7 4.2 1.8
30,001 to 50,000........................................ 15 7 17 10 4.0 2.1
30,000....................................... 51 22 57 26 4.2 1.9
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Totals.............................................. 108 65 199 150 100.0 100.0
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Source for 2001 data: EIA, Annual Energy Review, Table 5.9, ``Refinery Capacity and Utilization, 1949-2000.''
Source for 1999 data: U.S. Department of Energy, Petroleum Supply Annual, 1989.
Examining the distribution of refineries shows the same long-term
trends. Refineries of 50,000 bpcd or less represent only 35.9 percent
of total refineries in 2001 as compared to 53.8 percent in 1989 (see
Table 3, below).
[[Page 6440]]
Table 3
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Percent of total operable
refineries
Refinery size -------------------------------
1989 001
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Refineries > 100,000 bpcd............... 27.6 37.9
Refineries 50,001 to 100,000 bpcd....... 18.6 26.1
Refineries 10,001 to 50,000 bpcd........ 34.7 26.1
Refineries 10,000 bpcd...... 19.1 9.8
-------------------------------
Totals.............................. 100.0 100.0
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Source: EIA, Petroleum Supply Annual 2000, Volume 1, Table 40.
This increased share of capacity among large refineries is similar
to the trend SBA observed when it last studied this industry for the
1992 size standard change. Table 4, below, compares the 1979 to 1989
changes with the 1989 to 2001 changes.
Table 4
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Changes in percent of total
operable refineries
Refinery size -------------------------------
1979-1989 1989-2001
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Refineries > 100,000 bpcd............... 8 5.5
Refineries 50,001 to 100,000 bpcd....... -16 8.1
Refineries 10,001 to 50,000 bpcd........ -43 -42.0
Refineries 10,000 bpcd...... -63 -60.5
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Source for 1989-2001 data: EIA, Annual Energy Review, Table 5.9,
``Refinery Capacity and Utilization, 1949-2000.''
Source for 1979-1999 data: U.S. Department of Energy, Petroleum Supply
Annual, 1989.
Small refiners, those who meet the current 75,000 bpcd size
standard, represent a very small portion of total industry's U.S.
capacity. Table 5, below, presents the percentages of total U.S.
refining capacity for those refiners above and below the current 75,000
bpd size standard in 2001. The current small refiner share of total
industry capacity is 5.8 percent, well below the historical share of
approximately 7.5 percent.
Table 5
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Percent of
Refiners Number of bpcd total bpcd
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Total U.S. Capacity--65 refiners........ 16,595,371 100.0
Total for the 30 refiners > 75,000 bpcd. 15,635,960 94.2
Total for the 35 refiners 959,411 5.8
75,000 bpcd............................
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Source: EIA, Petroleum Supply Annual 2000, Volume 1, Table 40.
Furthermore, there is significant disparity between the average
capacity of all refineries owned and/or operated by the thirty largest
refiners and the average capacity of refineries owned and/or operated
by the thirty-five small refiners. Table 6, below, shows the
differences between average capacities of small and large refiners in
2001.
Table 6
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Average Number Number of
Refiner of bpcd refineries
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Total U.S. Capacity--65 refiners........ 107,067 155
Average for the 30 refiners > 75,000 146,130 107
bpcd...................................
Average for the 35 refiners 19,388 48
75,000 bpcd............................
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Source: EIA, Petroleum Supply Annual 2000, Volume 1, Table 40.
SBA concludes that these continuing trends towards larger refiners
in the industry and the reduced small refiner share of industry
capacity support an increase to the capacity component of the petroleum
refineries size standard.
Industry Concentration
The refining industry in the U.S. has undergone substantial
restructuring since SBA last increased the size standard. The result
has been fewer but larger refiners with fewer but larger refineries. At
the same time total U.S. refining capacity is greater. With this
industry realignment and increased U.S. petroleum refining capacity,
the total U.S. refining capacity has become increasingly concentrated
among a few of the largest refiners. Since 1989, the top four and top
eight refiners have increased their share of total industry refining
capacity (see Table 7, below). The increasing trend of industry
concentration further supports an
[[Page 6441]]
increase to the current capacity size standard.
Table 7
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Percent of U.S. refining
capacity as of January 1
Refiners -------------------------------
1990 2001
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Four largest............................ 31.0 34.9
Eight largest........................... 49.1 54.3
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Source: EIA, Petroleum Supply Annual 2000, Volume 1, Table 40.
Capital Costs
The Petroleum Refineries industry is one of the most capital
intensive industries in the economy. In recent years, increasing
environmental regulations (such as those required by the Clear Air
Amendments of 1990) have required refiners to make substantial
investments in new equipment. For example, the Environmental Protection
Agency (EPA) has estimated that its regulations pertaining to sulfur
content in gasoline will require refiners, on average, to spend
approximately $44 million to remove sulfur during the refining process
and an additional $16 million per refinery for operating costs
associated with desulfurization unit (see 65 FR 6776, dated February
10, 2000). EPA is also considering significant reductions in the use of
methyl tertiary butyl ether that will require additional capital
investments (see Oil and Gas Journal, dated March 27, 2000).
Environmental requirements have led, in part, to the consolidations
resulting in a fewer number of small refiners in the industry over the
last 10 years. Refiners have increased operations to spread the cost of
environmental compliance across large volumes and to lower costs
through operating efficiencies. The expected environmental demands on
the industry and the ability of small refiners to spread investment
costs across large volumes is another indicator that SBA should
increase its refining capacity size standard.
To reduce costs larger refiners have formed downstream mergers and
joint ventures, including some with non-U.S. producers. They thereby
reduce their overall investment costs in their refineries. By doing so,
they join not only their refining operations, but their marketing
operations as well. Joint ventures allow refiners to share these costs
without the problems associated with mergers and acquisitions. The
small refiners closest to the current size standard, that is those
small refiners with capacities not far below 75,000 bpcd, cannot enter
into the same type of agreements without jeopardizing, and likely
losing, their small business size status. SBA believes that increasing
the bpcd capacity limit will allow these refiners to form joint
ventures for similar purposes without losing their small business
status for Federal procurement programs.
Federal Government Procurement Since 1990
Small refiners' share of Federal Government procurements of
petroleum has moderately decreased since 1989. Federal Procurement Data
Center (FPDC) data for 1989, which SBA analyzed prior to revising the
size standard in 1992, indicated that small businesses received about
16 percent of those procurements. For fiscal years 1998-2000, small
business share declined to as low as 10.5 percent in FY 1999, while
averaging 13.8 percent for the three years (see Table 8, below).
Although the decline in share of Federal petroleum contracts to small
refiners has not been large, an increase to the size standard will
likely maintain the share of small refiners or restore it to previous
levels.
Table 8
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Total federal petroleum Small business Small business
procurements ($,000) amount ($,000) amount (Percent)
----------------------------------------------------------------------------------------------------------------
1998........................................... $2,123,529 $327,478 15.4
1999........................................... 1,902,269 199,994 10.5
2000........................................... 2,979,095 438,073 14.7
----------------------------------------------------------------
Three year total............................... 7,004,893 965,545 ..................
Three year average............................. 2,334,964 321,848 13.8
----------------------------------------------------------------------------------------------------------------
Sources: EIA, Petroleum Supply Annual 2000, Volume 1, Table 40; EIA, Petroleum Supply Annual 1999, Volume 1,
Table 40; and EIA, Petroleum Supply Annual 1998, Volume 1, Table 40.
SBA's Proposals To Revise the Size Standard
SBA is proposing to increase the 75,000 bpd component of the size
standard to 155,000 bpcd for purposes of Federal Government
procurement. SBA is proposing this increase for the following reasons.
Refineries with 155,000 bpcd or less in petroleum capacity account for
7.6 percent of total U.S. petroleum refining. This size standard
restores the share of small refiners to approximate the same level that
resulted from the 1992 increase to 75,000 bpd. As stated above (see
Table 3, above), small refiners currently account for 5.8 percent of
total U. S. capacity.
Currently defined small refiners will be able to grow, merge, joint
venture or create other forms of consortia, and at the same time retain
their small business status. The proposed increase to 155,000 bpcd is
slightly more than double the current size standard refining capacity
component. At this level, a small refiner could operate a refinery
equal to the size of the average refinery of the 30 large refiners in
the industry January 1, 2001 (see Table 6, above). The proposed level
should enable small refiners to expand to
[[Page 6442]]
achieve operational efficiencies needed to accommodate increasing
environmental requirements. An increase to a lower capacity, while also
allowing expansion, may be too limiting for small refiners to achieve
meaningful operating efficiencies.
Any refiner at or below 155,000 bpcd and with less than 1,500
employees will qualify as a small refiner. Refiners that have more than
1,500 employees or have capacities over 155,000 bpcd generally have
significant operations outside of petroleum refining.
SBA proposes to clarify the capacity measure for determining small
business size status by replacing the term ``barrels per day'' with the
term ``barrels per calendar day.'' SBA believes the term ``barrels per
day'' does not reflect the precise intent of the regulation, and can
raise questions about whether SBA means ``barrels per calendar day'' or
``barrels per stream day.'' SBA proposes to accept and use ``Barrels
per Calendar Day'' as EIA has most recently defined it in the glossary
to Petroleum Supply Annual 2000, Volume 1. EIA defines ``barrels per
calendar day'' as follows:
Barrels Per Calendar Day. The maximum number of barrels of input
that can be processed during a 24-hour period after making
allowances for the following limitations:
The capability of downstream facilities to absorb the output of
crude oil processing facilities of a given refinery. No reduction is
made when a planned distribution of intermediate streams through
other than downstream facilities is part of a refinery's normal
operation;
The types and grades of inputs to be processed; the types and
grades of products expected to be manufactured;
The environmental constraints associated with refinery
operations;
The reduction of capacity for scheduled downtime such as routine
inspection, mechanical problems, maintenance, repairs, and
turnaround; and
The reduction of capacity for unscheduled downtime such as
mechanical problems, repairs, and slowdowns.
SBA proposes to clarify further the capacity measure for
determining small business size status by adding to footnote 4 the
phrase ``total Operable Atmospheric Crude Oil Distillation Capacity''
as EIA uses the term in Petroleum Supply Annual 2000, Volume 1. EIA
defines ``Operable Capacity'' as follows:
Operable Capacity. The amount of capacity that, at the beginning
of the period, is in operation; not in operation and not under
active repair, but capable of being placed in operation within 30
days; or not in operation but under active repair that can be
completed within 90 days. Operable capacity is the sum of the
operating and idle capacity and is measured in barrels per calendar
day or barrels per stream day.
EIA defines Atmospheric Crude Oil Distillation'' as follows:
Atmospheric Crude Oil Distillation. The refining process of
separating crude oil components at atmospheric pressure by heating
to temperatures of about 600 deg. to 750 deg. F (depending on the
nature of the crude oil and desired products) and subsequent
condensing of the fractions by cooling.
By stating ``155,000 bpcd of total Operable Atmospheric Crude Oil
Distillation Capacity,'' it will be clear that the size standard
includes both a concern's operating and its idle capacity. This is
consistent with EIA that uses the total of operating and idle
capacities in Petroleum Supply Annual 2000, Volume 1, Table 40,
``Refiners'' Operable Atmospheric Crude Oil Distillation Capacity,''
and in earlier years as well.
Dominant in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small concern as one that is (1) independently owned and operated, (2)
not dominant in its field of operation and (3) within detailed
definitions or size standards established by SBA Administrator. SBA
considers as part of its evaluation of a size standard whether a
business concern at or below a proposed size standard would be
considered dominant in its field of operation. This assessment
generally considers the market share of firms at the proposed or final
size standard, or other factors that may show whether a firm can
exercise a major controlling influence on a national basis in which
significant numbers of business concerns are engaged.
SBA has determined that no firm at or below the proposed size
standards for petroleum refiners would be of a sufficient size to
dominate its field of operation. The largest firm at the proposed size
standard level generates less than 0.9% of total U. S. refining
capacity. This level of market share effectively precludes any ability
for a refiner at or below the proposed size standard to exert a
controlling effect on this industry.
Alternatives to 155,000 Bpcd That SBA Considered
SBA considered three alternatives to its proposal. Each of these is
discussed below.
1. Delete the capacity requirement, the request for which prompted
SBA's examination of the size standard. The introduction to this rule
explain the reasons why SBA has elected to increase the capacity
component rather than eliminating it. SBA, however, welcomes comments
on the advantages and disadvantages of retaining or eliminating the
capacity component.
2. Propose a capacity between 75,000 bpcd and 155,000 bpcd. SBA
estimates that capacity below 155,000 bpcd would not restore small
businesses to the level they had before the size standard was last
increased since no refiners would gain small business status. A 155,000
bpcd capacity limit includes all refiners that have 1,500 employees or
less. At 155,000 bpcd, two additional refiners would qualify as small.
Further, a capacity limit below 155,000 bpcd may be insufficient to
allow small refiners to grow, merge, or otherwise share resources,
without losing their small business size eligibility. This would defeat
the main purpose of increasing the size standard.
3. Propose higher capacity limits. SBA considered capacities above
155,000 bpcd. SBA believes that 155,000 bpcd capacity is sufficient to
enable small refiners to merge or form alliances and thereby reduce
their costs while increasing the profitability of their activities.
Further, SBA estimates that a higher bpcd capacity would enable no more
refiners to become eligible as small businesses, because refiners with
capacities above 155,000 bpcd have, to the extent SBA could determine,
more than 1,500 employees.
Comments Requested
SBA requests comments on its proposal to increase the capacity
component of the size standard from 75,000 bpd to 155,000 barrels per
calendar day (bpcd) total Operable Atmospheric Crude Oil Distillation.
While SBA proposes this numerical capacity limit for small refiners to
qualify as small businesses, SBA will consider the other alternatives
as well, including the elimination of a bpcd limit, if comments warrant
SBA's doing so. SBA also requests comments on its proposals to clarify
the size measure by adopting the more precise term of ``barrels per
calendar day'' in place of ``barrels per day.'' SBA also requests
comment on its proposal to measure in bpcd a refiner's total Operable
Atmospheric Crude Oil Distillation capacity. Specifically, SBA requests
comments on the following issues:
1. Whether SBA should eliminate the capacity component, as
requested, and the reasons why having no capacity limit as a component
of the standard would be better for small refiners than retaining one.
2. Whether 155,000 bpcd is sufficient capacity for refiners to
grow, merge, consolidate or otherwise share resources for Federal
Government procurement,
[[Page 6443]]
without losing their small business eligibility.
3. Whether SBA should adopt a capacity that is higher or lower than
155,000 bpcd. Commenters who recommend an alternative bpcd limit should
also provide reasons why they believe their recommended capacity would
be a more appropriate size for this industry for purposes of Federal
Government procurement.
4. Whether SBA's estimate of the number of additional refiners that
may gain eligibility as small refiners, as well as SBA's estimate of
their capacity, accurately reflects the possible result of this
proposed change.
5. Whether an increase to 155,000 bpcd would have any adverse
affects on currently defined small refiners.
6. Whether SBA's proposal to adopt ``barrels per calendar day'' to
replace ``barrels per day'' is acceptable.
7. Whether SBA's proposal to adopt as a uniform measurable capacity
a refiner's total Operable Atmospheric Crude Oil Distillation as used
by EIA is acceptable.
8. Whether SBA should establish the 155,000 bpcd and 1,500
employees size standards to all Federal programs using a small business
definition for a small petroleum refiner instead of just to Federal
Government procurement. If SBA receives favorable comments on this, SBA
will consider issuing a separate proposed rule on the issue.
Compliance With Executive Orders 12866, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35.) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
The Office of Management and Budget (OMB) has determined that the
proposed rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. The rule affects Federal Government agencies
purchasing refined petroleum products and the businesses that compete
in selling petroleum products to the Federal Government. Increasing the
75,000 bpcd size standard to 155,000 bpcd will enable small refiners to
expand their refining operations or to merge with other small refiners
and continue to compete for 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
business price evaluation preference or adjustment. Also, two refiners
may obtain small business status under the proposed size standard
allowing them to compete for set-aside petroleum procurements. Federal
agencies could benefit from the higher size standards if the newly
defined and expanding small refiners compete for more set-aside
petroleum procurements. The larger base of small refiners would likely
increase competition and lower the prices on set-aside petroleum
procurements. A higher size standard may also influence Federal
agencies to set aside more petroleum procurements. If procurements
switch from competition among all sources to competition among only
small businesses, prices could increase to the Federal Government. SBA
believes that price increases associated with set-aside procurements
would be minimal since set-asides must be award 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. Theses expanding small
refiners would become more competitive and thereby result in lower
prices to the Federal Government and to private sector customers.
The higher size standard may have distributional effects among
large and small refiners. Although the actual outcome of the gains and
loses among small and large refiners cannot be estimated with
certainty, several trends are likely to emerge. The newly defined and
expanding small refiners may obtain petroleum contracts from what would
have been awarded to currently defined small refiners. If Federal
agencies were to set aside more procurements for small businesses, this
could allow currently defined small refiners to compete for more
petroleum procurements and offset potential losses to the newly defined
and expanding small refiners on other set-aside procurements. Large
refiners would lose some Federal petroleum contracts to small refiners
if Federal agencies decide to set aside more petroleum procurements.
The potential loss of contracts to large businesses would be limited to
the amount of petroleum the newly defined and expanding small refiners
were willing and able to sell to the Federal Government. Small
nonmanufacturers may 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 a larger base of small refiners,
nonmanufacturers would have access to a larger supply of petroleum
products from small refiners. The potential gain of contracts to small
nonmanufacturers would be limited to the amount of petroleum the newly
defined and expanding small refiners were willing and able to supply
through a third party as opposed to selling directly to the Federal
Government.
The proposed rule, however, does not create a serious inconsistency
or otherwise interfere with another agency's action; materially affect
the budgetary impact of entitlements, grants, user fees or loan
programs or the rights and obligations of recipients; or raise novel,
legal or policy issues arising out of legal mandates, President's
priorities, or the principles set forth in EO 12866.
For purposes of Executive Order 12988, SBA has determined that this
rule is drafted, to the extent possible under standards in Section 3 of
the order.
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 the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
has determined that this rule does not impose any new reporting or
recordkeeping requirements.
Under the Regulatory Flexibility Act (RFA) SBA has determined that
this rule as drafted, including the alternatives to the proposed
standard, will not have a significant impact on a substantial number of
small entities. Immediately below, SBA sets forth an initial regulatory
flexibility analysis (IRFA) of this rule addressing (a) the reasons and
objectives of the rule; (b) SBA's description and estimate of the
number of small entities to which the rule will apply; (c) the
projected reporting, record keeping, and other compliance requirements
of the rule; (d) the relevant Federal rules which may duplicate,
overlap or conflict with the rule; and (e) alternatives considered by
SBA.
(a) Reasons for This Action
As discussed in the supplemental information, this rule, if
adopted, will better define a small refiner for purposes of Federal
Government procurement of refined petroleum. It will include in the
definition as small all U.S. refiners that have 1,500 employees or
less. It will also increase the small refiners' share of the U.S. total
refining capacity to approximately the level it was after SBA's last
two increases to this standard. It will allow small refiners to respond
to larger Federal Government procurement opportunities. At the same
time they will be able to expand and grow by forming joint ventures and
similar resource sharing arrangements
[[Page 6444]]
without losing their small business eligibility for Federal Government
procurement.
(b) Objectives and Legal Basis for the Proposed Rule
SBA's objective is to define ``small refiner'' better and to enable
small businesses to participate in more and larger Federal Government
procurement opportunities. Section 3(a) of the Small Business Act (15
U.S.C. 632(a)) gives SBA the authority to establish and change size
standards.
(c) Description and Estimate of the Number of Small Entities To Which
the Rule Will Apply
SBA estimates that there will be no more than two newly designated
small businesses. Because SBA does not propose to change the 1,500
employee size standard, refiners will only gain eligibility if they
have less than 155,000 bpcd as well as no more than 1,500 employees.
With regard to refiners that have capacities in excess of 75,000 bpcd,
SBA described in the supplementary information that it based its
estimate of number of employees on 10Ks filed with the Securities and
Exchange Commission, Annual Reports and other information available to
the public.
Refiners that currently have less than 75,000 bpd capacities are
unaffected by this proposed rule, except to the extent that they may
take advantage of opportunities arising from this rule. Also, SBA does
not believe there will be significantly increased competition that
could harm small or other than small business refiners. On the
contrary, small businesses will be able to bid on more and larger
Federal procurements in a fashion much like the largest refiners,
though on a smaller scale, proportionate to their sizes.
Federal procurement programs are voluntary, and this proposed rule,
if adopted, will not impose any significant costs on any small business
companies participating in Federal procurement programs. Further, the
rule will, if adopted, not affect the amount of refined petroleum
purchased by the Federal Government. Federal Government procurement
dollars are expected to remain about the same. Since SBA estimates that
no more than two refiners, not now small, could become eligible, they
would have little impact on the distribution of total Federal
procurement dollars. Furthermore, the two refiners are not currently
participating in Federal procurement, according to FPDC data. In
addition, since more smaller refiners will be able to share resources,
they will be eligible for more Federal procurement dollars. However,
given that all small refiners combined will still only account for 7.7
percent of total U.S. refining capacity, the impact on larger refiners
will be negative but negligible, though it will be a positive and
significant one on small refiners.
(d) Imposition of Additional Reporting or Recordkeeping Requirements on
Small Businesses
This rule does not impose any new information collection
requirements on small refiners or other small businesses, and therefore
will impose none that could require approval by OMB under the Paperwork
Reduction Act of 1980, 44 U.S.C. 3501-3520. The proposed new size
standard does not impose any additional reporting, record keeping or
compliance requirements on small entities. Increasing the petroleum
refiners' capacity size standard expands access to Federal Procurement
programs that assist small businesses, but does not impose a regulatory
burden as they neither regulate nor control business behavior.
(e) Relevant Federal Rules That May Duplicate, Overlap or Conflict With
This Rule
This rule does not duplicate, overlap or conflict with any other
Federal rules. This rule applies to the Federal Government's
procurement of refined petroleum products only, and does not apply to
any other Federal program for which a refiner would have to qualify as
a small business.
(f) Alternatives That SBA Considered
SBA considered three alternatives to this rule, namely deleting the
capacity requirement in its entirety, and capacities above and below
155,000 bpcd. SBA explains in the supplementary information above why
it opted to propose 155,000 bpcd rather than another amount or none at
all. SBA specifically asks for comments on each of these alternatives,
however, and will consider an alternative if public comments support
one of them in lieu of the proposed 155,000 bpcd.
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.
For the reasons stated in the preamble, SBA proposes to amend 13
CFR part 121 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
1. The authority citation for Part 121 is revised to read as
follows:
Authority: Pub L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15
U.S.C. 632(a), 634(b)(6), 637(a), 638, 644(c), and 662(5); and Sec.
304, Pub. L. 103-403, 108 Stat. 4175, 4188.
2. In Sec. 121.201, under Subsector 324, the entry for NAICS Code
324110 is republished and footnote 4 is revised to read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System Codes?
* * * * *
------------------------------------------------------------------------
Size
standard
in number
of
NAICS codes NAICS description (N.E.C. = not employees
elsewhere classified) or
millions
of
dollars
------------------------------------------------------------------------
* * * * *
324110..................... Petroleum Refineries............ \4\1,500
* * * * *
------------------------------------------------------------------------
Footnotes
* * * * *
\4\ NAICS code 324110--For purposes of Federal Government procurement,
the petroleum refiner must be a concern that has no more than 1,500
employees nor more than 155,000 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: November 1, 2001.
Hector V. Barreto,
Administrator.
[FR Doc. 02-3344 Filed 2-11-02; 8:45 am]
BILLING CODE 8025-01-P