[Federal Register Volume 68, Number 33 (Wednesday, February 19, 2003)]
[Notices]
[Pages 7990-7994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3937]


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DEPARTMENT OF ENERGY


Executive Order 13272; Consideration of Small Entities in Agency 
Rulemaking

AGENCY: Office of the General Counsel, Department of Energy.

ACTION: Notice of procedures and policies.

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SUMMARY: The Department of Energy (DOE) is adopting procedures and 
policies to ensure that the potential impacts of its draft rules on 
small businesses, small governmental jurisdictions, and small 
organizations are properly considered during the rulemaking process. 
These procedures and policies, which are published for the benefit of 
the public, also are available on the Office of General Counsel's Web 
site: http://www.gc.doe.gov.

EFFECTIVE DATE: The procedures and policies in this notice are 
effective February 19, 2003.

FOR FURTHER INFORMATION CONTACT: Michael W. Bowers, Office of the 
Assistant General Counsel for Regulatory Law, U.S. Department of 
Energy, 1000 Independence Avenue, SW., GC-74, Washington, DC 20585, 
(202) 586-2902.

SUPPLEMENTARY INFORMATION: On August 13, 2002, President Bush issued 
Executive Order 13272, ``Proper Consideration of Small Entities in 
Agency Rulemaking,'' 67 FR 53461 (Aug. 16, 2002). E.O. 13272 generally 
calls on agencies to establish procedures and policies to promote 
compliance with the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. 
More specifically, section 3(a) of the Executive Order requires all 
Executive agencies to ``issue written procedures and policies, 
consistent with the Act, to ensure that the potential impacts of 
agencies' draft rules on small businesses, small governmental 
jurisdictions, and small organizations are properly considered during 
the rulemaking process.'' It also requires agencies to make their 
procedures and policies available to the public through the Internet or 
other easily accessible means. Section 3(b) of the Executive Order 
requires agencies to notify the Chief Counsel for Advocacy of the Small 
Business Administration (``Office of Advocacy'') of any draft rules 
that may have a significant economic impact on a substantial number of 
small entities. Such notification must be made either: (i) When the 
agency submits a draft rule to the Office of Information and Regulatory 
Affairs of the Office of Management and Budget under

[[Page 7991]]

Executive Order 12866, or (ii) if review under E.O. 12866 is not 
required, at a reasonable time prior to publication of the rule in the 
Federal Register. Section 3(c) of the Executive Order provides that the 
agency must give appropriate consideration to Office of Advocacy 
comments on a draft rule and, subject to narrow exceptions, respond in 
the notice of final rulemaking to any written comments submitted by the 
Office of Advocacy on the proposed rule.
    The procedures and policies in this notice were reviewed by the 
Office of Advocacy pursuant to section 3(a) of E.O. 13272, and the 
Secretary of Energy has approved their publication in the Federal 
Register.

    Issued in Washington, DC on February 12, 2003.
Lee Liberman Otis,
General Counsel.

    On the basis of the foregoing, DOE adopts the following Procedures 
and Policies:

Department of Energy (DOE) Procedures and Policies for Implementing 
Executive Order 13272; Consideration of Small Entities in Agency 
Rulemaking

I. Purpose

    These procedures and policies implement Executive Order 13272, 
``Proper Consideration of Small Entities in Agency Rulemaking,'' 67 FR 
53461 (Aug. 16, 2002), consistent with the Regulatory Flexibility Act, 
5 U.S.C. 601 et seq. (``Act'').

II. Applicability

    These procedures and policies, which have been approved by the 
Secretary of Energy, apply to the development of any regulation by DOE 
(including by the National Nuclear Security Administration) that is 
subject to notice and comment rulemaking under section 553 of the 
Administrative Procedure Act (APA), 5 U.S.C. 553, or any other law. For 
purposes of these procedures and policies, the Federal Energy 
Regulatory Commission is not considered to be part of DOE.

III. Procedures and Policies

    1. Preliminary Determination. In developing a proposed rule, a DOE 
program office must determine whether an initial regulatory flexibility 
analysis (IRFA) is required by the Act. The Act requires an agency to 
prepare and make available for public comment an IRFA for any rule 
subject to notice and comment requirements (5 U.S.C. 603(a)). The 
agency must prepare a final regulatory flexibility analysis (FRFA) for 
a final rule (5 U.S.C. 604(a)). However, the Act provides that these 
analysis requirements do not apply if the head of the agency certifies 
that the rule will not, if promulgated, have a significant economic 
impact on a substantial number of small entities (5 U.S.C. 605(b)).
    To make the foregoing determinations, the program office must 
conduct a preliminary informal analysis to determine if there is any 
impact on small entities and the magnitude of any impacts. The 
preliminary analysis must be sufficient to answer the following 
questions:

a. Does the Act Apply?

    The Act applies to any rule subject to notice and comment 
rulemaking under section 553 of the APA or any other law, including 
notice and comment rulemaking required by an agency regulation. Among 
the exemptions from the APA's notice and comment rulemaking 
requirements are matters relating to agency management or personnel or 
to public property, loans, grants, benefits, or contracts (5 U.S.C. 
553(a)). In addition, the Act does not apply to rules of particular 
applicability relating to rates, wages, corporate or financial 
structures or reorganizations thereof, prices, facilities, appliances, 
services or allowances (see definition of ``rule,'' 5 U.S.C. 601(2)). 
Although exempted from notice and comment requirements under the APA, 
certain rulemakings involving procurement contracts are subject to 
notice and comment requirements under 41 U.S.C. 418b, and therefore are 
subject to the Act.
    If a rule is being promulgated in response to an emergency that 
makes compliance with the analysis requirements of the Act 
impracticable, DOE may delay the completion of a FRFA for a period of 
up to 180 days after issuance of the rule (5 U.S.C. 608). If a FRFA is 
not prepared within the 180-day period, the rule will lapse and have no 
effect.
    Program office staff should direct questions regarding the 
applicability of the Act to a particular rulemaking or category of 
rulemaking to program counsel at DOE, who may consult the Assistant 
General Counsel for Regulatory Law.

b. What Is the Applicable Definition of a Small Entity?

    The Act defines three categories of small entities: ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.''
    The Act defines a ``small business'' as having the same meaning as 
``small business concern'' under section 3 of the Small Business Act (5 
U.S.C. 601(3)). Section 3 of the Small Business Act provides that a 
small business concern includes any firm that is ``independently owned 
and operated'' and is ``not dominant in its field of operation'' (15 
U.S.C. 632). In addition, the Small Business Administration (SBA), as 
authorized by section 3, has developed specific size standards and 
related regulations (13 CFR 121.201) that further define ``small 
business concern.'' In performing regulatory flexibility analyses, DOE 
program staff must use SBA size standards for determining the number of 
small businesses that would be affected by a proposed rule unless an 
alternative definition of ``small business'' is adopted following 
procedures required by the Act (discussed below). The SBA's size 
standards generally are based on the total number of employees or on 
gross annual receipts of an enterprise (including affiliates). 
Beginning on October 1, 2000, the SBA size standards used the North 
American Industry Classification System (NAICS) to categorize 
businesses on an industry-by-industry basis. Previously, the SBA size 
standards were based on the less-detailed Standard Industrial 
Classification (SIC) codes.
    The Act defines a ``small organization'' as any not-for-profit 
enterprise that is independently owned and operated and not dominant in 
its field (5 U.S.C. 601(4)). The Act defines ``small governmental 
jurisdiction'' as governments of cities, counties, towns, townships, 
villages, school districts, or special districts with a population of 
less than 50,000 (5 U.S.C. 601(5)).
    If an agency wishes to use an alternative definition of ``small 
business,'' ``small organization,'' or ``small governmental 
jurisdiction'' for purposes of its actions required by the Act, it must 
consult with the Office of Advocacy on an appropriate alternative 
definition and publish the proposed alternative definition for public 
comment in the Federal Register. In addition, if an agency seeks to 
change the definition of ``small business'' for rulemaking purposes 
(i.e., for purposes of determining how a regulation applies to a 
business of a certain size), the agency must obtain the approval of the 
SBA Administrator using the procedures outlined in the Small Business 
Act (see 15 U.S.C. 632(a)(2)(C)(i)-(ii)) and in SBA's regulations (see 
13 CFR 121.902(b)). The Administrator's approval is not required, 
however, if a different standard is specifically authorized by statute.

[[Page 7992]]

    The Office of Advocacy can assist program office staff who have 
questions regarding the definitions of small entities and the process 
for using alternative definitions. Program staff with such questions 
should contact the Office of Advocacy, U.S. Small Business 
Administration, 409 Third Street, SW., Washington, DC 20416; telephone 
(202) 205-6533. In addition, these definitions are discussed in Chapter 
1 of the Office of Advocacy's guide for complying with the Act, 
entitled The Regulatory Flexibility Act: An Implementation Guide for 
Federal Agencies (``Office of Advocacy Guide''), which is available on 
the Office of Advocacy's Internet site at: http://www.sba.gov/advo/.

c. What Is the Preliminary Assessment of a Proposed Rule's Economic 
Impact Based on the Size and Type of Entities Affected and the Likely 
Overall Cost?

    After defining the small entities that would be affected by a 
proposed rule, the program office staff must gather and consider 
sufficient information for determining whether the rule, if 
promulgated, will have a significant economic impact on a substantial 
number of small entities. There are no ``hard'' boundaries for the 
terms ``significant economic impact'' and ``substantial number'' of 
small entities. Significance should be considered relative to the size 
of the small businesses, the size of competitors' businesses, and any 
disparity in impact the rule might have on small businesses. It may be 
appropriate to group small businesses and other small entities into 
more than one category for purposes of the analysis. The Office of 
Advocacy Guide, Chapter 1, suggests criteria that may be used to 
determine significance, including the percentage of revenue or profits 
affected and effect on the ability of firms to make capital 
investments. The interpretation of ``substantial number'' should be 
made on an industry-specific basis. As explained in the Office of 
Advocacy Guide, Chapter 1, the absolute number of small entities 
required to meet the ``substantial number'' test may vary greatly 
depending on the size of the universe of small entities within a 
particular economic or other activity.
    The level, scope and complexity of the preliminary analysis under 
the Act also will vary depending on the characteristics and composition 
of the industry to be regulated and the nature of proposed regulatory 
requirements. For example, the level of data collection and analysis in 
the preliminary assessment will be different for: (1) A proposed rule 
to establish new energy efficiency standards for a type of home 
appliance (e.g., refrigerators or furnaces), and (2) a procurement 
regulation that applies principally to DOE's management and operating 
contractors but has requirements that flow down to subcontractors, some 
of whom may be small entities. In the former example of appliance 
standards, a fairly rigorous analysis of the economic impact on small 
manufacturers may be warranted because new energy efficiency standards 
often impose costs on all manufacturers of the affected products, and 
competition within the industry may be affected. In the latter 
procurement contract example, it may be difficult to estimate the 
number of small subcontractors who would be affected by new contract 
requirements. However, if DOE is contractually obligated to reimburse 
contractors for the cost of complying with regulatory requirements, the 
proposed rule would not have a significant economic impact on small 
entities. Because it is clear that such a proposed rule would not have 
an adverse economic impact, there is no need to determine the exact 
number of small contractors that might be affected by the proposed new 
requirements.

d. Is There Sufficient Factual Basis for Concluding That the Proposed 
Rule Would Not Have a Significant Economic Impact on a Substantial 
Number of Small Entities?

    The Act permits the head of the agency to forego the preparation of 
an IRFA upon a written certification that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The Act requires certifications to be supported by a ``statement of 
factual basis'' (5 U.S.C. 605(b)). At a minimum, the statement of 
factual basis must contain a description of the small entities that 
would be directly affected by the proposed rule and the potential 
economic impacts, as well as the program office's reasoning and 
assumptions underlying the certification. This statement will be 
subject to public comment, which will assure either that the 
certification was not erroneous, or that erroneous certifications are 
corrected. If the program office is uncertain of the impact on small 
entities, it should consider: (1) Performing an IRFA with the available 
data and information, and (2) soliciting public comment on the issue of 
impacts on small entities. Based on information obtained during the 
comment process, the program office may determine that a sufficient 
factual basis exists to certify, in the notice of final rulemaking, 
that the rule will not have a significant economic impact on a 
substantial number of small entities.
    The Office of Advocacy Guide, Chapter 1, gives examples of adequate 
and inadequate certifications. One example given of an inadequate 
certification is an agency statement that the rule would not have a 
significant economic impact on small entities because they would not be 
subject to any requirements not applicable to large entities. The 
Office of Advocacy filed comments with the agency, objecting to the 
certification because a principal purpose of the Act was to address 
disproportionate impacts of ``one-size-fits-all'' regulations on small 
entities. Therefore, the justification that the same requirements 
applied to both small and large businesses was inadequate. Other 
examples of inadequate certifications referenced in the Office of 
Advocacy Guide involve unsupported generalizations that were 
inconsistent with readily available factual information about the small 
entities that would be regulated by a proposed rule.
    2. The Initial Regulatory Flexibility Analysis and Notification to 
Advocacy. If an IRFA is required, the DOE program office must inform 
the Office of General Counsel point of contact for the Office of 
Information and Regulatory Affairs in the Office of Management and 
Budget (OIRA) -- currently the Assistant General Counsel for Regulatory 
Law--that an IRFA is being prepared. This notice may be given when a 
draft notice of proposed rulemaking is submitted to the Office of 
General Counsel for review. To comply with the notification requirement 
in section 3(b) of E.O. 13272, the Office of General Counsel point of 
contact for OIRA will provide a copy of the draft notice of proposed 
rulemaking and the draft IRFA to the Office of Advocacy either when: 
(i) The submission is made to OIRA under E.O. 12866, or (ii) if review 
under E.O. 12866 is not required, no later than 10 business days before 
the notice of proposed rulemaking is published in the Federal Register.
    The IRFA, or a summary, must be included in the Supplementary 
Information portion of the notice of proposed rulemaking. The IRFA must 
describe the economic impact of the proposed rule on small entities 
that would be directly affected by the proposed rule. Sections 603(b) 
and (c) of the Act set forth the elements of an IRFA. Each of the 
elements is discussed in more detail in Chapter 2 of the Office of 
Advocacy Guide. Section 603(b) requires that the IRFA contain:
    [sbull] Reasons why action by the agency is being considered;

[[Page 7993]]

    [sbull] A succinct statement of the objectives of, and legal basis 
for, the proposed rule;
    [sbull] A description of and, if feasible, an estimate of the 
number of small entities to which the proposed rule would apply;
    [sbull] A description of the projected reporting, recordkeeping, 
and other compliance requirements of the proposed rule, including an 
estimate of the classes of small entities that would be subject to the 
requirements and the type of professional skills needed to comply; and
    [sbull] An identification, to the extent practicable, of all 
federal rules that may duplicate, overlap or conflict with the proposed 
rule.
    Section 603(c) of the Act provides that the IRFA also must contain:
    [sbull] A description of any significant alternatives to the 
proposed rule that would minimize the economic impact on small entities 
while accomplishing the stated objectives of the applicable statutes; 
and
    [sbull] Consistent with applicable statutes, a discussion of 
significant alternatives such as: (1) Differing compliance or reporting 
requirements or timetables for small entities; (2) the clarification, 
consolidation or simplification of compliance and reporting 
requirements for small entities; (3) the use of performance rather than 
design standards; and (4) exemption from coverage of the rule, or any 
part thereof, for small entities.
    To estimate the number of small entities to which the proposed rule 
would apply, DOE program staff should identify each of the affected 
classes of small businesses according to its NAICS code. They can then 
use the NAICS code in combination with U.S. Census data to arrive at an 
estimate of the number of entities in each class. To help agencies with 
this element of the IRFA, the Office of Advocacy provides a full 
listing of NAICS codes along with the U.S. Census data for each class 
on its web page (http://www.sba.gov/advo/stats/us99_n6.pdf).
    The Act requires the IRFA to provide either quantifiable or 
numerical estimates of the impacts of a proposed rule and alternatives 
to the proposed rule, although more general descriptive statements 
concerning effects may be provided if quantification is not practicable 
or reliable (5 U.S.C. 607). The level of the analysis in the IRFA also 
will depend on such factors as the quality and quantity of available 
information and the anticipated severity of a rule's impacts on small 
entities that will be affected by the rule. Generally, the agency must 
examine the costs and other economic impacts for the industry sectors 
targeted by the rule. Impacts examined may include economic viability 
(including closure), competitiveness, productivity, and employment. The 
analysis should identify cost burdens for the industry sector and for 
the individual small entities affected. Costs might include engineering 
and hardware acquisition, maintenance and operation, employee skill and 
training, and administrative practices (including recordkeeping and 
reporting). The results of the analysis should allow interested persons 
to compare the impacts of regulatory alternatives on the differing 
sizes and types of entities targeted or affected by the rule. The 
results should enable direct comparison of small and large entities to 
determine the degree to which the alternatives chosen 
disproportionately affect small entities or a targeted sector. 
Furthermore, the analysis should examine whether the alternatives are 
effectively designed to capture benefits to the public and accomplish 
the purposes of the statute authorizing the regulations.
    The Act provides that agencies may prepare regulatory flexibility 
analyses in conjunction with, or as a part of, any other analysis 
required by law as long as the Act's requirements are met (5 U.S.C. 
605(a)). For significant regulatory actions requiring preparation of a 
regulatory impact analysis under Executive Order 12866, the IRFA and 
the regulatory impact analysis may be prepared together. Program staff 
must, however, explicitly explain how the requirements of the Act are 
satisfied.
    The DOE program office also must include in the Supplementary 
Information portion of the notice of proposed rulemaking a summary of 
the actions that have been or will be taken to assure that small 
entities are given an opportunity to participate in the rulemaking. 
Examples of the techniques for accomplishing this are set forth in 5 
U.S.C. 609 and include: (1) A statement in an advance notice of 
proposed rulemaking alerting small entities that the rulemaking may 
have a significant impact on them; (2) publication of the notice of 
proposed rulemaking in publications likely to be obtained by small 
entities; (3) direct notification; (4) conferences or workshops 
targeted to small entities; and
    (5) modification of procedural rules to reduce the cost or 
complexity of small entity participation in the rulemaking. In 
addition, for any rulemaking that may significantly or uniquely affect 
small governments, program offices must follow DOE's policy on 
intergovernmental consultation under the Unfunded Mandates Reform Act 
of 1995. See Notice of Final Statement of Policy, 62 FR 12820 (March 
19, 1997), which is posted on the Office of General Counsel's Web site: 
http://www.gc.doe.gov.
    Program staff may obtain additional guidance on how to prepare an 
IRFA from the Office of Advocacy's Internet site: http://www.sba.gov/advo/. Chapter 2 of the Office of Advocacy Guide deals with IRFAs.
    3. The Final Regulatory Flexibility Analysis. A FRFA must be 
prepared for any final rule that will have a significant economic 
impact on a substantial number of small entities (5 U.S.C. 604). The 
elements of the FRFA resemble, but are somewhat different than, those 
for an IRFA. Section 604(a)(1)-(5) of the Act requires that the FRFA 
include:
    [sbull] A succinct statement of the need for, and objectives of, 
the rule;
    [sbull] A response to significant issues raised by the public 
comments in response to the IRFA, including a statement of any changes 
made in the rule as result of public comments;
    [sbull] A description and an estimate of the number of small 
entities to which the rule would apply or an explanation of why no such 
estimate is provided;
    [sbull] A description of the projected reporting, recordkeeping, 
and other compliance requirements of the rule, including an estimate of 
the classes of small entities that will be subject to the requirements 
and the types of professional skills needed to comply; and
    [sbull] A description of the steps taken by the agency to minimize 
the significant economic impact on small entities consistent with 
applicable statutes, including a statement of the factual, policy, and 
legal reasons for selecting the alternative adopted in the final rule 
and why each of the other significant alternatives to the rule 
considered by the agency was rejected.
    In addition, section 3(c) of E.O.13272 provides that, subject to 
narrow exceptions, an agency must respond in the notice of final 
rulemaking to any written comments submitted by the Office of Advocacy 
on the proposed rule.
    Section 604(b) of the Act provides that an agency must publish the 
FRFA, or a summary, in the Federal Register and make it available to 
the pubic. In most cases, this publication will be included in the 
notice of final rulemaking. An agency may delay, but not waive, the 
completion of a FRFA for up to 180 days after issuance of a rule if the 
rule is being promulgated in response to an emergency that makes 
compliance with the Act impracticable

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(see section III.1.a. of these Procedures and Policies). If a FRFA is 
not prepared within the 180-day period, the rule will lapse and have no 
effect.

IV. Legal Effect

    These procedures and policies are intended only to improve the 
internal management of the federal government. They do not create any 
right or benefit, substantive or procedural, enforceable at law or in 
equity, against the Department of Energy, its officers or employees, 
any federal agency or any other person.

[FR Doc. 03-3937 Filed 2-18-03; 8:45 am]
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