[Federal Register Volume 70, Number 114 (Wednesday, June 15, 2005)]
[Proposed Rules]
[Pages 34729-34740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-11765]


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DEPARTMENT OF TRANSPORTATION

Pipeline and Hazardous Materials Safety Administration

49 CFR Parts 171, 172, 173, and 175

[Docket No. PHMSA-02-11989 (HM-224C)]
RIN 2137-AD48


Hazardous Materials; Transportation of Lithium Batteries

AGENCY: Pipeline and Hazardous Materials Safety Administration (PHMSA), 
DOT.

ACTION: Initial regulatory flexibility analysis.

-----------------------------------------------------------------------

SUMMARY: The Pipeline and Hazardous Materials Safety Administration 
(PHMSA) is publishing this initial regulatory flexibility analysis to 
aid the public in commenting upon the potential small business impacts 
of the proposals in our April 2, 2002 notice of proposed rulemaking to 
amend the requirements in the Hazardous Materials Regulations (HMR) on: 
(1) Exceptions for ``small'' and for ``mid-size'' batteries (i.e., 
cells up to 5 grams of lithium content and batteries up to 25 grams of 
lithium content); and (2) exceptions for aircraft passengers and crew. 
These changes are being proposed in order to clarify requirements to 
promote safer transportation practices; promote compliance and 
enforcement; eliminate unnecessary regulatory requirements; facilitate 
international commerce; and make these requirements easier to 
understand. We will consider comments received to improve our 
regulatory flexibility analysis and in making our decision on a final 
rule.

DATES: Written comments must be received on or before August 1, 2005.

ADDRESSES: You may submit comments (identified by DOT DMS Docket Number 
PHMSA-02-11989 (HM-224C)) by any of the following methods:
     Web site: http://dms.dot.gov. Follow the instructions for 
submitting comments on the DOT electronic docket site.
     Fax: 202-493-2251.
     Mail: Docket Management Facility; U.S. Department of 
Transportation, 400 Seventh Street, SW., Nassif Building, PL-401, 
Washington, DC 20590-0001.
     Hand Delivery: Room PL-401 on the plaza level of the 
Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 
a.m. and 5 p.m., Monday through Friday, except Federal holidays.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
    Instructions: You must include the agency name (Pipeline and 
Hazardous Materials Safety Administration) and the Docket number 
(PHMSA-02-11989 (HM-224C)) or the Regulatory Identification Number (RIN 
2137-AD48) for this rulemaking at the beginning of your comments. You 
should submit two copies of your comments if you submit them by mail. 
If you wish to receive confirmation that PHMSA received your comments, 
you must include a self-addressed stamped postcard. Note that all 
comments received will be posted, without change, to http://dms.dot.gov 
including any personal information provided and will be available to 
internet users. Please see the Privacy Act section of this document.
    Docket: For access to the docket to read background documents and 
comments received, go to http://dms.dot.gov at any time or to Room PL-
401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., 
Washington, DC between 9 a.m. and 5 p.m., Monday through Friday, except 
Federal holidays.

FOR FURTHER INFORMATION CONTACT: John Gale, Office of Hazardous 
Materials Standards, PHMSA, Department of Transportation, 400 Seventh 
St., SW., Washington, DC 20590-0001, Telephone (202) 366-8553.

SUPPLEMENTARY INFORMATION: In our April 2, 2002 notice of proposed 
rulemaking (NPRM) under this docket (67 FR 15510), the Research and 
Special Programs Administration (RSPA)--PHMSA's predecessor agency--
explained that lithium batteries and equipment containing or packed 
with lithium batteries are regulated as Class 9 materials unless they 
meet an exception in the Hazardous materials Regulations (HMR, 49 CFR 
Parts 171-180). In that NPRM, RSPA proposed (1) changes to test methods 
for lithium batteries, (2) that excepted ``small'' batteries must be 
tested and each package containing more than 24 cells or 12 batteries 
must meet packaging standards, including a maximum gross mass, and have 
certain communication of the hazards (marking and accompanying 
documentation), (3) elimination of the exception for ``mid-size'' cells 
and batteries, and (4) exceptions for airline passengers and crew 
members to carry consumer electronic devices and spare batteries aboard 
aircraft, subject to limits on the lithium content and number of spare 
batteries.
    Our April 2, 2002 NPRM did not include an initial regulatory 
flexibility analysis (IRFA) pursuant to the Regulatory Flexibility Act 
(5 U.S.C. 603)

[[Page 34730]]

because we concluded that the proposed changes would not have a 
significant economic impact on a substantial number of small entities 
(5 U.S.C. 605). We concluded that the costs associated with testing 
``small'' lithium batteries would be incurred by lithium battery 
manufacturers, which are not small businesses. We also concluded that 
most small businesses that offer lithium batteries for transportation 
would make smaller shipments (fewer than 24 cells or 12 batteries) of 
``small'' batteries and would not have to meet the packaging and hazard 
communication requirements.
    Comments to the proposed rule indicated that some lithium battery 
manufacturers are small businesses and that the small shipment 
exception may not sufficiently mitigate their burden. On August 22, 
2003, the Office of Management and Budget returned RSPA's draft final 
rule in this proceeding stating that, after discussions with the Small 
Business Administration, it believed that a full IRFA should be 
prepared containing ``additional information that will allow RSPA to 
more fully address comments disputing the need for regulating lithium 
ion batteries,'' with ``as much detail as possible on their cost 
estimates,'' and also to ``gather additional information on the number 
of small businesses impacted and their annual revenues.'' Thereafter, 
RSPA performed a threshold analysis and determined that at least 52 
small businesses could be affected by the proposed rule and that this 
number could increase as the market for lithium batteries and cells 
increases. Based on the threshold analysis we concluded that this IRFA 
was required because the proposed rule may have significant economic 
impact on a substantial number of small businesses.
    In an interim final rule (IFR) published December 15, 2004, under 
Docket No. PHMSA-04-19886 (HM-224E, 69 FR 75208), we amended the HMR to 
(1) prohibit the transportation of primary (non-rechargeable) lithium 
batteries and cells as cargo aboard passenger-carrying aircraft, (2) 
adopt conditions under which equipment containing or packed with 
primary lithium batteries and cells may be transported aboard 
passenger-carrying aircraft, and (3) require that packages of small and 
mid-size primary lithium batteries and cells (that are excepted from 
Class 9) must be marked ``Primary Lithium Batteries--Forbidden for 
Transport Aboard Passenger Aircraft'' when transported by highway, 
rail, vessel, or cargo aircraft. The IFR also provides that lithium 
batteries are not eligible for the ``small quantity'' exception in 49 
CFR 173.4, but that airline passengers and crew members may carry 
consumer electronic and medical devices containing lithium cells or 
batteries, and spare batteries, in their carry-on or checked baggage, 
up to a maximum lithium content of each cell and each battery. The 
prohibition and restrictions adopted in this IFR apply to both foreign 
and domestic passenger-carrying aircraft entering, leaving, or 
operating in the United States and to persons offering primary lithium 
batteries and cells for transportation on any passenger-carrying 
aircraft. Aside the exception for electronic devices and spare 
batteries in airline passenger and crew member baggage, the provisions 
adopted in the IFR do not apply to secondary (rechargeable) lithium 
batteries (e.g., lithium ion batteries).
    In a separate rulemaking proceeding, the revised UN test methods 
for lithium batteries were adopted in the HMR. Docket No. PHMSA-04-
17036 (HM-215G), 69 FR 76043 (Dec. 20, 2004). For these reasons, this 
IRFA does not address the changes proposed in the April 2, 2002 NPRM 
concerning test methods or the exception for electronic devices.
    Description of the reasons that action by the agency is being 
considered. PHMSA believes that the current regulations pertaining to 
the transportation of lithium batteries and cells are insufficient to 
prevent potentially serious incidents resulting from damage to these 
batteries and cells. The potential for fires that are difficult to 
extinguish from such incidents was discussed in the preamble to the 
proposed rule, which described two fires involving lithium batteries 
(67 FR 15511). Changes to the international regulations concerning the 
transportation of lithium batteries and cells, particularly the United 
Nations Recommendations on the Transport of Dangerous Goods (UN 
Recommendations), were adopted to address these safety issues. As a 
result, the HMR is now inconsistent with the UN Recommendations and, 
thus, makes it more difficult to transport these materials in 
international commerce.
    Succinct statement of the objectives of, and legal basis for, the 
proposed rule.
    The proposed rule will improve the safety of transportation of 
lithium batteries and cells by changing the test methods for lithium 
batteries, revising the exceptions for small batteries, eliminating an 
exception for larger batteries, adding exceptions for aircraft 
passengers and crew, and making editorial changes to clarify the 
requirements.
    To further clarify and describe these changes, we have proposed to 
define small, mid-size, and large categories for lithium batteries and 
cells, as shown in Table 1, where Li means Lithium and ELC means 
equivalent lithium content. Equivalent lithium content means, for a 
lithium ion cell, the product of the rated capacity, in ampere-hours, 
of a lithium ion cell times 0.3. The equivalent lithium content of a 
battery equals the sum of the grams of equivalent lithium contents 
contained in the component cells of the battery.

                                 Table 1.--Battery and Cell Category Definitions
----------------------------------------------------------------------------------------------------------------
                                        Small  (no more
                                             than)               Mid-size  (between)         Large  (more than)
----------------------------------------------------------------------------------------------------------------
Cells:
    Lithium Metal/Alloy............  1 g Li                1 g and 5 g Li                   5 gLi
    Lithium Ion....................  1.5 g ELC             1.5 g and 5 g ELC                5 g ELC
Batteries:
    Lithium Metal/Alloy............  2 g Li                2 g and 25 g Li                  25 g Li
    Lithium Ion....................  8 g ELC               8 g and 25 g ELC                 25 g ELC
----------------------------------------------------------------------------------------------------------------

    This IRFA considers the following specific changes to the HMR:
    1. Revise the exception for small batteries.
    a. Require testing of small batteries formerly excepted under the 
HMR

[[Page 34731]]

according to the UN Manual of Tests and Criteria.
    b. When a package contains more than 24 cells or 12 batteries, 
except when installed in equipment, small batteries must meet the 
following packaging and shipping requirements:
     The package must be marked to indicate that it contains 
lithium batteries, and that special procedures should be followed in 
the event that the package is damaged;
     The package must be accompanied by a document indicating 
that the package contains lithium batteries and that special procedures 
should be followed in the event that the package is damaged;
     The package must be capable of withstanding a 1.2 meter 
drop test in any orientation without damage to cells or batteries 
contained in the package, without shifting of the contents that would 
allow short circuiting and without release of package contents; and
     Except in the case of lithium cells or batteries packed 
with or contained in equipment, in packages not exceeding 30 kilograms 
(gross weight).
    2. Remove the exception associated with the shipment of mid-size 
batteries, so that these batteries and cells must be shipped as Class 9 
hazardous materials. The requirement to transport mid-size batteries 
and cells as Class 9 hazardous materials will not subject the batteries 
to any additional testing; however, employees who are involved with any 
aspect of their transportation (including preparing shipping papers) 
would be now considered hazmat employees and would be subject to the 
applicable training requirements under the HMR. Additionally, these 
shipments would have to be made in UN performance-oriented packagings 
and marked, labeled, and described on shipping papers in accordance 
with the HMR.
    3. Except from the HMR consumer electronic devices (watches, 
calculating machines, cameras, cellular phones, lap-top computers, 
camcorders, etc.) brought onboard an aircraft by passengers and crew. 
Also except from the HMR passengers and crew carrying spare batteries 
for consumer electronic devices containing lithium or lithium ion cells 
or batteries subject to quantity and lithium content limits when 
carried by passengers or crew member for personal use. Each spare 
battery must be individually protected so as to prevent short circuits 
and carried in carry-on baggage only. In addition, each spare battery 
must not exceed the following:
    (i) For a lithium metal or lithium alloy battery, a lithium content 
of not more than 2 grams per battery; or
    (ii) For a lithium ion battery, an aggregate equivalent lithium 
content of not more than 8 grams per battery, except that up to two 
batteries with an aggregate equivalent lithium content of more than 8 
grams but not more than 25 grams may be carried.
    These changes are summarized in Table 2.

     Table 2.--Summary of Requirements by Battery and Cell Category
------------------------------------------------------------------------
                           Small           Mid-size           Large
------------------------------------------------------------------------
Testing.............  Will be subject  No change......  ................
                       to UN Testing
                       requirements.
Shipping............  Packages of      Now subject to   No change.
                       more than 24     HMR as Class 9
                       cells or 12      (only required
                       batteries        old UN Tests
                       (except when     before).
                       installed in
                       equipment)
                       have new
                       integrity and
                       communication
                       requirements.
                       Revise exceptions for
                       passengers and crew for
                       carrying consumer electronic
                       devices and spare batteries
------------------------------------------------------------------------

    Description of and, where feasible, an estimate of the number of 
small entities to which the proposed rule will apply.
    In recent years, the lithium battery industry has undergone a 
transformation from one serving a small, niche-driven market to a 
rapidly growing industry powering equipment in a broad range of sectors 
(e.g., military, manufacturing and medical), and being used in a 
variety of consumer electronics, including: laptop computers, 
communications equipment, and entertainment products. Primary or non-
chargeable batteries are used to power a number of electronics and 
other high-tech products, including digital cameras, memory backup 
circuits, security devices, calculators, and watches. Rechargeable or 
secondary lithium ion batteries are used in laptop computers, 
camcorders, cell phones, and other portable electronic devices.
    The proposed rule would regulate the transportation of primary and 
secondary lithium batteries and cells. For this analysis, we identified 
109 businesses potentially affected by the proposed rule. Of these 109 
businesses, 60 were identified as small businesses based on the size 
standards developed by the Small Business Administration and codified 
in 13 CFR 121.201. These small businesses were identified using a 
number of sources:
    1. Energy source guides at http://energy.sourceguides.com/businesses/byP/batP/batt/btora/bType/lion/byB/mfg/byN/byName.shtml and 
http://energy.sourceguides.com /businesses/byP/batP/batt/byB/mfg/byN/
byNameWeb.shtml
    2. Batteries EZ Search at http://www.industrialbatteries-ez.com/industrialbatteries/0028713_0028679_1.html
    3. Portable Rechargeable Battery Assocation (PRBA) Member List at 
http://www.prba.org/member.html
    4. Lexis-Nexis search ``manufactures lithium batteries''
    5. Thomas Register at http://www.thomasregister.com/
    6. Dun & Bradstreet financial and other reports (through Westlaw)
    7. Dun & Bradstreet financial and other reports (through 
Electronics Business on-line)
    8. Hoover's company database
    9. Information Access company database
    10. Reference USA
    11. US business directory
    12. Disclosure incorporated database
    13. PR newswire
    14. Mergent Inc. reports
    15. Investext group
    16. Corporate websites
    Table 3 presents the number of small businesses impacted by the 
proposed rule for each industry.

[[Page 34732]]



       Table 3.--Number of Impacted Small Businesses by NAICS Code
------------------------------------------------------------------------
                                                            Number  of
               Industries                   NAICS code         small
                                                            businesses
------------------------------------------------------------------------
Bare Printed Circuit Board Manufacturing          334412               1
Other Electronic Component Manufacturing          334419               3
Electromedical and Electrotherapeutic             334510               1
 Apparatus Manufacturing................
Other Lighting Equipment Manufacturing..          335129               1
Storage Battery Manufacturing...........          335911              21
Primary Battery Manufacturing...........          335912               8
All Other Miscellaneous Electrical                335999               7
 Equipment and Component Manufacturing..
Surgical and Medical Instrument                   339112               2
 Manufacturing..........................
Surgical Appliance and Supplies                   339113               1
 Manufacturing..........................
Electrical Apparatus and Equipment,               423610               8
 Wiring Supplies, and Related Equipment
 Merchant Wholesalers...................
Other Electronic Parts and Equipment              423690               4
 Merchant Wholesalers...................
Industrial Supplies Merchant Wholesalers          423840               1
Research and Development in the                   541710               2
 Physical, Engineering, and Life
 Sciences...............................
                                         -----------------
    Total...............................  ..............              60
------------------------------------------------------------------------

    Approximately one-third of all small businesses identified are in 
NAICS 335911, Storage Battery Manufacturing. Primary Battery 
Manufacturing, NAICS 335912, is among the next largest categories of 
small businesses. Most of the businesses in these two categories are 
likely to have a significant portion of their business related to 
lithium-based products. Two of the firms that were contacted indicated 
that the lithium battery/cell business was a very small component of 
their overall business and that, while they have entered that market in 
anticipation of its growth, they would abandon the lithium battery/cell 
market if the compliance costs increased significantly.
    Many of the small businesses identified in this IRFA both 
manufacture battery packs and distribute batteries manufactured by 
other companies. A total of 24 companies (40 percent) both manufacture 
and distribute battery packs. Battery manufacturing, as applied in this 
context, entails the packaging or assemblage of cells manufactured 
primarily from foreign sources into custom packs designed to meet 
specific customer demands. Of the 60 small business identified, 18 (30 
percent) only manufacture batteries and 18 (30 percent) exclusively 
distribute batteries manufactured by other companies.
    We believed that electronic equipment distributors would also be 
impacted by this proposed rule and contacted the Electronic Industries 
Alliance. However, they indicated that their industry is comprised 
primarily of large businesses.
    The many of the small businesses impacted by this analysis 
described themselves as ``value-added'' businesses offering custom-
designed batteries at relatively low-volumes to long-time military, 
medical, original equipment manufacturers (OEMs) and high-tech 
customers. Typically, the small businesses were purchasing cells from 
foreign sources and assembling them into packs for customers. Batteries 
offered by these small businesses tend to be more complex with higher 
quality and reliability standards, according to the respondents. These 
small businesses also develop computer and other consumer electronic 
batteries for ``after-market'' sales.
    Table 4 stratifies the small businesses according to annual 
revenue. The annual revenue of the 60 small businesses identified for 
this examination totals roughly $681 million annually. There were nine 
small businesses contacted to examine the potential impact of the 
proposed rule on their operations. The annual revenue of these nine 
businesses impacted by the NPRM totals approximately $217.1 million, or 
31.9 percent of the total. Annual revenues among all 60 small 
businesses range from a low of $100,000 to a high of $98.7 million. As 
shown, 47 percent of the small businesses generate less than $5 million 
in annual revenue, while 65 percent generate less than $10 million. Of 
the nine small businesses contacted, the sales-weighted before-tax 
profit margin was approximately 21 percent. Applying the 21 percent 
before-tax profit margin to the annual revenue estimates noted 
previously generates an estimated $145 million of before-tax profit for 
the small businesses affected by the proposed rule. Among the small 
businesses examined in this IRFA, the average before-tax profit is, 
therefore, estimated at $2.4 million annually. Note, however, that 
these businesses do not focus entirely on the manufacturing and 
distribution of lithium batteries. Thus, only a fraction of these 
profits are attributable to lithium batteries.

                                  Table 4.--Small Business Size by Annual Sales
----------------------------------------------------------------------------------------------------------------
                                                                    Number  of    Percentage  of
                          Annual sales                                 small           small        Cumulative
                                                                    businesses      businesses      percentage
----------------------------------------------------------------------------------------------------------------
0-499,999.......................................................               4               7               7
500,000-999,999.................................................               3               5              12
1,000,000-4,999,999.............................................              20              35              47
5,000,000-9,999,999.............................................              10              18              65
10,000,000-14,999,999...........................................               3               5              70
15,000,000-19,999,999...........................................               8              14              84
20,000,000-24,999,999...........................................               3               5              89
25,000,000-29,999,999...........................................               2               4              93
30,000,000-34,999,999...........................................               1               2              95
35,000,000-39,999,999...........................................  ..............               0              95

[[Page 34733]]

 
40,000,000-44,999,999...........................................  ..............               0              95
45,000,000-49,999,999...........................................  ..............               0              95
50,000,000-54,999,999...........................................               1               2              96
55,000,000-59,999,999...........................................  ..............               0              96
60,000,000-64,999,999...........................................  ..............               0              96
65,000,000-69,999,999...........................................               1               2              98
70,000,000-74,999,999...........................................  ..............               0              98
75,000,000-79,999,999...........................................  ..............               0              98
80,000,000-84,999,999...........................................  ..............               0              98
85,000,000-89,999,999...........................................  ..............               0              98
90,000,000-94,999,999...........................................  ..............               0              98
95,000,000-99,999,999...........................................               1               2             100
                                                                 -----------------
    Subtotal....................................................              57  ..............  ..............
    Unknown.....................................................               3  ..............  ..............
                                                                 =================
        Total...................................................              60  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    Table 5 stratifies the small businesses according to their number 
of employees. The company with the lowest number of employees had two 
employees and the company with the highest number had 233 employees. 
The majority of the small businesses (64 percent) have fewer than 50 
employees and the vast majority of these businesses (85 percent) have 
fewer than 100 employees.

                              Table 5.--Small Business Size by Number of Employees
----------------------------------------------------------------------------------------------------------------
                                                                    Number  of    Percentage  of
                       Number of employees                             small           small        Cumulative
                                                                    businesses      businesses      percentage
----------------------------------------------------------------------------------------------------------------
1-10............................................................               9              15              15
11-20...........................................................              13              22              37
21-30...........................................................               4               7              44
31-40...........................................................               7              12              56
41-50...........................................................               5               8              64
51-60...........................................................               2               3              68
61-70...........................................................               2               3              71
71-80...........................................................               4               7              78
81-90...........................................................               0               0              78
91-100..........................................................               4               7              85
101-110.........................................................               1               2              86
111-120.........................................................               0               0              86
121-130.........................................................               1               2              88
131-140.........................................................               0               0              88
141-150.........................................................               4               7              95
151-160.........................................................               2               3              98
161-170.........................................................               0               0              98
171-180.........................................................               0               0              98
181-190.........................................................               0               0              98
191-200.........................................................               0               0              98
201-210.........................................................               0               0              98
211-220.........................................................               0               0              98
221-230.........................................................               0               0              98
231-240.........................................................               1               2             100
                                                                 -----------------
    Subtotal....................................................              59  ..............  ..............
    Unknown.....................................................               1  ..............  ..............
                                                                 =================
        Total...................................................              60  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    Description of the projected reporting, recordkeeping, and other 
compliance requirements of the proposed rule, including an estimate of 
the classes of small entities that will be subject to the requirement 
and the type of professional skills necessary for preparation of the 
report or record.
    The compliance costs to small businesses subject to the provisions 
in the proposed rule are primarily related to testing battery and cell 
designs, shipping of both prototypes and final products, and the 
training required for employees newly classified as hazmat employees. 
Each of these will be discussed separately. Additionally, we will 
discuss the extent to which these

[[Page 34734]]

additional compliance costs can be passed on to the small businesses' 
customers.

Testing

    Based on the information presented in the NPRM, threshold analysis, 
regulatory evaluation and industry comments, testing requirements would 
be affected in the following manner.
    1. The rule would remove the small battery exception to testing 
requirements. The following exceptions would be removed from the HMR, 
thus requiring that batteries falling into the categories outlined 
below be tested in accordance with the UN Manual of Tests and Criteria.
     Liquid cathode cell--no more than 0.5 grams of alloy per 
cell
     Liquid cathode battery--no more than 1 gram of lithium or 
lithium alloy
     Solid cathode cell--no more than 1 gram of lithium or 
lithium alloy per cell
     Solid cathode battery--no more than 2 grams of lithium or 
lithium alloy
     Lithium ion cell--no more than 1.5 grams of equivalent 
lithium content
     Lithium ion battery--no more than 8 grams of equivalent 
lithium content
    2. Exceptions to the battery testing requirements would include:
     Batteries and cells that differ from a tested type by a 
change of no more than 0.1 gram or 20 percent by mass, whichever is 
greater.
     Batteries that are of a design similar to one that has 
been previously tested under UN standards and contain lithium content 
less than the original design.
    3. At present, small battery and cell manufacturers and 
distributors are required to test all mid-size and larger batteries 
according to the 8 step approach in the UN Manual of Tests and 
Criteria. Estimated testing costs used for this IRFA are those charged 
by outside testing laboratories because virtually all of the small 
companies send their batteries to outside laboratories. The cost to 
test a particular design prototype ranges from approximately $5,000 to 
$8,000. Testing cost estimates are based on input provided by one 
independent testing laboratory (Motorola) and contacting nine 
businesses. These costs do not include the costs of supplying the test 
batteries (up to 24 for rechargeable batteries) or the cost of shipping 
the prototypes to the testing lab. The primary reason for this is that 
the tests are already required for any cell or batteries that are 
shipped internationally.
    The major incremental cost under the proposed regulation for the 
small producers of lithium batteries and cells will result from the 
required testing of small batteries. To determine the number of new 
design types requiring testing, a series of questions were posed to 
nine businesses. First, respondents were asked to estimate the number 
of total new designs that would be tested this year and how they 
expected this number to change in the next five years. Respondents were 
asked to categorize the new design types according to size (small, mid-
size, large) and type (primary, rechargeable). Contacted businesses 
were then asked to estimate the fraction of the new design types that 
could potentially be considered exempt due to the following reasons: 
(a) They are nearly identical to existing designs (e.g., batteries and 
cells that differ from a tested type by a change of no more than 0.1 
gram or 20 percent by mass, whichever is greater) or (b) they will be 
manufactured in production runs of fewer than 100 batteries. The costs 
associated with testing batteries falling into these categories were 
excluded from the analysis.
    The costs associated with testing new battery designs designated 
for international shipment were also excluded from the analysis. The 
basis of this exclusion is that lithium batteries that are manufactured 
within the U.S. but subsequently transported by aircraft to foreign 
destinations are already transported in accordance with the ICAO 
Technical Instructions, which have adopted the U.N. test standards. 
Thus, harmonization with the international standards would not impose 
any marginal costs on businesses engaged in the international transport 
of lithium batteries.
    Table 6 shows the number of existing designs subject to testing 
over the two-year period following the effective date of the proposed 
rule as well as the number of new designs that would require testing 
over a 5-year period for the contacted businesses. As noted previously, 
the nine contacted small businesses comprise an estimated 31.9 percent 
($217.1 million/$681.1 million) of all small businesses affected by the 
proposed rule in annual revenues. Thus, to expand these results to the 
entire population of small businesses, an expansion factor of 3.1 
($681.1 million/$217.1 million) was used to estimate the total number 
of designs requiring testing among all small businesses and these 
figures are also shown in Table 6.

                                                          Table 6.--Annual Testing Requirements
                                                          [Number of battery and cell designs]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Small businesses contacted                             All small businesses
                                                 -------------------------------------------------------------------------------------------------------
                      Year                                                  New designs                                         New designs
                                                    Previous  ---------------------------------------   Previous  --------------------------------------
                                                    designs       Small       Mid-size      Large       designs       Small       Mid-size      Large
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004............................................          254          115           61            2          797          360          190            5
2005............................................          254          130           72            2          797          406          225            5
2006............................................  ...........          146           84            2  ...........          458          265            5
2007............................................  ...........          165          100            2  ...........          516          313            5
2008............................................  ...........          186          118            2  ...........          582          369            5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Two scenarios were developed to reflect the costs for low- and 
high-end estimates of $5,000 and $8,000 per test, respectively. The 
costs for these scenarios are shown in Tables 7 and 8. There are no 
testing costs for mid-size and large batteries because they are already 
required to be tested. The production and shipping costs are the same 
for both estimates. The production costs assume that an average of 20 
batteries is required for testing each design and that each battery 
produced for testing costs approximately $50. The shipping costs were 
determined by averaging the FedEx Express 2-day shipping costs for a 
package of 20 one-pound batteries to Motorola's Georgia testing 
location from New York City, Orlando, and Los Angeles. A certified 
packaging weighing two pounds and costing $5 was assumed and FedEx's 
$30 hazmat surcharge was included in the shipping cost estimate.

[[Page 34735]]



                                              Table 7.--Annual Costs of Complying with Testing Requirements
                                                                   [Low-end estimate]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            New designs
                      Year                          Previous  ---------------------------------------  Production    Shipping      Total      Discounted
                                                    designs       Small       Mid-size      Large                                               total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004............................................    3,986,929    1,801,334  ...........  ...........    1,157,653       85,087    7,031,004    7,031,004
2005............................................    3,986,929    2,030,941  ...........  ...........    1,203,574       88,463    7,309,907    6,831,689
2006............................................  ...........    2,289,815  ...........  ...........      457,963       33,660    2,781,439    2,429,416
2007............................................  ...........    2,581,687  ...........  ...........      516,337       37,951    3,135,975    2,559,889
2008............................................  ...........    2,910,761  ...........  ...........      582,152       42,788    3,535,702    2,697,370
                                                 --------------
    Total.......................................    7,973,858   11,614,539  ...........  ...........    3,917,679      287,949   23,794,026   21,549,368
        Avg.....................................    1,594,772    2,322,908  ...........  ...........      783,536       57,590    4,758,805    4,309,874
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                              Table 8.--Annual Costs of Complying with Testing Requirements
                                                                   [High-end estimate]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            New designs
                      Year                          Previous  ---------------------------------------  Production    Shipping      Total      Discounted
                                                    designs       Small       Mid-size      Large                                               total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004............................................    6,379,087    2,882,135  ...........  ...........    1,157,653       85,087   10,503,962   10,503,962
2005............................................    6,379,087    3,249,506  ...........  ...........    1,203,574       88,463   10,920,630   10,206,196
2006............................................  ...........    3,663,704  ...........  ...........      457,963       33,660    4,155,328    3,629,424
2007............................................  ...........    4,130,698  ...........  ...........      516,337       37,951    4,684,987    3,824,345
2008............................................  ...........    4,657,218  ...........  ...........      582,152       42,788    5,282,158    4,029,733
                                                 --------------
    Total.......................................   12,758,173   18,583,262  ...........  ...........    3,917,679      287,949   35,547,064   32,193,660
        Avg.....................................    2,551,635    3,716,652  ...........  ...........      783,536       57,590    7,109,413    6,438,732
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As indicated in Table 7, the incremental cost for the low-end 
estimate over a five-year period for all 60 small businesses would be 
$21,549,368, discounted at 7 percent per year, while the discounted 
average annual cost would be $4,309,874.\1\ For the high-end estimate 
shown in Table 8, the incremental discounted cost over a five-year 
period would be $32,193,660 while the discounted average annual cost 
would be $6,438,732. An average annual discounted cost over the five-
year period for the averaged low- and high-end estimates would be about 
$5,374,303 for the same companies.
---------------------------------------------------------------------------

    \1\ Annual costs are presented in present value terms based on a 
real discount rate of 7 percent as prescribed in the Office of 
Management and Budget Circular A-94.
---------------------------------------------------------------------------

    For each company there would be an estimated incremental discounted 
cost of approximately $71,831 annually for the low-end testing costs 
and about $107,312 average for the discounted high-end testing costs 
over the five-year period. The average annual estimated discounted 
testing cost per company using the averaged high- and low-end costs 
would be approximately $89,572.

Shipping

    Currently, under 49 CFR 173.185, lithium batteries and cells are 
required to be shipped as Class 9 hazardous materials with certain 
significant exceptions. The proposed rules would eliminate one of these 
exceptions, requiring mid-size batteries and cells to be shipped as 
Class 9 materials. In addition, new packaging integrity and 
communication requirements now apply to small batteries and cells 
shipped in packages of more than 12 batteries or 24 cells, except when 
installed in equipment.
    To ship lithium cells and batteries as Class 9 hazardous materials, 
transporters must meet the following requirements:
    1. Packaging: Use only packaging that meets Packing Group II 
performance standards. (Packing must not exceed 5 kg (gross weight) for 
passenger aircraft and must not exceed 35 kg (gross weight) for cargo 
aircraft.
    2. Marking: The following markings must be applied to the 
packaging:
     Shipping name: Lithium batteries
     Identification Number: UN 3090
     Shipper's Name and Address
     Name and address of company or individual receiving 
batteries
     UN Specification Certification
    3. Labeling: The Class 9 label must be used.
    4. Train personnel.
    5. Shipping Papers: The following information must be included on 
shipping papers:
     Proper shipping name, hazard class, identification number, 
and packing group
     Number and type of packages
     Total quantity of hazardous materials
     Page number and total number of pages
     Emergency telephone number
     Shipper's certification
     Signature (Must be legibly signed by a principal, officer, 
partner, or employee of the shipper or his agent)
    Based on the wide-ranging cost estimates gathered from interviewing 
selected small businesses for the additional shipping costs for lithium 
batteries and cells under the proposed rules, we adopted estimates for:
    (a) The increased cost to ship small batteries and cells under the 
proposed rules,
    (b) The increased cost to ship mid-sized cells as Class 9 
materials, and
    (c) The increased cost to ship mid-sized batteries as Class 9 
materials.
    These estimates were primarily developed from detailed data 
provided from a single small business; however, they were deemed to be 
reasonable average costs considering the varying estimates provided by 
other small businesses with somewhat lesser detail. These costs are 
$0.05 for each small battery and cell, $0.261 for each mid-sized cell, 
and $0.313 for each mid-size battery.
    Table 9 shows the total number of batteries and cells in normal 
production runs (production units) that are expected to be shipped to 
customers

[[Page 34736]]

and also illustrates how the final production shipping costs were 
determined for the base year of the analysis (2004).

             Table 9.--Production Units Shipped to Customers and Incremental Shipping Costs for 2004
----------------------------------------------------------------------------------------------------------------
                                                                                                     Adjusted
                      Type                         Units shipped    Incremental     Incremental     incremental
                                                                     unit cost         cost            cost
----------------------------------------------------------------------------------------------------------------
Cells:
    Primary Lithium:
        Small...................................         802,800            0.05          40,140         125,901
        Mid-size................................           7,132           0.261           1,861           5,839
        Large...................................             128             0.0               0               0
    Lithium Ion:
        Small...................................               0             0.0               0               0
        Mid-size................................               0             0.0               0               0
Batteries:
    Primary Lithium:
        Small...................................       1,065,464            0.05          52,273         167,094
        Mid-size................................       1,104,944           0.313         345,847       1,084,765
        Large...................................           3,744             0.0               0               0
    Lithium Ion:
        Small...................................       1,322,444            0.05          66,122         207,395
        Mid-size................................         305,500           0.313          95,622         299,921
                                                 -----------------
        Total...................................  ..............  ..............         602,866       1,890,913
----------------------------------------------------------------------------------------------------------------

    Table 10 shows the total annual shipping costs for production 
deliveries of lithium batteries and cells to customers of the small 
businesses for which shipment quantities were obtained. These costs 
were adjusted to reflect the costs for all 60 small businesses and then 
discounted using a 7 percent discount rate. The discounted costs for 
the five-year analysis period are $10,916,110, which equates to a 
discounted annual average of $2,183,222 per year. On a discounted 
annual basis, each small business would be expected to incur $36,387 in 
additional shipping costs to comply with the proposed rules.

                            Table 10.--Annual Incremental Shipping Costs to Customers
----------------------------------------------------------------------------------------------------------------
                                                          Production runs
                                                 --------------------------------
                      Year                                           Adjusted          Total        Discounted
                                                    Incremental     incremental                        total
                                                       cost            cost
----------------------------------------------------------------------------------------------------------------
2004............................................         602,866       1,890,913       1,890,913       1,890,913
2005............................................         691,466       2,168,812       2,168,812       2,026,927
2006............................................         793,088       2,487,552       2,487,552       2,172,725
2007............................................         909,645       2,853,137       2,853,137       2,329,010
2008............................................       1,043,331       3,272,450       3,272,450       2,496,536
                                                 -----------------
    Total.......................................  ..............  ..............  ..............      10,916,110
        Average Annual..........................  ..............  ..............  ..............       2,183,222
        Average Annual/Company..................  ..............  ..............  ..............          36,387
----------------------------------------------------------------------------------------------------------------

Training

    As mentioned previously, lithium batteries and cells are now 
required to be shipped as a Class 9 hazardous material with certain 
significant exceptions. The proposed rules would eliminate one of these 
exceptions, requiring all mid-size batteries and cells to be shipped as 
Class 9 materials. One of the requirements for shipping lithium 
batteries and cells as a Class 9 hazardous material is that all hazmat 
employers must ensure that their hazmat employees receive training in 
general awareness of hazmat regulatory requirements, function-specific 
training related to the material they are handling, security awareness 
training and safety training including emergency response and 
protective measures. Hazmat training must:
     Take place before the employee can work with hazardous 
materials. Exceptions: The employee works under the direct supervision 
of a trained employee and the training is completed within 90 days of 
their hire or transfer into the job.
     Be done at least every three years for all hazmat 
employees. Training done by another employer can be used to meet these 
requirements.
     Be maintained for each employee for at least the past 
three years and for at least 90 days after the end of the employee's 
employment. This record must include:

--The employee's name,
--The most recent training completion date,
--A description, copy or location of the training materials,
--The name and address of the person providing the training, and
--Certification that the employee has been trained and tested.

    All small companies that ship lithium batteries or cells as Class 9 
hazardous materials must train hazmat employees in accordance with the 
provisions of the HMR. Based on the data conducted for this IRFA, all 
of the small battery companies were assumed to be shipping some 
batteries as Class 9 hazmat. This means that each company currently has 
a cadre of hazmat-trained employees and has therefore already made a

[[Page 34737]]

considerable financial investment in employee training.
    Two different approaches have been used by small companies to train 
their employees. The first approach is to hire an outside expert to 
visit the company periodically (perhaps every two years) and present 
training on current and proposed changes to the hazmat regulations. The 
employees who attend these sessions would typically be trained as 
trainers and they, in turn, would train other workers as needed. The 
second approach to training is for a company to select one employee as 
their training expert. This employee would be exposed to a periodic 
(every two years) specialized off-site course providing expert training 
in hazardous materials. The trained employee returns to their company 
and trains other employees by conducting a series of hazmat training 
sessions.
    Although costs differ for the various elements of these two 
training approaches, the research conducted for this IRFA indicates 
that the total costs to train one hazmat employee is approximately the 
same for both approaches. However, this analysis is focused on 
incremental costs represented by the need for small businesses to 
provide hazmat training to any additional employees needed to handle 
lithium batteries or cells that would newly be classified as hazmat as 
a result of the proposed regulations. As Table 11 shows, the estimated 
incremental discounted cost for training over a five-year period for 
all 60 small businesses would be $72,565 while the average annual 
discounted cost would be about $14,513. This cost is based on an 
estimated cost to train one hazmat employee of about $352, computed as 
the average of the estimates from three small businesses. Considering 
that slightly less than one employee per company needs additional 
training (0.83 employees per company based on contacted businesses), 
the average annual cost per small business is $242.
    To illustrate the costs associated with training employees, one of 
the three businesses sharing detailed training cost information noted 
that it pays an experienced external trainer $1,500 to teach a detailed 
six-hour class on the handling of hazardous materials. There are six 
employees in attendance, whose average pay is $15/hour. With an average 
fringe benefit rate of 28.1 percent, total labor costs associated with 
class attendance is $692.\2\ A human resources manager is charged with 
all data entry and recordkeeping requirements associated with hazardous 
material training and certification. The recordkeeping cost is $154 
($20/hour @ 6 hours + fringe benefits). The total cost to train these 
six employees is $2,346 and the average cost per employee is $391.
---------------------------------------------------------------------------

    \2\ Fringe benefits data based on Bureau of Labor Statistics, 
National Compensation Survey, Employer Cost for Employee 
Compensation, Total Benefits, Private Industry All Workers.

                                  Table 11.--Annual Incremental Training Costs
----------------------------------------------------------------------------------------------------------------
                                                    Additional
                                  Employees with     employees      Incremental       Adjust.       Discounted
              Year                 certification     requiring         cost         incremental        total
                                                   certification                       cost
----------------------------------------------------------------------------------------------------------------
2004............................             376              15           5,273          12,923          12,923
2005............................             426              17           5,970          14,630          13,673
2006............................             482              19           6,759          16,563          14,467
2007............................             546              22           7,652          18,752          15,307
2008............................             618              25           8,663          21,229          16,195
                                 -----------------
    Total.......................  ..............  ..............  ..............  ..............          72,565
        Average Annual..........  ..............  ..............  ..............  ..............          14,513
        Average Annual/Company..  ..............  ..............  ..............  ..............             242
----------------------------------------------------------------------------------------------------------------

Summary of Costs

    The incremental costs incurred by small businesses to implement the 
regulations in the proposed rule are summarized in Tables 12 and 13. 
Testing is by far the dominant added cost that would be mandated by the 
proposed regulation account for 66 percent of total costs in the low-
end estimate and 74 percent of total costs in the high-end estimate. 
Shipping costs account for 35 and 26 percent, respectively, of the 
total low- and high-end cost estimates. In both estimates, training 
costs are approximate 0.2 percent of total costs.

                                 Table 12.--Summary of Costs to Small Businesses
                                               [Low-end estimate]
----------------------------------------------------------------------------------------------------------------
              Year                    Testing        Training        Shipping          Total        Discounted
----------------------------------------------------------------------------------------------------------------
2004............................      $7,031,004         $12,923      $1,890,913      $8,934,839      $8,934,839
2005............................       7,309,907          14,630       2,168,812       9,465,221       8,846,001
2006............................       2,781,439          16,563       2,487,552       5,221,448       4,560,615
2007............................       3,135,975          18,752       2,853,137       5,898,286       4,814,759
2008............................       3,535,702          21,229       3,272,450       6,662,887       5,083,085
                                 -----------------
    Total.......................      23,794,026          84,097      12,672,863      36,182,682      32,239,299
        Average Annual..........  ..............  ..............  ..............  ..............       6,447,860
        Average Annual per        ..............  ..............  ..............  ..............         107,464
         Company................
----------------------------------------------------------------------------------------------------------------


[[Page 34738]]


                                 Table 13.--Summary of Costs to Small Businesses
                                               [High-end estimate]
----------------------------------------------------------------------------------------------------------------
              Year                    Testing        Training        Shipping          Total        Discounted
----------------------------------------------------------------------------------------------------------------
2004............................     $10,503,962         $16,540      $1,890,913     $12,407,798     $12,407,798
2005............................      10,920,630          18,971       2,168,812      13,075,943      12,220,508
2006............................       4,155,328          21,759       2,487,552       6,595,337       5,760,623
2007............................       4,684,987          24,957       2,853,137       7,447,298       6,079,214
2008............................       5,282,158          28,625       3,272,450       8,409,344       6,415,448
                                 -----------------
    Total.......................      35,547,064         110,853      12,672,863      47,935,720      42,883,590
        Average Annual..........  ..............  ..............  ..............  ..............       8,576,718
        Average Annual per        ..............  ..............  ..............  ..............         142,945
         Company................
----------------------------------------------------------------------------------------------------------------

    Examining the midpoint between the low- and high-end estimates, the 
total cost over the five-year analysis period (in current dollars) for 
all 60 small businesses is $37,561,444. On an annual basis, this is 
$7,512,289 and it equates to an average cost per company per year of 
$125,205 in constant dollars. The average cost per company represents 
an arithmetic mean or the value obtained by dividing the sum of total 
costs by the total number of companies examined in the IRFA. Thus, the 
average cost estimate cannot be uncritically applied to the operations 
of every company operating in the lithium battery industry. The 60 
small businesses examined with this IRFA encompass a broad range of 
operations, as evidenced by the spectrum of annual revenues presented 
in Table 4. The costs associated with complying with the proposed rule 
are primarily driven by the number of new battery designs requiring 
testing and the volume of shipments of newly designated Class 9 
packages. Based on the responses provided by the smaller firms examined 
within this IRFA, the evidence suggests smaller marginal costs for 
these small firms due to their limited size and scale of operations. 
That is, smaller firms generally develop fewer new battery designs and 
ship fewer batteries compared to the larger firms operating within the 
lithium battery industry. There are exceptions to this rule, of course, 
and to the extent any firms regardless of size develop a larger number 
of new designs to meet the demands of the market place (e.g., small 
firms filling a high volume of custom orders), the costs associated 
with the new testing requirements could be greater.
    As noted previously, the annual revenue of the 60 small businesses 
examined in this IRFA total roughly $681 million, while estimated 
profits are approximately $145 million annually. Thus, $7.5 million in 
annual costs is equal to roughly 1.1 percent and 5.2 percent of annual 
revenues and profits, respectively.

Competitive Impacts of the Rule on Small Businesses

    The question of who bears the costs associated with the proposed 
rule is central to the issue of industry burden. Will the costs be 
borne by the company or be passed along to the consumer? If battery 
manufacturers pass these costs along to consumers, will battery sales 
be adversely impacted by these costs? The term for the relationship to 
changes in quantity demanded in response to changes in price is known 
as elasticity. The price elasticity of demand for a product is equal to 
the change in quantity demanded divided by the change in price. Price-
sensitive or elastic goods are those where an increase in price is 
offset by a reduction in the quantity demanded. Examples of price-
elastic goods include theater tickets, fur coats, and sail boats. Thus, 
for each percent that the price of these items grows, there is at least 
a one percent decline in sales. Price-inelastic goods are those where 
price increases proportionally more than demand decreases. Examples of 
price-inelastic goods include gasoline, medical services, bread, and 
milk.
    The proposed rule would increase the cost of production for the 
affected small manufacturers and distributors. A company selling a 
perfectly inelastic good could increase its price without adversely 
affecting sales, while in the case of perfectly elastic products, 
companies cannot pass along any of the higher costs of production 
without losing their customers. Because goods sold in the marketplace 
demonstrate a range of elasticities and some respondents indicated that 
costs could be passed along to consumers while others indicated that 
costs would be entirely absorbed by industry, the costs of the proposed 
regulation are likely to be borne by both producers and consumers. The 
actual distribution of the costs among producers and consumers under 
the proposed rule is not known.
    Description of any significant alternatives to the proposed rule 
that minimize significant economic impacts on small entities while 
accomplishing the agency's objectives. The proposed rule is designed to 
improve the safety of the transportation of lithium batteries and 
cells. Any alternatives to the proposed rule should result in similar 
safety benefits to warrant their consideration. We considered a number 
of possible alternatives:
    1. Except batteries and cells transported by motor vehicle for the 
purposes of recycling from Class 9 hazmat requirements. The 
circumstances under which these materials would be shipped are 
essentially the same as those for disposal. The proposed rule provides 
an exception for lithium batteries and cells being transported by motor 
carrier for disposal as long as they are protected against short 
circuits and packed in a strong outer packaging conforming to the 
requirements of Sec. Sec.  173.24 and 173.24a.
    2. Provide manufacturers with four years, as opposed to two, to 
comply with the new testing requirements for existing small battery 
designs. This would ease the burden on small businesses by spreading 
out their compliance costs over twice the period, reducing the present 
value of the testing costs. This option would reduce the present value 
testing cost burden on the manufacturers by 2.8 percent, resulting in 
an average annual discounted testing costs per company from roughly 
$89,572 to $87,075.
    3. Adopt a small production run exception from the testing 
requirements. The UN Recommendations provide for a small production run 
exception of 100 batteries or cells. Some small businesses felt that 
this number was too small to be effective and indicated that a higher 
number (e.g., 1000) would be more appropriate. Other companies 
indicated that they rarely make small production

[[Page 34739]]

runs. One company stated that a threshold of 100 batteries or cells 
would cover 75 percent of their business and that a threshold of 250 
would cover 85 to 90 percent of their business.
    4. Retain the current exemption from the shipping requirements for 
mid-size lithium ion batteries and cells. This alternative is based on 
the belief by some small businesses that the flammability hazard for 
lithium ion batteries and cells is far lower than for lithium metal or 
lithium alloy batteries and cells. This alternative would reduce 
annualized shipping costs per company by $5,613 annually, from $35,391 
to $29,778, as shown in Table 14.

     Table 14.--Cost Savings From Keeping the Current Exemption for Mid-Size Lithium Ion Batteries and Cells
----------------------------------------------------------------------------------------------------------------
                                                       Total         Adjusted
                      Year                          incremental     incremental        Total        Discounted
                                                       cost            cost                            total
----------------------------------------------------------------------------------------------------------------
2004............................................         507,244       1,590,992       1,590,992       1,590,992
2005............................................         574,246       1,801,146       1,801,146       1,683,314
2006............................................         650,098       2,039,060       2,039,060       1,780,994
2007............................................         735,970       2,308,399       2,308,399       1,884,341
2008............................................         833,184       2,613,316       2,613,316       1,993,686
                                                 -----------------
    Total.......................................  ..............  ..............  ..............       8,933,328
        Average Annual..........................  ..............  ..............  ..............       1,786,666
        Average Annual/Company..................  ..............  ..............  ..............          29,778
----------------------------------------------------------------------------------------------------------------

    5. Increase the lower threshold for lithium ion mid-size batteries 
and cells. This would result in more batteries and cells falling into 
the small category. These materials would have already been subject to 
the UN tests and would be subject to the increased integrity and 
communication requirements for small batteries but would not be subject 
to the Class 9 shipping requirements being proposed for mid-size 
batteries. This would create a $0.211 savings for cells and a $0.263 
savings for batteries for an annualized savings of approximately $4,717 
per company, from $35,391 to $30,674, as shown in Table 15.

                Table 15.--Cost Savings From a Lower Threshold for Mid-Size Lithium Ion Batteries
----------------------------------------------------------------------------------------------------------------
                                                       Total         Adjusted
                      Year                          incremental     incremental        Total        Discounted
                                                       cost            cost                            total
----------------------------------------------------------------------------------------------------------------
2004............................................         522,519       1,638,903       1,638,903       1,638,903
2005............................................         591,539       1,855,385       1,855,385       1,734,005
2006............................................         669,675       2,100,463       2,100,463       1,834,626
2007............................................         758,133       2,377,914       2,377,914       1,941,086
2008............................................         858,275       2,692,013       2,692,013       2,053,723
                                                 -----------------
    Total.......................................  ..............  ..............  ..............       9,202,343
        Average Annual..........................  ..............  ..............  ..............       1,840,468
        Average Annual/Company..................  ..............  ..............  ..............          30,674
----------------------------------------------------------------------------------------------------------------

    There are incremental differences in the properties of lithium 
metal or lithium alloy batteries and cells and lithium ion batteries 
and cells. These differences are recognized in the higher threshold 
limits between the small and mid-size categories for lithium ion 
products. Some organizations have argued that an equivalent level of 
safety could be maintained if the threshold between small and mid-size 
batteries were increased from 8 to 16 as long as the state of charge of 
the batteries was not more than 50 percent of the design rated 
capacity.\3\ The aggregate equivalent lithium content of lithium ion 
batteries and cells has increased significantly in portable consumer 
products since the thresholds were established and this increase has 
focused more attention on those thresholds. However, a major concern 
with adopting thresholds tied to a state of charge is how the state of 
charge of a battery in transportation could be measured in the field to 
verify that it is in compliance with the regulations.
---------------------------------------------------------------------------

    \3\ Informal document presented to the 25th Session (July 5-14, 
2004) of the United Nations Sub-Committee of Experts on the 
Transport of Dangerous Goods (TDG) by the International 
Electrotechnical Commission (IEC). ``Changes to special provision 
188 for lithium batteries: Request for comments.'' UN/SCETDG/25/
INF.54.
---------------------------------------------------------------------------

    6. Except small, single-cell batteries from testing requirements if 
the cells have already passed the UN T1-T8 tests. This alternative is 
highly desired by those small businesses that manufacture these 
batteries. They argue that the characteristics of these batteries, from 
a safety standpoint, are essentially the same as for the component 
cells from which they are made. We do not have sufficient data to 
determine how many battery designs would be covered by this alternate 
exception; however several companies and the PRBA indicated that the 
cost implications for them would be very significant.
    7. Require that small batteries be shipped as Class 9 hazmat but 
not require testing unless they are being shipped internationally by 
air. This alternative recognizes that international regulations require 
testing of batteries and cells that are being shipped internationally. 
While the incremental cost of shipping these materials as Class 9 
hazmat is greater than shipping them with the increased integrity and 
communications requirements of the proposed rule ($0.211 more for cells 
and $0.263 more for batteries), eliminating the testing requirements 
would provide significant overall cost savings. This alternative would 
eliminate the costs associated with testing small battery designs, thus 
resulting in an annualized savings of $89,537 per company. Conversely, 
it would increase shipping costs by roughly $46,812 annually. The 
annualized net savings per company of this alternative would, 
therefore, be

[[Page 34740]]

$42,725, as compared to implementing the proposed rule in its entirety.
    While it is possible that these alternatives might provide similar 
safety benefits to the proposed rule while reducing costs to the 
regulated community, PHMSA still believes, based on our current 
research and information, that the proposed rule offers the best 
approach for ensuring the safe transportation of lithium batteries and 
cells. PHMSA is open to consideration of these alternatives based on 
the comments received in response to this IRFA.
    Identification, to the extent practicable, of all relevant federal 
rules that may duplicate, overlap, or conflict with the proposed rule. 
PHMSA is unaware of any duplicative, overlapping, or conflicting 
federal rules. As we stated above, there are international rules that 
address the transportation of lithium batteries and cells and this 
proposed rule attempts to improve the harmonization with those rules. 
We seek comments and information about any other rules which may be 
relevant to the transportation of lithium batteries and cells.
    Questions for Comment to Assist Regulatory Flexibility Analysis: 
Please provide comment or information on any or all of the provisions 
in the proposed rule with regard to their impact on small entities or 
on the cost estimates in this interim regulatory flexibility analysis. 
We are particularly interested in comments concerning the following:
    1. The categorization and identification of the affected small 
businesses. Are there additional categories of small business that 
would be impacted by the proposed rules? For example, are we correct 
that there are not a significant number of electronic equipment 
distributors that are small businesses?
    2. The distribution of lithium batteries and cells among the three 
size categories. This allows proper calculation of the batteries and 
cells that would be subject to new testing and shipping requirements.
    3. The estimated costs for testing the various battery and cell 
types.
    4. The estimated shipping costs for both production and prototype 
batteries and cells, including packaging, marking, labeling, etc.
    5. The estimated training costs for hazmat employees and the number 
of employees that would become hazmat employees as a result of this 
rule and its requirement that some batteries and cells currently exempt 
from being shipped as Class 9 hazardous materials would no longer be 
exempt.
    6. Ways in which the rule could be modified to reduce any costs or 
burdens for small entities yet maintaining a consistent level of 
safety.
    7. Any relevant Federal, State, or local rules that may duplicate, 
overlap, or conflict with the proposed rule.
    8. Industry rules or policies that would require small entities to 
implement business practices that would already comply with the 
requirements of the proposed rule.

    Issued in Washington, DC on June 8, 2005, under authority 
delegated in 49 CFR part 106.
Robert A. McGuire,
Associate Administrator for Hazardous Materials Safety.
[FR Doc. 05-11765 Filed 6-14-05; 8:45 am]
BILLING CODE 4910-60-P