[Federal Register Volume 72, Number 210 (Wednesday, October 31, 2007)]
[Proposed Rules]
[Pages 61574-61578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21401]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AF67


Small Business Size Standards; Fuel Oil Dealers Industries

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
change the small business size standard for the Heating Oil Dealers 
industry (North American Industry Classification System (NAICS) code 
454311)) from $11.5 million in average annual receipts to 50 employees, 
and the size standard for the Liquefied Petroleum Gas (Bottled Gas) 
Dealers industry (NAICS code 454312) from $6.5 million in average 
annual receipts to 50 employees. Large and fluctuating increases in the 
prices of heating oil and propane over the past several years indicate 
that a more stable measure of firm size based on number of employees 
rather than receipts is needed for these two industries.

DATES: SBA must receive comments to this proposed rule on or before 
November 30, 2007.

ADDRESSES: You may submit comments, identified by RIN 3245-AF67, by one 
of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments; 
or (2) Mail/Hand Delivery/Courier: Gary M. Jackson, Assistant Director 
for Size Standards, 409 Third Street, SW., Mail Code 6530, Washington, 
DC 20416.
    SBA will post all comments on www.Regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.Regulations.gov, please submit the information to Diane 
Heal, Office of Size Standards, 409 Third Street, SW., Mail Code 6530, 
Washington, DC 20416, or send an e-mail to [email protected]. 
Highlight the information that you consider to be CBI and explain why 
you believe SBA should hold this information as confidential. SBA will 
review the information and make the final determination of whether it 
will publish the information or not.

FOR FURTHER INFORMATION CONTACT: Diane Heal, Office of Size Standards, 
(202) 205-6618 or [email protected].

SUPPLEMENTARY INFORMATION: Several small businesses, trade 
associations, and Members of Congress have requested that SBA review 
the $11.5 million size

[[Page 61575]]

standard for the Heating Oil Dealers industry and the $6.5 million size 
standard for the Liquefied Petroleum Gas (Bottled Gas) Dealers (LPG 
dealers) industry. The requesters contend that SBA should either 
increase the receipt-based size standards for these industries to 
account for the impact of large increases in crude oil costs on heating 
oil and propane prices over the past several years or establish a size 
standard based on the number of employees of a business concern. They 
point out that under the existing receipts size standard, a heating oil 
or LPG dealer currently defined as small may abruptly exceed the size 
standard due to large and unpredictable increases in crude oil costs, 
even though it continues to deliver the same quantity of fuel products. 
The reason is because the cost of such fuel products is included when 
calculating the firm's receipts for size purposes.
    In addition to eligibility for SBA programs, small business status 
for heating oil and LPG dealers also determines the amount of 
registration fees business concerns and other organizational entities 
must pay to the U.S. Department of Transportation (DOT) for 
transporting hazardous materials (HAZMAT). Small businesses pay a lower 
HAZMAT fee than other organizations. For the 2006-2007 and 2007-2008 
registration periods, small businesses pay $275 per year while all 
other registrants pay $1,000. Many organizations register for a 3-year 
period. The requestors are concerned that a large number of small 
heating oil and LPG dealers that registered in 2004 and 2005 now have 
average annual receipts exceeding the $11.5 million and $6.5 million 
size standard for these two industries due solely to significantly 
higher prices of heating oil and propane since that time and, 
therefore, will be subject to a substantially higher HAZMAT 
registration fee.
    SBA's research of price trends for heating oil and propane verify 
that significant increases, as well as large fluctuations, in prices 
have occurred since 2002. The following table (Table 1) shows the 
residential prices of heating oil and propane as reported by the U.S. 
Energy Information Agency:

                                            Table 1.--Residential Price of Heating Oil and Propane--2002-2007
                                                           [Cents per gallon excluding taxes]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Heating oil                                           Propane
                                                 -------------------------------------------------------------------------------------------------------
                      Year                                                                Difference                                          Difference
                                                    Average        High         Low       (high-low)    Average        High         Low       (high-low)
                                                                                          (percent)                                           (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2002............................................        123.6        140.8        116.0         21.4        115.2        125.5        112.2         11.9
2003............................................        156.6        185.4        134.4         37.9        139.9        172.2        126.8         35.8
2004............................................        180.7        206.0        149.8         34.5        160.7        172.9        142.8         21.1
2005............................................        228.3        269.2        194.6         38.3        184.8        200.6        171.4         17.0
2006............................................        241.6        246.3        237.0          3.9        197.6        201.3        193.3          4.1
2007 (Jan.-Mar.)................................        242.1        249.6        233.3          7.0        201.0        204.6        198.6         3.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: U.S. Energy Information Administration; http://tonto.eia.doe.gov/dnav/pet/pet_pnp_wiup_dcu_nus_w.htm

    The data in the above table show that heating oil and propane 
average weekly prices have increased by 95.9 percent and 74.5 percent, 
respectively, between 2002 and 2007. Furthermore, prices have 
fluctuated by more than 35 percent in some years. On December 5, 2002, 
SBA had adjusted its receipts-based size standards by 8.7 percent to 
reflect the general rate of inflation in the economy since late 2001 
(70 FR 72577). However, inflation in the heating oil and LPG industries 
has been greater than that level, substantiating the reasons for 
reviewing the existing size standards.
    Although price data exists to support an adjustment to the existing 
size standards by a level significantly higher than the general rate of 
inflation, SBA believes a preferable approach for these industries is 
to establish an employee-based size standard. The small business status 
of many business concerns can fluctuate from year to year because of 
the instability and uncertainty of the cost of crude oil, which affects 
the retail prices of heating oil and liquid propane gas, and a business 
concerns receipts. SBA believes that an industry's size standard 
measure should reflect the magnitude of operations of a business 
concern. Because of the volatility of heating oil and propane prices, a 
size standard based upon number of employees better reflects the real 
level of operations of heating oil and LPG dealers than a receipts-
based size standard.
    SBA proposes to convert the existing heating oil and LPG dealers' 
receipts-based size standards to an equivalent employee-based size 
standard. The primary tool used to calculate an equivalent employee 
size standard associated with a receipts-based size standard is the 
receipts-to-employee ratio for an industry. Data to calculate these 
ratios were obtained by the SBA from the U.S. Bureau of the Census in a 
special tabulation of the 2002 Economic Census (The 2002 Economic 
Census is available at http://www.census.gov/econ/census02/). For 
purposes of this calculation, SBA will apply a receipts-to-employee 
ratio of small businesses at or near the current receipt-based size 
standard. The following table (Table 2) shows the receipts-to-employee 
ratios for the heating oil and LPG dealer industries and an employee 
equivalent size standard using these data.

[[Page 61576]]



                                      Table 2.--Receipts-to-Employee Ratio
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                                                                                                    Employee
                                                                                  Receipts-      equivalent size
                         Industry                             Size standard    employee-ratio    Standard  (3) /
                                                                                                       (4)
(1)                                                                      (2)               (3)               (4)
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Heating Oil...............................................       $11,500,000          $292,750              39.3
LPG.......................................................         6,500,000           188,319              35.5
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    SBA recognizes that this estimate, while precise, does not take 
into account two factors that may result in a small business currently 
eligible under the existing average annual receipts size standard 
losing eligibility under the above calculated employee equivalent size 
standard. First, receipts-to-employees ratios vary by business concern. 
For small businesses that have a lower receipts-to-employee ratio than 
average, a given level of receipts will support a higher number of 
employees than estimated, and visa versa. For example, the average 
receipts-to-employee ratio of all small businesses as opposed to the 
ratio for small businesses near the size standard in the heating oil 
industry is $225,973 and in the LPG dealers industry is $155,646. Using 
these ratios instead of those in column 3 of table 2, the employee 
equivalent size standards become 54.4 and 41.8 employees, respectively.
    Second, under a 3-year average calculation of annual receipts, the 
size of an eligible small business in 1 or 2 of the 3-year averaging 
period may exceed the specific size standard. For example, a business 
concern with receipts of $3.0 million, $6.7 million and $8.0 million 
qualifies as small since its 3-year average equals $5.9 million. 
However, under an employee-based size standard, small business status 
is determined by the average number of employees over the past 12 
months. Consequently, if SBA adopts an employee-based size standard by 
directly converting the level of a receipt-based size standard to 
number of employees, a business concern that is eligible under a 3-year 
average annual receipts may no longer qualify as small based on its 
average employment for the past 12 months. Assuming, for example, an 
eligible small business's current size is one-third higher than the 
current size standard, using the receipts-to-employee ratios in the 
above table the employee equivalent levels become 52.4 for heating oil 
dealers ($11,500,000 times 1.334 = $15,341,000 divided by $292,750) and 
46 for LPG dealers ($6,500,000 times 1.334 = $8,671,000 divided by 
$188,319).
    In converting the heating oil and LPG dealers' size standards to 
number of employees, SBA seeks to maintain current small business 
eligibility as it establishes an employee-based size standard. 
Unfortunately, SBA does not have data at the firm level for receipts-
to-employee ratios or on the historical distribution of receipts of 
individual business concerns by which to estimate a typical current 
level of receipts for small businesses whose 3-year average is at or 
below the size standard. In lieu of such data, SBA believes that 
adopting 50 employees for both industries, as indicated by the above 
examples, will adequately address those considerations in converting 
the existing average annual receipts size standards to an appropriate 
employee-based size standard.
    In proposing the 50-employee size standard, SBA would establish 
additional employee size standard level. SBA has established a general 
500-employee size standard for the manufacturing sector and 100-
employee size standard for the wholesale sector. After analyzing the 
heating oil and LPG industries, the 500- and 100-employee size 
standards would significantly increase the size standard for these two 
relevant industries. Rather than selecting one of the existing 
established employee levels, SBA believes it is more important to 
maintain the size status of businesses in these two industries and 
change only the size measure from revenue to number of employee. As 
stated earlier, the purpose of this rulemaking is not to increase the 
size standard, but to change the measure so it is not susceptible to 
the volatile prices of heating oil and propane. In March 2004, we 
proposed to convert all receipts-based size standards to number of 
employees (69 FR 13130, March 19, 2004). For the heating oil and LPG 
dealers industries, SBA proposed 50 employees and received no adverse 
comments. However, SBA withdrew the entire rule due to concerns 
unrelated to the heating oil and LPG dealers industries. SBA encourages 
comments on whether the proposed 50-employee standard is sufficient to 
maintain current small business eligibility.

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

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is not a significant regulatory action for purposes of 
Executive Order 12866. In addition, this rule is not a major rule under 
the Congressional Review Act, 5 U.S.C. 800.
    For purposes of Executive Order 12988, SBA has determined that this 
rule is drafted, to the extent practicable, in accordance with the 
standards set forth in that Order.
    For purposes of Executive Order 13132, SBA has determined that this 
rule does not have any federalism implications warranting the 
preparation of a federalism assessment.
    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this rule would not impose new reporting or 
recordkeeping requirements. Although the measure of size changes from 
receipts to number of employees, business concerns must maintain 
records on employees (such as payroll records) in the course of 
business. Providing information to SBA on the number of employees would 
occur only as a result of a request for a size determination related to 
an application for small business assistance.

Initial Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act, this rule, if finalized, may 
have a significant impact on a substantial number of small entities in 
the heating oil and LPG dealers industries. This rule may affect the 
eligibility of heating and LPG dealers seeking SBA 7(a) Loans, SBA 
Economic Impact Disaster Loans, DOT HAZMAT Registration Program fees, 
and assistance from other Federal small business programs.
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis of this proposed rule addressing the following questions: (1) 
What is the

[[Page 61577]]

need for and objective of the rule, (2) what is SBA's description and 
estimate of the number of small entities to which the rule will apply, 
(3) what is the projected reporting, record keeping, and other 
compliance requirements of the rule, (4) what are the relevant Federal 
rules which may duplicate, overlap or conflict with the rule, and (5) 
what alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?
    1. What is the need for and objective of the rule? Significant 
increases and fluctuations in crude oil costs render a receipts-based 
size standard for the heating oil and LGP dealers industries an 
unsuitable measure of a dealer's level of business activity. Converting 
the existing receipts-based size standard to an employee-based size 
standard provides a more accurate measure of the operations of a 
heating oil dealer and LPG dealer and ensures a more stable small 
business designation to dealers of these fuel products.
    2. What is SBA's description and estimate of the number of small 
entities to which the rule will apply? Based on data from the SBA's 
special tabulation of the U.S. Bureau of the Census's 2002 Economic 
Census, there were 3,729 small heating oil dealers and 2,005 small LPG 
dealers under the existing size standards. Taking into account 
historical trends of residential heating oil and propane prices between 
2002 and 2007, 349 heating oil dealers and 269 LPG dealers may exceed 
the existing size standard due solely to higher receipts generated by 
higher prices. Establishing the proposed employee-based size standard 
for these two industries will restore the small business eligibility of 
those dealers.
    3. What are the projected reporting, record keeping, and other 
compliance requirements of the rule and an estimate of the classes of 
small entities which will be subject to the requirements? Establishing 
an employee-based size standard for heating oil and LPG dealers does 
not impose any additional reporting, record keeping, or compliance 
requirements on small entities. Although the measure of size changes 
from receipts to number of employees, business concerns must maintain 
records on employees in the course of business. In response to a 
request for a size determination related to an application for small 
business assistance, small businesses must provide information on 
receipts or number of employees. This proposed rule does not create a 
new requirement to provide size information, only what type of 
information that is requested in reviewing a business concern's size.
    4. What are the relevant Federal rules which may duplicate, overlap 
or conflict with the rule? This proposed rule overlaps with other 
Federal rules that use SBA's size standards to define a small business. 
Under Sec. 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 
632(a)(2)(c), Federal agencies must use SBA's size standards to define 
a small business, unless specifically authorized by statute. In 1995, 
SBA published in the Federal Register a list of statutory and 
regulatory size standards that identified the application of SBA's size 
standards as well as other size standards used by Federal agencies (60 
FR 57988-57991, dated November 24, 1995). In cases where an SBA size 
standard is not appropriate, the Small Business Act and SBA's 
regulations allow Federal agencies to develop different size standards 
with the approval of the SBA Administrator (13 CFR 121.902). For 
purposes of a regulatory flexibility analysis, agencies must consult 
with SBA's Office of Advocacy when developing different size standards 
for their programs (13 CFR 121.902(b)(4)).
    As discussed in the preamble, the most significant impact of this 
proposed rule would be on heating oil and LPG dealers that register 
with the DOT's HAZMAT Registration Program. DOT utilizes SBA's size 
standard to determine which registrants are eligible for a lower fee 
charged to small businesses. During the 2006-07 registration period, 
2,194 heating oil dealers and 1,482 LPG dealers submitted HAZMAT 
applications. Of these, 2,111 heating oil and 1,406 LPG dealers 
qualified as small.
    5. What alternatives will allow the Agency to accomplish its 
regulatory objectives while minimizing the impact on small entities? 
SBA considered two alternatives to the proposed 50-employee size 
standard. First, SBA considered revising the existing size standards to 
account for the above average inflation increases of heating oil and 
propone price since 2002. As discussed in the preamble, SBA is 
concerned that with the wide fluctuations of these fuel prices the 
small business status of many heating oil and LPG dealers may change 
from year-to-year depending on the prices. An employee size standard is 
unaffected by inflation and provides stability in the small business 
status of heating oil and LPG dealers.
    Second, SBA considered excluding the cost of fuel products in the 
calculation of receipts size. This approach adds more complexity and 
uncertainty to the calculation of business size. This approach would 
also put an undue administrative burden on the small businesses in 
these industries by requiring them to separate out 3 years of receipts 
for the costs of fuel products in order to calculate their size status. 
This is not a common business practice for business concerns in this 
and similar service industries. SBA believes that receipts size 
standards should continue to be on a gross receipts concept. Otherwise, 
SBA and business concerns will encounter more difficulty in determining 
and validating small status.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Grant programs--business, Individuals with 
disabilities, Loan programs--business, Reporting and recordkeeping 
requirements, Small businesses.
    For the reasons set forth in the preamble, SBA proposes to amend 13 
CFR part 121 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation for part 121 continues to read as 
follows:

    Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644, and 
662(5); and Pub. L. 105-135, Sec. 401, et seq., 111 Stat, 2592.

    2. In Sec.  121.201, in the table ``Small Business Size Standards 
by NAICS Industry,'' under the heading ``Sector 44-45--Retail Trade,'' 
``Subsector 454--Nonstore Retailers,'' revise the entries for 454311 
and 454312 to read as follows:


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

[[Page 61578]]



                                 Small Business Size Standards by NAICS Industry
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                                                                               Size standards    Size standards
               NAICS codes                     NAICS U.S. industry title       in millions of     in number of
                                                                                   dollars          employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
                                           Sector 44-45--Retail Trade
 
                                                  * * * * * * *
                                        Subsector 454--Nonstore Retailing
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------
454311..................................  Heating Oil Dealers...............  ................                50
----------------------------------------------------------------------------------------------------------------
454312..................................  Liquefied Petroleum Gas (Bottled    ................                50
                                           Gas) Dealers.
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                                                  * * * * * * *
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    Dated: October 24, 2007.
Steven C. Preston,
Administrator.
 [FR Doc. E7-21401 Filed 10-30-07; 8:45 am]
BILLING CODE 8025-01-P