[Federal Register Volume 77, Number 139 (Thursday, July 19, 2012)]
[Proposed Rules]
[Pages 42441-42454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17441]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 77, No. 139 / Thursday, July 19, 2012 / 
Proposed Rules  

[[Page 42441]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG25


Small Business Size Standards: Utilities

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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

SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
revise the small business size standards for nine industries in North 
American Industry Classification System (NAICS) Sector 22, Utilities. 
Six of those industries deal with electric power generation, 
distribution and transmission (NAICS 221111, NAICS 221112, NAICS 
221113, NAICS 221119, NAICS 221121, and NAICS 221122) and have a common 
size standard based on electric output. For those six industries, SBA 
proposes to replace the current size standard of 4 million megawatt 
hours in electric output with an employee based size standard of 500 
employees. SBA also proposes to increase the small business size 
standards for three industries in NAICS Sector 22 that have receipt 
based size standards, namely--NAICS 221310, Water Supply and Irrigation 
Systems, from $7 million to $25.5 million; NAICS 221320, Sewage 
Treatment Facilities, from $7 million to $19 million; and NAICS 221330, 
Steam and Air-conditioning Supply, from $12.5 million to $14 million. 
As part of its ongoing initiative to review all size standards, SBA 
evaluated all industries in NAICS Sector 22 that have either electric 
output based or receipts based size standards to determine whether the 
existing size standards should be retained or revised. This rule is one 
of a series of proposed rules that will examine industries grouped by 
NAICS sector. SBA has issued a White Paper entitled ``Size Standards 
Methodology'' and published in the October 21, 2009 issue of the 
Federal Register a notice that ``Size Standards Methodology'' is 
available on its Web site at www.sba.gov/size for public review and 
comments. The ``Size Standards Methodology'' White Paper explains how 
SBA establishes, reviews and modifies its small business size 
standards. In this proposed rule, SBA has applied its methodology that 
pertains to establishing, reviewing, and modifying a size standard 
based on average annual receipts and electric output.

DATES: SBA must receive comments to this proposed rule on or before 
September 17, 2012.

ADDRESSES: Identify your comments by RIN 3245-AG25 and submit them by 
one of the following methods: (1) Federal eRulemaking Portal: 
www.regulations.gov follow the instructions for submitting comments; or 
(2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Size 
Standards Division, 409 Third Street SW., Mail Code 6530, Washington, 
DC 20416. SBA will not accept comments submitted by email.
    SBA will post all comments to this proposed rule on 
www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at www.regulations.gov, 
you must submit such information to U.S. Small Business Administration, 
Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street 
SW., Mail Code 6530, Washington, DC 20416, or send an email 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 your information and determine whether it 
will make the information public.

FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, Ph.D., Chief, Size 
Standards Division, (202) 205-6618 or [email protected].

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance, SBA establishes small business size definitions 
(referred to as size standards) for private sector industries in the 
United States. SBA uses two primary measures of business size: average 
annual receipts and average number of employees. SBA uses financial 
assets, electric output, and refining capacity to measure the size for 
a few specialized industries. In addition, SBA's Small Business 
Investment Company (SBIC), Certified Development Company (504) and 7(a) 
Loan Programs use either the industry based size standards or net worth 
and net income based size standards to determine eligibility for those 
programs. At the beginning of SBA's comprehensive size standards 
review, there were 41 different size standards, covering 1,141 NAICS 
industries and 18 sub-industry activities (``exceptions'' in SBA's 
table of size standards). Thirty-one of these size levels were based on 
average annual receipts, seven were based on average number of 
employees, and three were based on other measures.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy, in particular the changes 
in the Federal contracting marketplace and industry structure. The last 
time SBA conducted a comprehensive review of size standards was during 
the late 1970s and early 1980s. Since then, most reviews of size 
standards have been limited to a few specific industries in response to 
requests from the public and Federal agencies. SBA also makes periodic 
inflation adjustments to its monetary based size standards. SBA's 
latest inflation adjustment to size standards was published in the 
Federal Register on July 18, 2008 (73 FR 41237).
    Because of changes in the Federal marketplace and industry 
structure since the last overall size standards review, SBA recognizes 
that current data may no longer support some of its existing size 
standards. Accordingly, in 2007, SBA began a comprehensive review of 
all size standards to determine if they are consistent with current 
data, and to adjust them when necessary. In addition, on September 27, 
2010, the President of the United States signed the Small Business Jobs 
Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed 
review of all size standards and to make appropriate adjustments to 
reflect market conditions. Specifically, the Jobs Act requires SBA to 
conduct a detailed review of at least one-third of all size standards 
during every 18-month period from the date of its enactment. In 
addition, the Jobs Act requires that SBA conduct a review of all size 
standards not less frequently than once every 5 years thereafter. 
Reviewing existing small business size standards and

[[Page 42442]]

making appropriate adjustments based on current data are also 
consistent with Executive Order 13563 on improving regulation and 
regulatory review.
    Rather than review all size standards at one time, SBA is reviewing 
a group of industries within an NAICS Sector. An NAICS Sector generally 
consists of 25 to 75 industries, except for the manufacturing sector, 
which has considerably more industries. Once SBA completes its review 
of size standards for industries in an NAICS Sector, it will issue a 
proposed rule to revise size standards for those industries for which 
currently available data and other relevant factors support doing so.
    Below is a discussion of SBA's size standards methodology for 
establishing receipts based size standards, which SBA applied to this 
proposed rule, including analyses of industry structure, Federal 
procurement trends and other factors for industries reviewed in this 
proposed rule, the impact of the proposed revisions to size standards 
on Federal small business assistance, and the evaluation of whether a 
revised size standard would exclude dominant firms from being 
considered small.

Size Standards Methodology

    SBA has recently developed a ``Size Standards Methodology'' for 
developing, reviewing and modifying size standards when necessary. SBA 
has published this document on its Web site at www.sba.gov/size for 
public review and comments and included it, as a supporting document, 
in the electronic docket for this proposed rule at www.regulations.gov. 
SBA does not apply every feature of its ``Size Standards Methodology'' 
to all industries because not all features are appropriate. For 
example, since this proposed rule covers all industries with receipts 
based size standards in NAICS Sector 22, the methodology described here 
applies to establishing receipts based standards. However, the 
methodology is made available in its entirety for parties who are 
interested in SBA's overall approach to establishing, evaluating and 
modifying small business size standards. SBA always explains its 
analysis in individual proposed and final rules relating to size 
standard revisions for specific industries.
    SBA welcomes comments from the public on a number of issues 
concerning its ``Size Standards Methodology,'' such as suggestions on 
alternative approaches to establishing and modifying size standards; 
whether there are alternative or additional factors that SBA should 
consider; whether SBA's approach to small business size standards makes 
sense in the current economic environment; whether SBA's use of anchor 
size standards is appropriate in the current economy; whether there are 
gaps in SBA's methodology because of the lack of comprehensive data; 
and whether there are other facts or issues that SBA should consider. 
Comments on SBA's methodology should be submitted via: (1) The Federal 
eRulemaking Portal: www.regulations.gov; the docket number is SBA-2009-
0008; follow the instructions for submitting comments; or (2) Mail/Hand 
Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Size Standards 
Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416. 
As with comments received to this and other proposed rules, SBA will 
post all comments on its methodology on www.regulations.gov. As of July 
19, 2012, SBA has received 14 comments to its ``Size Standards 
Methodology.'' The comments are available to the public at 
www.regulations.gov. SBA continues to welcome comments on its 
methodology from interested parties.
    Congress granted discretion to the SBA's Administrator to establish 
detailed small business size standards. 15 U.S.C. 632(a)(2). Section 
3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that 
``* * * the [SBA] Administrator shall ensure that the size standard 
varies from industry to industry to the extent necessary to reflect the 
differing characteristics of the various industries and consider other 
factors deemed to be relevant by the Administrator.'' Accordingly, the 
economic structure of an industry serves as the underlying basis for 
developing and modifying small business size standards. SBA identifies 
the small business segment of an industry by examining data on the 
economic characteristics defining the industry structure itself (as 
described below). In addition to analysis of industry structure, SBA 
also considers current economic conditions, together with its own 
mission, program objectives, and the Administration's current policies, 
suggestions from industry groups and Federal agencies, and public 
comments on the proposed rule, when it establishes small business size 
standards. SBA also examines whether a size standard based on industry 
and other relevant data successfully excludes businesses that are 
dominant in the industry. This proposed rule affords the public an 
opportunity to review and comment on SBA's proposals to revise size 
standards in NAICS Sector 22, as well as on the data and methodology it 
uses to evaluate and revise a size standard.

Industry Analysis

    For the current comprehensive size standards review, SBA has 
established three ``base'' or ``anchor'' size standards: $7 million in 
average annual receipts for industries that have receipts based size 
standards, 500 employees for manufacturing and other industries that 
have employee based size standards (except for Wholesale Trade), and 
100 employees for industries in the Wholesale Trade Sector. SBA 
established 500 employees as the anchor size standard for manufacturing 
industries at its inception in 1953. Shortly thereafter, SBA 
established $1 million in average annual receipts as the anchor size 
standard for nonmanufacturing industries. SBA has periodically 
increased the receipts based anchor size standard for inflation, and it 
stands today at $7 million. Since 1986, SBA has set 100 employees as 
the size standard for all industries in the Wholesale Trade Sector for 
SBA financial assistance programs. However, NAICS codes for Wholesale 
Trade Industries (NAICS Sector 42) and their 100 employee size standard 
do not apply to Federal procurement programs. Rather, for Federal 
procurement purposes, the size standard is 500 employees for all 
industries in Wholesale Trade and for all industries in Retail Trade 
(NAICS Sector 44-45) under SBA's nonmanufacturer rule (13 CFR 
121.406(b)).
    These long-standing anchor size standards have stood the test of 
time and gained legitimacy through practice and general public 
acceptance. An anchor size standard is neither a minimum nor a maximum. 
It is a common size standard for a large number of industries that have 
similar economic characteristics and serves as a reference point in 
evaluating size standards for individual industries. SBA uses the 
anchor in lieu of trying to establish precise small business size 
standards for each industry. Otherwise, theoretically, the number of 
size standards might be as high as the number of industries for which 
SBA establishes size standards (1,141). Furthermore, the data SBA 
analyzes are static, while the U.S. economy is not. Hence, absolute 
precision is impossible. Therefore, SBA presumes an anchor size 
standard is appropriate for a particular industry unless that industry 
displays economic characteristics that are considerably different from 
others with the same anchor size standard.
    When evaluating a size standard, SBA compares the economic 
characteristics

[[Page 42443]]

of the specific industry under review to the average characteristics of 
industries with one of the three anchor size standards (referred to as 
``anchor comparison group''). This allows SBA to assess the industry 
structure and to determine whether the industry is appreciably 
different from the other industries in the anchor comparison group. If 
the characteristics of a specific industry under review are similar to 
the average characteristics of the anchor comparison group, the anchor 
size standard is considered appropriate for that industry. SBA may 
consider adopting a size standard below the anchor when: (1) All or 
most of the industry characteristics are significantly smaller than the 
average characteristics of the anchor comparison group; or (2) other 
industry considerations strongly suggest that the anchor size standard 
would be an unreasonably high size standard for the industry.
    If the specific industry's characteristics are significantly higher 
than those of the anchor comparison group, then a size standard higher 
than the anchor size standard may be appropriate. The larger the 
differences are between the characteristics of the industry under 
review and those in the anchor comparison group, the larger will be the 
difference between the appropriate industry size standard and the 
anchor size standard. To determine a size standard above the anchor 
size standard, SBA analyzes the characteristics of a second comparison 
group. For industries with receipts based size standards, including 
those in NAICS Sector 22 that are reviewed in this proposed rule, SBA 
has developed a second comparison group consisting of industries with 
the highest levels of receipts based size standards. To determine the 
level of a size standard above the anchor size standard, SBA analyzes 
the characteristics of this second comparison group. The size standards 
for this group of industries range from $23 million to $35.5 million in 
average annual receipts, with the weighted average size standard for 
the group being $29 million. SBA refers to this comparison group as the 
``higher level receipts based size standard group.''
    The primary factors that SBA evaluates when analyzing the 
structural characteristics of an industry include average firm size, 
startup costs and entry barriers, industry competition, and 
distribution of firms by size. SBA also evaluates, as an additional 
primary factor, the impact that revising size standards might have on 
Federal contracting assistance to small businesses. These are, 
generally, the five most important factors SBA examines when 
establishing or revising a size standard for an industry. In addition, 
SBA considers and evaluates other information that it believes is 
relevant to a particular industry (such as technological changes, 
growth trends, SBA financial assistance and other program factors, 
etc.). SBA also considers possible impacts of size standard revisions 
on eligibility for Federal small business assistance, current economic 
conditions, the Administration's policies, and suggestions from 
industry groups and Federal agencies. Public comments on a proposed 
rule also provide important additional information. SBA thoroughly 
reviews all public comments before making a final decision on its 
proposed size standards. Below are brief descriptions of each of the 
five primary factors that SBA has evaluated for each industry in NAICS 
Sector 22 being reviewed in this proposed rule. A more detailed 
description of this analysis is provided in SBA ``Size Standards 
Methodology,'' available at http://www.sba.gov/size.
    1. Average firm size. SBA computes two measures of average firm 
size: Simple average and weighted average. For industries with receipts 
based size standards, the simple average is the total receipts of the 
industry divided by the total number of firms in the industry. The 
weighted average firm size is the sum of weighted simple averages in 
different receipts size classes, where weights are the shares of total 
industry receipts for respective size classes. The simple average 
weighs all firms within an industry equally, regardless of their size. 
The weighted average overcomes that limitation by giving more weight to 
larger firms.
    If the average firm size of an industry under review is 
significantly higher than the average firm size of industries in the 
anchor comparison industry group, this will generally support a size 
standard higher than the anchor size standard. Conversely, if the 
industry's average firm size is similar to or significantly lower than 
that of the anchor comparison industry group, it will be a basis to 
adopt the anchor size standard, or in rare cases, a standard lower than 
the anchor.
    2. Startup costs and entry barriers. Startup costs reflect a firm's 
initial size in an industry. New entrants to an industry must have 
sufficient capital and other assets to start and maintain a viable 
business. If new firms entering a particular industry have greater 
capital requirements than firms in industries in the anchor comparison 
group, this can be a basis for establishing a size standard higher than 
the anchor size standard. In lieu of data on actual startup costs, SBA 
uses average assets as a proxy to measure the capital requirements for 
new entrants to an industry.
    To calculate average assets, SBA begins with the total sales to 
total assets ratio for an industry from the Risk Management 
Association's Annual eStatement Studies. SBA then applies these ratios 
to the average receipts of firms in that industry. An industry with a 
significantly higher level of average assets than that of the anchor 
comparison group is likely to have higher startup costs; this in turn 
will support a size standard higher than the anchor. Conversely, an 
industry with average assets that are similar to or significantly lower 
than those of the anchor comparison group is likely to have lower 
startup costs; this in turn will support adoption of the anchor size 
standard, or in rare cases, one lower than the anchor.
    3. Industry competition. Industry competition is generally measured 
by the share of total industry receipts generated by the largest firms 
in an industry. SBA generally evaluates the share of industry receipts 
generated by the four largest firms in each industry. This is referred 
to as the ``four-firm concentration ratio,'' a commonly used economic 
measure of market competition. SBA compares the four-firm concentration 
ratio for an industry under review to the average four-firm 
concentration ratio for industries in the anchor comparison group. If a 
significant share of economic activity within the industry is 
concentrated among a few relatively large companies, all else being 
equal, SBA will establish a size standard higher than the anchor size 
standard. SBA does not consider the four-firm concentration ratio as an 
important factor in assessing a size standard if its value for an 
industry under review is less than 40 percent. For industries in which 
the four-firm concentration ratio is 40 percent or more, SBA examines 
the average size of the four largest firms in determining a size 
standard.
    4. Distribution of firms by size. SBA examines the shares of 
industry total receipts accounted for by firms of different receipts 
and employment size classes in an industry. This is an additional 
factor that SBA evaluates in assessing competition within an industry. 
If most of an industry's economic activity is attributable to smaller 
firms, this indicates that small businesses are competitive in that 
industry. This supports adopting the anchor size standard. If most of 
an

[[Page 42444]]

industry's economic activity is attributable to larger firms, this 
indicates that small businesses are not competitive in that industry. 
This will support adopting a size standard above the anchor.
    Concentration is a measure of inequality of distribution. To 
determine the degree of inequality of distribution in an industry, SBA 
computes the Gini coefficient by constructing the Lorenz curve. The 
Lorenz curve presents the cumulative percentages of units (firms) along 
the horizontal axis and the cumulative percentages of receipts (or 
other measures of size) along the vertical axis. (For further detail, 
please refer to SBA's ``Size Standards Methodology'' on SBA's Web site 
at www.sba.gov/size.) Gini coefficient values vary from zero to one. If 
receipts are distributed equally among all the firms in an industry, 
the value of the Gini coefficient will equal zero. If an industry's 
total receipts are attributed to a single firm, the Gini coefficient 
will equal one.
    SBA compares the Gini coefficient value for an industry under 
review with that for industries in the anchor comparison group. If an 
industry shows a higher Gini coefficient value than industries in the 
anchor comparison industry group this may, all else being equal, 
warrant a higher size standard than the anchor. Conversely, if an 
industry's Gini coefficient is similar to or lower than that for the 
anchor group, the anchor standard, or in some cases a standard lower 
than the anchor, may be adopted.
    5. Impact on Federal contracting and SBA loan programs. SBA 
examines the impact a size standard change may have on Federal small 
business assistance. This most often focuses on the share of Federal 
contracting dollars awarded to small businesses in the industry in 
question. In general, if the small business share of Federal 
contracting in an industry with significant Federal contracting is 
appreciably less than the small business share of the industry's total 
receipts, there is justification for considering a size standard higher 
than the existing size standard. The disparity between the small 
business Federal market share and the industry-wide small business 
share may have a variety of causes, such as extensive administrative 
and compliance requirements associated with Federal contracts, 
different skill sets required for Federal contracts as compared to 
typical commercial contracting work, and the size of Federal contracts. 
These, and other factors, are likely to influence the type of firms 
that compete for Federal contracts. By comparing the Federal 
contracting small business share with the industry-wide small business 
share, SBA includes in its size standards analysis the latest Federal 
contracting trends. This analysis may indicate a size standard larger 
than the current standard.
    SBA considers Federal procurement trends in the size standards 
analysis only if: (1) The small business share of Federal contracting 
dollars is at least 10 percent lower than the small business share of 
total industry receipts, and (2) the amount of total Federal 
contracting averages $100 million or more during the latest three 
fiscal years. These thresholds reflect a significant level of 
contracting where a revision to a size standard may have an impact on 
contracting opportunities to small businesses.
    Besides the impact on small business Federal contracting, SBA also 
evaluates the impact of a proposed size standard on SBA's loan 
programs. For this, SBA examines the volume and number of SBA 
guaranteed loans within an industry and the size of firms obtaining 
those loans. This allows SBA to assess whether the existing or the 
proposed size standard for a particular industry may restrict the level 
of financial assistance to small firms. If the analysis shows that the 
current size standards have impeded financial assistance to small 
businesses within an industry, this can support higher size standards. 
However, if small businesses within an industry under current size 
standards have been receiving significant amounts of financial 
assistance through SBA's loan programs, or businesses receiving the 
financial assistance are much smaller than the existing size standards, 
this factor may not be considered for determining the size standards.

Sources of Industry and Program Data

    SBA's primary source of industry data used in this proposed rule is 
a special tabulation of the data from 2007 Economic Census (see 
www.census.gov/econ/census07/) prepared by the U.S. Bureau of the 
Census (Census Bureau) for SBA. The special tabulation provides SBA 
with data on the number of firms, number of establishments, number of 
employees, annual payroll, and annual receipts of companies by NAICS 
Sector (2-digit level), Subsector (3-digit level), Industry Group (4-
digit level), Industry (6-digit level). These data are arrayed by 
various classes of firms' size based on the overall number of employees 
and receipts of the entire enterprise (all establishments and 
affiliated firms) from all industries. The special tabulation enables 
SBA to evaluate average firm size, the four-firm concentration ratio 
and distribution of firms by receipts and employment size.
    In some cases, where industry data were not available due to 
disclosure prohibitions in the Census Bureau's tabulation, SBA either 
estimated missing values using available relevant data or examined data 
at a higher level of industry aggregation, such as at the NAICS 2-digit 
(Sector), 3-digit (Subsector), or 4-digit (Industry Group) level. In 
some instances, SBA had to base its analysis only on those factors for 
which data were available or estimates of missing values were possible.
    For industries that provide electric power generation, distribution 
and transmission (NAICS codes 221111-221122), SBA received data from 
the U.S. Energy Information Agency (EIA) (www.eia.gov/cneaf/electricity) and an industry association. The Census Bureau's Economic 
Census does not provide data on electric output. The EIA data include 
annual electric output in megawatt hours and total annual revenues from 
electricity sales by class of ownership of individual entities involved 
in the generation, transmission, or distribution of electricity in the 
U.S. SBA analyzed EIA electric output data for investor-owned utilities 
and power marketers for 1974-2009 to evaluate industry structure of 
these industries. The industry association data also included the EIA 
data and additional information on affiliation among firms in the 
electric power generation, transmission, and distribution industries.
    To calculate average assets, SBA used sales to total assets ratios 
from the Risk Management Association's Annual eStatement Studies, 2008-
2010.
    To evaluate Federal contracting trends, SBA examined data 
representing Federal contract awards for fiscal years 2008-2010. The 
data are available from the U.S. General Service Administration's 
Federal Procurement Data System--Next Generation (FPDS-NG).
    To assess the impact on financial assistance to small businesses 
SBA examined data on its own guaranteed loan programs for fiscal years 
2008-2010.

Dominance in Field of Operation

    Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a 
small business concern as one that is: (1) Independently owned and 
operated; (2) not dominant in its field of operation; and (3) within a 
specific small business size definition or size standard established by 
the SBA Administrator. SBA considers as part of its evaluation

[[Page 42445]]

whether a business concern at a proposed size standard would be 
dominant in its field of operation. For this, SBA generally examines 
the industry's market share of firms at the proposed size standard. 
Market share and other factors may indicate whether a firm can exercise 
a major controlling influence on a national basis in an industry where 
a significant number of business concerns are engaged. If a 
contemplated size standard would include a dominant firm, SBA will 
consider a lower size standard to exclude the dominant firm from being 
defined as small.

Selection of Size Standards

    To simplify size standards, for the ongoing comprehensive review of 
receipts based size standards, SBA has proposed to select size 
standards from a limited number of levels. For many years, SBA has been 
concerned about the complexity of determining small business status 
caused by a large number of varying receipts based size standards (see 
69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992)). At 
the beginning of the current comprehensive size standards review, there 
were 31 different levels of receipts based size standards. They ranged 
from $0.75 million to $35.5 million, and many of them applied to only 
one or a few industries. SBA believes that size standards with such a 
large number of small variations among them are both unnecessary and 
difficult to justify analytically. To simplify managing and using size 
standards, SBA proposes that there be fewer size standard levels. This 
will produce more common size standards for businesses operating in 
related industries. This will also result in greater consistency among 
the size standards for industries that have similar economic 
characteristics.
    SBA proposes, therefore, to apply one of eight receipts based size 
standards to each of the three industries in NAICS Sector 22 with a 
receipts-based size standard. The eight ``fixed'' receipts based size 
standard levels are $5 million, $7 million, $10 million, $14 million, 
$19 million, $25.5 million, $30 million, and $35.5 million. To 
establish these eight receipts based size standard levels, SBA 
considered the current minimum, the current maximum, and the most 
commonly used current receipts based size standards. At the start of 
the current comprehensive size standards review, the most commonly used 
receipts based size standards clustered around the following: $2.5 
million to $4.5 million, $7 million, $9 million to $10 million, $12.5 
million to $14 million, $25 million to $25.5 million, and $33.5 million 
to $35.5 million. SBA selected $7 million as one of eight fixed levels 
of receipts based size standards because it is an anchor standard for 
receipts based standards. The lowest or minimum receipts based size 
level will be $5 million. Other than the standards for agriculture and 
those based on commissions (such as real estate brokers and travel 
agents), $5 million will include those industries that at the start of 
the comprehensive size standards review had the lowest receipts based 
standards, which ranged from $2 million to $4.5 million. Among the 
higher level size clusters, SBA has set four fixed levels, namely: $10 
million, $14 million, $25.5 million, and $35.5 million. Because there 
are large intervals between some of the fixed levels, SBA also 
established two intermediate levels, namely $19 million between $14 
million and $25.5 million, and $30 million between $25.5 million and 
$35.5 million. These two intermediate levels reflect roughly the same 
proportional differences as between the other two successive levels.

Evaluation of Industry Structure

    Of 10 industries in NAICS Sector 22, Utilities, SBA has evaluated 
the structure of six industries engaged in generation, distribution and 
transmission of electricity that have size standards based on electric 
output of 4 million megawatt hours and three industries that have size 
standards based on average annual receipts to assess the 
appropriateness of the current size standards. In this proposed rule, 
SBA has not reviewed one industry that has an employee based size 
standard in NAICS Sector 22 (NAICS 221210, Natural Gas Distribution). 
That employee based size standard will remain in effect until SBA 
reviews all employee based size standards at a later date.
    As explained previously, if the characteristics of an industry 
under review are similar to the average characteristics of industries 
in the anchor comparison group, the anchor size standard is generally 
considered appropriate for that industry. If an industry's structure is 
significantly different from industries in the anchor group, a size 
standard lower or higher than the anchor size standard might be 
selected. The level of the new size standard is based on the difference 
between the characteristics of the anchor comparison group and a second 
industry comparison group. As described above, the second comparison 
group for receipts based standards consists of industries with the 
highest receipts based size standards, ranging from $23 million to 
$35.5 million. The average size standard for this group is $29 million. 
SBA refers to this group of industries as the ``higher level receipts 
based size standard comparison group.'' SBA determines differences in 
industry structure between an industry under review and the industries 
in the two comparison groups by comparing data on each of the industry 
factors, including average firm size, average assets size, the four-
firm concentration ratio, and the Gini coefficient of distribution of 
firms by size. Table 1, Average Characteristics of Receipts Based 
Comparison Groups, below, shows two measures of the average firm size 
(simple and weighted), average assets size, the four-firm concentration 
ratio, average receipts of the four largest firms, and the Gini 
coefficient for both anchor level and higher level comparison groups 
for receipts based size standards.

                      Table 1--Average Characteristics of Receipts Based Comparison Groups
----------------------------------------------------------------------------------------------------------------
                                 Avg. firm size ($
                                     million)          Avg. assets      Four-firm     Avg. receipts
  Receipts based comparison   ----------------------     size ($      concentration      of four         Gini
            group                Simple    Weighted     million)       ratio (%)*     largest firms  coefficient
                                average    average                                    ($ million)*
----------------------------------------------------------------------------------------------------------------
Anchor Level.................       1.32      19.63            0.84            16.6           196.4       0.693
Higher Level.................       5.07     116.84            3.20            32.1         1,376.0       0.830
----------------------------------------------------------------------------------------------------------------
* To be used for industries with a four-firm concentration ratio of 40% or greater.


[[Page 42446]]

Derivation of Receipts Based Size Standards Based on Industry Factors

    For each industry factor in Table 1, Average Characteristics of 
Receipts Based Comparison Groups, above, SBA derives a separate size 
standard based on the differences between the values for an industry 
under review and the values for the two comparison groups. If the 
industry value for a particular factor is near the corresponding factor 
for the anchor comparison group, SBA will consider the $7 million 
anchor size standard appropriate for that factor.
    An industry factor with a value significantly above or below the 
anchor comparison group will generally warrant a size standard for that 
industry above or below the $7 million anchor. The level of the new 
size standard in these cases is based on the proportional difference 
between the industry value and the values for the two comparison 
groups.
    For example, if an industry's simple average receipts are $3.3 
million, that would support a $19 million size standard. The $3.3 
million level is 52.8 percent between the average firm size of $1.32 
million for the anchor comparison group and $5.07 million for the 
higher level comparison group (($3.30 million - $1.32 million) / ($5.07 
million - $1.32 million) = 0.528 or 52.8%). This proportional 
difference is applied to the difference between the $7 million anchor 
size standard and average size standard of $29 million for the higher 
level size standard group and then added to $7 million to estimate a 
size standard of $18.62 million ([{$29.0 million - $7.0 million{time}  
* 0.528] + $7.0 million = $18.62 million). The final step is to round 
the estimated $18.62 million size standard to the nearest fixed size 
standard, which in this example is $19 million.
    SBA applies the above calculation to derive a size standard for 
each industry factor. Detailed formulas involved in these calculations 
are presented in SBA's ``Size Standards Methodology,'' which is 
available on its Web site at www.sba.gov/size. (However, it should be 
noted that the figures in the ``Size Standards Methodology'' White 
Paper are based on 2002 Economic Census data and are different from 
those presented in this proposed rule. That is because when SBA 
prepared its ``Size Standards Methodology,'' the 2007 Economic Census 
data were not yet available). Table 2, Values of Industry Factors and 
Supported Size Standards, below, shows ranges of values for each 
industry factor and the levels of size standards supported by those 
values.

                        Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
                                                                   Or if avg.
                               Or if weighted     Or if avg.      receipts of                        Then size
If simple avg. receipts size   avg.  receipts   assets size is    largest four      Or if Gini    standard is ($
       is ($ million)           size is  ($      ($ million)      firms is  ($    coefficient is     million)
                                  million)                          million)
----------------------------------------------------------------------------------------------------------------
<1.15.......................  <15.22.........  <0.73..........  <142.8.........  <0.686.........             5.0
1.15 to 1.57................  15.22 to 26.26.  0.73 to 1.00...  142.8 to 276.9.  0.686 to 0.702.             7.0
1.58 to 2.17................  26.27 to 41.73.  1.01 to 1.37...  277.0 to 464.5.  0.703 to 0.724.            10.0
2.18 to 2.94................  41.74 to 61.61.  1.38 to 1.86...  464.6 to 705.8.  0.725 to 0.752.            14.0
2.95 to 3.92................  61.62 to 87.02.  1.87 to 2.48...  705.9 to         0.753 to 0.788.            19.0
                                                                 1,014.1.
3.93 to 4.86................  87.03 to 111.32  2.49 to 3.07...  1,014.2 to       0.789 to 0.822.            25.5
                                                                 1,309.0.
4.87 to 5.71................  111.33 to        3.08 to 3.61...  1,309.1 to       0.823 to 0.853.            30.0
                               133.41.                           1,577.1.
>5.71.......................  >133.41........  >3.61..........  >1,577.1.......  >0.853.........            35.5
----------------------------------------------------------------------------------------------------------------

Derivation of Receipts Based Size Standards Based on Federal 
Contracting Factor

    Besides industry structure, SBA also evaluates Federal contracting 
data to assess how successful small business are in getting Federal 
contracts under the existing size standards. For the current 
comprehensive size standards review, SBA has decided to designate a 
size standard at one level higher than the current size standard for 
industries where the small business share of total Federal contracting 
dollars is between 10 and 30 percentage points lower than their shares 
in total industry receipts and at two levels higher than the current 
size standard if the difference is more than 30 percentage points.
    SBA has chosen not to designate a size standard for the Federal 
contracting factor alone that is higher than two levels above the 
current size standard. The FPDS-NG data have a number of limitations 
and there are also complex relationships among a number of variables 
affecting small business participation in the Federal marketplace. SBA 
believes, therefore, that a larger adjustment to size standards based 
on Federal contracting activity should be based on a more detailed 
analysis of the impact of any subsequent revision to the current size 
standard. In limited situations, however, SBA may conduct a more 
extensive examination of Federal contracting experience. This may 
enable SBA to support a different size standard than indicated by this 
general rule and take into consideration significant and unique aspects 
of small business competitiveness in the Federal contract market. SBA 
welcomes comment on its methodology of incorporating the Federal 
contracting factor in the size standard analysis and suggestions for 
alternative methods and other relevant information on small business 
experience in the Federal contract market.
    Among the three industries that have receipts based size standards 
in NAICS Sector 22, two (NAICS codes 221310 and 221320) received an 
average of $100 million or more annually in Federal contracts during 
fiscal years 2008-2010. Of these two industries, the Federal 
contracting factor was significant (i.e., the difference between the 
small business share of total industry receipts and small business 
share of Federal contracting dollars was 10 percentage points or more) 
for only NAICS 221310.

New Receipts Based Size Standards Based on Industry and Federal 
Contracting Factors

    Table 3, New Receipts Based Size Standards Supported by Each Factor 
for Each Industry (millions of dollars), below, shows the results of 
analyses of industry and Federal contracting factors for each of the 
three industries with receipts based standards in NAICS Sector 22. Each 
NAICS Industry in columns 2, 3, 4, 6, 7 and 8 shows two numbers. The 
upper number is the value for the industry or federal contracting 
factor shown on the top of the column; the lower number is the size 
standard supported by that factor. For the four-firm concentration 
ratio, a size standard is estimated based on the average receipts of 
the top four firms if its value is 40 percent or more. If the four-firm 
concentration ratio for an industry (column 5) is less than 40 percent, 
no size standard is estimated

[[Page 42447]]

for that factor. Column 9 shows the new size standard for each 
industry, calculated as the average of size standards supported by each 
factor and rounded to the nearest fixed size level. Analytical details 
involved in the averaging procedure are described in the SBA ``Size 
Standard Methodology'' White Paper which is available on its Web site 
at www.sba.gov/size. For comparison, the current size standards are 
also shown in column 10 of Table 3, New Receipts Based Size Standards 
Supported by Each Factor for Each Industry (millions of dollars), 
below.

                                  Table 3--New Receipts Based Size Standards Supported by Each Factor for Each Industry
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
 (1)                                         (2)          (3)          (4)          (5)          (6)          (7)          (8)          (9)         (10)
NAICS                                     Simple     Weighted      Average    Four-firm    Four-firm         Gini      Federal     New size      Current
                                         average      average  assets size    ratio (%)      average  coefficient     contract     standard         size
                                       firm size    firm size  ($ million)                      size                factor (%)  ($ million)     standard
                                     ($ million)  ($ million)                            ($ million)                                         ($ million)
--------------------------------------------------------------------------------------------------------------------------------------------------------
221310, Water supply and irrigation         $2.2       $110.7         $7.5         46.5       $886.6        0.854       -15.0%  ...........  ...........
 systems...........................
                                            14.0         25.5        $35.5  ...........         19.0        $35.5        $10.0        $25.5         $7.0
221320, Sewage treatment facilities          3.5         37.0  ...........         55.8        182.7        0.834         9.8%  ...........  ...........
                                            19.0         10.0  ...........  ...........          7.0        $30.0  ...........         19.0          7.0
221330, Steam and air-conditioning          27.3         50.6  ...........         61.4        155.2        0.501  ...........  ...........  ...........
 supply............................
                                            35.5         14.0  ...........  ...........          7.0         $5.0  ...........         14.0         12.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

Evaluation of Electric Utilities Industries (NAICS Codes 221111 to 
221122)

    NAICS Industry Group 2211, Electric Power Generation, transmission, 
and distribution, consists of six industries that currently have a 
common size standard of 4 million megawatt hours (MWh) from the sale 
and total electric output for the preceding fiscal year. These 
industries are: NAICS 221111, Hydroelectric Power Generation; NAICS 
221112, Fossil Fuel Electric Power Generation; NAICS 221113, Nuclear 
Electric Power Generation; NAICS 221119, Other Electric Power 
Generation; NAICS 221121, Electric Bulk Power Transmission and Control; 
and NAICS 221122, Electric Power Distribution. To qualify as small 
under this size standard, a firm, including its affiliates, must be 
primarily engaged in the generation, transmission and/or distribution 
of electric energy for sale and its total electric output for preceding 
fiscal year does not exceed 4 million megawatt hours (see Footnote 1 in 
13 CFR 121.201). SBA included this requirement with the 4 million MWh 
size standard to prevent large non-electric firms and/or their electric 
services subsidiaries from qualifying as small.
    In this proposed rule, SBA has considered three possible changes to 
the current size standard for the six industries under NAICS Industry 
Group 2211: (1) Increasing the current MWh based size standard from 4 
million MWh to 8 million MWh, and modifying Footnote 1; (2) adding an 
employee based size standard of 500 employees along with the 8 million 
MWh size standard and eliminating Footnote 1; and (3) replacing the 
current 4 million MWh size standard with an employee based size 
standard of 500 employees and eliminating Footnote 1.
    SBA is concerned that the ``primarily engaged'' requirement to 
qualify as small under the MWh based size standard may restrict Federal 
contracting opportunities for small businesses that are developing 
capabilities in electric energy production and are still engaged in 
activities in other industries. To qualify as small under receipts 
based and employee based size standards for other industries, SBA's 
size regulations do not include the ``primary industry'' requirement to 
compete as an eligible small business on Federal procurement. In 
addition, the current footnote could be interpreted incorrectly that 
the concern and each of its affiliates must be primarily engaged in 
electric generation, transmission, or generation. That was never the 
intent of the footnote. Rather the footnote was meant to look at 
primary industry of the concern and its affiliates as a whole. The 
``primarily engaged'' requirement would no longer be necessary by 
combining an employee based size standard with the MWh based size 
standard or by replacing it with an employee based size standard.
    SBA established the 4 million MWh size standard for electric 
services in 1974 (39 FR 22163, June 20, 1974 and 39 FR 30345, August 
22, 1974). Prior to that, a generic receipts based size standard of $1 
million was applied to electric services and other services industries 
for which SBA had not established an industry specific size standard. 
SBA provided only the general reasons for adopting the 4 million MWh 
size standard in the 1974 proposed and final rules. SBA's analysis of 
industry data available at that time from the Federal Power 
Administration had found that the largest 20 percent of firms dominated 
the industry in terms of total electric output, sales, assets, etc. SBA 
also observed a trend of increased concentration in the industry. At 
the 4 million MWh size standard, as the proposed and final rules noted, 
a small business would account for not more than 0.3 percent of total 
industry output.
    The electric power industry has undergone significant structural 
changes since the 1970s. As with other regulated industries, the 
electric power industry underwent deregulation leading to unbundling of 
generation, transmission, and distribution activities. Retail 
competition also has been introduced in 15 states in place of local 
monopolies in the electric power market. Merger and acquisition 
activities in recent years, especially by holding companies, have 
further contributed to the growing concentration in the electric power 
industry. New firms producing electric power using alternative energy 
sources (solar, wind, etc.) have entered the industry and these firms 
tend to be generally smaller than firms producing electricity using 
conventional energy sources such as fossil fuel. Electric power 
marketers selling electricity in wholesale and retail markets have also 
emerged as the result of deregulation. Thus, the electric power 
industry today comprises different firms that generate, transmit, and/
or distribute electric services as compared to one company integrating 
all of these activities in the past. Although the electric power 
industry has undergone significant changes, many large electric power 
producers still continue to generate, transmit, and/or distribute 
electric

[[Page 42448]]

power either themselves or through various subsidiaries. The current 
industry's structure reflecting the deregulated environment may have 
implications on the appropriateness of the current size standard for 
electric utilities.
    The uniqueness of the electric power industry presents several 
challenges in analyzing the size standard for NAICS Industry Group 
2211. Due to the highly capital intensive nature of generating and 
transmitting electricity, a few very large firms account for most of 
the generation and transmission of electric power. However, a large 
number of small firms also generate and distribute a small amount of 
electric power. As a result of the concentration of most of the 
activity in the few largest firms and the small number of firms 
operating in most of the specific industries for electric generation, 
transmission, and distribution industries, data from the Census 
Bureau's special tabulation contain a significant amount of suppressed 
data, limiting our ability to use them for size standards analysis 
using SBA's size standards methodology. More importantly, the Census 
Bureau's Economic Census does not collect data on electric output and 
no comparison groups exist to assess differing characteristics of 
individual industries based on electric output, thereby rendering most 
of the SBA's size standards methodology not applicable to analyze MWh 
based size standards for electric utilities.
    Consequently, SBA has examined the changes in electric power 
industry structure since 1974 using data on privately owned for-profit 
electric generators to assess whether the current size standard should 
be modified to more appropriately reflect today's electric power 
industry composition. As mentioned earlier, these data were obtained 
from the EIA's Web site and were adjusted for affiliation using the 
information provided by an industry association. Data on electric power 
generators are the appropriate data available that are most comparable 
with the data SBA evaluated in 1974. Because of the lack of comparable 
historical data on electric transmission and distribution, the new size 
standard that SBA has considered proposing for electric generators will 
also apply to the transmission, and distribution industries. Although 
deregulation has resulted in unbundling of generation, transmission, 
and distribution activities, many of the firms engaged in the electric 
power generation are still engaged in transmission or/and distribution 
activities. Thus, SBA believes that a common size standard is still 
more appropriate for all the electric generation, transmission, and 
distribution industries than having a separate size standard for each 
of these activities, whether it is based on MWh, number of employees, 
or combination of both.
    Based on the historical analysis of industry factors, one of the 
three alternatives SBA considered is to increase the current 4 million 
MWh size standard for NAICS Industry Group 2211, to 8 million MWh. SBA 
bases this proposed increase on several considerations. First, the data 
show that the industry has become much more concentrated today than it 
was in the early 1970s. Data on electric power generators from the U.S. 
Department of Energy's Energy Information Agency (EIA) and an analysis 
provided to SBA by an industry association showed that the share of the 
largest 20 percent of firms in the industry output increased from 73 
percent in 1974 to 97 percent in 2009. Similarly, the Gini coefficient 
index characterizing the distribution of firms by electric output size 
increased from 0.698 to 0.909 during that period. These two trends 
indicate a significant increase in industry concentration and strongly 
support an increase to the existing size standard. Second, despite the 
increased industry concentration, average firm size decreased by almost 
16 percent from 7.6 million MWh in 1974 to 6.4 million MWh in 2009. As 
mentioned above, many new, very small firms have entered the electric 
power generation industry. This decline in average firm size indicates 
that the current size standard may not need to be increased. Third, to 
attain the 1974 market share of a small electric utility company of 0.3 
percent and the 1974 cumulative market share of small electric 
utilities of 6.7 percent of the industry output in 2009 would support 
an increase to the current size standard in the range of 6 million MWh 
to 9 million MWh.
    SBA examined Federal contracting trends for electric power 
generation, transmission, and distribution during fiscal years 2008-
2010. Federal contracting for NAICS Industry Group 2211 averaged $1.7 
billion per year during this period. Of these total Federal contract 
dollars, small businesses obtained approximately 6 percent, which was 
very similar to the small business share of total industry receipts. 
Because the small business share in the Federal market was similar to 
the small business share of total industry receipts, the Federal 
contracting was not a significant factor. However, small business 
shares of both total contract dollars and total industry receipts for 
electric services industries were appreciably lower than those for 
other industries, warranting an increase to the current size standard.
    SBA considered proposing an 8 million MWh size standard, as it 
would maintain the small business coverage ratio at the 4 million MWh 
size standard in 1974. This would also make the small business coverage 
ratio for electric services industries more comparable with the small 
business ratios for most other industries that have size standards in 
terms of the number of employees or average annual receipts. The small 
business coverage ratios (i.e., the percentage of total firms in an 
industry classified as small) for electric services industries under 
the current 4 million MWh size standard are appreciably lower than 
those for other industries. SBA, however, is concerned that a size 
standard that is more than two times the current size standard would 
include extremely large firms with billions of dollars in revenues, as 
well as firms that may not need Federal assistance designed for small 
businesses. Smaller firms within the electric power industry today tend 
to be much more specialized in providing alternative sources of energy 
on a much smaller scale than traditional electric power generators. 
Wholesale and retail power marketers that sell power generated by very 
large electric power generators also tend to be relatively small. A 
size standard more than two times the current size standard may put 
these small electric power generators and small power marketers in 
competitive disadvantage, and it may result in mischaracterizing the 
small business segment of the electric power industry.
    If SBA were to adopt the solely MWh based measure of 8 million MWh 
size standard for NAICS Industry Group 2211 considered above, it 
believes that Footnote 1 needs to be revised to make it clearer how SBA 
determines whether a firm is primarily engaged in electric generation, 
transmission, or distribution. As discussed previously, a reader of the 
current footnote might incorrectly interpret that the concern and each 
of its affiliates must be primarily engaged in electric generation, 
transmission or generation. To correct this, SBA would consider 
revising Footnote 1 by substituting the term ``primarily engaged'' with 
``primary industry'' and applying 13 CFR 121.107 when determining the 
primary industry of the firm. With these changes, the revised Footnote 
1 would read as follows:
    1. NAICS codes 221111, 221112, 221113, 221119, 221121, and 221122-- 
A firm, combined with its affiliates, is

[[Page 42449]]

small if its primary industry is the generation, transmission, and/or 
distribution of electric energy for sale, and its total electric output 
for the preceding fiscal year did not exceed 8 million megawatt hours. 
In determining small business eligibility, the megawatt hours of the 
firm and each affiliate are combined and the determination of primary 
industry is based on the provisions of 13 CFR 121.107.
    Comments supporting the first alternative in which SBA considered 
to increase the size standard to 8 million MWh should also address 
whether the suggested changes to the existing footnote will 
sufficiently clarify and improve upon the application of a primary 
industry requirement.
    As an alternative to increasing the current MWh based size 
standard, SBA considered adding an employee based size standard along 
with the proposed 8 million MWh size standard and removing Footnote 1 
on the ``primarily engaged'' requirement. As discussed above, SBA is 
concerned that the current requirement for a firm to be primarily 
engaged in generation, transmission, or distribution of electric power 
to qualify for Federal small business assistance may have adversely 
affected small businesses interested in Federal contracting 
opportunities. Since deregulation, Federal agencies have been seeking 
out small businesses involved in the electric power generation using 
alternative energy sources and/or in electric power distribution for 
procurement of electric power. SBA has received several size protests 
involving the application of the requirement that businesses be 
primarily engaged in generation, transmission, or distribution of 
electric power to qualify for Federal small business assistance. The 
purpose of the ``primarily engaged'' requirement was to prevent a large 
business not involved in the electric power generation, transmission, 
or distribution industries from qualifying itself or its electric power 
affiliate(s) as small. Based on review of those cases, SBA believes 
that requirement under today industry's structure may be too 
restrictive and, therefore, unintentionally limiting Federal 
contracting opportunities for small businesses involved in electric 
generation and distribution. By combining an employee based size 
standard with the MWh based size standard, affiliations with other 
businesses will be fully captured through number of employees, thereby 
rendering the ``primarily engaged'' requirement unnecessary.
    Accordingly, SBA has considered adding a 500 employee size standard 
along with the 8 million MWh size standard and removing Footnote 1. The 
500 employee size standard is based on a comparison of the small 
business coverage ratios under the proposed 8 million MWh size standard 
and the same small business coverage ratio in terms of number of 
employees. An electric power generator with 250 to 500 employees has a 
market share of approximately 0.3 percent and the cumulative market 
share of approximately 9 percent of the industry electric output. 
Although SBA could have also considered proposing a 250 employee size 
standard, it believes that a 500 employee size standard is more 
appropriate for two reasons. First, a 500 employee size standard is 
more consistent with SBA's ``Size Standards Methodology'' that 
considers 500 employees as a starting point (i.e., 500 employees is the 
employee based anchor size standard) for considering an employee based 
size standard for an industry. Second, since the industry coverage 
ratios under the 250 employees size standard would be considerably 
lower than typically observed in most other industries with receipts 
based or employee based size standards, selecting the higher 500 
employee size standard may better capture the small business segment 
within the electric utilities industry.
    Adding number of employees as a component of the size standard 
would not be unique to industries in NAICS Industry Group 2211. The 
small business size standard for NAICS 324110, Petroleum Refineries, 
has had two components to its size standard for at least 20 years. 
Currently a petroleum refiner is small for Federal government 
procurement if it has no more than 1,500 employees and refining 
capacity of 125,000 barrels per calendar day.
    As the second alternative to increasing the current size standard 
to 8 million MWh, SBA also considered proposing to replace the current 
MWh based size standard with a 500 employee size standard. An employee 
based size standard has several advantages over the MWh based size 
standard. First, as stated earlier, the ``primarily engaged'' 
requirement (Footnote 1) would no longer be necessary under the 
employee based size standard as it will capture the total size of firms 
that are involved in both electric services industries and nonelectric 
industries. Second, this would eliminate the difficulty in ascertaining 
the ``primarily engaged'' requirement in size status protests involving 
companies that are engaged in both electric services and other 
industries. Third, without the ``primarily engaged'' requirement under 
an employee based size standard, new entrants to electric power 
industry (especially small firms that generate electric power using 
alternative sources and still have significant involvement in other 
industries) can qualify for small business contracting opportunities. 
Fourth, the number of employees is a more appropriate measure to 
determine small business size status. Under the MWh based measure, to 
qualify as small for electric services only the electric output 
generated, transmitted, or distributed is counted. All other activities 
of the firm are not counted in determining its size. Consequently, a 
firm involved in multiple industries may be significantly larger than 
another firm at the same electric output level that is exclusively 
involved in electric services. This is inconsistent with how SBA 
defines size standards for other industries in which the size of a firm 
includes the employees or receipts from all industries. Fifth, the 
number of employees would also be consistent with the size measure SBA 
uses for all manufacturers, and several other industries. SBA also uses 
an employee based size standard to establish eligibility to provide 
manufactured products for Federal government as small distributors. 
Electric generation, while not classified as manufacturing under the 
NAICS, involves processes that are akin to manufacturing in creating 
electric power. The process transforms some form of raw materials (such 
as fossil fuel, wind, solar, hydro, etc.) to electric power through the 
application of significant levels of capital equipment and 
infrastructure. Furthermore, as discussed in SBA's ``Size Standards 
Methodology,'' an industry that is capital intensive is generally 
viewed by SBA as supporting an employee based size standard. Sixth, 
this would enable SBA to analyze size standards for electric services 
industries more consistently by using its ``Size Standards 
Methodology'' that it applies to all receipts and employee based size 
standards. Seventh, an employee based size standard would also help 
simplify size standards.
    Among the three options considered, SBA strongly favors, for the 
reasons discussed above, adopting the second alternative to the MWh 
based size standard that would replace the current 4 million MWh size 
standard and the ``primarily engaged'' requirement in Footnote 1 with 
an employee based size standard of 500 employees. SBA is specifically 
interested in comments addressing adverse consequences, if any, of 
using a 500 employee size

[[Page 42450]]

standard instead of a MWh based size standard. The comments should 
explain how an employee based size standard could impact small 
businesses and why the number of employees would be a less preferable 
size standard measure to a MWh based measure. Barring any adverse 
consequences, SBA would strongly consider eliminating the MWh based 
size standard and adopting just an employee size standard instead. 
However, the Agency is reluctant to eliminate the MWh based size 
standard without first providing the public with an opportunity to 
comment on this change, along with an assessment of whether an updated 
8 million MWh size standard or combining it with a 500 employee size 
standard would be more appropriate instead.
    To simplify size standards, SBA has established or proposed common 
size standards for closely related industries in other NAICS Sectors. 
Within NAICS Sector 22, SBA is proposing a 500 employees common size 
standard for all industries in NAICS Industry Group 2211 for 
consistency with the current common size standard and for 
simplification of size standards by having fewer differing size 
standard levels. In addition, as mentioned earlier, Census suppresses 
much of the industry level data due to the limited number of electric 
generation, transmission, and distribution firms. The data reflect that 
activity is concentrated among a few large firms. This makes analyzing 
industry specific size standards extremely difficult. In addition, many 
businesses engaged in electric services also operate in one or two of 
the other industries. Consequently, industry specific size standards 
may result in businesses typically engaged in other closely related 
industries subject to differing size standards.

Evaluation of Dominance in Field of Operation

    SBA has determined that no firm in NAICS Sector 22, Utilities, for 
which it has proposed to increase or modify size standards, will be 
large enough at the proposed size standard to dominate its field of 
operation. At the proposed size standards, if adopted, small business 
shares of total industry receipts among those industries vary from 0.3 
percent to 1.5 percent. These levels of market share effectively 
preclude a firm at the proposed size standards from exerting control on 
its industry.

Proposed Changes to Size Standards

    Based on the analyses discussed above, SBA proposes to increase 
receipts based size standards for three industries and change measure 
of size from the megawatt hours to the number of employees in six 
industries in Sector 22. The proposed changes are summarized in Table 
4, Summary of Proposed Size Standards Revisions, below.

                              Table 4--Summary of Proposed Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
        NAICS Code           NAICS industry title      Current size standard        Proposed size  standard
----------------------------------------------------------------------------------------------------------------
221111...................  Hydroelectric Power       4 million megawatt hours  500 employees.
                            Generation.
221112...................  Fossil Fuel Electric      4 million megawatt hours  500 employees.
                            Power Generation.
221113...................  Nuclear Electric Power    4 million megawatt hours  500 employees.
                            Generation.
221119...................  Other Electric Power      4 million megawatt hours  500 employees.
                            Generation.
221121...................  Electric Bulk Power       4 million megawatt hours  500 employees.
                            Transmission and
                            Control.
221122...................  Electric Power            4 million megawatt hours  500 employees.
                            Distribution.
221310...................  Water Supply and          $7.0 million............  $25.5 million.
                            Irrigation Systems.
221320...................  Sewage Treatment          $7.0 million............  $19.0 million.
                            Facilities.
221330...................  Steam and Air-            $12.5 million...........  $14.0 million.
                            Conditioning Supply.
----------------------------------------------------------------------------------------------------------------

Request for Comments

    SBA invites public comments on this proposed rule, especially on 
the following issues.
    1. To simplify size standards, SBA proposes eight fixed levels for 
receipts based size standards: $5 million, $7 million, $10 million, $14 
million, $19 million, $25.5 million, $30 million, and $35.5 million. 
SBA invites comments on whether simplification of size standards in 
this way is necessary and if these proposed fixed size levels are 
appropriate. SBA welcomes suggestions on alternative approaches to 
simplifying small business size standards.
    2. SBA seeks feedback on whether the proposed levels of size 
standards are appropriate given the economic characteristics of each 
industry. SBA also seeks feedback and suggestions on alternative 
standards, if they would be more appropriate, including whether the 
number of employees is a more suitable measure of size for certain 
industries that currently have either receipts or megawatt hours based 
size standards and what that employee level should be.
    3. SBA's proposed size standards are based on its evaluation of 
five primary factors: average firm size, average assets size (as a 
proxy of startup costs and entry barriers), four-firm concentration 
ratio, distribution of firms by size, and the level and small business 
share of Federal contracting dollars. SBA welcomes comments on these 
factors and/or suggestions of other factors that it should consider for 
assessing industry characteristics when evaluating or revising size 
standards. SBA also seeks information on other relevant data sources, 
if available.
    4. SBA gives equal weight to each of the five primary factors in 
all industries. SBA seeks feedback on whether it should continue giving 
equal weight to each factor or whether it should give more weight to 
one or more factors for certain industries. Recommendations to weigh 
some factors more than others should include suggestions on specific 
weights for each factor for those industries along with supporting 
information.
    5. For some industries, based on its analysis of industry and 
program data, SBA proposes to increase the existing size standards by a 
large amount (such as NAICS 221310 and 221320) while for NAICS 221330 
the proposed increase is modest. SBA seeks feedback on whether it 
should, as a policy, limit the increase to a size standard and/or 
whether it should, as a policy, establish minimum or maximum values for 
its size standards. SBA seeks suggestions on appropriate levels of 
changes to size standards and on their minimum or maximum levels.
    6. SBA has proposed to replace the current 4 million megawatt hours 
size standard for all six industries in NAICS Industry Group 2211 with 
a 500 employee size standard and eliminate Footnote 1 requiring that a 
business concern be primarily engaged in electric generation, 
transmission, or distribution to qualify as small for Federal small

[[Page 42451]]

business assistance. SBA invites comments on whether replacing the 
current megawatt hours based size standard with an employee based size 
standard is appropriate or whether it will have any adverse impacts on 
small businesses. Comments that the employee based size standard would 
have an adverse impact or that it is not appropriate should explain how 
it could impact small businesses and why a standard based on MWh is 
preferable to one based on number of employees.
    7. SBA also considered proposing to increase the current MWh based 
size standard for electric services industries to 8 million MWh as one 
alternative and to add a 500 employee size standard to the updated 8 
million MWh standard as another alternative. Under the latter 
alternative, SBA also considered proposing to eliminate Footnote 1. SBA 
seeks comments on whether a combination of megawatt hours and the 
number of employees is a more appropriate size standard than either the 
number of employees only or megawatt hours only.
    8. If SBA were to adopt only the MWh based size standard of 8 
million MWh for NAICS Industry Group 2211, it considered revising 
Footnote 1 to read as follows: ``NAICS codes 221111, 221112, 221113, 
221119, 221121, and 221122--A firm, combined with its affiliates, is 
small if its primary industry is the generation, transmission, and/or 
distribution of electric energy for sale, and its total electric output 
for the preceding fiscal year did not exceed 8 million megawatt hours. 
In determining small business eligibility, the megawatt hours of the 
firm and each affiliate are combined and the determination of primary 
industry is based on the provisions of 13 CFR 121.107.'' SBA seeks 
comments on whether the revision to the existing footnote is necessary 
and if so whether the revised footnote will sufficiently clarify and 
improve upon the application of a primary industry requirement.
    9. SBA has proposed a 500 employee based common size standard for 
all industries within NAICS Industry Group 2211 (electric generation, 
transmission, and distribution). SBA seeks comments on whether it 
should continue using a common size standard or adopt separate size 
standard for electric generation, transmission, and distribution. If 
commenters believe that separate size standards would be more 
appropriate, they should explain why and recommend appropriate size 
standards for specific industries.
    10. For analytical simplicity and efficiency, in this proposed 
rule, SBA has refined its size standard methodology to obtain a single 
value as a proposed size standard instead of a range of values as it 
used in its past size regulations. SBA welcomes any comments on this 
procedure and suggestions on alternative methods.
    Public comments on the above issues are very valuable to SBA for 
validating its size standard methodology and proposed revisions to size 
standards in this proposed rule. This will help SBA to move forward 
with its review of size standards for other NAICS Sectors. Commenters 
addressing size standards for a specific industry or a group of 
industries should include relevant data and/or other information 
supporting their comments. If comments relate to using size standards 
for Federal procurement programs, SBA suggests that commenters provide 
information on the size of contracts, the size of businesses that can 
undertake the contracts, start-up costs, equipment and other asset 
requirements, the amount of subcontracting, other direct and indirect 
costs associated with the contracts, the use of mandatory sources of 
supply for products and services, and the degree to which contractors 
can mark up those costs. Compliance With Executive Orders 12866, 13563, 
12988 and 13132, the Paperwork Reduction Act (44 U.S.C. Ch. 35) and the 
Regulatory Flexibility Act (5 U.S.C. 601-612).

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a ``significant'' regulatory action for purposes of 
Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. This is not a ``major rule,'' however, 
under the Congressional Review Act (5 U.S.C. 800).

Regulatory Impact Analysis

1. Is there a need for the Regulatory Action?

    SBA believes that the proposed size standards for a number of 
industries in NAICS Sector 22, Utilities, will better reflect the 
economic characteristics of small businesses and the Federal government 
marketplace in those industries. SBA's mission is to aid and assist 
small businesses through a variety of financial, procurement, business 
development and advocacy programs. To assist the intended beneficiaries 
of these programs, SBA must establish distinct definitions of which 
businesses are deemed small businesses. The Small Business Act (15 
U.S.C. 632(a)) delegates to SBA's Administrator the responsibility for 
establishing small business definitions. The Act also requires that 
small business definitions vary to reflect industry differences. The 
recently enacted Small Business Jobs Act also requires SBA to review 
all size standards and make necessary adjustments to reflect market 
conditions. The Supplementary Information section of this proposed rule 
explains SBA's methodology for analyzing a size standard for a 
particular industry.

2. What are the Potential Benefits and Costs of this Regulatory Action?

    The most significant benefit to businesses obtaining small business 
status because of this rule is gaining eligibility for Federal small 
business assistance programs. These include SBA's financial assistance 
programs, economic injury disaster loans, and Federal procurement 
programs intended for small businesses. Federal procurement programs 
provide targeted opportunities for small businesses under SBA's 
business development programs, such as 8(a), Small Disadvantaged 
Businesses (SDB), small businesses located in Historically 
Underutilized Business Zones (HUBZones), women-owned small businesses 
(WOSB), and service-disabled veteran-owned small business concerns 
(SDVO SBC). Federal agencies may also use SBA size standards for a 
variety of other regulatory and program purposes. These programs assist 
small businesses to become more knowledgeable, stable, and competitive. 
In nine industries for which SBA has proposed increasing size 
standards, SBA estimates that about 400 additional firms will obtain 
small business status and become eligible for these programs. That 
represents approximately seven percent of the total number of firms 
that are classified as small under the current standards in all 
industries within NAICS Sector 22 that are reviewed in this proposed 
rule. If adopted as proposed, this will increase the small business 
share of total industry receipts from approximately 21 percent under 
the current size standards to 27 percent.
    Three groups will benefit from these proposed size standards if 
they are adopted as proposed: (1) Some businesses that are above the 
current size standards will gain small business status under the 
revised size standards, thereby enabling them to participate in Federal 
small business assistance programs; (2) growing small businesses that 
are close to exceeding the current size standards will be able to 
retain their small business status under the revised size standards, 
thereby enabling them to continue their participation in the

[[Page 42452]]

programs; and (3) Federal agencies will have a larger pool of small 
businesses from which to draw for their small business procurement 
programs.
    Under SBA's 7(a) Business and 504 Loan Programs, based on the 
fiscal years 2008 to 2010 data, SBA estimates that around 10 to 15 
additional loans totaling about $2 million to $3 million in Federal 
loan guarantees could be made to these newly defined small businesses 
under the proposed size standards. Increasing the size standards will 
likely result in an increase in small business guaranteed loans to 
businesses in these industries, but it would be impractical to try to 
estimate exactly the extent of their number and total amount loaned. 
Under the Jobs Act, SBA can now guarantee substantially larger loans 
than in the past. In addition, the Jobs Act established an alternative 
size standard ($15 million in tangible net worth and $5 million in net 
income after income taxes) for business concerns that do not meet the 
size standards for their industry. Therefore, SBA finds it similarly 
difficult to quantify the impact of these proposed standards on its 
7(a) and 504 Loan Programs.
    Newly defined small businesses will also benefit from SBA's 
Economic Injury Disaster Loan (EIDL) Program. However, since the 
benefit under this program is contingent on the occurrence and severity 
of a disaster, SBA cannot make a meaningful estimate of benefits for 
future disasters.
    To the extent that those 400 newly defined additional small firms 
could become active in Federal procurement programs, the proposed 
changes, if adopted, may entail some additional administrative costs to 
the Federal Government associated with additional bidders for Federal 
small business procurement opportunities. In addition, there could be 
more firms seeking SBA guaranteed loans, more firms eligible for 
enrollment in the CCR's Dynamic Small Business Search database and more 
firms seeking certification as 8(a) or HUBZone firms or those 
qualifying for small business, WOSB, SDVO SBC, and SDB status. Among 
those newly defined small businesses seeking SBA assistance, there 
could be some additional costs associated with compliance and 
verification of small business status and protests of small business 
status. These added costs will be minimal because mechanisms are 
already in place to handle these administrative requirements.
    Additionally, the costs to the Federal Government may be higher on 
some Federal contracts. With a greater number of businesses defined as 
small, Federal agencies may choose to set aside more contracts for 
competition among small businesses rather than using full and open 
competition. The movement from unrestricted to small business set-aside 
contracting might result in competition among fewer total bidders, 
although there will be more small businesses eligible to submit offers. 
However, the additional costs associated with fewer bidders, however, 
are expected to be minor since, as a matter of law, procurements may be 
set aside for small businesses or reserved for the 8(a), HUBZone, WOSB, 
or SDVO SBC Programs only if awards are expected to be made at fair and 
reasonable prices. In addition, higher costs may result if more full 
and open contracts are awarded to HUBZone businesses that receive price 
evaluation preferences.
    The proposed size standards, if adopted, may have some 
distributional effects among large and small businesses. Although SBA 
cannot estimate with certainty the actual outcome of the gains and 
losses among small and large businesses, it can identify several 
probable impacts. There may be a transfer of some Federal contracts to 
small businesses from large businesses. Large businesses may have fewer 
Federal contract opportunities as Federal agencies decide to set aside 
more Federal contracts for small businesses. In addition, some Federal 
contracts may be awarded to HUBZone firms instead of large businesses 
since these firms may be eligible for a price evaluation preference for 
contracts when they compete on a full and open basis. Similarly, 
currently defined small businesses may obtain fewer Federal contracts 
due to the increased competition from more businesses defined as small. 
This transfer may be offset by a greater number of Federal procurements 
set aside for all small businesses. The number of newly defined and 
expanding small businesses that are willing and able to sell to the 
Federal Government will limit the potential transfer of contracts away 
from large and currently defined small businesses. SBA cannot estimate 
the potential distributional impacts of these transfers with any degree 
of precision. The proposed revisions to the existing size standards for 
NAICS Sector 22, Utilities, are consistent with SBA's statutory mandate 
to assist small business. This regulatory action promotes the 
Administration's objectives. One of SBA's goals in support of the 
Administration's objectives is to help individual small businesses 
succeed through fair and equitable access to capital and credit, 
Government contracts, and management and technical assistance. 
Reviewing and modifying size standards, when appropriate, ensures that 
intended beneficiaries have access to the small business programs 
designed to assist them.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action, including possible 
distributional impacts that relate to Executive Order 13563, is 
included above in the Regulatory Impact Analysis under Executive Order 
12866.
    In an effort to engage interested parties in this action, SBA has 
presented its size standards methodology (discussed above under 
Supplementary Information) to various industry associations and trade 
groups. SBA also met with various industry groups to get their feedback 
on its methodology and other size standards issues. In addition, SBA 
presented its size standards methodology to businesses in 13 cities in 
the U.S. and sought their input as part of the Jobs Act Tours. The 
presentation included information on the status of the comprehensive 
size standards review and on how interested parties can provide SBA 
with input and feedback on size standards review.
    Additionally, SBA sent letters to the Directors of the Offices of 
Small and Disadvantaged Business Utilization (OSDBU) at several Federal 
agencies with considerable procurement responsibilities requesting 
their feedback on how the agencies use SBA size standards and whether 
current standards meet their programmatic needs (both procurement and 
non-procurement). SBA gave appropriate consideration to all input, 
suggestions, recommendations, and relevant information obtained from 
industry groups, individual businesses, and Federal agencies in 
preparing this proposed rule.
    The review of size standards in NAICS Sector 22, Utilities, is 
consistent with Executive Order 13563, Section 6, calling for 
retrospective analyses of existing rules. As discussed previously, 
SBA's last comprehensive review of size standards was during the late 
1970s and early 1980s. Since then, except for periodic adjustments of 
monetary based size standards for inflation, most reviews were limited 
to a few specific industries in response to requests from the public 
and Federal agencies. SBA recognizes that changes in industry structure 
and the Federal marketplace over time have rendered existing size 
standards for some industries no longer supportable by current data.

[[Page 42453]]

Accordingly, in 2007, SBA began a comprehensive review of its size 
standards to ensure that existing size standards have supportable bases 
and to revise them when necessary. In addition, on September 27, 2010, 
the President of the United States signed the Small Business Jobs Act 
of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed 
review of all size standards and to make appropriate adjustments to 
reflect market conditions. Specifically, the Jobs Act requires SBA to 
conduct a detailed review of at least one-third of all size standards 
during every 18-month period from the date of its enactment and do a 
complete review of all size standards not less frequently than once 
every 5 years thereafter.

Executive Order 12988

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

Executive Order 13132

    For the purposes of Executive Order 13132, SBA has determined that 
this proposed rule will not have substantial, direct effect on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Therefore, SBA has determined that this 
proposed rule has no federalism implications warranting preparation of 
a federalism assessment.

Paperwork Reduction Act

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

Initial Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this proposed rule, if 
adopted, may have a significant impact on a substantial number of small 
entities in NAICS Sector 22, Utilities. As described above, this rule 
may affect small entities seeking Federal contracts, loans under SBA's 
7(a), 504 and Economic Injury Disaster Loan Programs, and assistance 
under other Federal small business programs.
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of this proposed rule addressing the following 
questions: (1) What are the need for and objective of the rule?; (2) 
What are SBA's description and estimate of the number of small entities 
to which the rule will apply?; (3) What are the projected reporting, 
record keeping and other compliance requirements of the rule?; (4) What 
are the relevant Federal rules that may duplicate, overlap or conflict 
with the rule?; and (5) What alternatives will allow the Agency to 
accomplish its regulatory objectives while minimizing the impact on 
small entities?
1. What are the need for and objective of the rule?
    Most of the size standards in NAICS Sector 22, Utilities, have not 
been reviewed since the early 1980s. Technology, productivity growth, 
international competition, mergers and acquisitions, and updated 
industry definitions may have changed the structure of many industries 
in the Sector. Such changes can be sufficient to support a revision to 
size standards for some industries. Based on its analysis of the latest 
data available, SBA believes that the proposed size standards in this 
rule more appropriately reflect the size of businesses in those 
industries that need Federal assistance. The recently enacted Small 
Business Jobs Act also requires SBA to review all size standards and 
make necessary adjustments to reflect market conditions.
2. What is SBA's description and estimate of the number of small 
entities to which the rule will apply?
    If the proposed rule is adopted in its present form, SBA estimates 
that about 400 additional firms will become small because of proposed 
revisions to size standards in nine industries. That represents about 7 
percent of total firms that are small under current size standards in 
all industries within NAICS Sector 22 covered by this proposed rule. 
This will result in an increase in the small business share of total 
industry receipts for those industries from about 21 percent under the 
current size standards to about 27 percent under the proposed size 
standards. The proposed size standards, if adopted, will enable more 
small businesses to retain their small business status for a longer 
period. Many have lost their eligibility and find it difficult to 
compete at such low levels with companies that are significantly larger 
than they are. SBA believes the competitive impact will be positive for 
existing small businesses and for those that exceed the current size 
standards but are on the very low end of those that are not small. They 
might otherwise be called or referred to as mid-sized businesses, 
although SBA only defines what is small; other entities are other than 
small.
3. What are the projected reporting, record keeping and other 
compliance requirements of the rule?
    Proposed size standards changes do not impose any additional 
reporting or record keeping requirements on small entities. However, 
qualifying for Federal procurement and a number of other Federal 
programs requires that entities register in the Central Contractor 
Registration (CCR) database and certify at least annually that they are 
small in the Online Representations and Certifications Application 
(ORCA). Therefore, businesses opting to participate in those programs 
must comply with CCR and ORCA requirements. There are no costs 
associated with either CCR registration or ORCA certification. Changing 
size standards alters eligibility for SBA programs that assist small 
businesses, but does not impose a regulatory burden as they neither 
regulate nor control business behavior.
4. What are the relevant Federal rules, which may duplicate, overlap or 
conflict with the rule?
    Under Sec.  3(a)(2)(C) of the Small Business Act, 15 U.S.C. 
632(a)(2)(c), Federal agencies must use SBA's size standards to define 
a small business, unless specifically authorized by statute to do 
otherwise. In 1995, SBA published in the Federal Register a list of 
statutory and regulatory size standards that identified the application 
of SBA's size standards as well as other size standards used by Federal 
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any 
Federal rule that would duplicate or conflict with establishing size 
standards.
    However, the Small Business Act and SBA's regulations allow Federal 
agencies to develop different size standards if they believe that SBA's 
size standards are not appropriate for their programs, with the 
approval of SBA's Administrator (13 CFR 121.903). Additionally, the 
Regulatory Flexibility Act authorizes an Agency to establish an 
alternative small business definition after consultation with the 
Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 
601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?
    By law, SBA is required to develop numerical size standards for 
establishing eligibility for Federal small

[[Page 42454]]

business assistance programs. Other than varying size standards by 
industry and changing the size measures, no practical alternative 
exists to the systems of numerical size standards.

List of Subjects in 13 CFR Part 121

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


    For the reasons set forth in the preamble, SBA 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), 662, and 694a(9).

    2. In Sec.  121.201, in the table, revise the entries for 
``221111'', ``221112'', ``221113'', ``221119'',''221121'', ``221122'', 
``221310'', ``221320'', and ``221330'' to read as follows:


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

* * * * *

             Small Business Size Standards by NAICS Industry
------------------------------------------------------------------------
                                          Size standards  Size standards
  NAICS codes      NAICS U.S. industry    in millions of   in number of
                          title               dollars        employees
------------------------------------------------------------------------
 
                              * * * * * * *
221111........  Hydroelectric Power       ..............             500
                 Generation.
221112........  Fossil Fuel Electric      ..............             500
                 Power Generation.
221113........  Nuclear Electric Power    ..............             500
                 Generation.
221119........  Other Electric Power      ..............             500
                 Generation.
221121........  Electric Bulk Power       ..............             500
                 Transmission and
                 Control.
221122........  Electric Power            ..............             500
                 Distribution.
 
                              * * * * * * *
221310........  Water Supply and                   $25.5  ..............
                 Irrigation Systems.
221320........  Sewage Treatment                    19.0  ..............
                 Facilities.
221330........  Steam and Air-                      14.0  ..............
                 Conditioning Supply.
 
                              * * * * * * *
------------------------------------------------------------------------

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

    Dated: February 28, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-17441 Filed 7-18-12; 8:45 am]
BILLING CODE 8025-01-P