On May 18, 2022, the Department of Homeland Security and Department of Labor jointly published a temporary rule. This is the second correction. The first correction was published in the Federal Register on May 23, 2022 (87 FR 31095).

In the temporary rule, FR Doc. 2022-10631, beginning on page 30334 in the issue of Wednesday, May 18, 2022, make the following correction in the ADDRESSES section. On page 30334 in the second column, lines 5 and 12 the RIN is corrected to read “1205-AC10.”

Title III, Part B  1 of EPCA, 2 established the Energy Conservation Program for Consumer Products Other Than Automobiles. (42 U.S.C. 6291-6309) These products include CPSVs, the subject of this final determination. 3

DOE is issuing this final determination pursuant to the EPCA requirement that, not later than 6 years after issuance of any final rule establishing or amending a standard, DOE must publish either a notification of determination that standards for the product do not need to be amended, or a notice of proposed rulemaking (“NOPR”) including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m))

For this final determination, DOE analyzed CPSVs subject to standards specified in title 10 of the Code of Federal Regulations (“CFR”) part 431, section 266.

DOE first analyzed the technological feasibility of more energy (water) efficient CPSVs and CPSVs with lower energy use. For those CPSVs for which DOE determined higher standards to be technologically feasible, DOE estimated energy savings that would result from potential energy conservation standards by conducting a national impacts analysis (“NIA”). DOE evaluated whether higher standards would be cost effective by conducting life-cycle cost (“LCC”) and payback period (“PBP”) analyses and estimated the net present value (“NPV”) of the total costs and benefits experienced by consumers.

Based on the results of the analyses, summarized in section V of this document, DOE has determined that current standards for CPSVs do not need to be amended because any potential benefits are outweighed by the risk of increased energy and water usage due to the increased risk of product type switching, costs, and additional burden to manufacturers.

The following section briefly discusses the statutory authority underlying this final determination, as well as some of the historical background relevant to the establishment of standards for CPSVs.

EPCA authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. Title III, Part B of EPCA established the Energy Conservation Program for Consumer Products Other Than Automobiles. These products include CPSVs, the subject of this document. (42 U.S.C. 6291(33)). EPCA prescribed energy conservation standards (in terms of flow rate) for these products (42 U.S.C. 6295(dd)) and directs DOE to conduct future rulemakings to determine whether to amend these standards. (42 U.S.C. 6295(m)).

The energy conservation program under EPCA consists essentially of four parts: (1) Testing, (2) labeling, (3) the establishment of Federal energy conservation standards, and (4) certification and enforcement procedures. Relevant provisions of EPCA specifically include definitions (42 U.S.C. 6291), test procedures (42 U.S.C. 6293), labeling (42 U.S.C. 6294), energy conservation standards (42 U.S.C. 6295), and the authority to require information and reports from manufacturers (42 U.S.C. 6296).

Subject to certain criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product. (42 U.S.C. 6295(o)(3)(A) and 42 U.S.C. 6295(r)) Manufacturers of covered products must use the prescribed DOE test procedure as the basis for certifying to DOE that their products comply with the applicable energy conservation standards adopted under EPCA and when making representations to the public regarding the energy use or efficiency of those products. (42 U.S.C. 6293(c) and 42 U.S.C. 6295(s)) Similarly, DOE must use these test procedures to determine whether the products comply with standards adopted pursuant to EPCA. (42 U.S.C. 6295(s)) The DOE test procedures for commercial prerinse spray valves appear at 10 CFR 431.264.

Federal energy conservation requirements generally supersede State laws or regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a)-(c)) California, however, has a statutory exemption to preemption for CPSV standards adopted by the California Energy Commission before January 1, 2005. (42 U.S.C. 6297(c)(7)) As a result, while Federal CPSV standards apply in California, California's CPSV standards also apply for standards adopted by January 1, 2005, as they are exempt from preemption. In 2018, California revised its regulations so that the maximum flow rate requirements align with those implemented by DOE for CPSVs. DOE may, however, grant waivers of Federal preemption for particular State laws or regulations, in accordance with the procedures and other provisions set forth under EPCA. ( See 42 U.S.C. 6297(d))

Pursuant to the amendments contained in the Energy Independence and Security Act of 2007 (“EISA 2007”), Public Law 110-140, any final rule for new or amended energy conservation standards promulgated after July 1, 2010, is required to address standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a standard for a covered product after that date, it must, if justified by the criteria for adoption of standards under EPCA (42 U.S.C. 6295(o)), incorporate standby mode and off mode energy use into a single standard, or, if that is not feasible, adopt a separate standard for such energy use for that product. (42 U.S.C. 6295(gg)(3)(A)-(B)) Because CPSVs only consume energy and water in active mode, DOE's test procedures for CPSVs do not address standby mode and off mode energy use as they are not applicable for this product.

DOE must periodically review its already established energy conservation standards for a covered product no later than 6 years from the issuance of a final rule establishing or amending a standard for a covered product. (42 U.S.C. 6295(m)) This 6-year look-back provision requires that DOE publish either a determination that standards do not need to be amended or a NOPR, including new proposed standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m)(1)(A)-(B)) EPCA further provides that, not later than 3 years after the issuance of a final determination not to amend standards, DOE must publish either a notification of determination that standards for the product do not need to be amended, or a NOPR including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m)(3)(B)). DOE must make the analysis on which a determination is based publicly available and provide an opportunity for written comment. (42 U.S.C. 6295(m)(2)).

A determination that amended standards are not needed must be based on consideration of whether amended standards will result in significant conservation of energy, are technologically feasible, and are cost effective. (42 U.S.C. 6295(m)(1)(A) and 42 U.S.C. 6295(n)(2)) Additionally, any new or amended energy conservation standard prescribed by the Secretary of Energy (“Secretary”) for any type (or class) of covered product shall be designed to achieve the maximum improvement in energy efficiency that the Secretary determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)). Among the factors DOE considers in evaluating whether a proposed standard level is economically justified is whether the proposed standard at that level is cost effective, as defined under 42 U.S.C. 6295(o)(2)(B)(i)(II). Under 42 U.S.C. 6295(o)(2)(B)(i)(II), an evaluation of cost effectiveness requires DOE to consider savings in operating costs throughout the estimated average life of the covered products in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses for the covered products that are likely to result from the standard. (42 U.S.C. 6295(n)(2) and 42 U.S.C. 6295(o)(2)(B)(i)(II)).

DOE is publishing this final determination in satisfaction of the 6-year review requirement in EPCA.

In a final rule published on January 27, 2016, (“January 2016 Final Rule”), DOE prescribed the current energy conservation standards for CPSVs manufactured on and after January 28, 2019. 81 FR 4748. These standards prescribe a maximum flow rate in gallons per minute (“gpm”) for each product class and are set forth in DOE's regulations at 10 CFR 431.266 and repeated in Table II.1.

In support of the present review of the CPSV energy conservation standards, on June 10, 2020, DOE published a request for information (“RFI”) that identified various issues on which DOE sought comment to inform its determination of whether the standards need to be amended. 85 FR 35383 (“June 2020 RFI”). Then, on August 18, 2021, DOE published a notice of proposed determination (“August 2021 NOPD”) in which DOE initially determined that amended energy conservation standards for CPSVs were not needed. 86 FR 46330. On September 1, 2021, DOE held a public webinar in which it presented the methods and analysis in the August 2021 NOPD and solicited public comment. 4

DOE received written comments in response to the August 2021 NOPD from the interested parties listed in Table II.2.

A parenthetical reference at the end of a comment quotation or paraphrase provides the location of the item in the public record. 5

DOE developed this final determination after considering comments, data, and information from interested parties that represent a variety of interests. This document addresses issues raised by these commenters.

When evaluating and establishing energy conservation standards, DOE divides covered products into product classes by the type of energy used or by capacity or other performance-related features that justify differing standards. In making a determination whether a performance-related feature justifies a different standard, DOE must consider such factors as the utility of the feature to the consumer and other factors DOE determines are appropriate. (42 U.S.C. 6295(q)) The CPSV product classes for this final determination are discussed in further detail in section IV.B.3 of this document. This determination covers CPSVs, which are defined as handheld devices that have a release-to-close valve and are suitable for removing food residue from food service items before cleaning them in commercial dishwashing or ware washing equipment. 10 CFR 431.262. DOE may determine that a device is suitable for removing food residue from food service items before cleaning them in commercial dishwashing or ware washing equipment based on any or all of the following:

(1) Equipment design and representations ( e.g., whether equipment is represented as being capable of rinsing dishes as compared to equipment that is represented exclusively for washing walls and floors or animal washing),

(2) Channels of marketing and sales ( e.g., whether equipment is marketed or sold through outlets that market or sell to food service entities), and/or

(3) Actual sales (including whether the end-users are restaurants or commercial or institutional kitchens, even if those sales are indirectly through an entity such as a distributor). 6

The scope of coverage is discussed in further detail in section IV.A.1. of this document.

EPCA sets forth generally applicable criteria and procedures for DOE's adoption and amendment of test procedures. (42 U.S.C. 6293) Manufacturers of covered products must use these test procedures to certify to DOE that their product complies with energy conservation standards and to quantify the efficiency of their product. (42 U.S.C. 6295(s) and 42 U.S.C. 6293(c)). DOE's current energy conservation standards for CPSVs are expressed in terms of gpm. 10 CFR 431.266.

On March 11, 2022, DOE published a test procedure final rule for CPSVs that amended the definition of “commercial prerinse spray valve” to codify existing guidance for determining whether a device is suitable for removing food residue from food service items that did not change the scope of products covered, updated references to the reaffirmed ASTM International (“ASTM”) Standard (ASTM F2324-13 (2019)), and explicitly permitted voluntary representations at water pressures other than 60 pounds per square inch (“psi”) in manufacturer literature. 87 FR 13901 (“March 2022 TP Final Rule”). DOE determined that the amendments to the test procedure adopted in the March 2022 TP Final Rule will not alter the measured efficiency of CPSVs or require retesting or recertification solely as a result of DOE's adoption of the amendments to the test procedures. 87 FR 13901, 13903.

In evaluating potential amendments to energy conservation standards, DOE conducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that are the subject of the determination. As the first step in such an analysis, DOE develops a list of technology options for consideration in consultation with manufacturers, design engineers, and other interested parties. DOE then determines which of those means for improving efficiency are technologically feasible. DOE considers technologies incorporated in commercially available products or in working prototypes to be technologically feasible. Sections 6(b)(3)(i) and 7(b)(1) of appendix A to 10 CFR part 430, subpart C (“appendix A”).

After DOE has determined that particular technology options are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria: (1) Practicability to manufacture, install, and service; (2) adverse impacts on product utility or availability; (3) adverse impacts on health or safety; and (4) unique pathway proprietary technologies. Sections 6(b)(3)(ii)-(v) and 7(b)(2)-(5) of appendix A. Section IV.B of this document discusses the results of the screening analysis for CPSVs, particularly the designs DOE considered, those it screened out, and those that are the basis for the standards considered in this determination. For further details on the screening analysis for this final determination, see chapter 4 of the final determination technical support document (“TSD”).

As when DOE proposes to adopt an amended standard for a type or class of covered product, it must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such a product. (42 U.S.C. 6295(p)(1)). Accordingly, in the engineering analysis, DOE determined the maximum technologically feasible (“max-tech”) improvements in energy efficiency for CPSVs using the design parameters for the most efficient products available on the market or in working prototypes. The max-tech levels that DOE determined for this analysis are described in section IV.C of this document and in chapter 5 of the final determination TSD.

For each efficiency level (“EL”) evaluated, DOE projected energy savings from application of the efficiency level to the CPSVs purchased in the 30-year period that begins in the assumed year of compliance with the potential standards (2027-2056). The savings are measured over the entire lifetime of the CPSVs purchased in the previous 30-year period. DOE quantified the energy savings attributable to each efficiency level as the difference in energy consumption between each standards case and the no-new-standards case. The no-new-standards case represents a projection of energy consumption that reflects how the market for a product would likely evolve in the absence of amended energy conservation standards.

DOE used its NIA spreadsheet model to estimate national energy savings (“NES”) from potential amended or new standards for CPSVs. The NIA spreadsheet model (described in section IV.H of this document) calculates energy savings in terms of site energy, which is the energy directly consumed by products at the locations where they are used. For electricity, DOE reports NES in terms of primary energy savings, which is the savings in the energy that is used to generate and transmit the site electricity. DOE also calculates NES in terms of full-fuel-cycle (“FFC”) energy savings. The FFC metric includes the energy consumed in extracting, processing, and transporting primary fuels ( i.e., coal, natural gas, petroleum fuels), and thus presents a more complete picture of the impacts of energy conservation standards. 7 DOE's approach is based on the calculation of an FFC multiplier for each of the energy types used by covered products or equipment. For more information on FFC energy savings, see section IV.H of this document.

In determining whether amended standards are needed, DOE must consider whether such standards will result in significant conservation of energy. (42 U.S.C. 6295(m)(1)(A)) The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given rulemaking. 8 For example, the United States rejoined the Paris Agreement on February 19, 2021. As part of that agreement, the United States has committed to reducing greenhouse gas (“GHG”) emissions in order to limit the rise in mean global temperature. 9 As such, energy savings that reduce GHG emissions have taken on greater importance. Accordingly, DOE evaluates the significance of energy savings on a case-by-case basis (as discussed in section V.D.3).

In making a determination of whether amended energy conservation standards are needed, EPCA requires DOE to consider the cost effectiveness of amended standards in the context of the savings in operating costs throughout the estimated average life of the covered product compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered product that are likely to result from a standard. (42 U.S.C. 6295(m)(1)(A), 42 U.S.C. 6295(n)(2), and 42 U.S.C. 6295(o)(2)(B)(i)(II)).

In determining cost effectiveness of amending standards for CPSVs, DOE conducted LCC and PBP analyses that estimate the costs and benefits to users from potential standards. To further inform DOE's consideration of the cost effectiveness of potential amended standards, DOE considered the NPV of total costs and benefits estimated as part of the NIA. The inputs for determining the NPV of the total costs and benefits experienced by consumers are (1) total annual installed cost, (2) total annual operating costs (energy costs and repair and maintenance costs), and (3) a discount factor to calculate the present value of costs and savings.

As stated previously, pursuant to EPCA, absent DOE publishing a notification of determination that energy conservation standards for CPSVs do not need to be amended, DOE must issue a NOPR that includes new proposed standards. (42 U.S.C. 6295(m)(1)(B)). The new proposed standards in any such NOPR must be based on the criteria established under 42 U.S.C. 6295(o) and follow the procedures established under 42 U.S.C. 6295(p). (42 U.S.C. 6295(m)(1)(B)). The criteria in 42 U.S.C. 6295(o) require that standards be designed to achieve the maximum improvement in energy efficiency, which the Secretary determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)). In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)). DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors:

As discussed in the January 2016 Final Rule, DOE found that amended standards at a level more stringent than those adopted would not be economically justified under the considerations of the seven factors prescribed in EPCA. 81 FR 4748, 4794 (Jan. 27, 2016). Specifically, the Secretary concluded that at the more stringent standards levels, the benefits of energy savings, positive NPV of consumer benefits, emission reductions, and the estimated monetary value of the emissions reductions would be outweighed by the reduction in manufacturer industry value. Id. Consequently, the Secretary concluded that standards more stringent than those adopted were not economically justified. Id. For the determination in this document, DOE has considered potential manufacturer impacts associated with amended energy conservation standards ( See section IV.I of this document).

This section addresses the analyses DOE has performed for this final determination regarding CPSVs. Separate subsections address each component of DOE's analyses. DOE used several analytical tools to estimate the impact of potential energy conservation standards. The first tool is a spreadsheet that calculates the LCC savings and PBP of potential energy conservation standards. The NIA uses a second spreadsheet set that provides shipments projections and calculates NES and NPV of total consumer costs and savings expected to result from potential energy conservation standards. These spreadsheet tools are available on the website: www.regulations.gov/docket/EERE-2019-BT-STD-0034.

In response to the August 2021 NOPD, PMI commented generally that they support DOE's proposed determination that amended energy conservation standards are not needed. (PMI, No. 16 at p. 1)

DOE develops information in the market and technology assessment that provides an overall picture of the market for the products concerned, including the purpose of the products, the industry structure, manufacturers, market characteristics, and technologies used in the products. This activity includes both quantitative and qualitative assessments, based primarily on publicly available information. The subjects addressed in the market and technology assessment for this final determination include (1) a determination of the scope and product classes, (2) manufacturers and industry structure, (3) existing efficiency programs, (4) shipments information, (5) market and industry trends, and (6) technologies or design options that could improve the energy efficiency of commercial prerinse spray valves. The key findings of DOE's market assessment are summarized in the following sections. See chapter 3 of the final determination TSD for further discussion of the market and technology assessment.

In this analysis, DOE relied on the definition of CPSVs in 10 CFR 431.262, which defines CPSV as a handheld device that has a release-to-close valve and is suitable for removing food residue from food service items before cleaning them in commercial dishwashing or ware washing equipment. DOE may determine that a device is suitable for removing food residue from food service items before cleaning them in commercial dishwashing or ware washing equipment based on any or all of the following: (1) equipment design and representations ( e.g., whether equipment is represented as being capable of rinsing dishes as compared to equipment that is represented exclusively for washing walls and floors or animal washing); (2) channels of marketing and sales ( e.g., whether equipment is marketed or sold through outlets that market or sell to food service entities); and/or (3) actual sales (including whether the end-users are restaurants or commercial or institutional kitchens, even if those sales are indirectly through an entity such as a distributor). 10 CFR 431.262. Any product meeting the definition of CPSV is included in DOE's scope of coverage.

In the August 2021 NOPD, DOE identified several technology options that would be expected to improve the efficiency of CPSVs, as measured by the DOE test procedure. 86 FR 46330, 46336. The complete list of technology options identified are as follows:

• Addition of flow control insert,

• Smaller spray hole area,

• Aerators,

• Additional valves,

• Changing spray hole shape, and

• Venturi meter to orifice plate nozzle geometries. 10

DOE also discussed use of a pressure compensating aerator (“PCA”) as a technology to potentially improve efficiency. 86 FR 46330, 46336. DOE stated that PCAs typically use an O-ring that compresses and relaxes in response to system pressure. When there is no pressure, the O-ring is relaxed and allows the aerator to be fully opened. As the pressure increases, the O-ring is compressed into the aerator opening to partially block water passage. This establishes an inverse relationship between the area of the aerator opening and the water pressure, and can be designed such that the water flow rate is approximately constant with pressure. Id

Further, DOE stated that the Federal test procedure measures flow rate and spray force at a singular, representative water pressure and adding a PCA would not change the flow rate or spray force at DOE's test pressure. Id. DOE requested comment on its determination that PCAs would not change the flow rate or spray force at DOE's test pressure. Id.

In response to the August 2021 NOPD, the CA IOUs agreed that PCAs would not change the flow rate or spray force under DOE's test procedure. (CA IOUs, No. 18 at p. 2) The CA IOUs recommended DOE require testing at two test pressures, 40 psi and 60 psi, so that PCAs can be included in the engineering analysis. ( Id. at p. 2) Similarly, NEEA recommended DOE require testing at both 60 psi and 40 psi and include PCAs as a technology option to increase customer satisfaction. (NEEA, No. 19 at pp. 3-4) NEEA asserted that under DOE's existing test procedure there is limited opportunity for efficiency improvements and that requiring testing at more pressures could prevent product class switching and encourage PCAs as a technology option. (NEEA, No. 19 at p. 1) NEEA commented that DOE amending the test procedure to require testing at lower pressures would encourage technologies, such as PCAs, that increase customer satisfaction at lower flow rates. (NEEA, No. 19 at p. 1-2)

In the March 2022 TP Final Rule, DOE amended its test procedure to explicitly permit voluntary testing at alternative pressures in addition to testing at 60 psi. 87 FR 13901, 13906. This amendment permits manufacturers to market any potential benefits of PCAs at alternate pressures. DOE notes, however, the test pressure specified in 10 CFR 431.264 is based on ASTM F2324, which is an industry consensus standard that includes input from a wide variety of national stakeholders and was corroborated with the data compiled for a prior test procedure rulemaking. Id. DOE noted that it has not received any new data indicating that an alternative test pressure would be more representative. Id.

Moreover, relative to a CPSV without a PCA, a CPSV with a PCA would have greater water usage at pressures below 60 psi and lesser water usage at pressures above 60 psi. As such, PCAs may not represent a technology option that saves any water because low-pressure applications would consume more water than applications at the representative pressure of 60 psi. Accordingly, DOE does not consider PCAs as a technology option that would save energy or water.

In summary, for this analysis, DOE considers the technology options shown in Table IV.1. Detailed descriptions of these technology options can be found in chapter 3 of the final determination TSD.

DOE uses the following five screening criteria to determine which technology options are suitable for further consideration in an energy conservation standards rulemaking:

Sections 6(b)(3) and 7(b) of appendix A to 10 CFR part 430, subpart C.

In summary, if DOE determines that a technology, or a combination of technologies, fails to meet one or more of the listed five criteria, it will be excluded from further consideration in the engineering analysis.

In the August 2021 NOPD, DOE proposed to screen out the same technology options from the January 2016 Final Rule, which were addition of flow control insert, aerators, and additional valves. 86 FR 46330, 46336. DOE's review of the market continues to support DOE's prior determination that these technologies are not suitable for further consideration because they are not included in any commercially available products or working prototypes and therefore do not meet the screening criteria for technologically feasibility, as discussed in chapter 4 of the final determination TSD. DOE did not receive any comment suggesting including any of these technology options. Therefore, DOE has maintained the proposed August 2021 NOPD conclusions and has screened out the same technology options as presented in Table IV.2.

After reviewing each technology, DOE did not screen out the following technology options and considers them as design options in the engineering analysis, consistent with the August 2021 NOPD:

• smaller spray hole area,

• changing spray hole shape, and

• venturi meter to orifice plate nozzle geometries.

DOE determined that these technology options are technologically feasible because they are being used or have previously been used in commercially available products or working prototypes. Also, these remaining technology options meet the other screening criteria ( i.e., practicable to manufacture, install, and service and do not result in adverse impacts on consumer utility, product availability, health, or safety). For additional details, see chapter 4 of the final determination TSD.

In general, when evaluating and establishing energy conservation standards, DOE divides the covered product into classes by (1) the type of energy used, (2) the capacity of the product, or (3) any other performance-related feature that affects energy efficiency and justifies different standard levels, considering factors such as consumer utility. (42 U.S.C. 6295(q))

For CPSVs, the current energy conservation standards specified in 10 CFR 431.266 are based on three product classes determined according to spray force, which is a performance-related feature that provides utility to the consumer. “Spray force” is defined as the amount of force exerted onto the spray disc, measured in ounce-force (“ozf”). 10 CFR 431.262. Table IV.3 lists the current three product classes for CPSVs.

These product classes were based on previous market research that identified three distinct end-user applications requiring differing amounts of spray force: (1) cleaning delicate glassware and removing loose food particles from dishware (which requires the least amount of spray force), (2) cleaning wet food, and (3) cleaning baked-on foods (which requires the greatest amount of spray force). 81 FR 4748, 4758-4759.

In the August 2021 NOPD, DOE proposed to maintain the existing product class structure for the analysis conducted. 86 FR 46330, 46337. In response, DOE received comments from the CA IOUs and Efficiency Advocates suggesting DOE consider an alternate approach using an equation-based standard where the maximum water flow rate of a product is calculated based on its measured spray force. (CA IOUs, No. 18 at pp. 1-2; Efficiency Advocates, No. 17 at pp. 1-2) Upon further review, DOE has determined that an equation-based standard would limit the design flexibility regarding nozzle and valve characteristics for consumers and manufacturers while not yielding any water or energy savings. Further discussion on this topic is provided in section IV.C.1.b of this document.

In this final determination, DOE continues to conclude that the current three product class structure is appropriate and has maintained the same approach.

For this final determination, DOE relied on government databases, retail listings, and industry publications ( e.g., manufacturer catalogs) to assess the overall state of the industry. DOE used this market analysis to generate the shipments analysis, discussed in section IV.G. of this document. DOE maintained the nearest neighbor switching assumptions  11 proposed in the August 2021 NOPD, as discussed in section IV.G.

The purpose of the engineering analysis is to establish the relationship between the efficiency and cost of CPSVs. There are two elements to consider in the engineering analysis: the selection of efficiency levels to analyze ( i.e., the “efficiency analysis”) and the determination of product cost at each efficiency level ( i.e., the “cost analysis”). In determining the performance of more efficient products, DOE considers technologies and design option combinations not eliminated by the screening analysis. For each product class, DOE estimates the baseline cost, as well as the incremental cost for the product at efficiency levels above the baseline. The output of the engineering analysis is a set of cost efficiency “curves” that are used in downstream analyses ( i.e., the LCC and PBP analyses and the NIA).

DOE typically uses one of two approaches to develop energy efficiency levels for the engineering analysis: (1) relying on observed efficiency levels in the market ( i.e., the efficiency level approach), or (2) determining the incremental efficiency improvements associated with incorporating specific design options to a baseline model ( i.e., the design option approach). Using the efficiency level approach, the efficiency levels established for the analysis are determined based on the market distribution of existing products (in other words, based on the range of efficiencies and efficiency level “clusters” that already exist on the market). Using the design option approach, the efficiency levels established for the analysis are determined through detailed engineering calculations and/or computer simulations of the efficiency improvements from implementing specific design options that have been identified in the technology assessment. DOE may also rely on a combination of these two approaches. For example, the efficiency level approach (based on actual products on the market) may be extended using the design option approach to interpolate to define “gap fill” levels (to bridge large gaps between other identified efficiency levels) and/or to extrapolate to the max-tech level (particularly in cases where the “max-tech” level exceeds the maximum efficiency level currently available on the market).

In this final determination, just like what was proposed in the August 2021 NOPD and the January 2016 Final Rule, DOE is adopting a design option approach. The analysis is performed in terms of incremental increases in efficiency (decreases in flow rate) due to implementation of selected design options.

For each product class, DOE generally selects a baseline model as a reference point for each class, and measures changes resulting from potential energy conservation standards against the baseline. The baseline model in each product class represents the characteristics of a product typical of that class ( e.g., capacity, physical size). Generally, a baseline model is one that just meets current energy conservation standards, or, if no standards are in place, the baseline is typically the most common or least efficient unit on the market.

The current minimum energy conservation standards represent the baseline efficiency levels for each product class. The current standards for each product class are based on flow rate in gpm.

As part of DOE's analysis, the maximum available efficiency level is the highest efficiency ( i.e., lowest water use in a given product class) unit currently available on the market. DOE also defines a max-tech efficiency level to represent the maximum possible efficiency for a given product.

In the August 2021 NOPR, DOE presented the max-tech CPSV for each product class. 86 FR 46330, 46338. DOE noted that product class 2 and product class 3 were consistent with the max-tech values used in the January 2016 Final Rule, while a new max-tech had been identified for product class 1. 12 DOE did not receive any comment suggesting the max-tech values were inappropriate. DOE has used the max-tech efficiency level flow rates presented in Table IV.4 in this analysis.

In the January 2016 Final Rule, DOE presented a theoretical linear relationship between CPSV flow rate and spray force, derived from both Bernoulli's principle of incompressible flow and the concept of conservation of mass in a fluid system. 81 FR 4748, 4762. DOE had verified this linear relationship through market testing of available products and close matching between the theoretical relationship and the flow rates and spray forces of available products. Id. In the August 2021 NOPD, DOE stated that it continued to use the linear relationship between CPSV flow rate and spray force in its engineering analysis. 86 FR 46330, 46339. Specifically, in chapter 5 of the August 2021 NOPD TSD, 13 DOE discusses that while DOE generally relied on manufacturer reported spray force data and prior DOE testing to characterize the range of spray forces available on the market, DOE used the linear relationship to inform how various technology options that reduce flow rate would impact spray force. The relationship between flow rate and spray force is given below:

In response to the August 2021 NOPD, both the Efficiency Advocates and CA IOUs commented that there are spray valves in the DOE Compliance Certification Database (“CCD”) with similar flow rate and a range of spray forces, suggesting manufacturers may be able to reduce flow rate without losing spray force. Accordingly, both recommended that DOE consider setting maximum flow rate standard based on a linear relationship that incorporates spray force. (Efficiency Advocates, No. 17 at pp. 1-2; CA IOUs, No. 18 at pp. 1-2)

DOE notes that the equation relating spray force and flow rate is theoretical and while it aligns well with what DOE has observed in the industry, there is going to be some amount of deviation observed in industry as the theoretical relationship does not perfectly translate to the real world. The theoretical relationship includes assumptions about ideal flow through a nozzle, which assumes certain factors are constant ( i.e., uniform velocity profile, viscosity, turbulence, etc.). While these terms can generally be treated as constant in modeling and estimating, they are present in real world applications. Therefore, the linear equation is approximately accurate for modeling what the theoretical spray force would be for a given flow rate. As discussed previously, DOE used the equation in the engineering analysis only to inform how various technology options that reduce flow rate would impact spray force.

Setting an efficiency standard based on the equation, however, would allow for very little freedom in manufacturer designs and little tolerance for deviations beyond the theoretical linear relationship between spray force and flow rate. DOE has previously acknowledged that other characteristics beyond spray force, including spray shape and the amount of splash back, could also affect consumer utility of CPSVs. 81 FR 4748, 4759. An equation-based standard could run the risk of only permitting certain spray shapes and splash back characteristics to meet this theoretical equation-based standard. In other words, an equation-based standard could require spray valve designs that have minimal deviation from the ideal flow assumptions included in the derivation of Equation 1. In effect, an equation-based approach could force all CPSVs to look exactly the same. Conversely, keeping the proposed approach of one flow rate standard per product class continues to allow for some flexibility and tolerance in design.

The CA IOUs and Efficiency Advocates further suggested that an equation-based efficiency standard would encourage products that deliver a higher spray force while reducing flow rate (and in turn, reducing water consumption). (Efficiency Advocates, No. 17 at p. 1; CA IOUs, No. 18 at p. 1) The Efficiency Advocates also suggested that an equation-based approach would reduce the likelihood of product switching. (Efficiency Advocates, No. 17 at p. 1)

DOE does not agree that an equation-based standard would reduce product switching. A CPSV could be designed to achieve the hypothetical equation-based standard by either changing the spray force, or by changing the flow rate. The Efficiency Advocates' suggestion is premised on consumers selecting products based on spray force ( i.e., under an equation-based standard consumers would select the lowest flow rate that provides the desired spray force). DOE's review of the market indicates that manufacturers typically advertise only flow rate, suggesting that in selecting CPSVs, flow rate is the more determinative characteristic. Accordingly, DOE's analysis assumes that consumers switch to the nearest flow rate, not nearest spray force ( i.e., nearest neighbor, as discussed in section IV.H of this document).

With an equation-based approach, consumers would continue to choose the product with the flow rate that is closest to the desired flow rate; therefore, there would be zero water savings. DOE has previously relied on the nearest neighbor assumption and requested comment on it several times. 86 FR 46330, 46344-46345; 80 FR 39486, 39538 (Jul. 9, 2015). DOE has not received comment to the contrary. DOE sees no advantage in an equation-based standard for CPSVs and therefore has maintained the existing product class structure in the analysis supporting this final determination.

The cost analysis portion of the engineering analysis is conducted using one cost approach or a combination of cost approaches. The selection of cost approach depends on a suite of factors, including the availability and reliability of public information, characteristics of the regulated product, and the availability and timeliness of purchasing the product on the market. The cost approaches are summarized as follows:

• Physical teardowns: Under this approach, DOE physically dismantles a commercially available product, component-by-component, to develop a detailed bill of materials (“BOM”) for the product.

• Catalog teardowns: In lieu of physically deconstructing a product, DOE identifies each component using parts diagrams (available from manufacturer websites or appliance repair websites, for example) to develop the BOM for the product.

• Price surveys: If neither a physical nor catalog teardown is feasible ( e.g., for tightly integrated products such as fluorescent lamps, which are infeasible to disassemble and for which parts diagrams are unavailable) or cost-prohibitive and otherwise impractical ( e.g., large commercial boilers), DOE conducts price surveys using publicly available pricing data published on major online retailer websites and/or by soliciting prices from distributors and other commercial channels.

In the August 2021 NOPD, DOE stated that it did not observe any new technology options since the January 2016 Final Rule, and therefore, updated the cost analysis from the January 2016 Final Rule to be representative of the market in 2020. 86 FR 46330, 46339. DOE updated the material prices of each component of the previously torn down CPSVs and updated the labor, depreciation, utilities, maintenance, tax, and insurance costs. DOE did not include any CPSVs that have exited the market or had their design modified since they were torn down. The resulting BOM provided the basis for the manufacturer production cost (“MPC”) estimates. The updated costs reaffirmed that there are differences in manufacturing costs between units from different manufacturers. However, none of the differences are directly related to the efficiency of a CPSV. Rather, the differences were primarily due to differences in the type and amount of material used ( e.g., plastic versus brass or stainless steel spray nozzles). Therefore, DOE concluded that MPC was unaffected by efficiency level, both within product classes and across product classes. Id.

In the August 2021 NOPD, DOE requested comment and data regarding any changes in MPC that would not be accounted for by updating the cost analysis of the previously conducted product teardowns. Further, DOE requested any data that would contradict its determination of no incremental cost associated with improvements in efficiency of CPSVs. Id.

DOE did not receive any comments regarding the cost analysis conclusions presented in the August 2021 NOPD. DOE continues to conclude that MPC is unaffected by efficiency level, same as the conclusion from the August 2021 NOPD and the January 2016 Final Rule ( i.e., MPC remains constant across all product classes). As such, the resulting cost analysis provided the basis for the MPC estimates.

To account for manufacturers' non-production costs and profit margin, DOE applies a non-production cost multiplier (the manufacturer markup) to the MPC. The resulting manufacturer selling price (“MSP”) is the price at which the manufacturer distributes a unit into commerce. DOE developed an average manufacturer markup by examining the annual Securities and Exchange Commission (“SEC”) 10-K reports filed by publicly traded manufacturers primarily engaged in appliance manufacturing and whose combined product range includes CPSVs. The manufacturer markup is discussed in more detail in section IV.I.2.d of this document.

The results of the engineering analysis are reported as cost efficiency data and indicate that manufacturing production costs are unaffected by efficiency level within a product class and across product classes. Therefore, DOE determined the final MPC as the average MPC of all CPSVs. The summary of the cost efficiency relationships for product classes 1, 2, and 3 are presented in Table IV.5, Table IV.6, and Table IV.7, respectively. See chapter 5 of the final determination TSD for additional detail on the engineering analysis and complete cost efficiency results.

See chapter 5 of the final determination TSD for additional detail on the engineering analysis and complete cost efficiency results.

The markups analysis develops appropriate markups ( e.g., retailer markups, distributor markups, contractor markups) in the distribution chain and sales taxes to convert the MSP estimates derived in the engineering analysis to consumer prices, which are then used in the LCC and PBP analysis and in the manufacturer impact analysis (“MIA”). At each step in the distribution channel, companies mark up the price of the product to cover business costs and profit margin.

DOE requested comment in the June 2020 RFI regarding markups per distribution channel as well as the portion of equipment sold via each distribution channel. 85 FR 35383, 35390 (Jun. 10, 2020). DOE did not receive any comments related to markups per distribution channel.

For commercial prerinse spray valves, the main parties in the distribution chain are manufacturers, distributors, retailers, and service companies. Each party in the distribution chain sells to the final consumer. Table IV.8 provides the portion of equipment passing through different distribution channels that DOE included in the August 2021 NOPD. 86 FR 46330, 46340.

DOE developed baseline markups for each entity in the distribution chain. Baseline markups are multipliers that convert the MSP of equipment at the baseline efficiency level to consumer purchase price. Incremental markups are multipliers that convert the incremental increase in MSP for a product at each higher efficiency level (compared to the MSP at the baseline efficiency level) to the corresponding purchase price. In the analysis for the August 2021 NOPD, DOE used only baseline markups, as the engineering analysis indicated that there is no price increase with improvements in efficiency for commercial prerinse spray valves.

DOE relied on annual reports and SEC 10-K reports from public companies in the different distribution channels to estimate average baseline markups. Table IV.9 provides the markups for each distribution channel that DOE used in the NOPD analysis. 86 FR 46330, 46340-46341.

DOE did not receive any comments regarding the markups presented in the August 2021 NOPD. DOE used these markup values in the final determination analysis.

Sales tax also factors into the mark-ups. DOE did not receive any comments related to sales tax in response to the August 2021 NOPD. However, DOE updated the sales tax to reflect the 2022 sales tax and weighted by 2022 population. The change in sales tax between the August 2021 NOPD and this final determination is a small increase in national average sales tax.

Chapter 6 of the final determination TSD provides details on DOE's development of markups for CPSVs.

The purpose of the energy use analysis is to determine the annual energy consumption of CPSVs at different efficiencies in representative U.S. commercial buildings, and to assess the energy savings potential of increased CPSV efficiency. The energy use analysis estimates the range of energy use of CPSVs in the field ( i.e., as they are actually used by consumers). The energy use analysis provides the basis for other analyses DOE performed, particularly assessments of the energy savings and the savings in consumer operating costs that could result from adoption of amended or new standards. DOE proposed to the use the same energy and water use analysis process from the January 2016 Final Rule in the August 2021 NOPD. 86 FR 46330, 46341.

As discussed in section IV.C.1 of this document, DOE developed flow rates for each efficiency level analyzed in the engineering analysis. DOE calculated the energy and water use by determining the representative daily operating time of the product by major building types that contain commercial kitchens found in the 2012 Commercial Building Energy Consumption Survey (“CBECS”). 15 The daily CPSV operating time was annualized based on operating schedules for each building type. In the June 2020 RFI, DOE presented CPSV annual operating hours and requested comment on those hours. 85 FR 35383, 35390. DOE did not receive any comments related to operating hours. DOE also received no comments to the August 2021 NOPD related to operating hours. However, after the August 2021 NOPD was published, 2018 CBECS was released. For this final determination, DOE used operating hours from the 2018 CBECS. There were no major differences in operating hours or water usage between CBECS 2012 and CBECS 2018. However, the mixture of fuel type for water heaters changed between CBECS 2012 and CBECS 2018 to a slightly larger amount of natural gas water heaters in CBECS 2018 compared to CBECS 2012. Although the efficiency values did not change between the NOPD and this final determination, the energy and water use values slightly changed. The differences in energy and water use stem from the change in water heater mixture use as well as small reduction in operating hours from the update of CBECS 2018. Water use for each equipment class was determined by multiplying the annual operating time by the flow rate and operating pressure of 60 psi for each efficiency level. DOE requested comment in the June 2020 RFI requesting feedback related to the typical operating pressure of the water typically supplied to commercial prerinse spray valves and DOE's assumption of 60 psi. 85 FR 35383, 35390. PMI concurred with this operating pressure and stated that 60 ± 2 psi is representative of the average U.S. water pressure in commercial kitchens. (PMI, No. 4 at pp. 4-5)

DOE used 60 psi operating pressure in the August 2021 NOPD. 86 FR 46330, 46341. DOE did not receive any comments related to operating pressure and retained the 60 psi value for this final determination.

In the August 2021 NOPD, energy use was calculated by multiplying the annual water use in gallons by the energy required to heat each gallon of water to an end-use temperature of 108 °F. DOE requested comment in the June 2020 RFI related to the end-use water temperature of the water leaving the CPSVs and any related supporting data. 85 FR 35383, 35390. In response to the June 2020 RFI, PMI stated that it was not aware of any data or market information that suggested a different temperature than the 108 °F end-use temperature. (PMI, No. 4 at p. 5) In this final determination as DOE did in the NOPD, cold water supply temperatures used in the energy use calculation were derived for the nine U.S. census regions based on ambient air temperatures, and hot water supply temperature was assumed to be 140 °F based on American Society of Heating, Refrigerating, and Air-Conditioning Engineers (“ASHRAE”) Standard 12-2020. 16 DOE did not receive any comments related to the energy use methodology used in the August 2021 NOPD. DOE used the same process for energy and water use analysis with the exception of using the more current 2018 CBECS data for this final determination.

Chapter 7 of the final determination TSD provides details on DOE's energy use analysis for commercial prerinse spray valves.

DOE conducted LCC and PBP analyses to evaluate the economic impacts on individual consumers of potential energy conservation standards for CPSVs. 17 The effect of new or amended energy conservation standards on individual consumers usually involves a reduction in operating cost and an increase in purchase cost. DOE used the following two metrics to measure consumer impacts:

• The LCC is the total consumer expense of an appliance or product over the life of that product, consisting of total installed cost (MSP, distribution chain markups, sales tax, and installation costs) plus operating costs (expenses for energy use, maintenance, and repair). To compute the operating costs, DOE discounts future operating costs to the time of purchase and sums them over the lifetime of the product.

• The PBP is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a more efficient product through lower operating costs. DOE calculates the PBP by dividing the change in purchase cost at higher efficiency levels by the change in annual operating cost for the year that amended or new standards are assumed to take effect.

For any given efficiency level, DOE measures the change in LCC relative to the LCC in the no-new-standards case, which reflects the estimated efficiency distribution of CPSVs in the absence of new or amended energy conservation standards. In contrast, the PBP for a given efficiency level is measured relative to the baseline product.

Inputs to the calculation of total installed cost include the cost of the product—which includes MPCs, manufacturer markups, retailer and distributor markups, and sales taxes—and installation costs. Inputs to the calculation of operating expenses include annual energy consumption, energy prices and price projections, repair and maintenance costs, product lifetimes, and discount rates. DOE created distributions of values for product lifetime, discount rates, and sales taxes, with probabilities attached to each value, to account for their uncertainty and variability.

The computer model DOE uses to calculate the LCC and PBP relies on a Monte Carlo simulation to incorporate uncertainty and variability into the analysis. The Monte Carlo simulations randomly sample input values from the probability distributions and CPSV user samples. For this determination, the Monte Carlo approach is implemented in Microsoft Excel together with the Crystal Ball TM add-on. 18 The model calculated the LCC and PBP for products at each efficiency level for 10,000 CPSV users per simulation run. The analytical results include a distribution of 10,000 data points showing the range of LCC savings for a given efficiency level relative to the no-new-standards case efficiency distribution. The LCC savings are the summation of the differences in LCC between a given efficiency level and the standard level under consideration, weighted by the percent of consumers who are at that given efficiency level relative to all consumers who are affected. For product efficiencies greater than or equal to the efficiency of the standard level under consideration, the LCC and PBP calculations reveal that a consumer is not impacted by the standard level. By accounting for consumers who already purchase more efficient products, DOE avoids overstating the potential benefits from increasing product efficiency.

DOE calculated the LCC and PBP for all consumers of CPSVs as if each were to purchase a new product in the expected year of required compliance with new or amended standards. Any amended standards would apply to CPSVs manufactured 3 years after the date on which any new or amended standard is published, consistent with the 3-year compliance period used during the January 2016 Final Rule. 81 FR 4748, 4764-4765. For purposes of its analysis, DOE used 2027 as the first year of compliance with any amended standards for CPSVs.

Table IV.10 summarizes the approach and data DOE used to derive inputs to the LCC and PBP calculations. The subsections that follow provide further discussion. Details of the spreadsheet model, and of all the inputs to the LCC and PBP analyses, are contained in chapter 8 of the final determination TSD and its appendices.

To calculate consumer product costs, DOE multiplied the MSPs developed in the engineering analysis by the distribution channel markups described in section IV.D of this document (along with sales taxes). As stated earlier in this document, DOE used baseline markups, but did not apply incremental markups because the engineering analysis indicated that there is no price increase with improvements in efficiency for CPSVs.

In prior energy conservation standards rulemakings, DOE estimated the total installed costs per unit for product and then assumed that costs remain constant throughout the analysis period. This assumption is conservative because product costs tend to decrease over time. In 2011, DOE published a notice of data availability (“NODA”) titled Equipment Process Forecasting in Energy Conservation Standards Analysis. 76 FR 9696 (Feb. 22, 2011). In the NODA, DOE proposed a methodology for determining whether equipment process have trended downward in real terms. The methodology examines so-called price or experimental learning, wherein, with ever-increasing experience with the production of a product, manufacturers are able to reduce their production costs through innovations in technology and process.

CPSVs are formed metal devices. Neither changes in technology nor process are expected to occur to change the price of the product in this analysis. For this analysis, DOE assumed that product costs remain constant over the analysis period. This is consistent with the January 2016 Final Rule. 81 FR 4748, 4767.

Installation cost includes labor, overhead, and any miscellaneous materials and parts needed to install the product. DOE used data from the U.S. Department of Labor to estimate the baseline installation cost for CPSVs. In the August 2021 NOPD, DOE found no evidence that the installation costs would be affected by increased efficiency levels, which was consistent with the January 2016 Final Rule. 86 FR 46330, 46342. DOE received no comments related to installation costs. In this final determination, DOE did not vary installation costs with efficiency levels.

For each sampled CPSV user, DOE determined the energy consumption for a CPSV at different efficiency levels using the approach described previously in section IV.E of this document.

In the August 2021 NOPD, DOE derived average annual commercial electricity prices for 27 geographic regions using data from the U.S. Energy Information Administration (“EIA”) Form EIA-861 database (based on the “Annual Electric Power Industry Report”). 19 DOE derived average natural gas prices using data from EIA's natural gas prices. 20

To estimate energy prices in future years, DOE multiplied the average regional energy prices by a projection of annual change in national average commercial energy price in AEO 2021. 21 AEO2021 has an end year of 2050. To estimate price trends after 2050, DOE used the average annual rate of change in prices from 2040 through 2050.

DOE received no comments related to energy prices. DOE used the same methodology for this final determination.

For the analysis presented in the August 2021 NOPD, DOE obtained data on water and wastewater prices from the 2019 American Water Works Association (“AWWA”) surveys for this analysis. 22 For each State and the District of Columbia, DOE combined all individual utility observations within the State to develop one value for water and wastewater service. Because water and wastewater charges are frequently tied to the same metered commodity values, DOE combined the prices for water and wastewater into one total dollar per thousand gallons amount. This amount is referred to as the combined water price. DOE used the consumer price index (“CPI”) data for water related consumption (1974-2019) in developing a real growth rate for combined water price forecasts. DOE requested comment in the June 2020 RFI whether a different water price dataset should be considered. 85 FR 35383, 35391. DOE received no comments related to water price datasets in response to either the June 2020 RFI or the August 2021 NOPD. DOE used the same methodology for this final determination.

Chapter 8 of the final determination TSD provides more detail about DOE's approach to developing water and wastewater prices.

Repair costs are associated with repairing or replacing product components that have failed in an appliance; maintenance costs are associated with maintaining the operation of the product. Typically, small incremental increases in product efficiency produce no, or only minor, changes in repair and maintenance costs compared to baseline efficiency products. DOE requested comment in the June 2020 RFI on the assumption of zero maintenance and repair costs upon failure. DOE assumed that consumers would replace the CPSV upon failure rather than repairing the product. 85 FR 35383, 35391. DOE also requested comment if these changes would differ per efficiency level. Id. DOE received no comments related to maintenance nor repair costs.

For the analysis presented in the August 2021 NOPD, DOE modeled CPSVs as not being repaired, and no maintenance costs. Additionally, DOE modeled no changes in maintenance or repair costs between different efficiency levels. DOE received no comments related to this assumption in the August 2021 NOPD. In this final determination, DOE assumed CPSVs as not being repaired, and no maintenance costs.

For CPSVs, DOE used lifetime estimates from manufacturer datasheets and other published data sources. DOE requested comment in the June 2020 RFI regarding lifetime and lifetime distributions, and restated the values from the January 2016 Final Rule—an average lifetime of 5 years and maximum of 10 years. 85 FR 35383, 35391. DOE did not receive any comments related to lifetime of CPSVs in response to the June 2020 RFI.

For the analysis presented in the August 2021 NOPD, DOE developed a Weibull distribution with an average lifetime of 5 years and a maximum lifetime of 10 years. The use of a lifetime distribution for this analysis helps account for the variability in product lifetimes. DOE received no comments related to the lifetime values or distribution in response to the August 2021 NOPD. In this final determination, DOE assumed the same life values and distributions as in the August 2021 NOPD.

In the calculation of LCC, DOE applies discount rates appropriate to CPSV users to estimate the present value of future operating costs. DOE estimated a distribution of commercial discount rates for CPSVs based on consumer financing costs and the opportunity cost of consumer funds.

DOE applies weighted-average discount rates calculated from consumer debt and asset data, rather than marginal or implicit discount rates. 23 DOE notes that the LCC does not analyze the appliance purchase decision, so the implicit discount rate is not relevant in this model. The LCC estimates NPV over the lifetime of the product, so the appropriate discount rate will reflect the general opportunity cost of commercial consumer funds, taking this time scale into account. Given the long-time horizon modeled in the LCC, the application of a marginal interest rate associated with an initial source of funds is inaccurate. Regardless of the method of purchase, consumers are expected to continue to rebalance their debt and asset holdings over the LCC analysis period, based on the restrictions consumers face in their debt payment requirements and the relative size of the interest rates available on debts and assets. DOE estimates the aggregate impact of this rebalancing using the historical distribution of debts and assets.

In the August 2021 NOPD, to establish commercial discount rates for the LCC analysis, DOE identified all relevant commercial consumer debt or asset classes in order to approximate a commercial consumer's opportunity cost of funds related to appliance energy cost savings. It estimated the average percentage shares of the various types of debt and equity by commercial consumer building type using data from Damodaran Online  24 for 1998-2019. Using Damodaran Online and the Federal Reserve, DOE developed a distribution of rates for each type of debt and asset by building type to represent the rates that may apply in the year in which amended standards would take effect. DOE assigned each sample building a specific discount rate drawn from one of the distributions. The average rate across all types of commercial consumer debt and equity, weighted by the shares of each type, given business size, is 7.0 percent.

DOE received no comments related to discount rate in response to the August 2021 NOPD. In this final determination, DOE uses the same analysis process for discount rates and values. However, the inputs for discount rates changed and this final determination uses a slightly lower discount rate for the LCC than compared to the August 2021 NOPD.

See chapter 8 of the final determination TSD for further details on the development of consumer discount rates.

To accurately estimate the share of consumers that would be affected by a potential energy conservation standard at a particular efficiency level, DOE's LCC analysis considered the projected distribution (market shares) of product efficiencies under the no-new-standards case ( i.e., the case without amended or new energy conservation standards).

To estimate the energy efficiency distribution of CPSVs for 2027 (the first year of the analysis period), DOE conducted general internet searches and examined manufacturer literature to understand the characteristics of the spray values currently offered on the market. DOE assumed that the no-new-standards case percentages in 2027 would stay the same through the analysis period. The estimated market shares by product class for the no-new-standards case for CPSVs DOE assumed in the August 2021 NOPD are shown in Table IV.11 of this document. The estimated market shares within each product class for the no-new-standards case for CPSVs DOE assumed in the August 2021 NOPD are shown in Table IV.12.

DOE received no direct comments related to the August 2021 NOPD assumed efficiency distributions. However, both the CA IOUs and NEEA commented that the CCD database does not contain any models in product class 3, suggesting that the lack of product availability in product class 3 indicates a need for additional research as to consumer preferences in the CPSV market, including in-depth market and sales analysis to better inform DOE's product type switching methodology. NEEA stated that DOE should also account for market availability of products. (CA IOUs, No. 15 at pp. 18-19; NEEA, No. 19 at p. 3) DOE agrees that the CCD, when queried between March 2021 and March 2022, did not contain any models in product class 3. However, DOE has identified such products in manufacturer catalogs and on the market. The values in Table IV.11 are based on DOE's survey of the market indicating that 20 percent of products available are in product class 3. The values in Table IV.12 are partially based on data from the CCD as well as DOE's review of market data. The values in Table IV.12 indicate products exist for EL 0 and EL 1 in product class 3. Given the presence of CPSVs in product class three, there is not a need to account for market availability as suggested by NEEA.

DOE uses these same efficiency distributions from the August 2021 NOPD in this final determination.

See chapter 8 of the final determination TSD for further information on the derivation of the efficiency distributions.

The PBP is the amount of time it takes the consumer to recover the additional installed cost of more efficient products, compared to baseline products, through energy cost savings. The PBP is expressed in years. The PBP that exceeds the life of the product means that the increased total installed cost is not recovered in reduced operating expenses.

The inputs to the PBP calculation for each efficiency level are the change in total installed cost of the product and the change in the first-year annual operating expenditures relative to the baseline. The PBP calculation uses the same inputs as the LCC analysis, except that discount rates are not needed.

DOE uses projections of annual product shipments to calculate the national impacts of potential amended or new energy conservation standards on energy use, NPV, and future manufacturer cash flows. 25 The shipments model takes an accounting approach in tracking market shares of each product class and the vintage of units in the stock. Stock accounting uses product shipments as inputs to estimate the age distribution of in-service product stocks for all years. The age distribution of in-service product stocks is a key input to calculations of both the NES and NPV, because operating costs for any year depend on the number of CPSVs in operation during that year.

In the August 2021 NOPD, historical CPSV shipment data were obtained from industry reports as well as DOE's CCD. 26 NEEA commented that the CCD does not contain any models in product class 3. (NEEA, No. 19 at p. 3) In this final determination, DOE consulted manufacturer catalogues to identify the product class 3 data. DOE also used the CCD to help inform some of the efficiency values reported in Table IV.12 of this document.

In the August 2021 NOPD, DOE used the commercial floorspace growth rate to make projections through 2056. PMI commented that at least 20,000 restaurants closed in 2020 as a result of the COVID-19 pandemic. (PMI, No. 4 at pp. 3-4) DOE modeled flat growth in 2020 through 2022 for CPSVs and assumed that growth would increase by the time the analysis period starts in 2027. 86 FR 46330, 46344.

The NIA assesses the NES and the NPV from a national perspective of total consumer costs and savings that would be expected to result from new or amended standards at specific efficiency levels. 27 (“Consumer” in this context refers to consumers of the equipment being regulated.) DOE calculates the NES and NPV for the potential standard levels considered based on projections of annual product shipments, along with the annual energy consumption and total installed cost data from the energy use and LCC analyses. For the present analysis, DOE projected the energy savings, operating cost savings, product costs, and NPV of consumer benefits over the lifetime of CPSVs sold from 2027 through 2056.

DOE evaluates the effects of new or amended standards by comparing a case without such standards with standards-case projections. The no-new-standards case characterizes energy use and consumer costs for each CPSV product class in the absence of new or amended energy conservation standards. For this projection, DOE considers historical trends in efficiency and various forces that are likely to affect the mix of efficiencies over time. DOE compares the no-new-standards case with projections characterizing the market for each CPSV product class if DOE adopted new or amended standards at specific energy efficiency levels ( i.e., the efficiency levels or standards cases) for that class. For the standards cases, DOE considers how a given standard would likely affect the market shares of CPSVs with lower flow rates than the standard.

DOE uses a spreadsheet model to calculate the energy savings and the national consumer costs and savings from each efficiency level. Interested parties can review DOE's analyses by changing various input quantities within the spreadsheet. The NIA spreadsheet model uses typical values (as opposed to probability distributions) as inputs.

Table IV.13 summarizes the inputs and methods DOE used for the NIA analysis for the final determination. Discussion of these inputs and methods follows the table. See chapter 10 of the final determination TSD for details.

A key component of the NIA is the trend in energy efficiency projected for the no-new-standards case and each of the standards cases. Section IV.F.9 of this document describes how DOE developed an energy efficiency distribution for the no-new-standards case (which yields a shipment weighted-average efficiency) for each of the considered product classes for the year of anticipated compliance with an amended or new standard.

For the standards cases, DOE considered three consumer choice scenarios to establish the shipment-weighted efficiency for the year that standards are assumed to become effective (2027). Further descriptions of the scenarios are provided in the following section.

In the January 2016 Final Rule, DOE acknowledged both the possibility that consumers would switch between product classes and the possibility that a subset of consumers would exit the CPSV market and purchase higher flow rate products ( e.g., faucets). 81 FR 4748, 4769. In the August 2021 NOPD, DOE included two scenarios of switching. In one scenario (nearest neighbor), some product class 2 consumers opted to purchase product class 3 equipment. In the second scenario (product type switch), some product class 3 consumers opted to purchase a faucet instead of another spray valve. 86 FR 46330, 46344. Therefore, the NIA model allows for evaluation of a no product switch scenario (“rolling-up” within product class), as well as the nearest neighbor and product type switch scenarios.

NEEA recommended DOE conduct research to further explore customer satisfaction in the CPSV market. (NEEA, No. 19 at p. 2)

In the August 2021 NOPD, as well as in this final determination, DOE analyzed three permutations of consumer behavior in the analyses, which capture a range of consumer choice options. DOE analyzed the major options available to consumers if standards were amended including the following:

• “Rolling-up” within product class. Consumers purchase a device in the product class (no product class switch). This is a typical scenario when consumer demand for a utility feature of a product class limits consumers switching to another product class.

• Nearest neighbor. Consumers purchase a device with similar flow rate even if in a different product class ( i.e., nearest neighbor).

• Product-type switching. Consumers opt to purchase a different product type altogether ( e.g., consumers opt to purchase a higher flow product like a faucet).

NEEA stated that they believed that it is more likely that consumers would switch within the product classes in order to keep using a spray valve of any flow rate or spray force rather than leave the market. (NEEA, No. 19 at p. 3) NEEA also commented that product type switching was a valid scenario, but the reality of consumers opting for a faucet is not as regularly expected as presented in the August 2021 NOPD. (NEEA, No. 19 at p. 2).

Under the nearest neighbor scenario, if the current choices of product under the current regulations correspond to the consumers' optimal product, it is probable that some consumers would switch from product class 1 to product class 2 or from product class 2 to product class 3 in response to amended standards in order to maintain their satisfaction with the product. In more extreme cases, consumers may also opt to exit the CPSV market and purchase a different type of product ( e.g., a faucet) with a higher flow rate ( i.e., product type switch). The Federal standard for faucets established a maximum flow rate of 2.2 gpm. 10 CFR 430.32(o). The economics resulting from nearest neighbor and product-type switching may result in lower optimal efficiency levels and reduced estimates of water and energy savings, as compared to the case without class switching.

DOE is not aware of any other consumer preference scenarios that should be evaluated. DOE did not receive any specific comments on alternate consumer preference scenarios that are possible and that should be evaluated. Therefore, DOE has maintained the same scenarios from the August 2021 NOPD. DOE presents the nearest neighbor scenario as the Reference case in the final determination but presents results from each of the scenarios in Chapter 10 of the final determination TSD.

In the nearest neighbor scenario, consumers would choose the product with the flow rate that is closest to their current product flow rate, even if it has a higher spray force (product class switching). Under the nearest neighbor scenario, DOE assumed 100 percent of consumers would choose the closest flow rate. Table IV.14 lists the flow rate for the potential efficiency levels evaluated in the August 2021 NOPD. 86 FR 46330, 46344.

In response to the August 2021 NOPD, NEEA commented that they believed that it is more likely that consumers would switch between product classes in order to keep using a spray valve of any flow rate or spray force rather than leave the market altogether (moving to a faucet), as CPSVs have performance features specifically tailored for commercial dishwashing applications that traditional faucets do not. (NEEA, No. 19 at p. 3) DOE agrees that is more likely consumers will switch between product classes and not opt to purchase faucets. For this reason, DOE uses the nearest neighbor scenario (switching between product classes while still purchasing spray valves) as the Reference case in this final determination, however DOE cannot rule out the potential of consumers leaving the CPSV market all together.

To the extent that customers would opt to leave the CPSV market, that scenario is more likely as a result of more stringent standards for this rulemaking than it was for the January 2016 Final Rule. As discussed, the availability of CPSVs that are in product class 3 may be limited and as such the lack of units available in product class 3 makes it more likely that consumers seeking the product utility associated with the spray force currently offered in product class 2 would exit the CPSV market. Therefore, the likelihood of consumers opting for alternative products outside of the CPSV market in response to amended standards in this rulemaking is more likely than presented in the January 2016 Final Rule. See 86 46330, 46344-46346 (August 11, 2021).

A detailed discussion of DOE's method to model this sensitivity analysis is contained in chapter 10 of the final determination TSD.

The NES analysis involves a comparison of national energy consumption of the considered product between each potential standards case (EL) and the case with no new or amended energy conservation standards. DOE calculated the national energy consumption by multiplying the number of units (stock) of each product (by vintage or age) by the unit energy consumption (also by vintage). DOE calculated annual NES based on the difference in national energy consumption for the no-new-standards case and for each higher efficiency standard case. DOE estimated energy consumption and savings based on site energy and converted the electricity consumption and savings to primary energy ( i.e., the energy consumed by power plants to generate site electricity) using annual conversion factors derived from AEO2021. Cumulative energy savings are the sum of the NES for each year over the timeframe of the analysis.

The use of a more efficient product is occasionally associated with a direct rebound effect, which refers to an increase in utilization of the product due to the increase in efficiency. For CPSVs, DOE did not use a rebound effect estimate. DOE does not include the rebound effect in the NPV analysis because it reasons that the increased service from greater use of the product has an economic value that is reflected in the value of the foregone energy savings.

In 2011, in response to the recommendations of a committee on “Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards” appointed by the National Academy of Sciences, DOE announced its intention to use FFC measures of energy use and greenhouse gas and other emissions in the NIA and emissions analyses included in future energy conservation standards rulemakings. 76 FR 51281 (Aug. 18, 2011). After evaluating the approaches discussed in the August 18, 2011, notice, DOE published a statement of amended policy in which DOE explained its determination that EIA's National Energy Modeling System (“NEMS”) is the most appropriate tool for its FFC analysis and its intention to use NEMS for that purpose. 77 FR 49701 (Aug. 17, 2012). NEMS is a public domain, multi-sector, partial equilibrium model of the U.S. energy sector  28 that EIA uses to prepare its AEO. The FFC factors incorporate losses in production, and delivery in the case of natural gas, (including fugitive emissions) and additional energy used to produce and deliver the various fuels used by power plants. The approach used for deriving FFC measures of energy use and emissions is described in appendix 10B of the final determination TSD.

The inputs for determining the NPV of the total costs and benefits experienced by consumers are (1) total annual installed cost, (2) total annual operating costs (energy costs and repair and maintenance costs), and (3) a discount factor to calculate the present value of costs and savings. DOE calculates net savings each year as the difference between the no-new-standards case and each standards case in terms of total savings in operating costs versus total increases in installed costs. DOE calculates operating cost savings over the lifetime of each product shipped during the projection period.

The operating cost savings are energy cost savings, which are calculated using the estimated energy savings in each year and the projected price of the appropriate form of energy. To estimate energy prices in future years, DOE multiplied the average regional energy prices by the projection of annual national average commercial energy price changes in the Reference case from AEO2021, which has an end year of 2050. To estimate price trends after 2050, DOE used the average annual rate of change in prices from 2020 through 2050. As part of the NIA, DOE also analyzed scenarios that used inputs from variants of the AEO2021 Reference case that have lower and higher economic growth. Those cases have lower and higher energy price trends compared to the Reference case. NIA results based on these cases are presented in appendix 10C of the final determination TSD.

In calculating the NPV, DOE multiplies the net savings in future years by a discount factor to determine their present value. For this final determination, DOE estimated the NPV of consumer benefits using both a 3-percent and a 7-percent real discount rate. DOE uses these discount rates in accordance with guidance provided by the Office of Management and Budget (“OMB”) to Federal agencies on the development of regulatory analysis. 29 The discount rates for the determination of NPV are in contrast to the discount rates used in the LCC analysis, which are designed to reflect a consumer's perspective. The 7-percent real value is an estimate of the average before-tax rate of return to private capital in the U.S. economy. The 3-percent real value represents the “social rate of time preference,” which is the rate at which society discounts future consumption flows to their present value.

DOE conducted an MIA for CPSVs to estimate the financial impacts of analyzed amended energy conservation standards on manufacturers of CPSVs. The MIA has both quantitative and qualitative aspects and includes analyses of projected industry cash flows, the industry net present value (“INPV”), investments in research and development and manufacturing capital, and domestic manufacturing employment. Additionally, the MIA seeks to determine how amended energy conservation standards might affect manufacturing employment, capacity, and competition, as well as how standards contribute to overall regulatory burden. Finally, the MIA serves to identify any disproportionate impacts on manufacturer subgroups, including small business manufacturers.

The quantitative part of the MIA relies on the Government Regulatory Impact Model (“GRIM”), an industry cash flow model customized for the CPSVs covered in this final determination. The key GRIM inputs are data on the industry cost structure, MPCs, and shipments, as well as assumptions about manufacturer markups and manufacturer conversion costs. The key MIA output is INPV, which is the sum of industry annual cash flows over the analysis period, discounted using the industry weighted-average cost of capital, and the impact to domestic manufacturing employment. The GRIM calculates annual cash flows using standard accounting principles. DOE used the GRIM to compare changes in INPV between the no-new-standards case and various efficiency levels, the standards cases. The difference in INPV between the no-new-standards case and the standards cases represents the financial impact of analyzed amended energy conservation standards on CPSV manufacturers. Different sets of assumptions (conversion cost scenarios) produce different INPV results. The qualitative part of the MIA addresses factors such as manufacturing capacity; characteristics of, and impacts on, any particular subgroup of manufacturers, including small manufacturers; the cumulative regulatory burden placed on CPSV manufacturers; and any impacts on competition.

DOE uses the GRIM to quantify the changes in cash flows over time due to the analyzed amended energy conservation standards. These changes in cash flows result in either a higher or lower INPV for the standards cases compared to the no-new-standards case. The GRIM uses a standard annual cash flow analysis that incorporates MPCs, manufacturer markups, shipments, and industry financial information as inputs. It then models changes in manufacturer investments that may result from the analyzed amended energy conservation standards. The GRIM uses these inputs to calculate a series of annual cash flows beginning with the reference year of the analysis (2022) and continuing to the terminal year of the analysis (2056). DOE computes INPV by summing the stream of annual discounted cash flows during the analysis period. DOE continued to use a real discount rate of 6.86 percent, the same discount rate used in the August 2021 NOPD, for CPSV manufacturers in this final determination. 86 FR 46330, 46346. 30 Many of the GRIM inputs come from the engineering analysis, the shipments analysis, and other research conducted during the MIA. The major GRIM inputs are described in detail in the following sections.

Manufacturing more efficient products is typically more expensive than manufacturing baseline products. However, as discussed in section IV.C.2 of this document, the MPCs for all CPSVs are constant at every efficiency level and for every product class. In the MIA, DOE used the MPCs calculated in the engineering analysis, as described in section IV.C.2 of this document and further detailed in chapter 5 of the final determination TSD.

INPV, the key GRIM output, depends on industry revenue, which depends on the quantity and prices of CPSVs shipped in each year of the analysis period. Industry revenue calculations require forecasts of (1) the total annual shipment volume of CPSVs, (2) the distribution of shipments across the product classes, and (3) the distribution of shipments across efficiency levels.

In the MIA, DOE used the shipments calculated as part of the shipments analysis discussion in section IV.G of this document and chapter 9 of the final determination TSD.

DOE expects the analyzed amended CPSV energy conservation standards would cause manufacturers to incur conversion costs to bring their production facilities and product designs into compliance with the analyzed amended standards. For the MIA, DOE classified these conversion costs into two groups: (1) capital conversion costs and (2) product conversion costs. Capital conversion costs are investments in property, plant, and equipment necessary to adapt or change existing production facilities so new product designs can be fabricated and assembled. Product conversion costs are investments in research, development, testing, marketing, certification, and other non-capitalized costs necessary to make product designs comply with the analyzed amended standards.

In general, DOE assumes all conversion-related investments occur between the year of publication of a potential final rule and the year by which manufacturers must comply with potential amended standards. DOE created estimates of industry capital and product conversion costs using the engineering cost model and information gained during product teardowns. Product conversion costs depend on the number of CPSV models that need to be redesigned and retested as well as the number of manufacturers that need to update brochures and marketing materials. Capital conversion costs are based on the number of plastic spray patterns that would need to be fabricated by CPSV manufacturers. The conversion cost estimates are presented in section V.B of this document.

As discussed in section IV.I.2.a of this document, the MPCs for CPSVs are the manufacturers' costs for those products. The MPCs include materials, direct labor, depreciation, and overhead, which are collectively referred to as the cost of goods sold. The MSP is the price received by CPSV manufacturers from the first sale of those products, typically to a distributor, regardless of the downstream distribution channel through which the CPSVs are ultimately sold. The MSP is not the price the end-user pays for CPSVs because there are typically multiple sales along the distribution chain and various markups applied to each sale. The MSP equals the MPC multiplied by the manufacturer markup. The manufacturer markup covers all the CPSV manufacturer's non-production costs ( i.e., selling, general, and administrative expenses; research and development; and interest) as well as profit. Total industry revenue for CPSV manufacturers equals the MSPs at each efficiency level multiplied by the number of shipments at that efficiency level for all product classes. As previously discuss in section IV.C.2 of this document, the MPC for all CPSVs is the same at each efficiency level for all product classes. Therefore, total industry revenue equals the MSP multiplied by the number of shipments.

In the June 2020 RFI, DOE requested comment on whether the manufacturer markup of 1.30 from the January 2016 Final Rule is still appropriate to represent the market share weighted-average value. 85 FR 35383, 35389. DOE did not receive any comments on this topic in either the June 2020 RFI or the August 2021 NOPD. Therefore, DOE used the same manufacturer markup of 1.30 that was used in the August 2021 NOPD.

The following section addresses the results from DOE's analyses with respect to the analyzed energy conservation standards for CPSVs. It addresses the efficiency levels examined by DOE and the projected impacts of each of these levels. Additional details regarding DOE's analyses are contained in the final determination TSD supporting this document.

In response to the August 2021 NOPD, NEEA commented that it is not clear what scenario was used for DOE's determination of the product switching methodology. (NEEA, No. 19 at p. 2) DOE's reference case in the NOPD was the nearest neighbor scenario, which is the same in this final determination. However, DOE also considered the effect of product-type switching for the determination. As discussed in section IV.H.2 of this document, DOE notes to the extent that customers would opt to leave the CPSV market, that scenario is more likely as a result of more stringent standards for this determination than it was for the January 2016 Final Rule. Therefore, the product-type switch scenario was also a consideration for the final determination.

DOE analyzed the cost effectiveness ( i.e., the savings in operating costs throughout the estimated average life of CPSVs compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the CPSVs) that is likely to result from the imposition of a standard at an efficiency level by considering the LCC and PBP at each efficiency level. These analyses are discussed in the following sections.

In general, a more efficient product can affect consumers in two ways: (1) purchase price increases and (2) annual operating costs decrease. In the case of CPSVs, there is no incremental cost associated with the more efficient product. Inputs used for calculating the LCC and PBP include total installed costs ( i.e., product price plus installation costs) and operating costs ( i.e., annual energy use, energy prices, energy price trends, repair costs, and maintenance costs). The LCC calculation also uses product lifetime and a discount rate. Chapter 8 of the final determination TSD provides detailed information on the LCC and PBP analyses.

Table V.1 shows the average LCC and PBP results for the efficiency levels considered for CPSVs in this analysis.

The average LCC results in Table V.1 reflect the assumption of a consumer opting to stay within the same product class and not incorporating the switching between product classes or product types that is modeled when assessing national impacts. The results in Table V.1 also assume a consumer purchases a product from an efficiency level that exists in the market. As a result, product class 1 consumers at baseline efficiency level purchase EL 2 products in the LCC analysis, and product class 2 consumers at EL 1 purchase EL 3 in the LCC analysis.

DOE performed an MIA to estimate the impact of potential amended energy conservation standards on manufacturers of CPSVs. DOE modeled MIA results using the reference case, Nearest Neighbor. The following sections describe the expected impacts on CPSV manufacturers at each efficiency level. Chapter 11 of the final determination TSD explains the MIA in further detail.

In this section, DOE provides MIA results from the analysis, which examines changes in the industry that could result from amended standards. Table V.2 and Table V.3 depict the estimated financial impacts (represented by changes in INPV) of potential amended energy conservation standards on CPSV manufacturers, as well as the conversion costs that DOE estimates manufacturers would incur at each efficiency level. To evaluate the range of cash flow impacts on the CPSV industry, DOE modeled two conversion cost scenarios that correspond to the range of potential manufacturer investments that may occur in responses to potential amended standards. Each conversion cost scenario results in a unique set of cash flows and corresponding industry values at each efficiency level.

In the following discussion, the INPV results refer to the difference in industry value between the no-new-standards case and the standards cases that result from the sum of discounted cash flows from the reference year (2022) through the end of the analysis period (2056). The results also discuss the difference in cash flows between the no-new-standards case and the standards cases in the year before the analyzed compliance date for potential amended energy conservation standards. This differential represents the size of the required conversion costs relative to the cash flow generated by the CPSV industry in the absence of amended energy conservation standards.

To assess the upper (less severe) end of the range of potential impacts on CPSV manufacturers, DOE modeled a sourced conversion cost scenario. This scenario assumes that the majority of CPSV manufacturers, but not all CPSV manufacturers, source components (including the nozzle) from component suppliers and simply assemble the CPSVs. In this scenario, the CPSV manufacturers that DOE assumed source components would not incur a capital conversion cost related to the fabrication of plastic nozzles if CPSV manufacturers must redesign nozzle molds due to the analyzed amended energy conservation standards.

To assess the lower (more severe) end of the range of potential impacts on CPSV manufacturers, DOE modeled a fabricated conversion cost scenario. This scenario assumes that all CPSV manufacturers currently selling products with plastic spray nozzles fabricate these nozzles in-house. In this scenario, all CPSV manufacturers incur capital conversion costs related to the fabrication of plastic nozzles if CPSV manufacturers must redesign nozzle molds due to analyzed amended energy conservation standards.

Table V.2 and Table V.3 present the projected results for CPSVs under the sourced and fabricated conversion cost scenarios. DOE examined results for all product classes together since most manufacturers sell products across a variety of the analyzed product classes.

At EL 1, DOE estimates the impacts on INPV to range from −$1.0 million to −$0.9 million, or a change in INPV of −9.0 percent to −8.0 percent. At EL 1, industry free cash flow (operating cash flow minus capital expenditures) is estimated to decrease to $0.1 million, or a drop of up to 88.2 percent, compared to the no-new-standards case value of $0.7 million in 2026, the year leading up to the analyzed compliance date of potential amended energy conservation standards.

Percentage impacts on INPV are moderately negative at EL 1. DOE projects that in the analyzed year of compliance (2027), 97 percent of CPSV shipments in product class 1, 26 percent of CPSV shipments in product class 2, and 14 percent of CPSV shipments in product class 3 will meet EL 1. EL 1 represents max-tech for product class 3. DOE expects CPSV manufacturers to incur approximately $1.3 million in product conversion costs to update brochures and marketing material and retest and redesign CPSV models that would need to be redesigned if standards were set at EL 1. Additionally, CPSV manufacturers would incur between $0.3 million and $0.1 million in capital conversion costs to fabricate new plastic nozzle molds to accommodate spray patterns that could meet potential amended standards set at EL 1.

At EL 2, DOE estimates the impacts on INPV to range from −$1.0 million to −$0.9 million, or a change in INPV of −9.0 percent to −8.0 percent. At EL 2, industry free cash flow (operating cash flow minus capital expenditures) is estimated to decrease to $0.1 million, or a drop of up to 88.2 percent, compared to the no-new-standards case value of $0.7 million in 2026, the year leading up to the analyzed compliance date of potential amended energy conservation standards.

Percentage impacts on INPV are moderately negative at EL 2. DOE projects that in the analyzed year of compliance (2027), 97 percent of CPSV shipments in product class 1 and 2 percent of CPSV shipments in product class 2 will meet or exceed EL 2. Product class 3 is at max-tech (at EL 1) and 14 percent of product class 3 CPSV shipments will meet max-tech. DOE expects CPSV manufacturers to incur approximately $1.3 million in product conversion costs to update brochures and marketing material and retest and redesign CPSV models that would need to be redesigned if standards were set at EL 2 (and EL 1, which is max-tech, for product class 3). Additionally, CPSV manufacturers would incur between $0.3 million and $0.1 million in capital conversion costs to fabricate new plastic nozzle molds to accommodate spray patterns that could meet potential amended standards set at EL 2 (and EL 1, which is max-tech, for product class 3).

At EL 3, max-tech for all product classes, DOE estimates the impacts on INPV to range from −$1.2 million to −$0.9 million, or a change in INPV of −10.1 percent to −8.0 percent. At EL 3, industry free cash flow (operating cash flow minus capital expenditures) is estimated to decrease to less than $0.1 million, or a drop of up to 99.0 percent, compared to the no-new-standards case value of $0.7 million in 2026, the year leading up to the analyzed compliance date of potential amended energy conservation standards.

Percentage impacts on INPV are moderately negative at EL 3. DOE projects that in the analyzed year of compliance (2027), 9 percent of CPSV shipments in product class 1, 2 percent of CPSV shipments in product class 2, and 14 percent of CPSV shipments in product class 3 will meet max-tech. DOE expects CPSV manufacturers to incur approximately $1.3 million in product conversion costs to update brochures and marketing material and retest and redesign CPSV models that would need to be redesigned if standards were set at max-tech (EL 3 for product classes 1 and 2 and EL 1 for product class 3). Additionally, CPSV manufacturers would incur between $0.4 million and $0.1 million in capital conversion costs to fabricate new plastic nozzle molds to accommodate spray patterns that could meet potential amended standards set at max-tech (EL 3 for product classes 1 and 2 and EL 1 for product class 3).

The design option specified for achieving greater efficiency levels ( i.e., changing the total spray hole area of the CPSV nozzle) does not increase the labor content (measured in dollars) of CPSVs at any EL, nor does it increase total MPC or labor associated with manufacturing CPSVs. Additionally, total industry shipments are forecasted to be constant at all the analyzed standard levels. Therefore, DOE predicts no change in domestic manufacturing employment levels due to any of the analyzed standard levels.

Not every CPSV manufacturer makes CPSV models that could meet all the analyzed amended energy conservation standards for all product classes. However, DOE believes that manufacturers would not need to make substantial platform changes or significant investments for their CPSV products to meet any of the amended energy conservation standards analyzed in this rulemaking. Therefore, DOE does not foresee any significant impact on manufacturing capacity due to any of the analyzed amended energy conservation standards.

Using average cost assumptions to develop an industry cash flow estimate may not be adequate for assessing differential impacts among manufacturer subgroups. Small manufacturers, niche product manufacturers, and manufacturers exhibiting cost structures substantially different from the industry average could be affected disproportionately. DOE analyzed the impacts on small businesses in section VI.B of this document. DOE did not identify any other manufacturer subgroups for this rulemaking.

One aspect of assessing manufacturer burden involves looking at the cumulative impact of multiple DOE standards and the product-specific regulatory actions of other Federal agencies that affect the manufacturers of a covered product. While any one regulation may not impose a significant burden on manufacturers, the combined effects of several existing or impending regulations may have serious consequences for some manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single regulation may overlook this cumulative regulatory burden. In addition to energy conservation standards, other regulations can significantly affect manufacturers' financial operations. Multiple regulations affecting the same manufacturer can strain profits and lead companies to abandon product lines or markets with lower expected future returns than competing products. For these reasons, DOE typically conducts an analysis of cumulative regulatory burden as part of its rulemakings pertaining to appliance efficiency. However, given the conclusion discussed in section V.D of this document, DOE did not conduct a cumulative regulatory burden analysis.

This section presents DOE's estimates of the NES and the NPV of consumer benefits that would result from each of the efficiency levels considered as potential amended standards.

To estimate the energy savings attributable to potential amended standards for CPSVs, DOE compared their energy consumption under the no-new-standards case to their anticipated energy consumption under each efficiency level. The savings are measured over the entire lifetime of the product purchased in the 30-year period that begins in the year of anticipated compliance with amended standards (2027-2056). Table V.4 presents DOE's projections of the NES for each efficiency level considered for CPSVs for all three scenarios considered (section IV.H.2 of this document).

OMB Circular A-4  31 requires agencies to present analytical results, including separate schedules of the monetized benefits and costs that show the type and timing of benefits and costs. Circular A-4 also directs agencies to consider the variability of key elements underlying the estimates of benefits and costs. For this final determination, DOE undertook a sensitivity analysis using 9 years, rather than 30 years, of product shipments. The choice of a 9-year period is a proxy for the timeline in EPCA for the review of certain energy conservation standards and potential revision of and compliance with such revised standards. 32 The review timeframe established in EPCA is generally not synchronized with the product lifetime, product manufacturing cycles, or other factors specific to CPSVs. Thus, such results are presented for informational purposes only and are not indicative of any change in DOE's analytical methodology. Table V.5 presents DOE's 9-year projections of the NES for each efficiency level considered for CPSVs for all three scenarios considered (section IV.H.2 of this document). The impacts are counted over the lifetime of CPSVs purchased in 2027-2035.

DOE estimated the cumulative NPV for consumers that would result from the efficiency levels considered for CPSVs. In accordance with OMB's guidelines on regulatory analysis, 33 DOE calculated NPV using both a 7-percent and a 3-percent real discount rate. Table V.6 shows the consumer NPV results for each efficiency level considered for CPSVs for all three scenarios considered ( see section IV.H.2 of this document). The impacts are counted over the lifetime of a product purchased in 2027-2056.

The NPV results based on the aforementioned 9-year analytical period for all three scenarios considered are presented in Table V.7. The impacts are counted over the lifetime of a product purchased in 2027-2035. As mentioned previously, such results are presented for informational purposes only and are not indicative of any change in DOE's analytical methodology or decision criteria.

As required by EPCA, this final determination analyzes whether amended standards for CPSVs would result in significant conservation of energy, be technologically feasible, and be cost effective. (42 U.S.C. 6295(m)(1)(A) and 42 U.S.C. 6295(n)(2)) Additionally, DOE also estimated the impact on manufacturers. The criteria considered under 42 U.S.C. 6295(m)(1)(A) and the additional analysis are discussed in the following subsections. Because an analysis of potential cost effectiveness and energy savings first requires an evaluation of the relevant technology, DOE first discusses the technological feasibility of amended standards. DOE then addresses the cost effectiveness and energy savings associated with potential amended standards.

EPCA mandates that DOE consider whether amended energy conservation standards for CPSVs would be technologically feasible. (42 U.S.C. 6295(m)(1)(A) and 42 U.S.C. 6295(n)(2)(B)) DOE has determined that there are technology options that would improve the efficiency of CPSVs. These technology options are being used in commercially available CPSVs and therefore are technologically feasible. ( See section IV.A.2 for further information.) Hence, DOE has determined that amended energy conservation standards for CPSVs are technologically feasible.

EPCA requires DOE to consider whether energy conservation standards for CPSVs would be cost effective through an evaluation of the savings in operating costs throughout the estimated average life of the covered product compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered product which are likely to result from the imposition of an amended standard. (42 U.S.C. 6295(m)(1)(A), 42 U.S.C. 6295(n)(2)(C), and 42 U.S.C. 6295(o)(2)(B)(i)(II)). DOE conducted an LCC analysis to estimate the net costs/benefits to users from increased efficiency in the considered CPSVs. ( See results in Table V.1 of this document). DOE then aggregated the results from the LCC analysis to estimate the NPV of the total costs and benefits experienced by the Nation for all three scenarios considered. ( See results in Table V.6 of this document). As noted, the inputs for determining the NPV are (1) total annual installed cost, (2) total annual operating costs (energy costs and repair and maintenance costs), and (3) a discount factor to calculate the present value of costs and savings.

DOE considered each of the efficiency levels. All efficiency levels for the reference case scenario ( i.e., nearest neighbor) would result in a positive NPV at the 3-percent and 7-percent discount rates. DOE notes that the lack of incremental costs to consumers associated with more efficient products makes LCC and NPV values cost effective. However, in DOE's product type switch scenario, amended standards could result in a negative NPV (see section V.D.4 for further discussion).

EPCA also mandates that DOE consider whether amended energy conservation standards for CPSVs would result in significant conservation of energy. (42 U.S.C. 6295(m)(1)(A) and 42 U.S.C. 6295(n)(2)(A)). To estimate the energy savings attributable to potential amended standards for CPSVs, DOE compared their energy consumption under the no-new-standards case to their anticipated energy consumption under each potential standard level. The savings are measured over the entire lifetime of product purchased in the 30-year period that begins in the year of anticipated compliance with amended standards (2027-2056).

DOE estimates that amended standards for CPSVs for the reference case scenario ( i.e., nearest neighbor) would result in maximum energy savings of 0.053 quads FFC energy savings at EL 1 over a 30-year analysis period (2027-2056). ( See results in Table V.4 of this document.) However, in DOE's product type switch scenario, amended standards could result in an increase in FFC energy use (see section V.D.4 for further discussion).

EPCA lists certain additional factors for DOE to consider in deciding whether an amended energy conservation standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)).

As part of this analysis, DOE considers the economic impact of the standard on manufacturers of the products subject to an amended standard. (42 U.S.C. 6295(o)(2)(B)(i)(I). DOE investigated the manufacturer impacts of any potential amended standards and estimates that amended standards for CPSVs would result in a reduction in INPV between 10.1 and 8.0 percent. ( See results in Table V.2 and Table V.3 of this document.)

In this analysis, DOE also considers any lessening of the utility or the performance of the covered products likely to result from the imposition of the standard. (42 U.S.C. 6295(o)(2)(B)(i)(IV)). As noted in section IV.G, spray force is a driving factor of consumer utility and consumer satisfaction. As discussed in section IV.C.1.b of this document, there is a direct relationship between flow rate and spray force. Therefore, the relationship between consumer satisfaction and spray force for CPSVs makes it possible that consumers may opt to switch product classes if they are unsatisfied with the spray force available to them in their current product class due to amended standards. In some cases, consumers react to amended standards by switching to an alternative product that consumes more water and energy than their current product. As discussed in section IV.H.2 of this document, the change in product availability since the January 2016 Final Rule makes it more likely that certain consumers would switch to higher flow rate products in response to amended standards. This shift increases the likelihood that amended standards could result in more energy and water use and a negative NPV. Accordingly, DOE accounted for this potential reduction in utility by considering the possibility of the product type switch scenario (section IV.H.2 of this document).

In DOE's sensitivity analysis, wherein a subset of consumers exit the CPSV market and switch to higher flow rate products such as faucets (product type switch scenario), all efficiency levels would result in a negative NPV at the 3-percent and 7-percent discount rates. Further, amended standards could result in an increase in FFC energy use between 0.103 (EL1) and 0.117 (EL3) quads over a 30-year analysis period (2027-2056).

Based on these additional considerations, DOE has determined that amended standards would not be economically justified at any efficiency level due to the increased likelihood of consumers switching products to higher flow rate products as a result of decreased consumer utility due to potential amended standards, and the corresponding negative NPV of this product type switch scenario and the negative INPV.

In this final determination, although energy and water savings are possible in the reference case analysis, there is risk that amended standards could result in increased energy and water consumption if consumers switch to products with higher flow rates, like faucets (as demonstrated in the product type switch scenario). Similarly, the product-type switch scenario would also result in a negative NPV for consumers. As discussed in section IV.H.2 of this document, the change in product availability since the 2016 Final Rule makes it more likely that consumers would switch to products with higher flow rates in the presence of amended standards. Therefore, it is more likely that amended standards could result in increases in water, energy, and costs. The risk of these potential increases outweigh the cost effectiveness of any amended standards.

As such, any potential benefits from amended standards are outweighed by the potential of increased energy and water use and the additional burden on manufacturers. DOE has determined, based on the estimated negative NPV values resulting from product type switching and the estimated additional burden on manufacturers, amended standards would not be economically justified. Therefore, DOE has determined that amended standards for CPSVs are not justified at this time.

Executive Order (“E.O.”) 12866, “Regulatory Planning and Review,” as supplemented and reaffirmed by E.O. 13563, “Improving Regulation and Regulatory Review,” 76 FR 3821 (Jan. 21, 2011), requires agencies, to the extent permitted by law, to (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public. DOE emphasizes as well that E.O. 13563 requires agencies to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible. In its guidance, the Office of Information and Regulatory Affairs (“OIRA”) has emphasized that such techniques may include identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes. For the reasons stated in the preamble, this final regulatory action is consistent with these principles.

Section 6(a) of E.O. 12866 also requires agencies to submit “significant regulatory actions” to OIRA for review. OIRA has determined that this final regulatory action does not constitute a “significant regulatory action” under section 3(f) of E.O. 12866. Accordingly, this action was not submitted to OIRA for review under E.O. 12866.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires preparation of a final regulatory flexibility analysis (“FRFA”) for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by E.O. 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” 67 FR 53461 (Aug. 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process. 68 FR 7990. DOE has made its procedures and policies available on the Office of the General Counsel's website ( www.energy.gov/gc/office-general-counsel ).

DOE reviewed this final determination under the provisions of the Regulatory Flexibility Act and the policies and procedures published on February 19, 2003. DOE is not amending standards for CPSVs. This final determination would not result in any CPSV manufacturer, large or small, to incur any additional burden or significant economic impact because the current energy conservation standards would remain unchanged and in place. As a result, DOE concludes and certifies that the final determination has no significant economic impact on any small entities. Accordingly, DOE has not prepared a FRFA for this final determination.

Manufacturers of commercial prerinse spray valves must certify to DOE that their products comply with any applicable energy conservation standards. In certifying compliance, manufacturers must test their products according to the DOE test procedures for commercial prerinse spray valves, including any amendments adopted for those test procedures. DOE has established regulations for the certification and recordkeeping requirements for all covered consumer products and commercial equipment, including commercial prerinse spray valves. ( See generally 10 CFR part 429). The collection-of-information requirement for the certification and recordkeeping is subject to review and approval by OMB under the Paperwork Reduction Act (“PRA”). This requirement has been approved by OMB under OMB control number 1910-1400. Public reporting burden for the certification is estimated to average 35 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number.

Pursuant to the National Environmental Policy Act of 1969 (“NEPA”), DOE has analyzed this proposed determination in accordance with NEPA and DOE's NEPA implementing regulations (10 CFR part 1021). DOE has determined that this rule qualifies for categorical exclusion under 10 CFR part 1021, subpart D, appendix A4 because it is an interpretation or ruling in regards to an existing regulation and otherwise meets the requirements for application of a categorical exclusion. See 10 CFR 1021.410. Therefore, DOE has determined that promulgation of this rule is not a major Federal action significantly affecting the quality of the human environment within the meaning of NEPA, and does not require an Environmental Assessment or Environmental Impact Statement.

E.O. 13132, “Federalism,” 64 FR 43255 (Aug. 10, 1999), imposes certain requirements on Federal agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. The E.O. requires agencies to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and to carefully assess the necessity for such actions. The E.O. also requires agencies to have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process it will follow in the development of such regulations. 65 FR 13735. DOE has examined this final determination and has determined that it would not have a 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. EPCA governs and prescribes Federal preemption of State regulations as to energy conservation for the products that are the subject of this final determination. States can petition DOE for exemption from such preemption to the extent, and based on criteria, set forth in EPCA. (42 U.S.C. 6297). Therefore, no further action is required by E.O. 13132.

With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of E.O. 12988, “Civil Justice Reform,” imposes on Federal agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity, (2) write regulations to minimize litigation, (3) provide a clear legal standard for affected conduct rather than a general standard, and (4) promote simplification and burden reduction. 61 FR 4729 (Feb. 7, 1996). Regarding the review required by section 3(a), section 3(b) of E.O. 12988 specifically requires that executive agencies make every reasonable effort to ensure that the regulation (1) clearly specifies the preemptive effect, if any, (2) clearly specifies any effect on existing Federal law or regulation, (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction, (4) specifies the retroactive effect, if any, (5) adequately defines key terms, and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of E.O. 12988 requires executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, this final determination meets the relevant standards of E.O. 12988.

Title II of the Unfunded Mandates Reform Act of 1995 (“UMRA”) requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and Tribal governments and the private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531). For a regulatory action likely to result in a rule that may cause the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year (adjusted annually for inflation), section 202 of UMRA requires a Federal agency to publish a written statement that estimates the resulting costs, benefits, and other effects on the national economy. (2 U.S.C. 1532(a)-(b)) The UMRA also requires a Federal agency to develop an effective process to permit timely input by elected officers of State, local, and Tribal governments on a “significant intergovernmental mandate,” and requires an agency plan for giving notice and opportunity for timely input to potentially affected small governments before establishing any requirements that might significantly or uniquely affect them. On March 18, 1997, DOE published a statement of policy on its process for intergovernmental consultation under UMRA. 62 FR 12820. DOE's policy statement is also available at www.energy.gov/sites/prod/files/gcprod/documents/umra_97.pdf.

This final determination contains neither an intergovernmental mandate nor a mandate that may result in the expenditure of $100 million or more in any year by State, local, and tribal governments, in the aggregate, or by the private sector. As a result, the analytical requirements of UMRA do not apply.

Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well-being. This final determination would not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

Pursuant to E.O. 12630, “Governmental Actions and Interference with Constitutionally Protected Property Rights,” 53 FR 8859 (Mar. 15, 1988), DOE has determined that this final determination would not result in any takings that might require compensation under the Fifth Amendment to the U.S. Constitution.

Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review most disseminations of information to the public under information quality guidelines established by each agency pursuant to general guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 (Feb. 22, 2002), and DOE's guidelines were published at 67 FR 62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M-19-15, Improving Implementation of the Information Quality Act (April 24, 2019), DOE published updated guidelines, which are available at www.energy.gov/sites/prod/files/2019/12/f70/DOE%20Final%20Updated%20IQA%20Guidelines%20Dec%202019.pdf. DOE has reviewed this final determination under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines.

E.O. 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001), requires Federal agencies to prepare and submit to OIRA at OMB, a Statement of Energy Effects for any significant energy action. A “significant energy action” is defined as any action by an agency that promulgates or is expected to lead to promulgation of a final rule, and that (1) is a significant regulatory action under E.O. 12866, or any successor E.O.; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use.

This final determination, which does not amend energy conservation standards for CPSVs, is not a significant regulatory action under E.O. 12866. Moreover, it would not have a significant adverse effect on the supply, distribution, or use of energy, nor has it been designated as such by the Administrator at OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects.

On December 16, 2004, OMB, in consultation with the Office of Science and Technology Policy (“OSTP”), issued its Final Information Quality Bulletin for Peer Review (“the Bulletin”). 70 FR 2664 (Jan. 14, 2005). The Bulletin establishes that certain scientific information shall be peer reviewed by qualified specialists before it is disseminated by the Federal government, including influential scientific information related to agency regulatory actions. The purpose of the Bulletin is to enhance the quality and credibility of the Government's scientific information. Under the Bulletin, the energy conservation standards rulemaking analyses are “influential scientific information,” which the Bulletin defines as “scientific information the agency reasonably can determine will have, or does have, a clear and substantial impact on important public policies or private sector decisions.” 70 FR 2664, 2667 (Jan. 14, 2005).

In response to the Bulletin, DOE conducted formal peer reviews of the energy conservation standards development process and the analyses that are typically used and has prepared a Peer Review report pertaining to the energy conservation standards rulemaking analyses. 34 Generation of this report involved a rigorous, formal, and documented evaluation using objective criteria and qualified and independent reviewers to make a judgment as to the technical/scientific/business merit, the actual or anticipated results, and the productivity and management effectiveness of programs and/or projects. Because available data, models, and technological understanding have changed since 2007, DOE has engaged with the National Academy of Sciences to review DOE's analytical methodologies to ascertain whether modifications are needed to improve the Department's analyses. DOE is in the process of evaluating the resulting report. 35

As required by 5 U.S.C. 801, DOE will report to Congress on the promulgation of this rule prior to its effective date. The report will state that it has been determined that the rule is not a “major rule” as defined by 5 U.S.C. 804(2).

The Secretary of Energy has approved publication of this final determination.

This document of the DOE was signed on May 31, 2022, by Kelly J. Speakes-Backman, Principal Deputy Assistant Secretary for Energy Efficiency and Renewable Energy, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the DOE. This administrative process in no way alters the legal effect of this document upon publication in the Federal Register .

This final rule implements two legislative enactments that affect how SBA calculates a business concern's size to determine whether the business qualifies as small for SBA's contracting, loan, 1 and other assistance programs. First, section 863 of the National Defense Authorization Act for Fiscal Year 2021, Public Law 116-283 (“NDAA”), amended section 3(a)(2)(C)(ii)(I) of the Small Business Act, 15. U.S.C. 632(a)(2)(C)(ii)(I), to change the averaging period for SBA's employee-based size standards from 12 months to 24 months. Second, the Small Business Runway Extension Act of 2018, Public Law 115-324 (“SBREA”) amended section 3(a)(2)(C)(ii)(II) of the Small Business Act, 15 U.S.C. 632(a)(2)(C)(ii)(II), to modify the requirements for proposed small business size standards prescribed by an agency without separate statutory authority to issue size standards.

Section 863 of the NDAA amended two provisions of section 3(a)(2) of the Small Business Act, which sets forth requirements for an agency that would prescribe a proposed size standard. First, the NDAA provides that those requirements apply to SBA when the agency acts pursuant to the authority in section 3(a)(2)(A) for SBA to specify small business definitions or size standards. Second, the NDAA amends section 3(a)(2)(C)(ii)(I) such that a proposed size standard for a manufacturing concern must provide for determining the size of the concern based on the employment during each of the concern's pay periods for the preceding 24 months. Previously, the statute specified the use of a 12-month period.

To implement these provisions, on November 2, 2021, SBA issued for comments a proposed rule to amend 13 CFR 121.106 by changing the 12-month averaging period for determining the size of a business concern under an employee-based size standard to 24 months for eligibility purposes in all of SBA's programs (86 FR 60396). In this final rule, SBA is adopting the change from the November 2021 proposed rule without change. As a result, for certifications following the effective date, the size of a business concern under an employee-based size standard will be calculated by averaging the concern's number of employees for each pay period in the preceding completed 24 calendar months. In determining a concern's number of employees, SBA counts all individuals employed on a full-time, part-time, or other basis. Part-time and temporary employees count as full-time employees, and the concern aggregates the employees of its domestic and foreign affiliates. If the concern has not been in business for 24 months, it would average its number of employees for each pay period during which it has been in business.

This change to § 121.106 applies to all industries subject to employee-based size standards. Those size standards predominantly apply to manufacturers but not exclusively. Firms in certain mining, utilities, transportation, publishing, telecommunications, insurance, research and development, and environmental remediation industries are also subjected to SBA's employee-based size standards. Significant to government contracting, nonmanufacturers also qualify for small business status for government procurement of supplies using an employee-based size standard. Though nonmanufacturers and the nonmanufacturing industries are not covered by the NDAA's change to proposed size standards, SBA believes that it would be unworkable to use a 24-month average for manufacturing industries but retain a 12-month average for other industries with employee-based size standards. Firms may participate in multiple industries, and it is burdensome to use different averaging periods for different industries with employee-based size standards.

In a final rule published December 5, 2019 (84 FR 66561), SBA implemented SBREA by making changes to its receipts-based size standards for all SBA's programs except the Business Loan and Disaster Loan Programs. The excepted programs include: (i) The 7(a) Loan Program, the Microloan Program, the Intermediary Lending Pilot Program, and the Certified Development Company (CDC/504) Loan Program (collectively, the “Business Loan Programs”); and (ii) the Physical Disaster Business Loans, Economic Injury Disaster Loans, Military Reservist Economic Injury Disaster Loans, and Immediate Disaster Assistance Program loans (collectively, the “Disaster Loan Programs”  2 ).

In the November 2, 2021, proposed rule, SBA proposed to extend the changes to SBA's receipts-based size standards to the Business Loan and Disaster Loan Programs. Currently, applicants in those loan programs must calculate their average annual receipts using a three-year average; however, under the SBA's proposal, applicants may choose to use either a three-year or a five-year receipts average. Thus, an applicant would be eligible for assistance if its five-year receipts average is equal to or less than the size standard, even if it would otherwise be ineligible because its three-year average exceeds that size standard. SBA also proposed to adopt this change for its Small Business Investment Company (SBIC) program, allowing small business applicants for financing from an SBIC to choose to use either a three-year average or a five-year average for purposes of determining eligibility based on a receipt-based size standard. In this final rule, SBA is adopting the changes to the averaging period for calculating average annual receipts for the Business Loan, Disaster Loan, and SBIC Programs as proposed in the November 2021 proposed rule. 3

The December 2019 final rule did not exempt the applicants in the SBA's Surety Bond Guarantee (SBG) Program from the change in the calculation of average annual receipts in accordance with Public Law 115-324. Consequently, to establish eligibility under a receipts-based size standard, the applicants to the SBG Program were using either a three-year or a five-year receipts average until January 6, 2022, and a five-year receipts average thereafter. In the November 2021 proposed rule, SBA did not propose to allow the applicants to the SBG Program to choose to use either a three-year or a five-year receipts average to establish eligibility under a receipts-based size standard. However, in response to a comment received from the public, this final rule provides that the change in the receipts calculation in the November 2021 proposed rule is also applicable to the SBG program.

Like the changes in the December 2019 final rule, these changes will expand the eligibility of larger small businesses and some mid-sized businesses for SBA's financial assistance. An advanced small business may be able to retain its small business status for a longer period, if it is close to exceeding the size standard. Similarly, a mid-sized business may be able to regain its small business status if it would otherwise have exceeded the size standard.

These changes differ in some respects from what SBA implemented in the December 2019 final rule. In particular, SBA will not issue a “transition period” that SBA provided in the December 2019 final rule. That rule applied size standards changes to all SBA's programs, outside of the SBA Business Loan and Disaster Loan Programs. Starting on January 6, 2020, those programs began permitting participants to elect whether to use a three-year average or a five-year average to calculate average annual receipts. That election ended on January 6, 2022, however, marking the end of the transition period for those changes. As of January 6, 2022, all SBA programs, except SBA's Business Loan and Disaster Loan Programs, use a five-year average for purposes of calculating average annual receipts.

Conversely, the changes in this final rule allow for an election for the applicants to the SBA's Business Loan, Disaster Loan, SBG, and SBIC Programs to choose either the three-year or five-year receipts average, but do not have a transition period. SBA intends to make this election available indefinitely. This recognizes the differences between the SBA's financial assistance programs and the government contracting programs, where firms are competing against one another. Where there is competition, businesses should be competing on an equal basis; therefore, the December 2019 final rule provided that, after the end of the transition period, government contractors all would use a five-year averaging period. By contrast, in the financial assistance programs, applicants are evaluated on an applicant-by-applicant basis. It is, thus, not prejudicial to ensure that applicants use the same size criteria. As a result, SBA does not believe it is necessary to limit the election in the financial assistance programs to a two-year period.

In its June 24, 2019, proposed rule to implement the provision under SBREA (84 FR 29399), SBA received some comments from participants in the business loan programs. SBA also considered those comments in preparing this final rule. Prior commenters asked that SBA use the five-year receipts average only for calculating average annual receipts, not for other aspects of loan application purposes. Accordingly, in this final rule, SBA authorizes the three-year or five-year election only for the calculation of receipts for SBA's Business Loan, Disaster Loan, SBG, and SBIC programs, but not for any other purposes. Other calculations remain unchanged. Prior commenters also asked that SBA authorize the applicants to the Business Loan Programs to continue to use a three-year average. Accordingly, this final rule uses an election, not a mandate. For the most part, lenders and applicants will continue to be able to use a three-year average. Where an applicant qualifies as small under the 3-year analysis, the analysis is complete, and the firm would not need to submit (and SBA would not need to review) any information pertaining to fiscal years beyond the last three fiscal years. The only exception will be where the applicant would not qualify as a small business using a three-year average. In that case, the applicant may use a five-year average to qualify as small. As noted previously, the applicants will also be allowed to qualify for a business loan using the alternative size standard in section 3(a)(5)(B) of the Small Business Act.

In the November 2021 proposed rule, SBA sought comments on its proposal to change the 12-month averaging period for employee-based size standards to a 24-month averaging period and permit businesses in the Business Loan, Disaster Loan, and SBIC Programs to use either a three-year average or a five-year average for calculating average annual receipts for the purposes of qualifying as a small business. SBA received 17 timely comments to the proposed rule, of which 14 pertained to the SBA's proposed change in the averaging period for calculating employees. Of the 14 comments pertinent to the calculation of employees, eight supported the SBA's proposed change and five opposed it. One commenter raised concerns about how SBA defines employees generally.

SBA received nine comments pertaining to its proposal to allow applicants to the SBA's Business Loan, EIDL and SBIC Programs to choose either a three-year or five-year averaging period to calculate average annual receipts. Of the nine comments pertinent to this issue, six supported the SBA's proposed change and three opposed it. SBA also received one comment from OMB relating to a review of the information collection change related to from this rule.

SBA also received a late comment regarding the treatment of SBA's SBG program under the averaging rules. The comment raised valid concerns about how the SBG program was being treated inconsistently for receipts averaging, and, as such, SBA considers that comment below.

All public comments to the proposed rule are available at www.regulations.gov (RIN 3245-AH16) and are summarized and discussed below by topic, along with SBA's responses.

Eight commenters expressed support for SBA's proposal to change the averaging period for calculating employees for SBA's employee-based size standards from 12 months to 24 months. Commenters supporting SBA's proposed change believed that the proposed 24-month averaging period would allow firms to better adjust to short-to-medium term spikes in hiring, provide certain growing small businesses the opportunity to retain their small business status and access to SBA programs for a longer period, and allow some firms that recently exceeded the size standard to regain their small business size status and become eligible for federal small business assistance again. One commenter expressed that SBA's proposal would give small businesses much needed flexibility during these challenging times due to the COVID-19 pandemic and will help U.S. small businesses obtain necessary support to sustain operations and recover from the pandemic.

SBA agrees with commenters that SBA's proposal to increase the averaging period for the calculation of employees from 12 months to 24 months will allow firms to better adjust to surges in employment in both the short and medium term. SBA also agrees with commenters that advanced small businesses will retain access to SBA's procurement and financial assistance programs for a longer period because of this change and some businesses that recently exceeded their size standard will regain their eligibility for SBA's programs. SBA believes that expanding the reach of its programs to include a greater number of small businesses supports all small businesses and the overall economy as the Nation continues to recover from the economic challenges caused by the COVID-19 pandemic and small businesses remain in need of SBA assistance.

As discussed in the regulatory impact analysis section of this rule, the change in averaging period for employees would result in four primary impacts, which can be categorized as either having a “expansive impact” or “contractive impact” on size status of both currently large and small businesses. Allowing some firms that currently do not qualify as small to gain small business status and some advanced small firms to remain small business status for a longer period represents the expansive impact of the final rule. Causing some currently small firms to lose or shorten their small business is the contractive impact.

While some small firms may experience contractive impacts from SBA's proposed change to the averaging period for employees, SBA estimates that the number of firms with expansive impacts will be greater. For example, as shown in Table 16 of this final rule, based on the 2012 Economic Census data, the number of firms with expansive impacts (1,484) exceeds the number of firms with contractive impacts (1,050), with a net impact of about 435 firms either extending or regaining their small business status. SBA estimates that changing the period for calculating the average number of employees for size standards from 12 months to 24 months would result in a net gain of about $158 million (or 0.3% increase from the baseline) in federal small business contract dollars.

Citing SBA's transition period for calculating average annual receipts, one commenter urged SBA to adopt a two-year transition period where firms could choose to use either a 12-month or 24-month averaging period to reduce any adverse impacts on small businesses caused by an abrupt change in the calculation of employees. The commenter also concurred with applying the change to both manufacturing industries and nonmanufacturers subject to employee-based size standards. The commenter maintained that in apparel manufacturing where IDIQ contracts are common, one or two large task orders may require a significant increase in the number of employees and could easily push a small business contractor over the size threshold, and it would take longer for the impacted small business to fall below the size threshold under the 24-month averaging method. Offering a transition period, the commenter added, would minimize the change's negative impact on small businesses.

SBA believes that a two-year transition period for the calculation of employees at the current moment of the COVID-19 pandemic recovery will not provide enough benefit to deviate from the principles of fair competition. The data demonstrates a consistently increasing trend in employment in manufacturing and other industries subject to employee-based size standards since a drastic drop in employment in April 2020. For example, according to the Bureau of Labor Statistics (BLS) data, manufacturing employment has steadily increased from a low of about 11.4 million in April 2020 (compared to 12.7 million in March 2020) to about 12.6 million in December 2021. As discussed in the proposed rule, when the employment figures are in an increasing trend, the 24-month employee-average will typically be lower than the 12-month average. With the economy continuing to recover from the COVID-19 pandemic with employment almost returning to the pre-pandemic level, SBA expects employment to continue its increasing trend in the coming months. Accordingly, going forward SBA expects the 24-month employee average to be lower than the 12-month average for most businesses, thereby rendering a transition period no longer necessary.

For this reason, SBA will not use a multi-year transition period for the calculation of employees. That means that after this final rule takes on effect, SBA will calculate the number of employees using the 24-month averaging period only, as proposed.

SBA received a comment from a trade association representing Black-owned businesses applauding SBA's efforts to adjust small business size standards and to provide more flexibility in maintaining eligibility for growing small businesses to participate in the 8(a) Business Development (BD) Program and other SBA programs. The association supported the proposed change in the averaging period for employee-based size standards from 12 months to 24 months with caution. On the one hand, the commenter maintained that this change will enable certain growing small businesses to retain their small business status longer and to remain eligible for SBA's benefits without facing a benefits cliff. On the other hand, it raised concerns that the proposed 24-month average would place undue burden on small businesses facing contractions in employees due to economic downturns and ongoing financial hardship due to the COVID-19 pandemic by causing them to lose their small business status sooner. The association urged SBA to ensure that the proposed changes do not allow large businesses to crowd out federal opportunities for small firms, including Black-owned small firms, and recommended that SBA track the size of businesses utilizing its programs to ensure that benefits from such programs are targeted to the small and disadvantaged businesses they are intended to serve.

SBA agrees with the comment urging SBA to track the size of businesses utilizing its programs to ensure that benefits are targeted to the small and disadvantaged businesses that they are intended to serve. SBA has the necessary regulations, policies, procedures, and other oversight mechanisms in place to ensure that federal small business assistance is directed to its intended beneficiaries. The Federal Government is committed to ensure equity in procurement in accordance with the President's Executive Order No. 13985 on Advancing Racial Equity and Support for Underserved Communities through the Federal Government and Office of Management and Budget (OMB) Memorandum No. M-22-03, Advancing Equity in Federal Procurement. Additionally, each year SBA releases a Small Business Procurement Scorecard on how the 24 Chief Financial Officer (CFO) Act agencies performed on their small business and socio-economic business contracting goals. The Scorecard is an assessment tool to measure how well the Federal Government performs in reaching its small business and socio-economic prime contracting and subcontracting goals, provide accurate and transparent contracting data, and report agency-specific progress. The prime and subcontracting component goals include goals for small businesses, woman-owned small businesses (WOSBs), small-disadvantaged businesses (SDBs), service-disabled veteran-owned small businesses (SDVOSBs), and small businesses located in Historically Underutilized Business Zones (HUBZone SBCs). Each year, SBA works with each CFO Act agency to set their prime contracting goals and ensures that the sum total of all agencies' goals meets the 23% small business prime contracting goal for the Federal Government, as well as the socio-economic goals established by statute and Executive Branch policy.

Moreover, in December 2021, SBA released for the first time small business contracting data disaggregated by race and ethnicity. This release serves as a baseline for evaluating government-wide performance within each of the socio-economic categories going forward. SBA continues to believe that the metrics provided by these releases are important tools in evaluating the effectiveness of SBA's programs and ensuring that small business benefits are flowing to the intended beneficiaries.

Five commenters opposed SBA's proposal to change the averaging period for SBA's employee-based size standards from 12 months to 24 months. Two commenters opposed SBA's proposed change based on the belief that increasing the averaging period would cause some firms with temporary surges in employment to remain other than small for a longer period than would be the case under the current averaging period. Three commenters opposed SBA's proposed change to increase the averaging period for the calculation of employees on the grounds that it would allow larger small businesses to retain their small business status longer and some mid-size firms that have just exceeded the size standard to regain their small status, and thus would reduce the number of federal contracting opportunities and financial assistance available to existing small firms, especially the smaller small firms. One commenter maintained that businesses facing a decline in employment due to an economic downturn or other financial hardship may lose their small business status sooner under a longer 24-month averaging period and may have to wait longer to regain the small business status.

The change in the averaging period for employees from 12 months to 24 months was statutorily required. In this final rule, SBA is implementing a statutory change requiring the use of a 24-month averaging period. While businesses may have to wait a little longer under the 24-month averaging period to regain small business status after exceeding the size standard due to a temporary surge in employees, SBA believes that, in the long-run, the 24-month average provides a better and more stable measure of business size, and it gives all small businesses an expanded runway to grow and become competitive for federal opportunities. Small businesses with increasing number of employee counts can maintain their small business status for a longer period under the longer 24-month averaging period. With the availability of an expanded pool of small businesses under the change, the Federal Government is likely to set aside more contracts for small businesses, thereby benefiting all small businesses in the federal market. Based on the analysis of SBA's business loan and economic injury disaster loan (EIDL) data for fiscal years 2018-2020, the change in the calculation of employees will have a very minimal impact on small businesses seeking SBA's loans, with a vast majority of such loans going to businesses that are substantially smaller than their industry size standards. Overall, the benefits from the change to the 24-month averaging period outweigh any negative impacts of this change.

While some small firms may experience contractive impacts due to SBA's change to the averaging period, causing them to either lose or shorten their small business size status, SBA believes that the number of firms experiencing expansive impacts will be greater. As stated previously, SBA estimates that changing the averaging period for calculating the average number of employees for size standards from 12 months to 24 months will result in a net gain of about $158 million (or 0.3% increase from the baseline) in federal small business contract dollars. As such, SBA determines that the net impacts of the rule support adopting the change.

Moreover, SBA believes that the Federal Government and existing small businesses will benefit from the increased number of firms eligible to participate in SBA's programs because of the change to the averaging period for the calculation of employees. With an expanded pool of small businesses, the Federal Government will have access to a greater number of qualified small businesses to source from, and as a result, will likely set aside more contracts for small businesses. Moreover, SBA analyzed its internal data on 7(a) and 504 loans for fiscal years 2018-2020 and determined that 97% of loans to firms in industries with employee-based size standards were to firms with fewer than 50 employees, indicating that the majority of firms receiving SBA's financial assistance are much smaller than the size standards. Thus, SBA does not anticipate that changes to the averaging period for the calculation of employees will significantly impact the distribution of loans by size of firm.

One commenter opposed to SBA's proposal believed that SBA's proposed changes in the calculation of employees applied only to industries in the manufacturing sector, and not to other industries with employee-based size standards in other sectors. Thus, the commenter argued that SBA's changes were arbitrary and capricious. The same commenter also argued that it would be arbitrary and capricious if SBA were to expand the requirements of this rule to industries apart from manufacturing since Congress did not explicitly provide for nonmanufacturing industries to be covered by this change.

SBA disagrees that applying the 24-month averaging period to all industries with an employee-based size standard is arbitrary. SBA believes that determining the size of a business concern consistently for all employee-based size standards avoids confusion and misapplication of the rules and is a reasonable application of the statutory provision. SBA proposed to change the averaging period for all employee-based size standards. Thus, in addition to the manufacturing industries, all nonmanufacturing industries and nonmanufacturers subject to employee-based size standards would be affected by the change. In the proposed rule, SBA stated that it would be confusing and unworkable to apply the 24-month averaging period to the manufacturing industries and 12-month averaging period to the nonmanufacturing industries and nonmanufacturers subject to employee-based size standards, as some businesses operate in both manufacturing and nonmanufacturing industries and some manufacturers also supply to Government as nonmanufacturers. Additionally, a nonmanufacturer may compete against manufacturers on the same procurement, and the principle of fair competition would have all competitors use the common averaging period. Thus, SBA is applying the change to all employee-based industries. Similarly, under the SBREA, Congress only changed the averaging period to calculate average annual receipts for services firms, but for consistency and to avoid confusion, SBA adopted the change for all industries subject to receipts-based size standards, including nonservices industries like construction and agriculture. Likewise, in this rule, for consistency and to avoid confusion, SBA is adopting the change in the averaging period for all industries subject to employee-based size standards.

SBA also received one comment that neither expressed support nor opposition to the proposed change, but rather raised concerns about how SBA defines employees for size standards purposes. Specifically, the commenter urged SBA to close the loophole that allows advanced small businesses to remain perpetually small, or even large businesses in some cases to qualify as small, by outsourcing work to others or using independent contractors (1099 contractors).

SBA disagrees with the premise underlying this comment. SBA counts all individuals employed on a full-time, part-time, or other basis. This includes employees obtained from a temporary employee agency, professional employee organization or leasing concern (see 13 CFR 121.106). In SBA Size Policy Statement No. 1, 51 FR 6099, SBA further clarified that the “other basis” ground reaches situations where the firm artificially reduces its number of employees to meet the size standards and qualify for SBA's assistance. SBA will consider the totality of the circumstances to prevent circumvention of the SBA's size regulations, and that may include situations where the firm would change employees' statuses in order to reduce the firm's size for SBA purposes. See Size Appeal of Maryland Assemblies, Inc., SBA No. SIZ-3134 (1989).

While a soon-to-be graduate from SBA's 8(a) BD program expressed general appreciation for the benefit of a smooth transition from an SBA's set-aside program to full and open competition under the 24-month averaging period, it expressed concerns with respect to the size standard for the Environmental Remediation Services (ERS) exception to NAICS 562910 (Remediation Services). Specifically, the commenter argued that the ERS exception already has an exceedingly high small business threshold of 750 employees and a firm at that size would have necessary resources to adequately plan for its growth to an other than small business. Allowing a firm to remain qualified as a small business longer under the change would be detrimental to other small businesses when competing for federal opportunities intended for them.

One commenter opposed expanding eligibility in the current environment to benefit large businesses and urged SBA to direct more resources to underserved small businesses, especially woman-owned and disadvantaged small businesses, before expanding eligibility to include current large businesses. Another commenter opposed both proposed changes, arguing that these and past changes are contrary to the SBA's mission to help small businesses. The commenter believed that both the size standards and averaging periods for calculating the business size keep increasing, thereby causing Government support intended for small businesses to go to large businesses. The commenter maintained that the definition of what is small has become incredibly high, thereby forcing actual small businesses to compete with large businesses with up to 1,000 employees or more than $30 million in revenue that do not need financial assistance nor contracting preferences.

Size standards for specific industries or subindustries (or “exceptions”), such as the 750-employee size standard for the ERS exception to NAICS 562910, are outside the scope of this rulemaking. Interested parties will have an opportunity to comment on the ERS size standard when SBA issues a separate proposed rulemaking on the review of employee-based size standards as part of the second five-year review of size standards.

SBA disagrees with the comment suggesting that SBA should not implement this statutory change from the NDAA. As stated previously, SBA believes that the 24-month employee average provides a better and more stable measure of business size and it gives all small businesses, including disadvantaged small businesses, an expanded runway to grow and become competitive for federal opportunities. More importantly these changes are mandated by Congress.

Moreover, SBA believes that expanding access to SBA's financial assistance programs will help all small businesses to adapt to changes in business environment, recover from disasters more quickly, and grow successfully, while having no impact on the ability of smaller small firms to access financial services from SBA. Applicants to SBA's financial assistance programs are typically much smaller than the industry size standard, and thus, would remain eligible for assistance after this rule is adopted. Also, SBA does not believe that the changes adopted in this final rule will create increased competition for loans between smaller and larger small businesses as the impacts to the loan program in terms of additional loans to small firms are minimal relative to the baseline.

Six commenters expressed support for the SBA's proposal to give applicants to the SBA's Business Loan, Disaster Loan, and SBIC Programs an option to use either a three-year or five-year averaging period for the calculation of average annual receipts. The commenters maintained that the proposed change would allow more businesses to become eligible for SBA's assistance, provide flexibility in measuring size which will help small businesses obtain Government support to recover from the COVID-19 pandemic and help small businesses to get more SBIC funding. One commenter urged SBA to continue to allow applicants for SBA's business loan assistance to also qualify using the tangible net worth and net income based alternative size standard.

SBA agrees with the commenters that its proposal to allow the applicants in the SBA's financial assistance programs to choose either the three-year or five-year receipts average will increase the number of small businesses that are eligible for such assistance. Like the SBA proposal to increase the averaging period for calculation of employees from 12 months to 24 months, the proposal to allow a firm to choose either a three-year or five-year averaging period for the calculation of average annual receipts will also enable more established business concerns to extend their small business status and some businesses that have just exceeded the size standard to regain small business status. This change will be particularly beneficial to those small businesses which cannot qualify under the alternative size standard.

SBA received two comments regarding the impacts of the SBA's proposal to allow applicants for the SBIC financing to choose the five-year averaging period to calculate average annual receipts, in addition to the existing three-year averaging period. One comment expressed support for the SBA's proposal, and the other opposed it. The commenter supporting the proposal argued that the proposed change will offer additional tools to help small businesses compete for capital they need. The commenter who opposed the proposed change argued that this will cause more SBIC funding to go to mid-size and larger small businesses at the expense of smaller small firms. The same commenter suggested improving data collection on the SBIC participants to be able to better assess the impact of the proposed change on the program.

SBA agrees with the comment that some applicants that do not qualify as small under the three-year receipts average could qualify under the five-year receipts average, thereby increasing the number of firms eligible to receive SBIC funding. For clarity, because the SBIC program was not specifically exempted from SBA's prior change to the receipts-based averaging period, the program was covered by the change. Thus, from January 2020 to January 2022, the regulation included a three-year or five-year option for the SBIC program. The final rule continues that option indefinitely, rather than suspending it after January 2022. In other words, as of its effective date, this final rule will reinstate the option of choosing the 3-year or 5-year receipts-average for the SBIC program indefinitely.

SBA disagrees that adopting the proposed changes to the calculation of employees and average annual receipts will cause SBIC funding to go to mid-size and larger small businesses at the expense of smaller small firms. SBA estimates that there will be minimal impact to existing small businesses receiving SBIC funding since the number of firms newly qualifying under the five-year average would also likely qualify under the alternative size standard which is already used for assessing eligibility to receive SBIC funding. Moreover, of the businesses above the three-year receipts average, a larger number would qualify under the alternative size standard than under the five-year receipts average. The commenter did not provide any data demonstrating that the proposed changes in averaging periods for calculating employees and average annual receipts would cause more SBIC funding to go to larger small and mid-size firms to the detriment of smaller small businesses.

One commenter commended SBA for providing flexibility for firms competing for federal contracts by allowing them to report either the three-year or five-year average receipts. The commenter added that this expands a pool of small contractors and expands opportunities to small businesses, including Black-owned small firms. The commenter also maintained that SBA's proposal would allow fast growing small businesses that cannot qualify as small under the three-year receipts average to elect to use the five-year receipts-average. Conversely, businesses experiencing declining revenues can use the three-year receipts average, rather than the five-year average, to qualify as small and become eligible for much needed federal opportunities. The commenter urged SBA to maintain the flexibility of choosing between the three-year or five-year receipts average indefinitely to the benefit of growing small businesses that continue to struggle to win federal opportunities.

Another commenter recommended that SBA should allow three-year or five-year average receipts for small businesses without referencing to any specific program, such as the SBA's financial or contracting programs.

In the December 5, 2019, final rule implementing the Small Business Runway Extension Act of 2018 (“SBREA”), which changed the averaging period for calculating average annual receipts from three years to five years (84 FR 66561), SBA provided a two-year transition period until January 6, 2022, in which businesses were able to use either the three-year or five-year averaging period to calculate average annual receipts for all SBA's programs other than the SBA's Business and Disaster Loan Programs. After January 6, 2022, SBA's calculation of average annual receipts is based only on the five-year averaging period for SBA's contracting and other programs, except for SBA's Business and Disaster Loan Programs. In the November 2, 2021, proposed rule, SBA proposed to permanently allow only the applicants in its Business Loan, Disaster Loan, and SBIC Programs to use either the three-year or five-year averaging period for calculating average annual receipts. The calculation of average annual receipts for SBA's contracting programs is not part of this rulemaking. The November 2, 2021, proposed rule did not discuss the possibility of further extending the option to choose a three-year or five-year averaging period for Federal small business procurement opportunities. Thus, in this final rule, SBA is not granting an option of choosing either the three-year or five-year averaging period indefinitely for federal procurement purposes.

Three commenters opposed SBA's proposal to give applicants to SBA's Business Loan, EIDL, and SBIC Programs the option to use either a three-year or five-year average for the calculation of average annual receipts. The commenters argued that the number of small businesses eligible for SBA's assistance would be increased by allowing larger small businesses to extend their small business status and some mid-size businesses to regain their small business status. They maintained that this would not only make it more difficult for smaller small businesses to compete for capital that they need, but also would cause assistance intended for small businesses to go to large businesses. The commenters added that this is contrary to SBA's mission to assist truly small businesses.

SBA estimates that, as a result of its decision to give applicants to SBA's Business Loan, EIDL, and SBIC Programs the option to use either a three-year or five-year averaging period for the calculation of average annual receipts, more firms will be eligible to participate in these programs. SBA believes that expanding the reach of its programs to include a greater number of small businesses supports all small businesses and the overall economy as the Nation continues to recover from the economic challenges caused by the COVID-19 pandemic. The three commenters opposing SBA's proposal did not submit any data or additional analysis to support their position that SBA's changes would make it difficult for smaller small businesses to compete for capital and cause assistance intended for small businesses to go to large businesses.

Although more firms will be eligible to participate in SBA's financial assistance programs as a result of the proposed changes to the averaging periods, SBA does not anticipate that these changes will significantly impact the distribution of loans by size of firm or impact the ability of any firm to obtain assistance from SBA. Based on its internal data on its financial assistance programs, SBA determined that applicants to these programs are generally much smaller than their industry size standards, or may qualify under SBA's alternative size standard, which is not affected by this rule. Thus, SBA believes that although a greater number of larger small businesses will become eligible to participate in SBA's financial assistance programs, the number of larger small firms that actually participate in such programs will be much lower. Under SBA's 7(a) and 504 loan programs, based on the data for fiscal years 2018-2020, SBA estimates that about five SBA 7(a) and 504 loans totaling $2.1 million could be made to larger small businesses experiencing expansive impacts under this rule. Additionally, small businesses could receive up to two additional EIDL loans totaling $0.2 million due to the expansion of their size status. Together, these amounts represent a 0.01% increase to the loan amount relative to the baseline. Moreover, the increase in the number of firms eligible for financial assistance in no way reduces or eliminates the ability of smaller firms to remain eligible for such assistance. In other words, there is no competition for financial assistance. That is, when one firm gets financial assistance, that does not reduce or eliminate the possibility for another firm to get such assistance. All firms eligible under the current rules would continue to be eligible under the change and all eligible firms would get financial assistance.

Therefore, SBA disagrees with commenters that its proposal to give applicants to SBA's Business Loan, EIDL, and SBIC Programs the option to use either a three-year or five-year average for the calculation of average annual receipts will harm existing small businesses by making it harder for them to obtain financial assistance from SBA. Thus, SBA is adopting the change to the averaging period for calculating average annual receipts in SBA's Business Loan, Disaster Loan, and SBIC Programs, as proposed.

One comment observed that, under the prevailing structure in the proposed rule, the SBG program would be required to use five years of documentation to verify a small business's eligibility under SBA's size standards. The commenter believed that this requirement was burdensome on SBG program applicants in terms of both cost and time. The commenter asked that SBA treat the SBG program similarly to the Business Loan and Disaster Loan programs by exempting the SBG program from the five-year requirement. In support, the commenter pointed out that SBA's Office of Surety Bond Guarantees is part of SBA's Office of Capital Access.

SBA recognizes that requiring all SBG applicants to use a five-year average would create additional time and cost burdens on many SBG applicants. Additionally, as the commenter observed, the SBG Program is housed in SBA's Office of Capital Access, which operates SBA's Business Loan program. SBA believes that treating the SBG program similarly to the Business Loan programs promotes consistency among SBA's programs and creates less confusion about what rules apply to which programs. Therefore, in this final rule, SBA adds the SBG program to the list of programs in which applicants may elect to use a three-year receipts average or a five-year receipts average.

On the same reasoning, however, SBA disagrees with the commenter that the SBG program should be entirely exempt from using a five-year receipts average. All of SBA's programs are required by the Small Business Act to adopt a five-year receipts average in some respect. SBA therefore is allowing SBA surety bond applicants to use either a three-year or five-year average. As discussed in the impact analysis below, this change will have a small expansive effect on the program.

Based on the reasons discussed above, SBA is adopting the proposed changes without change. Specifically, pursuant to Public Law 116-283, SBA is adopting its proposal to increase the averaging period for computing the number of employees for size standards from 12 months to 24 months for all programs. Similarly, pursuant to Public Law 115-324, SBA is also adopting its proposal to permit the applicants to its Business Loan, Disaster Loan, and SBIC programs to elect to choose either the three-year or five-five year averaging period for calculation of average annual receipts. While the proposed rule did not include the SBG program in the option of electing 3-year or 5-year averaging period in calculating average annual receipts, pursuant to a public comment and to maintain consistency across SBA's financial programs, SBA is also allowing the applicants to the SBG program to choose either the three-year or 5-year averaging period.

In paragraph (c)(1), this final rule removes the sentence about certifications submitted prior to January 2022 because that date has now passed.

In paragraphs (c)(1), (c)(2), and (c)(3), SBA adds the SBG and SBIC Programs to the list of programs that are excepted from SBA's current rule on calculating average annual receipts.

In paragraph (c)(4), SBA amends the calculation of average annual receipts for the Business Loan, Disaster Loan, SBG, and SBIC Programs. A business in those programs may calculate its receipts using either a three-year average or a five-year average for the purposes of determining its size under a receipts-based size standard. This change does not affect the calculation of any other figures in SBA's programs. In particular, alternative size standards are not affected by this change.

In paragraphs (b)(1) and (b)(3), SBA amends the current 12-month averaging period to a 24-month averaging period. Businesses that have been in existence for more than 24 months would calculate their number of employees by averaging the number of employees for each pay period for the preceding completed 24 months. Businesses that have been in existence for fewer than 24 months would average their number of employees for each pay period during their existence.

In paragraph (a)(1)(i), SBA amends the averaging period for size standards proposed by other agencies from a 12-month period to a 24-month period.

The Office of Management and Budget (OMB) has determined that this final rule is a significant regulatory action for purposes of Executive Order 12866. Accordingly, below, SBA provides a benefit-cost analysis of this final rule, including: (1) a statement of the need for this action, and (2) an evaluation of the benefits and costs—both quantitative and qualitative—of this regulatory action.

As stated elsewhere, the Small Business Act delegates to SBA's Administrator the responsibility for establishing small business size definitions (usually referred to as “size standards”). First, Public Law 116-283 (NDAA 2021) changed the averaging period for SBA's employee-based size standards from 12 months to 24 months. Second, in 2018, Public Law 115-324 (SBREA) modified the requirements for proposed small business size standards prescribed by an agency without separate statutory authority to issue size standards. Specifically, Public Law 115-324 changed the averaging period for receipts-based size standards for services industries from three years to five years.

The need of this final rule is to carry out the intent of Public Law 116-283 and Public Law 115-324, and to ensure consistency in the calculation of average number of employees and average annual receipts for size standards across the Federal Government. In addition to the averaging requirements, size standards prescribed under section 3(a)(2)(C)(ii) of the Small Business Act must meet two other requirements: (1) be proposed with an opportunity for public notice and comment, and (2) be approved by the Administrator. Neither Public Law 116-283 nor Public Law 115-324 repeals these two requirements, and this final rule satisfies these requirements.

SBA's mission is to aid and assist small businesses through a variety of financial, procurement, business development and counseling, and disaster assistance programs. This regulatory action promotes the Administration's goals and objectives and meets the SBA's statutory responsibility to implement a new law impacting size definitions for small businesses. One of SBA's goals in support of promoting the Administration's objectives is to help small businesses succeed through access to capital, Federal Government contracts and purchases, and management, technical and disaster assistance.

Changing the period for calculating average number of employees from 12 months to 24 months may enable some mid-size businesses that have just exceeded size standards to regain small business status. Similarly, it could also allow some advanced and larger small businesses about to exceed size standards to retain their small status for a longer period. However, it could also result in some advanced small businesses having the 24-month employee average that happens to be higher than the 12-month employee average, thus ejecting them out of their small business status sooner. Detailed impacts of this change are discussed below.

It is difficult to determine the actual number of small and mid-size businesses that would be impacted by Public Law 116-283 and this regulatory action because there is no data on businesses' employment by month or by pay period. The employment data from the Economic Census special tabulation are only available once every five years. Similarly, the System for Award Management (SAM) only records the data on the concern's average number of employees for each pay period in the preceding completed 12 calendar months, but not their employee counts for each pay period or each month. For example, the 12-month average employee data for January 2020 is an average of number of employees for each pay period during preceding completed 12 calendar months ( i.e., January 2019 to December 2019). Similarly, the 24-month average employee value for January 2020 is an average of number of employees for each pay period during preceding completed 24 calendar months ( i.e., January 2018 to December 2019).

Given the lack of employment data for each pay period or each month, SBA approximates a firm's 24-month average number of employees as of January 2020 as follows:

To estimate the 24-month employee average using the above formula, SBA analyzed the 2019 SAM extracts (as of September 1, 2019) and 2018 SAM extracts (as of September 1, 2018). The 24-month average employee formula would only work for businesses that were present in both 2018 and 2019 SAM extracts. One challenge was that some businesses found in 2019 SAM could not be found in 2018 SAM and vice versa. Excluding entities registered in SAM for purposes other than government contracting and entities ineligible for small business consideration (such as foreign entities and state-controlled institutions of higher learning), there were a total of 152,450 unique business concerns in 2019 SAM subject to at least one employee-based size standard. Of these concerns, 131,295 (or about 86.1%) were “small” in all North American Industry Classification System (NAICS) industries, 2,663 (or 1.7%) were “small” in some industries and “not small” in other industries, and 18,492 (or 12.1%) were “not small” in any industry subject to an employee-based size standard.

Excluding entities with “null” or “zero” employee values, 128,599 firms (or about 84.4%) appeared both in 2019 SAM and in 2018 SAM and were included in the 24-month average employee approximation and calculation of number of businesses impacted. Of those 128,599 matched firms subject to an employee-based size standard, 108,541 (or about 84.4%) were “small” in all NAICS industries, 2,526 (or 2%) were “small” in some industries and other than small (“not small”) in other industries, and 17,532 (or about 13.6%) were “not small” in any industry. In other words, 133,958 (or 87.9%) of 152,450 total concerns in SAM 2019 and 111,067 (or 86.4%) of 128,599 total matched firms were small in at least one NAICS industry with an employee-based size standard. These results are summarized in Table 1, “Size Status of Businesses in Industries Subject to Employee-Based Size Standards.”

According to Table 2, “Distribution of Business Concerns Subject to Employee-Based Size Standards by Number of NAICS Codes,” the distribution of firms by the number of NAICS codes in the matched data is very similar to that for the overall 2019 SAM data. About 45% of firms were in only one NAICS code that has an employee-based size standard, about 40% in 2-5 NAICS codes, about 9% in 6-10 NAICS codes, and about 5% in more than 10 NAICS codes. In other words, 55% of firms were in multiple NAICS codes with employee-based size standards. Thus, it is quite possible that the change may impact a firm's small business status in multiple industries. For purposes of this analysis, an impacted firm is defined as one that would be impacted by the change in terms of gaining, regaining, extending, or losing small business status in at least one industry with an employee-based size standard.

A central premise of Public Law 116-283 is that a 24-month employee average (as opposed to a 12-month employee average) would enable some mid-size businesses who have recently exceeded the size standard to regain small business status and some advanced small businesses close to exceeding the size standard to retain their small business status for a longer period. However, this premise would only hold true when businesses' monthly employees are rising. When businesses' monthly employees are declining, due to economic downturns or other factors, the 24-month employee average could be higher than the 12-month employee average, thereby causing small businesses close to their size standards based on the 12-month average to lose their small business status sooner. In some cases where the 24-month employee average could be higher than the size standard, thereby forcing small businesses to lose their small status immediately when the longer 24-month averaging period becomes effective. Additionally, such businesses with declining employees would have to wait longer to regain their small business status.

Changing the periods for calculating average annual receipts from three years to five years, pursuant to Public Law 115-324, may enable some mid-size businesses that have just exceeded size standards to regain small business status. Similarly, it could also allow some advanced and larger small businesses about to exceed size standards to retain their small business status for a longer period. However, it could also result in some advanced small businesses having a five-year receipts average that happens to be higher than the three-year receipts average, thus ejecting them out of their small business status sooner. To mitigate this negative impact, SBA is permitting to allow applicants to its Business Loan, Disaster Loan, SBG, and SBIC Programs to choose either a three-year average or a five-year average. Thus, an applicant might be eligible for assistance if its five-year average is equal to or less than the size standard, even if it would otherwise be ineligible under the three-year average. Detailed impacts of this change are discussed below.

It is difficult to determine the actual number of small and mid-size businesses that would be impacted by Public Law 115-324 and this regulatory action because there is no annual data on receipts of businesses. The annual receipts data from the Economic Census special tabulation are only available once every five years. Similarly, the System for Award Management (SAM) only records the data on three-year average annual receipts of businesses over their three preceding fiscal years, but not their annual receipts for each fiscal year. For example, the receipts data for year 2019 is an average of annual receipts for 2018, 2017, and 2016. Similarly, the receipts data for 2018 is an average of annual receipts for 2017, 2016, and 2015, and so on. A five-year receipts average for 2019 would be an average of annual receipts for 2018, 2017, 2016, 2015, and 2014.

Given the lack of annual receipts for each year, SBA approximated a firm's five-year average annual revenue for 2019 as follows:

This result may slightly underestimate the five-year revenue average when annual revenues are rising ( i.e., 2015 revenue > 2014 revenue > 2013 revenue) and overestimate it if annual revenues are declining ( i.e., 2015 revenue < 2014 revenue < 2013 revenue).

To estimate the five-year receipts average for 2019 using the above formula, SBA analyzed the 2019 SAM extracts (as of September 1, 2019) and 2016 SAM extracts (as of September 1, 2016). The above five-year average annual receipts formula would only work for businesses that were present in both 2016 and 2018 SAM extracts. One challenge was that some businesses found in 2019 SAM could not be found in 2016 SAM and vice versa. Excluding entities registered in SAM for purposes other than government contracting and entities ineligible for small business consideration (such as foreign entities and state-controlled institutions of higher learning), there were a total of 334,990 unique business concerns in 2019 SAM subject to at least one receipts-based size standard. Of these concerns, 282,671 (or about 84.4%) were “small” in all NAICS industries, 9,783 (or 2.9%) were “small” in some industries and “not small” in other industries, and 42,536 (or 12.7%) were “not small” in any industry.

Excluding entities with “null” or “zero” receipts values, 192,295 firms (or about 57.4%) appeared both in 2019 SAM and in 2016 SAM and were included in the five-year average annual receipts approximation and calculation of number of businesses impacted. Of those 192,295 matched firms subject to a receipts-based size standard, 152,040 (or about 79%) were “small” in all NAICS industries, 8,081 (or 4.2%) were “small” in some industries and other than small (“not small”) in other industries, and 32,174 (or about 16.7%) were “not small” in any industry. In other words, 292,454 (or 87.3%) of 334,990 total concerns in SAM 2019 and 160,121 (or 83.3%) of 192,295 total matched firms were small in at least one NAICS industry with a receipts-based size standard. These results are summarized in Table 3, “Size Status of Businesses in Industries Subject to Receipts-Based Size Standards.”

According to Table 4, “Distribution of Business Concerns Subject to Receipts-Based Size Standards by Number of NAICS Codes,” the distribution of firms by the number of NAICS codes in the matched data is very similar to that for the overall 2019 SAM data. About 41-43% of firms were in only one NAICS code that has a receipts-based size standard, about 35% in 2-5 NAICS codes, about 12% in 6-10 NAICS codes, and about 8-10% in more than 10 NAICS codes. In other words, 57-59% of firms were in multiple NAICS codes with receipts-based size standards. Thus, it is quite possible that the change may impact a firm's small business status in multiple industries. For purposes of this analysis, an impacted firm is defined as one that would be impacted by the change in terms of gaining, regaining, extending, or losing small business status in at least one industry with a receipts-based size standard.

A central premise of Public Law 115-324 is that a five-year annual receipts average (as opposed to a three-year annual receipts average) would enable some mid-size businesses who have recently exceeded the size standard to regain small business status and some advanced small businesses close to exceeding the size standard to retain their small business status for a longer period. However, this premise would only hold true when businesses' annual revenues are rising. When businesses' annual revenues are declining, due to economic downturns or other factors, the five-year annual receipts average could be higher than the three-year annual receipts average, thereby causing small businesses close to their size standards to lose their small business status sooner. To mitigate such negative impacts on small businesses, SBA proposes, in consideration of public comments on the June 2019 proposed rule and the results from its own analysis, to permit businesses in the Business Loan, Disaster Loan, and SBIC Programs to use either a three-year average or a five-year average for calculating average annual receipts for the purposes of qualifying as a small business.

By comparing the approximated 24-month employee average with the current employee-based size standard for each of the 128,599 matched business concerns in each NAICS code subject to an employee-based size standard, in this final rule, SBA identifies the following four possible impacts from changing the averaging period for employees from 12 months to 24 months:

i. The number of mid-size businesses that have exceeded the size standard and would regain small business status in at least one NAICS industry with an employee-based size standard ( i.e., 12-month average > size standard ≥ 24-month average)—expansive impact.

ii. The number of advanced small businesses within 10% below the size standard that would have their small business status extended for a longer period in at least one NAICS industry with an employee-based standard (24-month average < 12-month average ≤ size standard and 0.9*size standard < 12-month average ≤ size standard)—expansive impact.

iii. The number of currently small businesses that would lose their small business status in at least one NAICS industry subjected to an employee-based size standard ( i.e., 12-month average ≤ size standard < 24-month average)—contractive impact.

iv. The number of advanced small businesses within 10% below the size standard that would have their small status shortened in at least one NAICS industry subject to an employee-based standard (12-month average < 24-month average ≤ size standard and 0.9*size standard < 12-month average ≤ size standard)—contractive impact.

In this final rule, SBA is changing the period for calculation of average employees for all of its employee-based size standards from 12 months to 24 months. The purpose of Public Law 116-283 is to allow small businesses more time to grow and develop competitiveness and infrastructure so that they are better prepared to succeed under full and open competition once they outgrow the size threshold. However, as stated previously, a longer 24-month averaging period may not always and necessarily provide relief to every small business concern. As discussed previously, when monthly employees are declining, the 24-month average would be higher than the 12-month average, thereby ejecting some advanced small businesses out of their small business status sooner or rendering some small businesses under the 12-month average not small immediately.

As discussed earlier, the change in the averaging period for employees from 12 months to 24 months results in four different types of impacts on small businesses: (i) Enabling current large or mid-size businesses to gain small business status (impact i); (ii) Enabling current advanced small businesses to lengthen their small business status (impact ii); (iii) Causing current small businesses to lose their small business status (impact iii); and (iv) Causing current small businesses to shorten their small business status (impact iv). Table 5, “Percentage Distribution of Impacted Firms with Employee-Based Size Standards by the Number of NAICS Codes,” provides these results based on the 2019 SAM—2018 SAM matched firms.

It is highly notable that the distribution of impacted firms by the number of NAICS codes, as shown in Table 5, is very different as compared to a similar distribution based on the overall matched and total 2019 SAM data ( see Table 2), especially with respect to firms with only one NAICS code and those with more than five NAICS codes. For example, about 45% of all firms in the overall data were associated with only one NAICS code, as compared only about 20% among impacted firms. Similarly, firms with more than five NAICS codes accounted for about 13-14% of all firms in the original data, as compared to 30-40% among impacted firms. It is also notable that, among the industries with employee-based size standard, NAICS Sector 31-33 (Manufacturing) and Sector 42 (Wholesale Trade) together accounted for about 90% of impacted firms (in terms of both contractive and expansive impacts), with Sector 31-33 accounting for about 65% and Sector 42 about 25%.

Each of these impacts was then multiplied by an applicable factor or ratio, as shown in the last column of Table 1, to obtain the respective impacts corresponding to all firms in 2019 SAM subject to at least one employee-based size standard. These results are presented below in Table 6, “Impacts from Changing the Averaging Period for Employees from 12 Months to 24 Months.” The last column of the table shows the percentages of firms impacted relative to all business concerns in 2019 SAM. Because the SAM data only captures businesses that are primarily interested in federal procurement opportunities, the SAM-based results do not fully capture the impacts the change may have on businesses participating in various non-procurement programs that apply to SBA's employee-based size standards, such as SBA loan programs and exemptions from compliance with paperwork and other regulatory requirements.

The Economic Census, combined with the Census of Agriculture and County Business Patterns Reports, provides for each NAICS code information on the number of total small and large businesses subjected to an employee-based size standard. Based on the matched SAM data, SBA computed percentages of businesses impacted under each impact category for each NAICS industry subject to an employee-based size standard. By applying such percentages to the 2012 Economic Census tabulation (the latest available when this rule was developed), SBA estimated the number of all businesses impacted under each impact type for each NAICS code subject to an employee-based size standard. These results are presented in Table 7, “Impacts from Changing the Averaging Period for Employees from 12 Months to 24 Months (2012 Economic Census).”

Currently large or mid-size businesses regaining small business status would become eligible for various benefits as small business concerns, including access to federal set-aside contracts, SBA's guaranteed loans and disaster assistance, reduced patent fees, and exemptions from various compliance and paperwork requirements. With their small business status extended, advanced small businesses would continue to receive such benefits for a longer period. However, the change may also cause some small businesses to lose their small business status in at least one employee-based size standard and access to small business assistance, especially federal set-aside opportunities.

By comparing the approximated five-year annual receipts average with the current receipts-based size standard for each of the 192,295 matched business concerns in each NAICS code subject to a receipts-based size standard, in this final rule, SBA identifies the following four possible impacts from changing the averaging period for annual receipts from three years to five years:

i. The number of mid-size businesses that have exceeded the size standard and would regain small business status in at least one NAICS industry with a receipts-based size standard ( i.e., 3-year average > size standard ≥ 5-year average)—expansive impact.

ii. The number of advanced small businesses within 10% below the size standard that would have their small business status extended for a longer period in at least one NAICS industry with a receipts-based standard (5-year average < 3-year average ≤ size standard and 0.9*size standard < 3-year average ≤ size standard)—expansive impact.

iii. The number of currently small businesses that would lose their small business status in at least one NAICS industry subjected to a receipts-based size standard ( i.e., 3-year average ≤ size standard < 5-year average)—contractive impact.

iv. The number of advanced small businesses within 10% below the size standard that would have their small business status shortened in at least one NAICS industry subject to a receipts-based standard (3-year average < 5-year average ≤ size standard and 0.9*size standard < 3-year average ≤ size standard)—contractive impact.

In this final rule, SBA is changing the period for calculation of average annual receipts for SBA receipts-based size standards for Business Loan, Disaster Loan, SBG, and SBIC Programs from three years to five years. The purpose of Public Law 115-324 is to allow small businesses more time to grow and develop competitiveness and infrastructure so that they are better prepared to succeed under full and open competition once they outgrow the size threshold. However, a longer five-year averaging period may not always and necessarily provide relief to every small business concern. As discussed in the June 2019 proposed rule, when annual revenues are declining or when annual revenues for the latest three years are lower than those for the earliest two years of the five-year period, the five-year average would be higher than the three-year average, thereby ejecting some advanced small businesses out of their small business status sooner or rendering some small businesses under the three-year average not small immediately.

There are four different types of impacts on small businesses from changes to the averaging period for annual receipts from three years to five years as follows: (i) Enabling current large or mid-size businesses to gain small business status (impact i); (ii) Enabling current advanced small businesses to lengthen their small business status (impact ii); (iii) Causing current small businesses to lose their small business status (impact iii); and (iv) Causing current small businesses to shorten their small business status (impact iv).

However, with the SBA's decision to permit businesses in the Business Loan, Disaster Loan, SBG, and SBIC programs to use either a three-year average or a five-year average for calculating average annual receipts for the purposes of qualifying as a small business, the two contractive impacts (namely impact (iii) and impact (iv)) do not apply to this final rule. Accordingly, this final rule provides the analysis of the two expansive impacts of changing the averaging periods for annual receipts from three years to five years (namely impact (i) and impact (ii)) only.

Table 8, “Percentage Distribution of Impacted Firms with Receipts-Based Size Standards by the Number of NAICS Codes,” provides these results based on the 2019 SAM-2016 SAM matched firms.

It is highly notable that the distribution of impacted firms by the number of NAICS codes, as shown in Table 8, is very different as compared to a similar distribution based on the overall matched and total 2019 SAM data ( see Table 4), especially with respect to firms with only one NAICS code and those with more than five NAICS codes. For example, as shown in Table 4, above, more than 40% of all firms in the overall data were associated with only one NAICS code, as compared to less than 15% among impacted firms in Table 8. Similarly, firms with more than five NAICS codes accounted for about 20% of all firms in the original data, as compared to more than 50% among impacted firms. It is also notable that, among the industries with receipts-based size standards, NAICS Sectors 54, 56, and 23 together accounted for more than 70% of impacted firms, with Sector 54 (Professional, Scientific and Technical Services) accounting for about 30-35%, followed by Sector 23 (Construction) about 25-30%, and Sector 56 (Administrative and Support, Waste Management and Remediation Services) about 10-13%.

Each of these impacts was then multiplied by an applicable factor or ratio, as shown in the last column of Table 3, to obtain the respective impacts corresponding to all firms in 2019 SAM subject to at least one receipts-based size standard. These results are presented below in Table 9, “Impacts from Changing the Averaging Period for Receipts from 3 Years to 5 Years.” The last column of the table shows the percentage of firms impacted relative to all business concerns in 2019 SAM.

Because the SAM data only captures businesses that are primarily interested in federal procurement opportunities, the SAM-based results do not fully capture the impacts the change may have on businesses participating in various non-procurement programs that apply SBA's receipts-based size standards, such as exemptions from compliance with paperwork and other regulatory requirements.

The Economic Census, combined with the Census of Agriculture and County Business Patterns Reports, provides for each NAICS code information on the number of total small and large businesses subjected to a receipts-based size standard. Based on the matched SAM data, SBA computed percentages of businesses impacted under each impact category for each NAICS industry subject to a receipts-based size standard. By applying such percentages to the 2012 Economic Census tabulation, SBA estimated the number of all businesses impacted under each impact type for each NAICS code subject to a receipts-based size standard. These results are presented in Table 10, “Impacts from Changing the Averaging Period for Receipts from 3 Years to 5 Years (2012 Economic Census).”

Currently large or mid-size businesses regaining small business status would get various benefits as small business concerns, including access to SBA loan programs, and exemptions from various compliance and paperwork requirements. With their small business status extended, advanced small businesses would continue to receive such benefits for a longer period. However, the change from three-year average receipts to five-year average may also harm some small businesses by causing them to lose or shorten their small business status in at least one receipts-based size standard, thereby depriving them of access to small business assistance, including SBA's lending. To mitigate such impacts, SBA is allowing businesses to elect either the three-year average annual receipts or the five-year average annual receipts for the Business Loan, Disaster Loan, and SBIC programs. SBA sought comment on implementation of Public Law 115-324 for the Business Loan, Disaster Loan, and SBIC programs.

In this rulemaking, SBA establishes an appropriate baseline to evaluate benefits, costs, or transfer impacts of this action and alternative approaches considered, if any. A baseline should represent the agency's best assessment of what the world would look like absent the regulatory action. For a new regulatory action modifying an existing regulation (such as changing the calculation of the average number of employees from 12 months to 24 months), a baseline assuming no change to the regulation ( i.e., maintaining the status quo) generally provides an appropriate benchmark for evaluating benefits, costs, or transfer impacts of proposed regulatory changes and their alternatives.

Based on the 2012 Economic Census special tabulations (the latest available) and 2012 County Business Patterns Reports (for industries not covered by the Economic Census), of a total of about 680,266 firms in all industries with employee-based size standards, about 96.7% were considered small and 3.3% other than small under the 12-month employee average. Similarly, of 152,450 businesses that were subject to at least one employee-based size standard and eligible for federal contracting, 87.9% were small in at least one NAICS code and 12.1% other than small in all NAICS codes with an employee-based size standard.

Based on the data from the Federal Procurement Data System—Next Generation (FPDS-NG) for fiscal year 2019, on average, about 39,714 unique firms in industries subject to employee-based size standards received at least one federal contract during 2019, of which 85.3% were small. Businesses subject to employee-based size standards received $232.6 billion in annual average federal contract dollars in 2019, of which nearly $47 billion or about 20.2% went to small businesses. Of total dollars awarded to small businesses subject to employee-based size standards, $23.8 billion or 50.6% was awarded through various small business set-aside programs and 49.4% was awarded through non-set aside contracts.

Based on SBA's internal data on its loan programs, small businesses subject to employee-based size standards received, on an annual basis, a total of 7,672 7(a) and 504 loans during fiscal years 2018-2020, totaling $4.9 billion, of which 75% was issued through the 7(a) program and 25% was issued through the CDC/504 program. During fiscal years 2018-2020, small businesses in those industries also received about 370 loans through the SBA's EIDL loan program, totaling about $0.02 billion on an annual basis. Table 11, “Baseline Analysis of Employee-Based Size Standards,” provides these baseline results.

Based on SBA's internal data on its SBGProgram for fiscal years 2018-2020, small businesses subject to employee-based size standards received, on an annual basis, a total of 52 surety bonds guaranteed by SBA, which supported about $41 million in contracts. Surety Bonds to firms with employee-based size standards account for only about 1% of overall program activity.

Based on SBA's internal data on its SBIC program for fiscal years 2018-2020, on an annual basis, 375 small businesses subject to employee-based size standards received SBIC financing, resulting in $1.8 billion in capital to those small firms. SBIC financing to firms with employee-based size standards account for about 34% of overall program activity.

Besides set-aside contracting and financial assistance discussed above, small businesses also benefit through reduced fees, less paperwork, and fewer compliance requirements that are available to small businesses through federal agencies that use SBA's size standards. However, SBA has no data to estimate the number of small businesses receiving such benefits.

Background

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to certain The Boeing Company Model 747-100B SUD, 747-200B, 747-200C, 747-200F, 747-300, 747SP, 747-400, 747-400D, and 747-400F series airplanes. The NPRM published in the Federal Register on November 17, 2021 (86 FR 64085). The NPRM was prompted by a determination that a certain fastener type that penetrates the fuel tank walls has insufficient bond to the structure, and energy from a lightning strike or high-powered short circuit could cause arcing to occur at the ends of fasteners in the fuel tanks. In the NPRM, the FAA proposed to require, for certain airplanes, reconfiguring the clamps of certain wire bundles, applying sealant to certain fasteners that penetrate the fuel tank walls, installing cushion clamps and TFE sleeves, inspecting to determine if sealant was applied to certain fasteners, and applying sealant if necessary. In the NPRM, the FAA also proposed to require, for all airplanes, revising the maintenance or inspection program, as applicable, to incorporate new, more restrictive AWLs. The FAA is issuing this AD to address arcing in the event of a lightning strike or high-powered short circuit, which could result in a fuel tank explosion or fire.

The FAA received comments from two commenters, Air Line Pilots Association, International (ALPA), and Boeing, who supported the NPRM without change.

The FAA also received comments from United Parcel Service (UPS), who supported the general actions in the NPRM and provided comments on the AWLs and the inspections specified in the NPRM. The FAA also received comments from Delta Air Lines (Delta). The following presents the comments received on the NPRM and the FAA's response to each comment.

Delta requested that the NPRM be changed to a supersedure of AD 2007-20-01, Amendment 39-15211 (72 FR 54533, September 26, 2007) (AD 2007-20-01). Delta stated that paragraph (f) of AD 2007-20-01 requires accomplishing Boeing Special Attention Service Bulletin 747-57-2327, Revision 1, dated July 10, 2006; and Boeing Special Attention Service Bulletin 747-57-2326, dated January 4, 2007. Delta also stated that the NPRM would require new actions in accordance with the latest revisions of the same service information required in AD 2007-20-01. Delta concluded that it would make compliance simpler by having all of the work in one place and not split between multiple versions of the same bulletins, provided credit is given for accomplishment of Work Packages 1 through 20 using previous revisions of Boeing Special Attention Service Bulletin 747-57-2327, Revision 8, dated November 13, 2020.

The FAA disagrees with the request. The FAA considered superseding AD 2007-20-01 to mandate actions that are necessary to address Special Federal Aviation Regulation No. 88 (SFAR 88) that were unintentionally omitted from Boeing Special Attention Service Bulletin 747-57-2327, Revision 1, dated July 10, 2006. However, the FAA reviewed Boeing Special Attention Service Bulletin 747-57-2327, Revision 8, dated November 13, 2020, and identified AD requirements for additional airplane groups and work packages. The FAA determined that a stand-alone AD would be appropriate because the actions required by AD 2007-20-01 have already been accomplished and paragraph (g) of this AD only applies to some of the airplanes identified in AD 2007-20-01. The additional work in Boeing Special Attention Service Bulletin 747-57-2327, Revision 8, dated November 13, 2020, is only required for certain airplanes, as identified in paragraphs (g)(1) and (2) of this AD. In addition, the actions specified in paragraph (g)(3) of this AD, using Boeing Special Attention Service Bulletin 747-57-2326, Revision 1, dated January 31, 2008, are only required for certain airplanes. The FAA has not changed this AD in this regard.

UPS requested that the initial compliance time in paragraph (h)(1) of the proposed AD be revised. UPS stated the compliance time should be within 12 years after incorporation of Boeing Special Attention Service Bulletin 747-57-2327, or within 24 months after the effective date of this AD, whichever occurs later. UPS stated the initial compliance time for AWL 28-AWL-33 is not stated in The Boeing Company 747-400 Maintenance Planning Data (MPD) Document, Section 9, Airworthiness Limitations (AWLs) and Certification Maintenance Requirements (CMRs), D621U400-9, Revision February 2020. UPS noted that paragraph (h)(1) of the proposed AD states the initial compliance time is at the time in the MPD document or within 60 days. UPS stated that due to the age of the affected airplanes that many would have to comply within the 60-day initial compliance time, which would put an undue burden on operators because this task requires extensive access common to heavy maintenance.

The FAA agrees to revise the initial compliance time. It was not the FAA's intention to mandate the initial AWL No. 28-AWL-33 inspection tasks within 60 days after the effective date of this AD for operators that have not yet incorporated AWL No. 28-AWL-33 into the existing maintenance or inspection program, as applicable. However, the FAA disagrees with the compliance time proposed by UPS. The compliance time for AWL No. 28-AWL-33 depends on whether AWL No. 28-AWL-33 has already been incorporated into the operator's existing maintenance or inspection program, and on whether Boeing Special Attention Service Bulletin 747-57-2327 has been incorporated. AWL No. 28-AWL-33 applies to airplanes on which Boeing Special Attention Service Bulletin 747-57-2327 has been incorporated and airplanes having line number 645 and on. The FAA has revised the initial compliance time in paragraph (h)(1) of this AD by making this distinction of whether AWL No. 28-AWL-33 was previously incorporated into the operator's maintenance or inspection program and allowing for a 12 month initial compliance time if certain conditions apply. The FAA also revised the text for the initial compliance time in paragraph (h)(1) of this AD by replacing the reference to “the tasks” with a reference to “AWL No. 28-AWL-33” as it is the only task. The other AWL items referenced in paragraph (h)(1) of this AD are Critical Design Configuration Control Limitations (CDCCLs).

In addition, the FAA has revised the initial compliance time for AWL No. 28-AWL-25 in paragraph (h)(2) of this AD by making this distinction of whether AWL No. 28-AWL-25 was previously incorporated into the operator's maintenance or inspection program and allowing for a 12 month initial compliance time if certain conditions apply. The compliance time specified in the proposed AD for AWL No. 28-AWL-25 has a similar issue to the one for AWL No. 28-AWL-33. The FAA did not intend to mandate the initial AWL No. 28-AWL-25 inspection task within 60 days after the effective date of this AD for operators that have not already incorporated the task into the operator's existing maintenance or inspection program. The FAA also revised the text for the initial compliance time in paragraph (h)(2) of this AD by replacing the reference to “the tasks” with a reference to “AWL No. 28-AWL-25” as it is the only task. The other AWL items referenced in paragraph (h)(2) of this AD are CDCCLs.

UPS requested that the FAA remove paragraph (g)(2) of the proposed AD (which includes a requirement to inspect and seal the ends of certain fasteners inside the fuel tanks). UPS stated that AD 2007-20-01 includes a requirement to seal the ends of certain fasteners inside the fuel tanks in accordance with Boeing Special Attention Service Bulletin 747-57-2327, Revision 1, dated July 10, 2006. UPS stated that Step 5 of Figure 23 of Boeing Special Attention Service Bulletin 747-57-2327, Revision 1, dated July 10, 2006, specifies to apply the fillet sealant on the fastener and refers to certain airplane maintenance manual (AMM) procedures. UPS also noted that CDCCL 28-AWL-37, added by paragraph (h) of the proposed AD, only checks for cracked or damaged sealant. UPS concluded that paragraph (g)(2) does not provide any additional improvement in the condition of the affected airplanes from that required by AD 2007-20-01, and therefore should not be required.

The FAA disagrees with the request. The purpose of paragraph (g)(2) of this AD is to make sure that the fillet sealant on identified fasteners fully encapsulates those fasteners. Boeing Special Attention Service Bulletin 747-57-2327, Revision 1, dated July 10, 2006, does not specify to make sure that the fasteners are fully encapsulated with sealant. The AMM procedures are references only and therefore does not mandate that fasteners are fully encapsulated. Since Boeing Special Attention Service Bulletin 747-57-2327, Revision 8, dated November 13, 2020, also does not specify to fully encapsulate the fasteners, the requirement in paragraph (g)(2) of this AD includes an exception that states where note (f) of Figure 23 specifies to “make sure to apply the fillet sealant on the fastener,” this AD requires applying the fillet sealant to fully encapsulate the fastener penetrating the fuel tank. The FAA has not changed this AD in this regard.

UPS requested that paragraph (j) of the proposed AD be revised to give credit for previous actions accomplished using Boeing Special Attention Service Bulletin 747-57-2326, Revision 1, dated January 31, 2008. UPS stated that it performed the requirement to seal the ends of certain fasteners using Boeing Special Attention Service Bulletin 747-57-2326, Revision 1, dated January 31, 2008, as an alternative method of compliance to AD 2007-20-01 (which mandated Boeing Special Attention Service Bulletin 747-57-2326, dated January 4, 2007). UPS stated it does not believe they need to go back and verify that previously accomplished actions were done as directed. UPS notes that paragraph (f) of the proposed AD does state to comply with the AD unless already done, but paragraph (j) of the proposed AD does not give credit for previous actions accomplished using Boeing Special Attention Service Bulletin 747-57-2326, Revision 1, dated January 31, 2008. UPS also stated that if credit is not given, the FAA should provide an explanation as to why operators need to go back and verify that previous AD required actions were accomplished as directed.

The FAA agrees that operators that sealed the fasteners using Boeing Special Attention Service Bulletin 747-57-2326, Revision 1, dated January 31, 2008, do not have to go back and verify that all fasteners identified in Figures 4 and 5 of Boeing Special Attention Service Bulletin 747-57-2326, Revision 1, dated January 31, 2008, were sealed in accordance with Figure 1 of that same service bulletin. Only airplanes on which the fasteners were sealed using Boeing Special Attention Service Bulletin 747-57-2326, dated January 4, 2007, must be inspected and the fasteners sealed if necessary. The FAA has revised paragraph (g)(3) of this AD accordingly.

The FAA also notes there is no need to provide credit in paragraph (j) of the AD for actions taken using Boeing Special Attention Service Bulletin 747-57-2326, Revision 1, dated January 31, 2008, because paragraph (f) of the AD mandates compliance with this AD within the compliance times specified, unless already done.

The FAA reviewed the relevant data, considered any comments received, and determined that air safety requires adopting this AD as proposed. Except for minor editorial changes, and any other changes described previously, this AD is adopted as proposed in the NPRM. None of the changes will increase the economic burden on any operator.

The FAA reviewed Boeing Special Attention Service Bulletin 747-57-2327, Revision 8, dated November 13, 2020. This service information describes procedures for reconfiguring the clamps of certain wire bundles, applying sealant to certain fasteners that penetrate the fuel tank walls, and installing cushion clamps and TFE sleeves on the wire bundles of the front spars and rear spars of the wings.

The FAA also reviewed Boeing Special Attention Service Bulletin 747-57-2326, Revision 1, dated January 31, 2008. This service information describes procedures for, among other actions, applying sealant to certain fasteners.

The FAA also reviewed The Boeing Company 747-400 Maintenance Planning Data (MPD) Document, Section 9, Airworthiness Limitations (AWLs) and Certification Maintenance Requirements (CMRs), D621U400-9, Revision February 2020, which includes revised AWL tasks 28-AWL-33, 28-AWL-34, and 28-AWL-37; and The Boeing Company 747-100/200/300/SP/SR Airworthiness Limitations (AWLs) and Certification Maintenance Requirements (CMRs), D6-13747-CMR, Revision September 2020, which includes revised AWL tasks 28-AWL-25, 28-AWL-27, and 28-AWL-28. The revised AWL tasks describe fuel airworthiness limitation items (ALIs) and CDCCLs that address fuel tank systems. These documents are distinct because they apply to different airplane models. The new AWLs include:

• An ALI (periodic inspections) of the cushion clamps and teflon sleeving installed on out-of-tank wire bundles installed on brackets that are mounted directly on the fuel tanks;

• A CDCCL for the cushion clamps and teflon sleeving installed on out-of-tank wire bundles installed on brackets that are mounted directly on the fuel tanks; and

• A CDCCL for lightning, fault current or hot short protection features.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in ADDRESSES .

The FAA estimates that this AD affects 104 airplanes of U.S. registry. The FAA estimates the following costs to comply with this AD:

The FAA has determined that revising the maintenance or inspection program takes an average of 90 work-hours per operator, although the agency recognizes that this number may vary from operator to operator. Since operators incorporate maintenance or inspection program changes for their affected fleet(s), the FAA has determined that a per-operator estimate is more accurate than a per-airplane estimate. Therefore, the agency estimates the average total cost per operator to be $7,650 (90 work-hours × $85 per work-hour).

The FAA estimates the following costs to do any necessary application of sealant that would be required based on the results of the inspections. The agency has no way of determining the number of aircraft that might need this action:

The FAA has included all known costs in its cost estimate. According to the manufacturer, however, some or all of the costs of this AD may be covered under warranty, thereby reducing the cost impact on affected operators.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The FAA invites you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under ADDRESSES . Include “Docket No. FAA-2022-0596; Project Identifier MCAI-2022-00150-T” at the beginning of your comments. The most helpful comments reference a specific portion of the final rule, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend this final rule because of those comments.

Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to https://www.regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this final rule.

CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this AD contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this AD, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this AD. Submissions containing CBI should be sent to Elizabeth Dowling, Aerospace Engineer, Mechanical Systems and Administrative Services Section, FAA, New York ACO Branch, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone 516-228-7300; email 9-avs-nyaco-cos@faa.gov. Any commentary that the FAA receives which is not specifically designated as CBI will be placed in the public docket for this rulemaking.

Transport Canada Civil Aviation (TCCA) which is the aviation authority for Canada, has issued TCCA AD CF-2022-03, dated February 1, 2022 (TCCA AD CF-2022-03) (referred to after this as the Mandatory Continuing Airworthiness Information, or the MCAI), to correct an unsafe condition for all Bombardier, Inc., Model BD-100-1A10 airplanes. You may examine the MCAI on the internet at https://www.regulations.gov by searching for and locating Docket No. FAA-2022-0596.

This AD was prompted by a report of multiple in-service events where, following a STAB TRIM FAULT advisory message and auto-pilot disconnect, flightcrew commands for a nose-up trim resulted in nose-down trim movement of the horizontal stabilizer instead. In some events, the horizontal stabilizer reached the full airplane nose-down trim position before the crew recognized the nature of the problem. The FAA is issuing this AD to address uncommanded horizontal stabilizer motion, which could result in increased crew workload and reduced safety margins; and if the flightcrew is unable to regain control of the horizontal stabilizer, would result in loss of control of the airplane and excessive high control forces. See the MCAI for additional background information.

Bombardier has issued the following service information which includes the “Before Starting Engines” checklist in Chapter 04—Normal Procedures, of the AFM:

• Bombardier Challenger 300 AFM (Imperial Version), CSP 100-1, Revision 67, dated March 29, 2022;

• Bombardier Challenger 300 AFM (Metric Version), CSP 100-1 (METRIC), Revision 67, dated March 29, 2022;

• Bombardier Challenger 350 AFM, CH 350, Revision 33, dated March 29, 2022.

This service information describes instructions for an expanded pre-flight check of the pitch trim. These documents are distinct since they apply to different airplane configurations.

Bombardier has also issued the following service information:

• Challenger 300 Temporary Revision TR-92, dated December 20, 2021, to the Bombardier Challenger 300 AFM (Imperial Version), CSP 100-1;

• Challenger 300 Temporary Revision TR-92, dated December 20, 2021, to the Bombardier Challenger 300 AFM (Metric Version), CSP 100-1 (METRIC); and

• Challenger 350 Temporary Revision TR-23, dated December 20, 2021, to the Bombardier Challenger 350 AFM, CH 350.

This service information describes instructions for trim malfunction procedures, and revised “AP STAB TRIM FAIL” caution and “STAB TRIM FAULT” advisory procedures. These documents are distinct since they apply to different airplane configurations.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI and service information referenced above. The FAA is issuing this AD because the FAA evaluated all pertinent information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

This AD requires revising the existing airplane flight manual to add an expanded pre-flight check of the pitch trim, trim malfunction procedures, and revised “AP STAB TRIM FAIL” caution and “STAB TRIM FAULT” advisory procedures.

TCCA AD CF-2022-03 requires operators to “brief all flight crews” of the AFM procedures and thereafter to “operate the aeroplane accordingly.” However, this AD does not specifically require those actions as those actions are already required by FAA regulations. FAA regulations require operators furnish to pilots any changes to the AFM (for example, 14 CFR 121.137), and to ensure the pilots are familiar with the AFM (for example, 14 CFR 91.505). As with any other flightcrew training requirement, training on the updated AFM content is tracked by the operators and recorded in each pilot's training record, which is available for the FAA to review. FAA regulations also require pilots to follow the procedures in the existing AFM including all updates. 14 CFR 91.9 requires that any person operating a civil aircraft must comply with the operating limitations specified in the AFM. Therefore, including a requirement in this AD to operate the airplane according to the revised AFM would be redundant and unnecessary.

Section 553(b)(3)(B) of the Administrative Procedure Act (APA) (5 U.S.C. 551 et seq. ) authorizes agencies to dispense with notice and comment procedures for rules when the agency, for “good cause,” finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under this section, an agency, upon finding good cause, may issue a final rule without providing notice and seeking comment prior to issuance. Further, section 553(d) of the APA authorizes agencies to make rules effective in less than thirty days, upon a finding of good cause.

An unsafe condition exists that requires the immediate adoption of this AD without providing an opportunity for public comments prior to adoption. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because in some of the reported events, the horizontal stabilizer reached full airplane nose-down trim position before the flightcrew recognized the nature of the problem, resulting in increased flightcrew workload and reduced safety margins. If not addressed, an uncommanded horizontal stabilizer motion could result in the stabilizer reaching its full travel position, and consequently, the flightcrew may not be able to regain control of the horizontal stabilizer, which would result in loss of control of the airplane and excessive high control forces. Therefore, the FAA finds good cause that notice and opportunity for prior public comment are impracticable. In addition, for the reasons stated above, the FAA finds that good cause exists pursuant to 5 U.S.C. 553(d) for making this amendment effective in less than 30 days.

The FAA considers this AD to be an interim action. TCCA AD CF-2022-03 states an investigation is ongoing and the revision of the existing AFM is a mitigating action.

The requirements of the RFA do not apply when an agency finds good cause pursuant to 5 U.S.C. 553 to adopt a rule without prior notice and comment. Because the FAA has determined that it has good cause to adopt this rule without notice and comment, RFA analysis is not required.

The FAA estimates that this AD affects 678 airplanes of U.S. registry. The FAA estimates the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The FAA determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866, and

(2) Will not affect intrastate aviation in Alaska.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Transport Canada Civil Aviation (TCCA) which is the aviation authority for Canada, has issued TCCA AD CF-2022-12, dated March 21, 2022 (referred to after this as the Mandatory Continuing Airworthiness Information, or the MCAI), to correct an unsafe condition for certain De Havilland Aircraft of Canada Limited Model DHC-8-401 and -402 airplanes. You may examine the MCAI on the internet at https://www.regulations.gov by searching for and locating Docket No. FAA-2022-0593.

This AD was prompted by reports that following a MLG extension, one of the MLGs could not be locked in the gear down position due to deterioration of greasing effectiveness over time. The deterioration of grease affects the MLG assembly, including the lock actuator assembly, stabilizer brace to nacelle structure attachment, downlock assembly, stabilizer brace pivot, stabilizer brace to yoke attachment and retractor actuator lug end. An increase in friction within the MLG assembly (mechanism) could lead to failure to achieve an MLG down and locked condition. The FAA is issuing this AD to address this condition, which could result in a MLG collapse upon landing and consequently could cause the wing of the airplane to make contact with the ground and cause the airplane to flip. See the MCAI for additional background information.

De Havilland Aircraft of Canada Limited has issued Service Bulletin 84-32-168, Revision A, dated February 8, 2022. This service information describes procedures for repetitive lubrication of the MLG assembly, which includes the lock actuator assembly, stabilizer brace to nacelle structure attachment, downlock assembly, stabilizer brace pivot, stabilizer brace to yoke attachment and retractor actuator lug end.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI and service information referenced above. The FAA is issuing this AD because the FAA evaluated all pertinent information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

This AD requires accomplishing the actions specified in the service information described previously, except as discussed under “Differences Between this AD and the MCAI or Service Information.”

Paragraph 3.B. of the Accomplishment Instructions of De Havilland Aircraft of Canada Limited Service Bulletin 84-32-168, Revision A, dated February 8, 2022, specifies to do a review of the maintenance records to verify the elapsed time from the last greasing operation on the MLG; and for airplanes on which it has been over 3 months since the last greasing, perform greasing on the MLG assembly. However, this AD requires lubricating the MLG assembly within 500 flight hours or 3 months, whichever occurs first after the effective date of this AD and thereafter at intervals not to exceed 500 flight hours or 3 months, whichever occurs first.

An unsafe condition exists that requires the immediate adoption of this AD without providing an opportunity for public comments prior to adoption. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because the FAA received reports that following a MLG extension, one of the MLGs could not be locked in the gear down position due to deterioration of greasing effectiveness over time. The deterioration of grease affects the MLG assembly, including the lock actuator assembly, stabilizer brace to nacelle structure attachment, downlock assembly, stabilizer brace pivot, stabilizer brace to yoke attachment and retractor actuator lug end. An increase in friction within the MLG assembly (mechanism) could lead to failure to achieve an MLG down and locked condition and result in an MLG collapse upon landing. For certain Model DHC-8-401 and -402 airplanes, a MLG collapse could cause the wing of the airplane to make contact with the ground as the wing on the collapsed MLG side may dig in to the runway and cause the airplane to flip. Therefore, the FAA finds good cause that notice and opportunity for prior public comment are impracticable. In addition, for the reasons stated above, the FAA finds that good cause exists for making this amendment effective in less than 30 days.

The FAA invites you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under ADDRESSES . Include “Docket No. FAA-2022-0593; Project Identifier MCAI-2022-00408-T” at the beginning of your comments. The most helpful comments reference a specific portion of the final rule, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend this final rule because of those comments.

Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to https://www.regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this final rule.

CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this AD contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this AD, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this AD. Submissions containing CBI should be sent to Elizabeth Dowling, Aerospace Engineer, Mechanical Systems and Administrative Services Section, FAA, New York ACO Branch, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone 516-228-7300; email 9-avs-nyaco-cos@faa.gov. Any commentary that the FAA receives which is not specifically designated as CBI will be placed in the public docket for this rulemaking.

The requirements of the RFA do not apply when an agency finds good cause pursuant to 5 U.S.C. 553 to adopt a rule without prior notice and comment. Because the FAA has determined that it has good cause to adopt this rule without notice and comment, RFA analysis is not required.

The FAA estimates that this AD affects 41 airplanes of U.S. registry. The FAA estimates the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The FAA determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866, and

(2) Will not affect intrastate aviation in Alaska.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

This final rule revises, corrects, and clarifies certain provisions of the EAR that were either amended by recent Russia and Belarus-related rules or added to the EAR in parallel with such rules. It also makes a technical correction by adding references to certain provisions that of the EAR were either revised or added by the BIS final rule effective February 3, 2022  1 that made organizational and clarifying changes to certain EAR Foreign Direct Product rules. Additionally, this final rule amends an EAR provision to allow for export enforcement case charging letters to be made available to the public prior to the final administrative disposition of such cases.

Since February 2022, BIS has published a series of rules that have increasingly tightened export controls on Russia in response to Russia's further invasion of Ukraine, and on Belarus for substantially enabling Russia's invasion. In a final rule effective February 24, 2022, Implementation of Sanctions Against Russia Under the Export Administration Regulations (EAR) (“Russia Sanctions Rule”), 2 BIS implemented stringent export controls on Russia as part of a set of broader U.S. Government sanctions measures, and in a second final rule effective March 2, 2022, Imposition of Sanctions Against Belarus Under the Export Administration Regulations (EAR) (“Belarus Sanctions Rule”), 3 BIS imposed similarly stringent export controls on Belarus. During the March-April 2022 period, BIS published additional final rules that either imposed additional export controls on one or both countries or were related to such controls. See Expansion of Sanctions Against the Russian Industry Sector Under the Export Administration Regulations (EAR), effective March 3, 2022 (“Industry Sector Sanctions rule”);  4 Further Imposition of Sanctions Against Russia with the Addition of Certain Entities to the Entity List, effective March 3, 2022 (“Russia Entity List rule”);  5 and Imposition of Sanctions on `Luxury Goods' Destined for Russia and Belarus and for Russian and Belarusian Oligarchs and Malign Actors Under the Export Administration Regulations (EAR), effective March 11, 2022 (“Luxury Goods Sanctions Rule”). 6 BIS also published two final rules adding countries that are excluded from certain Belarus and Russia-related licensing requirements that would otherwise apply to exports from abroad, reexports, and transfers (in-country) of certain items subject to the EAR: one rule effective March 4, 2022, 7 and a second rule effective April 8, 2022. 8 Taken together, these rules added South Korea, Iceland, Liechtenstein, Norway, and Switzerland to the list of countries set forth in supplement no. 3 to part 746 of the EAR that are excluded from such licensing requirements. Additionally, BIS published a final rule effective April 8, 2022, Expansion of Sanctions Against Russia and Belarus Under the Export Administration Regulations (EAR). 9 As a result of this rule, which imposed licensing requirements on items controlled on the Commerce Control List (“CCL”) under Categories 0-2 that are destined for Russia or Belarus, all CCL items require export, reexport, and transfer (in-country) licenses if destined for or within either country. Most recently, BIS published a final rule effective May 9, 2022, Expansion of Sanctions Against Russian Industry Sectors Under the Export Administration Regulations (EAR). 10 This rule expanded the existing sanctions against Russian industry sectors by imposing a license requirement for exports, reexports, or transfers (in-country) to and within Russia for additional items subject to the EAR identified under specific Schedule B numbers or Harmonized Tariff Schedule codes.

This final rule makes three technical corrections to § 734.2(a)(1), the provision that describes what items and activities are subject to the EAR and references other provisions throughout the EAR in which items and activities subject to the EAR are described. The technical corrections made in this final rule are: (1) adding a reference in the third sentence to § 734.9, a provision added to the EAR by the February 3, 2022 rule that made changes to certain EAR Foreign Direct Product Rules; (2) adding references to §§ 734.8 and 734.10; and (3) removing the reference to § 734.11 in the final sentence, as § 734.11 does not reference items and activities subject to the EAR.

In § 740.9(a)(9)(i) (Temporary imports, exports, reexports, and transfers (in-country) (TMP)), this rule adds the covered regions of Ukraine, as they are described in § 746.6, to the list of countries and regions for which License Exception TMP is eligible for news media. This change is a technical correction; TMP is already available to news media for the covered regions of Ukraine, pursuant to § 746.6(c)(1).

In § 740.19 (Consumer Communications Devices (CCD)), under paragraph (c)(2)(iv) (Ineligible Belarusian Government officials), this final rule corrects a typographical error in the name `Ministry of Defense,' which was intended to be spelled as `Ministry of Defence.'

In supplement no. 1 to part 740—Country Groups, in the Country Group A table, this final rule corrects the entry for Belarus to add a footnote 3 designation. The Belarus Sanctions Rule revised footnote 3 to add a reference to Belarus, but inadvertently did not add a footnote 3 designation to Belarus in Country Group A.

As a result of amendments made by the Russia Sanctions Rule and the Belarus Sanctions Rule, BIS imposed an expansive license requirement under § 744.21 of the EAR on items destined to `military end uses' and `military end users' in Russia and Belarus. This final rule revises § 744.21(b)(1)(ii) (License requirement for parties to the transaction), by removing the exclusion pertaining to food or medicine designated as EAR99 destined to Russian and Belarusian `military end uses' and `military end users'. Accordingly, as revised, the license requirement for Russian and Belarusian `military end uses' and `military end users' extends to food and medicine designated as EAR99.

Additionally, this final rule revises § 744.21(e)(1) (License review standards) to state that applications for food and medicine designated as EAR99 destined for Russian and Belarusian `military end uses' and `military end users' will be reviewed under a case-by-case license review policy. This case-by-case license review policy will provide BIS with the flexibility to approve or deny, as warranted, applications involving food and medicine designated as EAR99. Applications for all other items subject to the EAR, including all other EAR99 items, that are destined for Russian and Belarusian `military end uses' and `military end users' under this section are subject to a license review policy of denial under paragraph (e)(1).

BIS is taking this action because food and medicine may significantly contribute to the sustainment and reconstitution of Russian military forces engaged in combat in Ukraine. Combat actions initiated by Russian military forces in Ukraine—including numerous targeted or indiscriminate air, artillery and missile attacks against residential areas—have inflicted horrific casualties on Ukrainian civilians, including children. Combat actions initiated by Russian military forces in Bucha, Ukraine, and other locations previously occupied by Russian military forces, have resulted in similar atrocities. In light of Belarus's substantial enabling of Russia's military aggression in Ukraine, BIS also extends the license requirement for food and medicine designated as EAR99 to Belarusian military end uses and military end users.

This action does not impose a license requirement regarding the export, reexport, or transfer (in-country) of food and medicine designated as EAR99 for the use and benefit of the Russian people, the people of the Crimea region of Ukraine, or the so-called Donetsk People's Republic (DNR) and Luhansk People's Republic (LNR) regions of Ukraine (covered regions of Ukraine). Similarly, this rule does not alter or otherwise affect BIS policy regarding exports, reexports, or transfers (in country) of food and medicine designated as EAR99 to or within any other regions of Ukraine. Therefore, the license requirement for food or medicine designated as EAR99 to Russian and Belarusian `military end uses' and `military end users' will not impede the shipment of such items to the Russian people, to people located in the covered regions of Ukraine, or to people located in any other regions of Ukraine.

This final rule makes a technical correction to § 744.21(a) of the EAR in which a citation for the Commerce Control List (CCL) incorrectly indicates that the CCL is in part 744 of the EAR. This final rule corrects this citation by citing to part 774 of the EAR.

Additionally, consistent with BIS's intent, as reflected in the preamble of the Belarus Sanctions rule, BIS revises § 744.21(a) to add references to Belarus and to the Russian Federation, two destinations with a distinct (and more expansive) scope of applicable license requirements as compared with the other four destinations specified in § 744.21. This revision to the regulatory text was inadvertently omitted in the Belarus Sanctions rule. As a related restructuring revision, to ensure that the license requirements set forth in paragraph (a) are easily understood, this final rule separates the contents of paragraph (a) into paragraphs (a)(1) (applicable to `military end uses' and `military end users' in Burma, Cambodia, China, and Venezuela) and (a)(2) (applicable to `military end uses' and `military end users' in Russia and Belarus). This final rule also makes `military end use' and `military end user' plural in the title of § 744.21.

Consistent with the revisions made to the scope of the license requirement set forth in § 744.21 that extends that requirement to food and medicine designated as EAR99 destined for Russian and Belarusian `military end users' (and `military end uses'), this final rule modifies the license requirement columns for 146 entities on the Entity List by eliminating the exclusion of food and medicine designated as EAR99 from the applicable license requirement. This final rule also modifies the applicable license review policy to refer to a policy of denial for all items apart from food and medicine designated as EAR99, which will be subject to a case-by-case review policy. The Russia Sanctions Rule and the Belarus Sanctions Rule had added 51 `military end users' to the Entity List, each with a footnote 3 designation. An additional rule, Additions of Entities to the Entity List, effective April 1, 2022, 11 added an additional 95 `military end users' with a footnote 3 designation to the Entity List. In total, all 146 footnote 3-designated entities added by those rules are modified by this final rule. With respect to each of these 146 footnote 3-designated entities, this final rule modifies the license requirement by deleting the language excluding food or medicine designated as EAR99, thereby extending the applicable license requirement to all items subject to the EAR. As a result of these modifications, a license is now required to export, reexport or transfer (in-country) food and medicine designated as EAR99 to these 146 footnote 3-designated entities. This final rule also removes references to export control classification numbers (ECCNs) 5A992.c and 5D992.c, Belarusian “government end users,” and Belarusian state-owned enterprises (SoEs) from the entry for JSC Integral, a footnote 3-designated entity listed under Belarus.

Additionally, this final rule modifies the applicable license application review policy to state that license applications for 143 of these 146 footnote 3-designated entities will be reviewed under a policy of denial with the exception of food and medicine designated as EAR99, which will be reviewed under a case-by-case review policy. The three exceptions to the case-by-case review policy for food and medicine designated as EAR99, all under the destination of Russia, are the Foreign Intelligence Service (SVR), the Federal Security Service (FSB), and the Main Intelligence Directorate. Previously, the applicable license review policy for the FSB and the Main Intelligence Directorate was a presumption of denial. This final rule modifies the license review policy for the FSB and the Main Intelligence Directorate to a policy of denial. Thus, applications destined to these three footnote 3-designated entities will be subject to a review policy of denial. Moreover, unlike with respect to the other 143 footnote 3-designated entities, the review policy of denial will apply to all items subject to the EAR.

Modifications regarding these 146 footnote 3-desginated entities have been unanimously approved by the agencies that comprise the End-User Review Committee (ERC). The ERC, composed of representatives of the Departments of Commerce (Chair), State, Defense, Energy and, where appropriate, the Treasury, makes all decisions regarding additions to, removals from, or other modifications to the Entity List. The ERC makes all decisions to add an entry to the Entity List by majority vote and makes all decisions to remove or modify an entry by unanimous vote.

This final rule revises the license review policy in § 746.6 (Crimea Region of Ukraine and Covered Regions of Ukraine) so that it harmonizes with aspects of the license review policy in § 746.8 (Sanctions against Russia and Belarus) that applies to certain types of activities specified in that section. Specifically, this final rule adds to § 746.6 the same categories of license applications specified in § 746.8 ( e.g., safety of flight, maritime safety) that BIS will review under a case-by-case license review policy. Additionally, as revised by this final rule, under both provisions, BIS will take into consideration whether the transaction in question would benefit the Russian or Belarusian government or defense sectors. In the case of § 746.6, BIS will also consider whether the transaction would be detrimental to the country or people of Ukraine. Consistent with these changes in review policy, this final rule removes from § 746.6 the reference to the case-by-case review of applications for transactions authorized under OFAC Ukraine-Related General Licenses. BIS expects that harmonizing the license review policies in §§ 746.6 and 746.8 in this manner will make it easier for exporters, reexporters, and transferors to understand the policies.

In § 746.8 (Sanctions against Russia and Belarus), a provision added to the EAR by the Russia Sanctions Rule and subsequently amended by the Belarus Sanctions Rule, under paragraph (b) (Licensing policy), this final rule makes a clarification to the second sentence of the paragraph to add the phrase “in the United States” to clarify that applications for companies headquartered in the United States, as well as those in Country Groups A:5 and A:6, that are in support of civil telecommunications infrastructure, will be reviewed under a case-by-case license review policy.

This final rule clarifies three of the Schedule B numbers (8421398020, 8421398030, and 8421398040) included in supplement no. 2 to part 746—Russian Industry Sector Sanctions List. The change reflects amendments made to Schedule B since the issuance of an August 2014 rule that added supplement no. 2 to the EAR (79 FR 45680 (Aug. 6, 2014)). This final rule updates supplement no. 2 to include the current Schedule B numbers for these items (8421390120, 8421390130, and 8421390140). This update is limited to the Schedule B numbers and does not otherwise change the description of the items described under supplement no. 2 to part 746. Given that Schedule B number 8421390140 is also listed in supplement no. 4 to part 746, this rule revises the introductory paragraphs of both supplements nos. 2 and 4 to part 746 by adding a cross-reference to this Schedule B number.

This final rule clarifies language in a regulatory supplement that was added to the EAR by the Luxury Goods Sanctions Rule. Specifically, this rule makes a clarification to supplement no. 5 to part 746 that identifies by Schedule B numbers `luxury goods' that are subject to a license requirement set forth in § 746.8 when destined for Russia or Belarus, or for certain Russian and Belarusian oligarchs and malign actors regardless of their location. This final rule revises the phrase “$1000 Per Unit Wholesale Price in the U.S.” that appears in each of the sixty-one clothing and shoes Schedule B entries by adding the language “valued at greater than or equal to” to each entry. This revision clarifies that the licensing requirement applies only when the per unit wholesale price in the United States is $1,000 or greater. BIS is making this clarification to assist exporters, reexporters, and transferors in understanding the scope of `luxury goods' that are controlled under those sixty-one Schedule B entries.

This final rule revises § 766.20 of the EAR, which governs the public availability of documents in administrative enforcement proceedings, by permitting export enforcement case charging letters to be made available to the public prior to the final administrative disposition of such cases.

Specifically, this final rule amends § 766.20(c)(2)(ii) by revising the first sentence to specify that charging letters filed with an Administrative Law Judge on or after June 2, 2022, can be made available prior to the final administrative disposition of the case. As a result of this change, charging letters will be publicly available following their issuance in accordance with § 766.3 of the EAR. Consistent with the prior language set forth in § 766.20(c)(2)(ii), documents other than charging letters filed in such cases will continue to be made available only after the final administrative disposition of the applicable case.

This change will enhance BIS's transparency efforts, including with respect to actions related to Russia and Belarus export controls, by making information related to administrative enforcement cases available to the public at an earlier stage of the related proceedings. As such, BIS will be able to inform interested parties of ongoing enforcement efforts in a more timely way and educate the exporting community, particularly with respect to recent amendments to the EAR that could result in new bases for enforcement action. Previously, interested parties had less timely information regarding BIS's enforcement activities, limiting their ability to use such information in the development of, for example, their compliance programs. Similarly, other interested stakeholders will benefit from earlier, enhanced visibility.

For the changes being made in this final rule, shipments of items removed from eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR) as a result of this regulatory action that were en route aboard a carrier to a port of export, reexport, or transfer (in-country), on June 2, 2022, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under the previous eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR).

On August 13, 2018, the President signed into law the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which included the Export Control Reform Act of 2018 (ECRA) (50 U.S.C. 4801-4852). ECRA provides the legal basis for BIS's principal authorities and serves as the authority under which BIS issues this rule. Additionally, the International Emergency Economic Powers Act, codified, as amended, at 50 U.S.C. Section 1701 et seq., and Executive Order 14068, dated March 11, 2022, serve as authorities for this rule.

1. This rule has been determined to be not significant for purposes of Executive Order 12866.

2. Notwithstanding any other provision of law, no person is required to respond to or be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This regulation involves collections previously approved by OMB under control number 0694-0088, Simplified Network Application Processing System, which includes, among other things, license applications and commodity classifications, and carries a burden estimate of 29.6 minutes for a manual or electronic submission for a total burden estimate of 33,133 hours. Total burden hours associated with the PRA and OMB control number 0694-0088 are not expected to increase as a result of this rule.

3. This rule does not contain policies with federalism implications as that term is defined in Executive Order 13132.

4. Pursuant to section 1762 of the Export Control Reform Act of 2018, this action is exempt from the Administrative Procedure Act (5 U.S.C. 553) requirements for notice of proposed rulemaking, opportunity for public participation, and delay in effective date.

5. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule by 5 U.S.C. 553, or by any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., are not applicable. Accordingly, no regulatory flexibility analysis is required and none has been prepared.

Accordingly, parts 734, 740, 744, 746, and 766 of the Export Administration Regulations (15 CFR parts 730-774) are amended as follows:

Background

The Entity List (supplement No. 4 to part 744 of the Export Administration Regulations (EAR)) identifies entities for which there is reasonable cause to believe, based on specific and articulable facts, that the entities have been involved, are involved, or pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests of the United States. The EAR (15 CFR parts 730-774) imposes additional license requirements on, and limits the availability of, most license exceptions for exports, reexports, and transfers (in-country) to listed entities. The license review policy for each listed entity is identified in the “License Review Policy” column on the Entity List, and the impact on the availability of license exceptions is described in the relevant Federal Register document that added the entity to the Entity List. The Bureau of Industry and Security (BIS) places entities on the Entity List pursuant to part 744 (Control Policy: End-User and End-Use Based) and part 746 (Embargoes and Other Special Controls) of the EAR. Paragraphs (b)(1) through (5) of § 744.11 include an illustrative list of activities that could be contrary to the national security or foreign policy interests of the United States. Sixty-six entities are being added in this rule on the basis of §§ 744.11(b) and 744.21 and will receive a footnote 3 designation because the End-User Review Committee (ERC) has determined they are Russian or Belarusian `military end users' in accordance with § 744.21. A footnote 3 designation subjects these entities to the Russia/Belarus foreign “direct product” (FDP) rule, detailed in § 734.9(g). The other five entities are being added solely on the basis of § 744.11(b).

The ERC, composed of representatives of the Departments of Commerce (Chair), State, Defense, Energy and, where appropriate, the Treasury, makes all decisions regarding additions to, removals from, or other modifications to the Entity List. The ERC makes all decisions to add an entry to the Entity List by majority vote and makes all decisions to remove or modify an entry by unanimous vote.

The ERC determined to add the following entity to the Entity List on the basis of §§ 744.11(b) and 744.21 under the destination of Belarus: “Joint Stock Company Eleron”. In addition, the ERC determined to add the following 65 entities to the Entity List on the basis of §§ 744.11(b) and 744.21 under the destination of Russia: “AO Rubin,” “Branch of AO Company Sukhoi Yuri Gagarin Komsomolsk on Amur Aircraft Plant,” “Branch of PAO Il—Aviastar,” “Branch of RSK MiG Nizhny Novgorod Aircraft Construction Plant Sokol,” “Chkalov Novosibirsk Aviation Plant,” “Concern Radio-Electronic Technologies, Joint Stock Company Aeropribor Voskhod,” “Concern Radio-Electronic Technologies, Joint Stock Company All Russian Scientific Research Institute Gradient,” “Concern Radio-Electronic Technologies, Joint Stock Company Almatyevsk Radiopribor Plant,” “Concern Radio-Electronic Technologies, Joint Stock Company Experimental Design Bureau Elektroavtomatika in the name of P.A. Efimov,” “Concern Radio-Electronic Technologies, Joint Stock Company Industrial Controls Design Bureau,” “Concern Radio-Electronic Technologies, Joint Stock Company Kazan Instrument Engineering and Design Bureau,” “Concern Radio-Electronic Technologies, Joint Stock Company Microtechnology,” “Concern Radio-Electronic Technologies, Joint Stock Company Phasotron Scientific Research Institute of Radio Engineering,” “Concern Radio-Electronic Technologies, Joint Stock Company Radiopribor,” “Concern Radio-Electronic Technologies, Joint Stock Company Ramensk Instrument Engineering Bureau,” “Concern Radio-Electronic Technologies, Joint Stock Company Research and Production Center SAPSAN,” “Concern Radio-Electronic Technologies, Joint Stock Company Rychag,” “Concern Radio-Electronic Technologies, Joint Stock Company Scientific Production Enterprise Izmeritel,” “Concern Radio-Electronic Technologies, Joint Stock Company Scientific Production Union for Radioelectronics named after V.I. Shimko,” “Concern Radio-Electronic Technologies, Joint Stock Company Taganrog Communications Scientific Research Institute,” “Concern Radio-Electronic Technologies, Joint Stock Company Urals Instrument Engineering Plant,” “Concern Radio-Electronic Technologies, Joint Stock Company Vzlet Engineering Testing Support,” “Concern Radio-Electronic Technologies, Joint Stock Company Zhiguli Radio Plant,” “Concern Radio-Electronic Technologies, Public Joint Stock Company Bryansk Special Design Bureau,” “Concern Radio-Electronic Technologies, Public Joint Stock Company Moscow Institute of Electro Mechanics and Automation,” “Concern Radio-Electronic Technologies, Public Joint Stock Company Stavropol Radio Plant Signal,” “Concern Radio-Electronic Technologies, Public Joint Stock Company Techpribor,” “Concern Radio-Electronic Technologies, Ramensky Instrument Engineering Plant,” “Concern Radio-Electronic Technologies, V.V. Tarasov Avia Avtomatika,” “Design Bureau of Chemical Machine Building KBKhM,” “Far Eastern Shipbuilding and Ship Repair Center,” “Ilyushin Aviation Complex Branch: Myasishcheva Experimental Mechanical Engineering Plant,” “Institute of Marine Technology Problems Far East Branch Russian Academy of Sciences,” “Irkutsk Aviation Plant,” “Joint Stock Company Aerocomposit,” “Joint Stock Company Avtomatika,” “Joint Stock Company Bryansk Electromechanical Plant,” “Joint Stock Company Eleron,” “Joint Stock Company Experimental Design Bureau named after A.S. Yakovlev,” “Joint Stock Company Federal Research and Production Center Altai,” “Joint Stock Company Head Special Design Bureau Prozhektor,” “Joint Stock Company Ilyushin Aviation Complex,” “Joint Stock Company Lazurit Central Design Bureau,” “Joint Stock Company Ramensky Instrument Engineering Plant,” “Joint Stock Company Research and Development Enterprise Protek,” “Joint Stock Company SPMDB Malachite,” “Joint Stock Company Votkinsky Zavod,” “Kalyazinsky Machine Building Factory—Branch of RSK MiG,” “Main Directorate of Deep-Sea Research,” “NPP Start,” “OAO Radiofizika,” “P.A. Voronin Lukhovitsk Aviation Plant, branch of RSK MiG,” “Public Joint Stock Company Voronezh Joint Stock Aircraft Company,” “Radio Technical Institute named after A. L. Mints,” “Russian Federal Nuclear Center—All Russian Research Institute of Experimental Physics,” “Shvabe JSC,” “Special Technological Center LLC,” “St. Petersburg Marine Bureau of Machine Building Malakhit,” “St. Petersburg Naval Design Bureau Almaz,” “St. Petersburg Shipbuilding Institution Krylov 45,” “Strategic Control Posts Corporation,” “TsKB MT Rubin,” “Vladimir Design Bureau for Radio Communications OJSC,” “V.A. Trapeznikov Institute of Control Sciences of Russian Academy of Sciences,” and “Voentelecom JSC”.

All of these 66 entities are designated with footnote 3. They are being added to the Entity List consistent with BIS's response to Russia's invasion of Ukraine, which includes restricting Russia's access to items subject to the EAR that allow it to project power and fulfill its strategic ambitions. These 65 Russian entities and one Belarusian entity are being added to the Entity List for acquiring and attempting to acquire U.S.-origin items in support of Russia's military. This activity is contrary to the national security and foreign policy interests of the United States under § 744.11 and these entities qualify as military end users under § 744.21 of the EAR. Their addition to the Entity List and footnote 3 designation means these entities are subject to a license requirement for the export, reexports, exports from abroad (as described under Russia/Belarus foreign “direct product” (FDP) rule, § 734.9(g)), or transfers (in-country) of all items subject to the EAR that are destined to these entities. No license exceptions are available for these entities; BIS will review all license applications for these entities under a policy of denial for all items subject to the EAR apart from food and medicine designated as EAR99, which will be reviewed on a case-by-case basis, per § 744.21(e)(1). This case-by-case review policy reflects a revision to § 744.21(e)(1) set forth in a separate rule, Export Administration Regulations: Revisions to Russia and Belarus Sanctions and Related Provisions; Other Revisions, Corrections, and Clarifications, that BIS is issuing and making effective simultaneously with this rule. Among other changes to the EAR, the “corrections” rule removes an exemption for food and medicine designated as EAR99 from the license requirement for all items subject to the EAR set forth in § 744.21(b)(1)(ii) and specifies a case-by-case license review policy for Russian and Belarusian `military end users' set forth in § 744.21(e)(1) with respect to food and medicine designated as EAR99. This case-by-case review policy applies to the 66 entities that are being added to the Entity List as part of this rule.

In addition, the ERC determined to add the following entities to the Entity List on the basis of § 744.11 under the destination of Russia: “A.A. Kharkevich Institute for Information Transmission Problems (IITP), Russian Academy of Sciences (RAS),” “Ak Bars Holding,” “Gazprom Neft Shelf,” “Special Research Bureau for Automation of Marine Researches Far East Branch Russian Academy of Sciences,” and “Systems of Biological Synthesis LLC.” These entities are being added to the Entity List consistent with BIS's response to Russia's invasion of Ukraine, which includes restricting Russia's access to items subject to the EAR that allow it to project power and fulfill its strategic ambitions. “A.A. Kharkevich Institute for Information Transmission Problems (IITP), Russian Academy of Sciences (RAS),” “Ak Bars Holding,” “Gazprom Neft Shelf,” “Special Research Bureau for Automation of Marine Researches Far East Branch Russian Academy of Sciences,” and “Systems of Biological Synthesis LLC,” are being added to the Entity List for acquiring and attempting to acquire U.S.-origin items in support of activities contrary to U.S. national security and foreign policy interests. These entities will be added to the Entity List with a license requirement for all items subject to the EAR. BIS will review license applications under a policy of denial, and no license exceptions are available for these entities being added.

For the reasons described above, this final rule adds the following 71 entities under 71 entries to the Entity List and includes, where appropriate, aliases:

• Joint Stock Company Eleron.

• A.A. Kharkevich Institute for Information Transmission Problems (IITP), Russian Academy of Sciences (RAS),

• Ak Bars Holding,

• AO Rubin,

• Branch of AO Company Sukhoi Yuri Gagarin Komsomolsk on Amur Aircraft Plant,

• Branch of PAO Il—Aviastar,

• Branch of RSK MiG Nizhny Novgorod Aircraft Construction Plant Sokol,

• Chkalov Novosibirsk Aviation Plant,

• Concern Radio-Electronic Technologies, Joint Stock Company Aeropribor Voskhod,

• Concern Radio-Electronic Technologies, Joint Stock Company All Russian Scientific Research Institute Gradient,

• Concern Radio-Electronic Technologies, Joint Stock Company Almatyevsk Radiopribor Plant,

• Concern Radio-Electronic Technologies, Joint Stock Company Experimental Design Bureau Elektroavtomatika in the name of P.A. Efimov,

• Concern Radio-Electronic Technologies, Joint Stock Company Industrial Controls Design Bureau,

• Concern Radio-Electronic Technologies, Joint Stock Company Kazan Instrument Engineering and Design Bureau,

• Concern Radio-Electronic Technologies, Joint Stock Company Microtechnology,

• Concern Radio-Electronic Technologies, Joint Stock Company Phasotron Scientific Research Institute of Radio Engineering,

• Concern Radio-Electronic Technologies, Joint Stock Company Radiopribor,

• Concern Radio-Electronic Technologies, Joint Stock Company Ramensk Instrument Engineering Bureau,

• Concern Radio-Electronic Technologies, Joint Stock Company Research and Production Center SAPSAN,

• Concern Radio-Electronic Technologies, Joint Stock Company Rychag,

• Concern Radio-Electronic Technologies, Joint Stock Company Scientific Production Enterprise Izmeritel,

• Concern Radio-Electronic Technologies, Joint Stock Company Scientific Production Union for Radioelectronics named after V.I. Shimko,

• Concern Radio-Electronic Technologies, Joint Stock Company Taganrog Communications Scientific Research Institute,

• Concern Radio-Electronic Technologies, Joint Stock Company Urals Instrument Engineering Plant,

• Concern Radio-Electronic Technologies, Joint Stock Company Vzlet Engineering Testing Support,

• Concern Radio-Electronic Technologies, Joint Stock Company Zhiguli Radio Plant,

• Concern Radio-Electronic Technologies, Public Joint Stock Company Bryansk Special Design Bureau,

• Concern Radio-Electronic Technologies, Public Joint Stock Company Moscow Institute of Electro Mechanics and Automation,

• Concern Radio-Electronic Technologies, Public Joint Stock Company Stavropol Radio Plant Signal,

• Concern Radio-Electronic Technologies, Public Joint Stock Company Techpribor,

• Concern Radio-Electronic Technologies, Ramensky Instrument Engineering Plant,

• Concern Radio-Electronic Technologies, V.V. Tarasov Avia Avtomatika,

• Design Bureau of Chemical Machine Building KBKhM,

• Far Eastern Shipbuilding and Ship Repair Center,

• Gazprom Neft Shelf,

• Ilyushin Aviation Complex Branch: Myasishcheva Experimental Mechanical Engineering Plant,

• Institute of Marine Technology Problems Far East Branch Russian Academy of Sciences,

• Irkutsk Aviation Plant,

• Joint Stock Company Aerocomposit,

• Joint Stock Company Avtomatika,

• Joint Stock Company Bryansk Electromechanical Plant,

• Joint Stock Company Eleron,

• Joint Stock Company Experimental Design Bureau named after A.S. Yakovlev,

• Joint Stock Company Federal Research and Production Center Altai,

• Joint Stock Company Head Special Design Bureau Prozhektor,

• Joint Stock Company Ilyushin Aviation Complex,

• Joint Stock Company Lazurit Central Design Bureau,

• Joint Stock Company Ramensky Instrument Engineering Plant,

• Joint Stock Company Research and Development Enterprise Protek,

• Joint Stock Company SPMDB Malachite,

• Joint Stock Company Votkinsky Zavod,

• Kalyazinsky Machine Building Factory—Branch of RSK MiG,

• Main Directorate of Deep-Sea Research,

• NPP Start,

• OAO Radiofizika,

• P.A. Voronin Lukhovitsk Aviation Plant, branch of RSK MiG,

• Public Joint Stock Company Voronezh Joint Stock Aircraft Company,

• Radio Technical Institute named after A. L. Mints,

• Russian Federal Nuclear Center—All Russian Research Institute of Experimental Physics,

• Shvabe JSC,

• Special Research Bureau for Automation of Marine Researches Far East Branch Russian Academy of Sciences,

• Special Technological Center LLC,

• St. Petersburg Marine Bureau of Machine Building Malakhit,

• St. Petersburg Naval Design Bureau Almaz,

• St. Petersburg Shipbuilding Institution Krylov 45,

• Strategic Control Posts Corporation,

• Systems of Biological Synthesis LLC.,

• TsKB MT Rubin,

• Vladimir Design Bureau for Radio Communications OJSC,

• V.A. Trapeznikov Institute of Control Sciences of Russian Academy of Sciences, and

• Voentelecom JSC.

For the changes being made in this final rule, shipments of items removed from eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR) as a result of this regulatory action that were en route aboard a carrier to a port of export, reexport, or transfer (in-country), on June 2, 2022, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under the previous eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR).

On August 13, 2018, the President signed into law the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which included the Export Control Reform Act of 2018 (ECRA) (50 U.S.C. 4801-4852). ECRA provides the legal basis for BIS's principal authorities and serves as the authority under which BIS issues this rule.

1. This rule has been determined to be not significant for purposes of Executive Order 12866.

2. Notwithstanding any other provision of law, no person is required to respond to or be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This regulation involves collections previously approved by OMB under control number 0694-0088, Simplified Network Application Processing System, which includes, among other things, license applications and commodity classifications, and carries a burden estimate of 29.6 minutes for a manual or electronic submission for a total burden estimate of 33,133 hours. Total burden hours associated with the PRA and OMB control number 0694-0088 are not expected to increase as a result of this rule.

3. This rule does not contain policies with federalism implications as that term is defined in Executive Order 13132.

4. Pursuant to section 1762 of the Export Control Reform Act of 2018, this action is exempt from the Administrative Procedure Act (5 U.S.C. 553) requirements for notice of proposed rulemaking, opportunity for public participation, and delay in effective date.

5. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule by 5 U.S.C. 553, or by any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., are not applicable. Accordingly, no regulatory flexibility analysis is required and none has been prepared.

Accordingly, part 744 of the Export Administration Regulations (15 CFR parts 730-774) is amended as follows:

Upon request, FDA has classified the non-implanted electrical stimulation device for management of premature ejaculation as class II (special controls), which we have determined will provide a reasonable assurance of safety and effectiveness. In addition, we believe this action will enhance patients' access to beneficial innovation, in part by placing the device into a lower device class than the automatic class III assignment.

The automatic assignment of class III occurs by operation of law and without any action by FDA, regardless of the level of risk posed by the new device. Any device that was not in commercial distribution before May 28, 1976, is automatically classified as, and remains within, class III and requires premarket approval unless and until FDA takes an action to classify or reclassify the device (see 21 U.S.C. 360c(f)(1)). We refer to these devices as “postamendments devices” because they were not in commercial distribution prior to the date of enactment of the Medical Device Amendments of 1976, which amended the Federal Food, Drug, and Cosmetic Act (FD&C Act).

FDA may take a variety of actions in appropriate circumstances to classify or reclassify a device into class I or II. We may issue an order finding a new device to be substantially equivalent under section 513(i) of the FD&C Act (see 21 U.S.C. 360c(i)) to a predicate device that does not require premarket approval. We determine whether a new device is substantially equivalent to a predicate device by means of the procedures for premarket notification under section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and part 807 (21 CFR part 807).

FDA may also classify a device through “De Novo” classification, a common name for the process authorized under section 513(f)(2) of the FD&C Act. Section 207 of the Food and Drug Administration Modernization Act of 1997 (Pub. L. 105-115) established the first procedure for De Novo classification. Section 607 of the Food and Drug Administration Safety and Innovation Act (Pub. L. 112-144) modified the De Novo application process by adding a second procedure. A device sponsor may utilize either procedure for De Novo classification.

Under the first procedure, the person submits a 510(k) for a device that has not previously been classified. After receiving an order from FDA classifying the device into class III under section 513(f)(1) of the FD&C Act, the person then requests a classification under section 513(f)(2).

Under the second procedure, rather than first submitting a 510(k) and then a request for classification, if the person determines that there is no legally marketed device upon which to base a determination of substantial equivalence, that person requests a classification under section 513(f)(2) of the FD&C Act.

Under either procedure for De Novo classification, FDA is required to classify the device by written order within 120 days. The classification will be according to the criteria under section 513(a)(1) of the FD&C Act. Although the device was automatically placed within class III, the De Novo classification is considered to be the initial classification of the device.

When FDA classifies a device into class I or II via the De Novo process, the device can serve as a predicate for future devices of that type, including for 510(k)s (see section 513(f)(2)(B)(i) of the FD&C Act). As a result, other device sponsors do not have to submit a De Novo request or premarket approval application to market a substantially equivalent device (see section 513(i) of the FD&C Act, defining “substantial equivalence”). Instead, sponsors can use the less-burdensome 510(k) process, when necessary, to market their device.

On March 30, 2021, FDA received Virility Medical's request for De Novo classification of the vPatch. FDA reviewed the request in order to classify the device under the criteria for classification set forth in section 513(a)(1) of the FD&C Act.

We classify devices into class II if general controls by themselves are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls that, in combination with the general controls, provide reasonable assurance of the safety and effectiveness of the device for its intended use (see 21 U.S.C. 360c(a)(1)(B)). After review of the information submitted in the request, we determined that the device can be classified into class II with the establishment of special controls. FDA has determined that these special controls, in addition to the general controls, will provide reasonable assurance of the safety and effectiveness of the device.

Therefore, on November 23, 2021, FDA issued an order to the requester classifying the device into class II. In this final order, FDA is codifying the classification of the device by adding 21 CFR 876.5026. 1 We have named the generic type of device non-implanted electrical stimulation device for management of premature ejaculation, and it is identified as a device intended to be used in patients with premature ejaculation by delivery of electrical stimulation to the perineal muscles and nerves.

FDA has identified the following risks to health associated specifically with this type of device and the measures required to mitigate these risks in table 1.

FDA has determined that special controls, in combination with the general controls, address these risks to health and provide reasonable assurance of safety and effectiveness. For a device to fall within this classification, and thus avoid automatic classification in class III, it would have to comply with the special controls named in this final order. The necessary special controls appear in the regulation codified by this order. This device is subject to premarket notification requirements under section 510(k) of the FD&C Act.

The Agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This final order establishes special controls that refer to previously approved collections of information found in other FDA regulations and guidance. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). The collections of information in 21 CFR part 860, subpart D, regarding De Novo classification have been approved under OMB control number 0910-0844; the collections of information in 21 CFR part 814, subparts A through E, regarding premarket approval, have been approved under OMB control number 0910-0231; the collections of information in part 807, subpart E, regarding premarket notification submissions, have been approved under OMB control number 0910-0120; the collections of information in 21 CFR part 820, regarding quality system regulation, have been approved under OMB control number 0910-0073; and the collections of information in 21 CFR part 801, regarding labeling, have been approved under OMB control number 0910-0485.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, 21 CFR part 876 is amended as follows:

The United States is a party to the 1971 United Nations Convention on Psychotropic Substances (1971 Convention), February 21, 1971, 32 U.S.T. 543, 1019 U.N.T.S. 175, as amended. Procedures respecting changes in drug schedules under the 1971 Convention are governed domestically by 21 U.S.C. 811(d)(2)-(4). When the United States receives notification of a scheduling decision pursuant to Article 2 of the 1971 Convention indicating that a drug or other substance has been added to a specific schedule, the Secretary of the Department Health and Human Services (HHS), 1 after consultation with the Attorney General, shall determine whether existing legal controls under subchapter I of the Controlled Substances Act (CSA) and the Federal Food, Drug, and Cosmetic Act meet the requirements of the schedule specified in the notification with respect to the specific drug or substance. 2 In the event that the Secretary of HHS did not consult with the Attorney General, and the Attorney General did not issue a temporary order, as provided under 21 U.S.C. 811(d)(4), the procedures for permanent scheduling set forth in 21 U.S.C. 811(a) and (b) control. Pursuant to 21 U.S.C. 811(a)(1), the Attorney General may, by rule, schedule or transfer between any schedules any drug or other substance, if he finds that such drug or other substance has a potential for abuse, and makes the findings prescribed by 21 U.S.C. 812(b) to schedule the drug or other substance. The Attorney General has delegated this scheduling authority to the Administrator of the Drug Enforcement Administration (DEA). 3

Methoxetamine, also known as 2-(ethylamino)-2-(3-methoxyphenyl)cyclohexan-1-one or 2-(3-methoxyphenyl)-2-( N -ethylamino)cyclohexanone or MXE, belongs to the arylcyclohexylamine class of drugs with dissociative anesthetic and hallucinogenic properties, similar to phencyclidine (PCP), a schedule II controlled substance, and ketamine, a schedule III controlled substance. Methoxetamine has no approved medical use in the United States. In March 2016, the Commission on Narcotic Drugs (CND) voted to place methoxetamine in Schedule II of the 1971 Convention (CND Dec/59/6) during its 59th Session due to its dependence and abuse potential.

On April 14, 2018, in accordance with 21 U.S.C. 811(b), and in response to DEA's December 30, 2014, request and April 14, 2017, submission of additional data, HHS provided to DEA a scientific and medical evaluation and scheduling recommendation for methoxetamine. DEA reviewed the scientific and medical evaluation and scheduling recommendation for schedule I placement provided by HHS, and all other relevant data, pursuant to 21 U.S.C. 811(b) and (c), and conducted its own analysis under the eight factors stipulated in 21 U.S.C. 811(c). DEA found, under 21 U.S.C. 811(b)(1), that this substance warrants control in schedule I. Both DEA and HHS Eight-Factor analyses are available in their entirety under the tab Supporting Documents of the public docket for this action at https://www.regulations.gov under docket number DEA-568.

On December 7, 2021 (86 FR 69187), DEA published a notice of proposed rulemaking (NPRM) to permanently control methoxetamine in schedule I. Specifically, DEA proposed to add methoxetamine to the hallucinogenic substances list under 21 CFR 1308.11(d). The NPRM provided an opportunity for interested persons to file a request for hearing in accordance with DEA regulations on or before February 7, 2022. No requests for such a hearing were received by DEA. The NPRM also provided an opportunity for interested persons to submit comments on or before February 7, 2022.

DEA received one comment that recognized the dangers and public health risks, and fully supported the placement of methoxetamine in schedule I.

DEA Response: DEA appreciates this comment in support of this rulemaking.

After consideration of the public comment, scientific and medical evaluation and accompanying recommendation of HHS, and after its own eight-factor evaluation, DEA finds that these facts and all relevant data constitute substantial evidence of potential for abuse of methoxetamine. DEA is permanently scheduling methoxetamine as a controlled substance under the CSA.

The CSA establishes five schedules of controlled substances known as schedules I, II, III, IV, and V. The CSA also specifies the findings required to place a drug or other substance in any particular schedule, 21 U.S.C. 812(b). After consideration of the analysis and recommendation of the Acting Assistant Secretary for Health of HHS and review of all other available data, the Administrator of DEA, pursuant to 21 U.S.C. 812(b)(1), finds that:

(1) Methoxetamine has a high potential for abuse that is comparable to other scheduled substances such as the ethylamine analog of phencyclidine (PCE; schedule I), the thiophene analog of phencyclidine (TCP; schedule I), phencyclidine (PCP; schedule II), and ketamine (schedule III);

(2) Methoxetamine has no currently accepted medical use in treatment in the United States. There are no approved New Drug Applications for methoxetamine and no known therapeutic applications for methoxetamine in the United States. Therefore, methoxetamine has no currently accepted medical use in treatment in the United States. 4

(3) There is a lack of accepted safety for use of methoxetamine under medical supervision. Because methoxetamine has no approved medical use and has not been investigated as a new drug, its safety for use under medical supervision has not been determined. Therefore, there is a lack of accepted safety for use of methoxetamine under medical supervision.

Based on these findings, the Administrator of DEA concludes that methoxetamine as well as its salts, isomers, and salts of isomers whenever the existence of such salts, isomers, and salts of isomers is possible warrants control in schedule I of the CSA. 5

Methoxetamine is subject to the CSA's schedule I regulatory controls and administrative, civil, and criminal sanctions applicable to the manufacture, distribution, reverse distribution, import, export, engagement in research, conduct instructional activities or chemical analysis with, and possession of schedule I controlled substances, including the following:

1. Registration. Any person who handles (manufactures, distributes, reverse distributes, imports, exports, engages in research, or conducts instructional activities or chemical analysis with, or possesses), or who desires to handle, methoxetamine must be registered with DEA to conduct such activities pursuant to 21 U.S.C. 822, 823, 957, and 958, and in accordance with 21 CFR parts 1301 and 1312. Any person who currently handles methoxetamine and is not registered with DEA must submit an application for registration and may not continue to handle methoxetamine, unless DEA has approved that application for registration pursuant to 21 U.S.C. 822, 823, 957, 958, and in accordance with 21 CFR parts 1301 and 1312.

2. Disposal of stocks. Any person unwilling or unable to obtain a schedule I registration must surrender or transfer all quantities of currently held methoxetamine to a person registered with DEA before the effective date of a final scheduling action in accordance with all applicable Federal, State, local, and tribal laws. Methoxetamine must be disposed of in accordance with 21 CFR part 1317, in addition to all other applicable Federal, State, local, and tribal laws.

3. Security. Methoxetamine is subject to schedule I security requirements and must be handled and stored pursuant to 21 U.S.C. 823, and in accordance with 21 CFR 1301.71-1301.76, as of the effective date of this final scheduling action. Non-practitioners handling methoxetamine must comply with the employee screening requirements of 21 CFR 1301.90-1301.93.

4. Labeling and Packaging. All labels, labeling, and packaging for commercial containers of methoxetamine must comply with 21 U.S.C. 825, and be in accordance with 21 CFR part 1302.

5. Quota. Only registered manufacturers are permitted to manufacture methoxetamine in accordance with a quota assigned pursuant to 21 U.S.C. 826, and in accordance with 21 CFR part 1303.

6. Inventory. Every DEA registrant who possesses any quantity of methoxetamine must take an inventory of methoxetamine on hand, pursuant to 21 U.S.C. 827 and in accordance with 21 CFR 1304.03, 1304.04, and 1304.11(a) and (d).

Any person who registers with DEA must take an initial inventory of all stocks of controlled substances (including methoxetamine) on hand on the date the registrant first engages in the handling of controlled substances, pursuant to 21 U.S.C. 827 and in accordance with 21 CFR 1304.03, 1304.04, and 1304.11(a) and (b).

After the initial inventory, every DEA registrant must take an inventory of all controlled substances (including methoxetamine) on hand every two years, pursuant to 21 U.S.C. 827 and in accordance with 21 CFR 1304.03, 1304.04, and 1304.11.

7. Records and Reports. Every DEA registrant must maintain records and submit reports for methoxetamine, or products containing methoxetamine, pursuant to 21 U.S.C. 827 and in accordance with 21 CFR 1301.74(b) and (c) and parts 1304, 1312 and 1317. Manufacturers and distributors must submit reports regarding methoxetamine to the Automation of Reports and Consolidated Order System pursuant to 21 U.S.C. 827 and in accordance with 21 CFR parts 1304 and 1312.

8. Order Forms. Every DEA registrant who distributes methoxetamine must comply with the order form requirements, pursuant to 21 U.S.C. 828 and 21 CFR part 1305.

9. Importation and Exportation. All importation and exportation of methoxetamine must comply with 21 U.S.C. 952, 953, 957, and 958, and in accordance with 21 CFR part 1312.

10. Liability. Any activity involving methoxetamine not authorized by, or in violation of, the CSA or its implementing regulations, is unlawful, and may subject the person to administrative, civil, and/or criminal sanctions.

In accordance with 21 U.S.C. 811(a), this final scheduling action is subject to formal rulemaking procedures performed “on the record after opportunity for a hearing,” which are conducted pursuant to the provisions of 5 U.S.C. 556 and 557. The CSA sets forth the procedures and criteria for scheduling a drug or other substance. Such actions are exempt from review by the Office of Management and Budget pursuant to section 3(d)(1) of Executive Order (E.O.) 12866 and the principles reaffirmed in E.O. 13563.

This regulation meets the applicable standards set forth in sections 3(a) and 3(b)(2) of E.O. 12988 to eliminate drafting errors and ambiguity, minimize litigation, provide a clear legal standard for affected conduct, and promote simplification and burden reduction.

This rulemaking does not have federalism implications warranting the application of E.O. 13132. The proposed rule does not have substantial direct effects 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.

This rule does not have tribal implications warranting the application of E.O. 13175. It does not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

This action does not impose a new collection of information requirement under the Paperwork Reduction Act of 1995. 6

The Administrator of DEA, in accordance with the Regulatory Flexibility Act, 5 U.S.C. 601-612, has reviewed this final rule, and by approving it, certifies that it will not have a significant economic impact on a substantial number of small entities.

DEA is placing the substance methoxetamine (chemical name: 2-(ethylamino)-2-(3-methoxyphenyl)cyclohexan-1-one)), including its salts, isomers, and salts of isomers whenever the existence of such salts, isomers, and salts of isomers is possible within the specific chemical designation, in schedule I of the CSA to enable the United States to meet its obligations under the 1971 Convention. This action imposes the regulatory controls and administrative, civil, and/or criminal sanctions applicable to schedule I controlled substances on persons who handle (manufacture, distribute, reverse distribute, import, export, engage in research, conduct instructional activities or chemical analysis with, or possess) or propose to handle methoxetamine.

Based on the review of HHS's scientific and medical evaluation and all other relevant data, DEA determined that methoxetamine has high potential for abuse, has no currently accepted medical use in treatment in the United States, and lacks accepted safety for use under medical supervision. DEA's research confirms that there is no legitimate commercial market for methoxetamine in the United States. Therefore, this final rule will not have a significant effect on a substantial number of small entities.

On the basis of information contained in the “Regulatory Flexibility Act” section above, DEA has determined pursuant to the Unfunded Mandates Reform Act (UMRA) of 1995 (2 U.S.C. 1501 et seq.) that this final rule would not result in any Federal mandate that may result “in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year * * *.” Therefore, neither a Small Government Agency Plan nor any other action is required under UMRA of 1995.

This rule is not a major rule as defined by the Congressional Review Act (CRA), 5 U.S.C. 804. However, pursuant to the CRA, DEA is submitting a copy of the final rule to both Houses of Congress and to the Comptroller General.

For the reasons set out above, 21 CFR part 1308 is amended as follows:

This document and additional information concerning OFAC are available on OFAC's website: www.treas.gov/ofac.

OFAC issued GL 25A, GL 33, GL 34, and GL 35 on May 8, 2022 on its website to authorize certain transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587. GL 25A does not contain an expiration date. GL 33 expires at 12:01 a.m. eastern daylight time, June 7, 2022. GL 34 expires at 12:01 a.m. eastern daylight time, July 7, 2022. GL 35 expires at 12:01 a.m. eastern daylight time, August 20, 2022. The texts of GLs 25A, 33, 34, and 35 are provided below.

(a) Except as provided in paragraph (c) of this general license, all transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving the Russian Federation that are prohibited by the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587 (RuHSR), are authorized.

(b) Except as provided in paragraph (c) of this general license, the exportation or reexportation, sale, or supply, directly or indirectly, from the United States or by U.S. persons, wherever located, to the Russian Federation of services, software, hardware, or technology incident to the exchange of communications over the internet, such as instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting, and domain name registration services, that is prohibited by the RuHSR, is authorized.

(c) This general license does not authorize:

(1) The opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 under Executive Order (E.O.) 14024, Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions;

(2) Any debit to an account on the books of a U.S. financial institution of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation;

(3) Any transactions prohibited by E.O. 14066 or E.O. 14068; or

(4) Any transactions involving Joint Stock Company Channel One Russia, Joint Stock Company NTV Broadcasting Company, or Television Station Russia-1, unless separately authorized.

(d) Effective May 8, 2022, General License No. 25, dated April 7, 2022, is replaced and superseded in its entirety by this General License No. 25A.

Note to General License No. 25A. Nothing in this general license relieves any person from compliance with any other Federal laws or requirements of other Federal agencies, including export, reexport, and transfer (in-country) licensing requirements maintained by the Department of Commerce's Bureau of Industry and Security under the Export Administration Regulations, 15 CFR parts 730-774.