Ms. Kumkum Ray
Team Leader
Rules Processing Team
Department of the Interior
Minerals Management Service
Mail Stop 4700
381 Elden Street
Herndon, Virginia 20170-4817
Re: Oil and Gas Production Measurement, Surface Commingling and Security
Dear Ms. Ray:
The Office of Advocacy of the U.S. Small Business Administration (SBA) was established by Congress under Pub. L. No. 94-305 to advocate the views of small business before federal agencies and Congress. Advocacy is also required by §612 of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) to monitor agency compliance with the RFA. On March 28, 1996, President Clinton signed the Small Business Regulatory Enforcement Fairness Act which made a number of significant changes to the Regulatory Flexibility Act, the most significant being provisions to allow judicial review of agencies' regulatory flexibility analyses.
On February 26, 1997 your office published a proposed rule in the Federal Register, Vol. 62, No. 38, p. 8665 on Oil and Gas Production, Measurement, Surface, Commingling, and Security. In the proposed rule, the Mineral Management Service certified that the proposed rule would not have a significant economic impact on a substantial number of small entities. The certification amounts to one sentence that merely states:
"The DOI has determined that this proposed rule will not have a significant economic impact on a substantial number of small entities."
This certification was not substantiated with any supporting data. The Office of Advocacy submits that such a certification is insufficient for RFA purposes.
Regulatory Flexibility Act Requirements for Certification
If a proposed rule is not expected to have a significant economic impact on a substantial number of small entities, the agency head may certify the rulemaking. For a certification to be adequate, an agency must perform a threshold analysis to determine the economic impact on small entities. The certification must be published in the Federal Register, accompanied by an explanation of the factual basis for the certification.
In the above referenced proposed rule, the certification was devoid of any type of support or explanation. There is no explanation of the nature of the industry, the number of small entities involved in the industry, the number of small entities that will be affected by the proposal, the types of small entities affected by the proposal, the projected cost on the small entities, or any other data to provide a basis for the conclusion of no significant economic effects on small entities. In promulgating the RFA, Congress intended to create a law that required agencies to consider the impact of their actions on small entities and to assure that small entities were not being subjected to unduly burdensome regulations. From reading the proposed rule, one cannot determine whether MMS made a good faith effort to review the effects on small entities or simply issued an arbitrary statement of no economic impact.
Requiring agencies to substantiate their certifications in the public record is intended to provide the public with sufficient information on an agency's analysis so that information can be provided about an agency's findings. Public comments on an agency's analysis helps the agency achieve rational rulemaking. Given the lack of substantiation, the Office of Advocacy submits that the certification in the proposed rule is inadequate and probably would not pass the muster of judicial review, if challenged.
Small Entity Defined
Please note that the RFA defines small entities as "small business concerns", as defined in Section 3 of the Small Business Act; small organizations or nonprofit enterprises that are independently owned and operated, and are not dominant in a particular field; and small governmental jurisdictions (i.e. cities, counties, towns, townships, villages, school districts, or special districts with populations of less than 50,000). From the proposed rule, it is not clear whether MMS has considered the impact on all entities, including small communities. In this particular case, it is quite possible that small communities govern or own oil and gas operations. In such an instance, the law requires MMS to consider and determine whether there are significant economic impacts on the small community.
Forthright information and proper justification are necessary for small entities to be able to understand the necessity and the potential effects of a proposed action. Such insight allows a player in the industry to make informed decisions and comments about the proposal. By providing the requisite information, MMS will not only be assisting the industry, but it will also be abiding by the law.
If you would like to discuss this matter or if this office can be of any further assistance, please contact, Jennifer A. Smith. She may be reached either by mail at the above address or by telephone at (202) 205-6943.
Thank you for your attention to this matter.
Sincerely,
Jere W. Glover
Chief Counsel Chief Counsel for Advocacy
Jennifer A. Smith
Assistant Advocate for Economic
Regulation
* Last Modified: 6/14/01