The SBA has issued a final rule eliminating the unusual megawatt hours size standard applicable to six NAICS codes in NAICS Sector 22.  The SBA’s revision replaces the megawatt hours size standard with a 500-employee size standard, and eliminates the requirement that a firm must be “primarily engaged” in the generation, transmission  or distribution of energy for sale.

Although the megawatt hours size standard may have made sense when it was adopted in the 1970s, the SBA appropriately recognized that the market has changed.  Perhaps most important, the “primarily engaged” component of the megawatt hours size standard unfairly excluded many companies from competing as “small” in NAICS Sector 22.

Under the megawatt hours size standard, a firm is considered small if: (1) the firm, including its affiliates, is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale; and (2) its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.

In the final rule, the SBA wrote that there were two main problems with the megawatt hours standard.  First, “in situations where firms are engaged in electric power generation, transmission and/or distribution and in other industries as well, electric output cannot account for their total size.”  Second, the “primarily engaged” component of the size standard unfairly excluded many businesses:

However, requiring that a firm’s primary industry be electric power generation, transmission, and/or distribution for it to qualify as small under the electric output size standard, disqualifies many firms that are engaged in electric power generation, transmission, and/or distribution and other industries, when electric power is not their primary industry. This is especially true among firms involved in electric power generation using renewable sources (such as solar, wind, biomass, geothermal) as well as other industries, where power generation is generally not their primary industry. Preventing them from Federal small business assistance simply because power generation is not their primary activity is counter to the Administration’s programs and policies to promote renewable energy production in the country.

The new 500-employee size standards under NAICS Sector 22 take effect January 22.