Regulations (Preambles to Final Rules) - Table of Contents|
| Record Type:||Permit-Required Confined Spaces|
| Title:||Section 3 - III. Final Economic Analysis|
III. Final Economic AnalysisIntroduction
In accordance with Executive Order 12866 and the Regulatory Flexibility Act (as amended), OSHA has prepared this Final Economic Analysis to accompany the final rule amending the Agency's Permit- Required Confined Spaces (PRCS) standard (29 CFR 1910.146). The final rule is being amended to require employers to provide authorized entrants (i.e., those employees who are authorized to enter PRCSs) or their designated representatives with the opportunity to observe the monitoring or testing of permit spaces and to request the reevaluation of any permit space that they believe may have been inadequately tested. The final rule also clarifies the criteria employers must satisfy when preparing for the timely rescue of incapacitated permit space entrants. Employee participation in the permit space program is enhanced in the final rule, which provides authorized employees and their designated representatives with access to program information developed under the standard and requires employers to consult with such employees about the implementation of the permit space program.
When the Permit-Required Confined Spaces standard was promulgated in 1993, the Regulatory Impact Assessment (RIA) that accompanied the rule was placed into the rulemaking docket [Docket S-019, Ex. 149]. The RIA evaluated the costs, benefits, impacts, and technological and economic feasibility of the 1993 final rule. The Final Economic Analysis presented here estimates the costs of those requirements of the amended rule that will impose new regulatory burdens on affected employers, analyzes the benefits that will accrue to employers, employees, and others as a result of these new provisions, examines the technological and economic feasibility of the amended provisions, and assesses the impacts of the costs of compliance on affected employers and on small businesses in particular. The Final Economic Analysis does not re-analyze the estimates presented in the RIA for the 1993 rule or assess the costs and benefits of provisions in the amended final rule that merely interpret or explain the intent of provisions in the 1993 rule because the costs and benefits of such provisions were fully taken into account in the earlier RIA.
This Final Economic Analysis assesses the costs, benefits, technological and economic feasibility, and impacts of two provisions of the amended final rule. These provisions include revised paragraph (d), which now requires employers to permit authorized employees or their designated representatives to observe the testing or monitoring of permit spaces, and paragraph (l), which requires employee participation in the development and implementation of the permit space program and requires employers to provide employees and their designated representatives with access to information developed under the standard. The Agency has determined that the revised provisions will enhance the safety and health protections provided to confined space entrants by the standard and will also benefit employers by saving some of the direct costs associated with deaths and serious injuries that now occur but will in future be prevented.
The following sections of this analysis briefly summarize the industry profile and the findings of the Agency's technological feasibility analysis for the amended rule.
Tanks, vats and pits are examples of common confined spaces. Although confined spaces of these types are concentrated in the manufacturing and utilities sectors, they are also found in some trade and service sectors. The 1993 RIA estimated that 1.6 million workers in nearly 240,000 establishments enter confined spaces annually. A profile of these spaces is presented in Table I. A more detailed description of confined spaces in industry is available in the earlier RIA [Docket S- 019, Ex. 149].
Paragraphs (d) and (l) of the amended final rule will impose new costs on some affected employers because they will be required to spend additional time consulting with employees, to allow employees or their representatives to spend time observing the testing or monitoring of permit spaces, and so forth. However, the amended rule will not require employers to employ additional or new technologies to achieve compliance. As explained in the RIA [Docket S-019, Ex. 149], compliance with all aspects of the standard can be achieved and is being achieved with readily available off-the-shelf equipment.
Costs of Compliance
Observation of Testing
The Agency is modifying paragraph (d)(5), by adding paragraphs (iv), (v), and (vi), which require employers to offer authorized entrants or their designated representatives the opportunity to observe the pre-entry testing or monitoring and any subsequent testing or monitoring of permit spaces (paragraph (d)(5)(iv)); to reevaluate any space that the entrant or representative believes was inadequately tested (paragraph (d)(5)(v)); and to provide entrants and their representatives with the results of such testing immediately (paragraph (d)(5)(vi)).
OSHA concludes, based on evidence in the record, that paragraphs (d)(5)(v) and (d)(5)(vi) will not impose new costs on affected employers because they simply restate or explain requirements that were implicit in paragraph (e)(3) of the existing permit space rule. Paragraph (e)(3) requires the posting of entry permits, which contain the results of initial or periodic testing or monitoring (including the results of any remonitoring or testing), to enable authorized entrants to verify that preentry preparations have been completed. As stated in the preamble to the original rule [58 FR 4505], this provision ensures that "Entrants will then be able to make their own judgments as to the completeness of pre-entry preparations and to point out any deficiencies that they believe exist." Commenters affirmed that permits are posted and used in this way and thus that this provision reflects current industry practice [Ex. 161-45; Ex. 161-72]. Paragraph (d)(5)(vi) of the amended rule, which requires employers to provide entrants and their representatives with the results of such testing or monitoring, is also implicit in paragraph (e)(3), which requires that "The completed permit shall be made available at the time of entry to all authorized entrants, by posting it at the entry portal or by any other equally effective means, so that the entrants can confirm that pre-entry preparations have been completed." As stated above, it is current industry practice to provide immediate access to the information on entry permits.
Paragraph (d)(5)(iv) may impose new costs on some employers, although there is evidence in the record that many employers already allow permit space entrants to observe the testing or monitoring of spaces. For example, different firms indicated that they routinely provide employees with assurances of safety, showing them the various pre-entry safety procedures, if necessary [Tr., p. 57] or allowing employees to do the monitoring themselves [Tr., p. 186]. Mike Roop of the Roco Corporation indicated that, in the companies with which he had worked, employee requests to observe testing were not denied [Tr., p. 267]. Other firms actually encourage employees to observe monitoring [Tr., p. 202]. Duane Barnes, speaking for Dow, indicated that his company's safety record was so good that, although it was company policy to provide employees with any reassurance that was required in the area of safety, Dow had simply not had such requests [Tr., p. 57].
OSHA notes that its economic analyses for health standards, which routinely allow employees and their representatives to observe any employee exposure monitoring required by such standards, do not estimate any costs for the observation of monitoring provision (see, for example, the RIAs for ethylene oxide [Ex. 163, Docket H-200], cadmium [Ex. L173, Docket H-057A] ). The Agency also has not received comments suggesting that employers actually incur costs by permitting employees to observe monitoring for health standards. In the present rulemaking, an industry representative stated that allowing employees to observe the monitoring required by OSHA health standards did not present a problem [Tr. p. 93]. Based on this history and evidence, OSHA assumes that such costs are essentially negligible.
OSHA also believes, based on the record, that many employers will meet the requirement for employee observation of monitoring by allowing employees requesting such information to perform the monitoring themselves. The task of testing has been greatly simplified by the introduction and improvement of electronic "instant" monitoring devices; for many spaces, employers currently place the monitoring devices directly on the employees [Tr. pp. 186, 188]. To the extent entrants test the atmosphere themselves before entering spaces, there would be no cost to this requirement.
Nonetheless, although the Agency believes that the costs of compliance with paragraph (d)(5)(iv) will be negligible, it has assessed the costs this provision might impose under worst case conditions, i.e., assuming that no employer currently permits any employee to observe such monitoring or testing of permit spaces and that every authorized entrant or designated representative will do so in the future. At the time of the original rulemaking, OSHA estimated that a total of 1.2 million hours would need to be spent on pre-entry testing (this estimate includes those facilities that were considered already to be in compliance with the monitoring provisions of the original confined spaces standard).(1) After adjusting the compensation rates in the original RIA to 1994,(2) the annual costs of compliance with paragraph (d)(5)(iv) under this extreme scenario would amount to $22.6 million.
OSHA believes, based on the record and the Agency's experience in health standards rulemakings, that costs for this provision will be incurred in no more than 10 percent of permit space entries, i.e., that the actual costs of this provision will be one-tenth of those outlined in the "worst case" scenario, or $2.3 million. Estimated costs for this provision, by industry, are shown in Table II.
As indicated previously, the Agency is adding a new paragraph (l) to the amended final rule. This provision requires employers to consult with affected employees and their authorized representatives. The existing rule, at paragraph (c)(4), already requires that the written plan be available for review by employees and their authorized representative(s). However, the Agency believes that the requirements in new paragraph (l) will lead to a modest increase in the amount of time employees and employers spend in developing and implementing their confined spaces programs.
Although the Agency lacks specific data on current industry practice with regard to employee consultation in the development and implementation of permit space programs, the Agency believes it reasonable to assume that the requirements in paragraph (l) will require an average of 10 minutes for authorized entrants and attendants to meet with a member of management or an entry supervisor to discuss ways to improve the program and its implementation. The Regulatory Impact Analysis in support of the original rule assumed that programs would need to be updated fully on an average of once every five years. Therefore, the annual cost of this provision is estimated to be:
(We+Wm) X (# of entrants + # attendants) X 10/60 hour X .24 where We is the hourly compensation of affected employees and Wm is the hourly compensation of management. Hourly compensation is based on 1994 industry hourly wage rates for production workers [BLS, 1994], plus the average nonagricultural benefit rate of 39 percent [BLS, 1995]. Consistent with the PRIA [Docket S-019, Ex. 15] and RIA [Docket S-019, Ex. 149], management compensation is assumed to be 20 percent greater than that of the entrants and attendants. The annualization factor for a five-year period at a 7 percent rate of interest is .24. Given these assumptions, the Agency estimates that this provision will cost $3.6 million to implement. Estimated costs for this provision, by industry, are shown in Table II. Combined with the amended final rule's provision requiring employers to provide employees with the opportunity to observe testing, the Agency estimates the total costs of compliance for the amended final rule to be $5.8 million annually.
The benefits of providing employees with an opportunity to observe the testing of spaces are predictably difficult to quantify, although the Agency believes that the benefits of doing so are real. Allowing employees to observe the testing and monitoring of permit spaces will provide for safer confined space entry: the record shows that, had employees in the past been able to observe the testing of spaces before entry or to obtain a reevaluation of questionable testing results, it is likely that a number of fatalities could have been averted. For example, the Steelworkers [Ex. 188, p. 4] report a number of cases where employers have apparently tested spaces improperly, leading to fatal results both for the workers entering the space and the rescuers attempting to rescue their incapacitated co-workers.
However, defining the number of fatalities or injuries preventable annually by this provision is difficult because permit space accidents, like most safety accidents, are multi-causal in nature. Most confined space accidents reflect a number of failures in the permit program, which makes it difficult to isolate the effectiveness of any given provision of the program (or rule). At the time of the original rule, OSHA specifically asked in the Federal Register [54 FR 24080] for comment on the effectiveness of the permit space rule; there was general agreement that the standard would prevent 80-90 percent of accidents. There was little attempt, however, to try to break out the benefits of particular provisions, due to the substantial overlap of causes in accidents and the deliberate redundancy built into some provisions of the standard.
In addition, it is difficult to estimate how often authorized entrants or their designated representatives will avail themselves of the opportunity to observe the testing or monitoring of permit spaces. To gain an understanding of the magnitude of the potential benefits associated with new paragraph (d)(5)(iv), OSHA turned to the RIA, which estimated that 85% of permit space accidents would be eliminated by the standard but that 15% of such accidents would continue to occur [58 CFR 4543]. These 15% of fatal cases, or 9 cases annually, were attributed to "human error" but were also believed to be theoretically preventable.
The amended rule's provision for the observation of testing will function to provide a "check" on human error in those cases where monitoring was improperly performed. When these fatal accidents occur, more than one element of the safety system has typically failed; however, in almost all such cases, one critical element -- the accurate monitoring of the atmosphere -- has failed. Thus it is reasonable to assume that allowing authorized entrants or their designated representatives to observe the testing of spaces will prevent a substantial portion of the accidents attributed in the RIA to human error. Because approximately two-thirds of these fatalities were related to atmospheric hazards (toxic, explosive, or oxygen deficient atmospheres),(3) OSHA assumes in this benefits analysis that the same proportion of cases, or a total of approximately 6 fatalities annually, could be prevented if proper monitoring was assured in all cases of permit space entry.
How effective this provision will be in practice will depend on the number of employees who actually avail themselves of the opportunity to observe the testing of spaces. In the absence of data to quantify this effect specifically, the Agency is adopting the conservative assumption of direct proportionality -- i.e., the Agency is assuming that if only a small number of employees observe such monitoring, only a small number of the potentially preventable fatal incidents will be prevented. In this case, since the cost analysis assumes that only 10 percent of employees will actually observe monitoring, the Agency assumes that only 10 percent of the 6 fatalities (or 0.6 fatalities) will be prevented annually. Borrowing similarly from the injury analysis of the RIA for the final rule, the Agency estimates that paragraph (d)(5)(iv) will prevent 50 lost workday injuries annually.(4) Finally, to the extent more employees than assumed here avail themselves of the opportunity provided by the final rule, both the benefits and costs will be higher.
Indirect benefits from this provision, as well as from paragraph (l), will come in the form of enhanced employee participation. A recent analysis of Oregon's mandatory safety and health program rule, which requires active employee participation, indicates that employers receive measurable safety benefits from enhanced employee participation in safety programs [Weil, 1994]. Consulting employees in the development of a confined spaces safety program, as required by paragraph (l), may also generate new ideas for more efficient confined spaces entry. As was noted by several commenters from industry in the original rulemaking [Docket S-019, Ex. 149, pp. V-68-71], confined spaces are frequently production vessels that cannot be used while they are being entered, and the employer therefore has an incentive to minimize the amount of time spent in the confined space. Therefore, extra time spent planning safe and efficient entry beforehand may pay dividends not only in increased labor productivity but in capital productivity as well. For example, an employee might have a suggestion for modifying the job so as to avoid the need to enter the space entirely.
To assess the economic impact of these amendments to the permit required confined spaces standard, the Agency compared the estimated annual costs of these provisions against the revenues and profits of affected businesses. Revenue data were taken from the Bureau of the Census' Standard Statistical Establishment List data base; profit data were taken from Dun and Bradstreet's Norms and Key Business Ratios [Dun & Bradstreet]. Sales, profit and relevant cost data are all from 1994, the most recent year for which highly detailed small business data is currently available to the Agency.
The comparison of costs with revenue and profits for all affected establishments is shown in Table III. It indicates that costs to affected establishments in all industries are no more than .006% of revenues and are less than .07% of profits. Costs of this magnitude cannot be considered large enough to impose regulatory burdens on employers or to raise issues of economic feasibility.
The Agency has also, as required by the Regulatory Flexibility Act (as amended) analyzed the impact of the standard specifically on small entities potentially affected by the revisions being made to the final rule. The Agency examined the impact of the revisions both on establishments with fewer than 20 employees and on firms with fewer than 500 employees. An industry profile for establishments with fewer than 20 employees is available in the RIA accompanying the original rule (Ex. 149, Docket S-019). For firms with fewer than 500 employees, industry profile data were not readily available; the Agency therefore analyzed impacts using a "worst case" impact scenario. Under this scenario, OSHA assumed that all of the costs of the revised final rule would be borne by firms in this size class, i.e., that no impacts would be borne by larger firms, a highly unlikely scenario. The impacts projected in Table III for firms in the 500-employee size class thus substantially overstate costs for these firms. Nonetheless, as shown in Tables IV and V, even under this worst case scenario, costs were very small relative to sales and profits. Costs did not exceed .006 percent of sales or more than .08 percent of profits for establishments with fewer than 20 or fewer than 500 employees in any affected industry.Certification of No Significant Impact
Based on the results of the analysis presented above, OSHA certifies, in accordance with the Regulatory Flexibility Act (as amended) that the revised rule for permit required confined spaces will not have a significant economic impact on a substantial number of small entities.
Unfunded Mandates Reform Act
This amendment to the confined spaces standard has been reviewed by OSHA in accordance with the Unfunded Mandates Reform Act of 1995 (UMRA) (2 USC 1501 et seq.) and Executive Order 12875. OSHA has determined, as explained below, that this regulatory action will not impose a significant cost on employers in the public sector and will impose costs of substantially less than $100 million on establishments in the private sector. This rule is therefore not a significant regulatory action within the meaning of Section 202 of UMRA (2 U.S.C. 1532). OSHA standards do not apply to state and local governments except in states that have voluntarily elected to adopt an OSHA State Plan. Consequently, the confined spaces standard does not meet the definition of a "federal intergovernmental mandate" (Section 421(5) of UMRA (2 USC 658(5)). Further, OSHA has found that any impact on such entities would be insignificant. In sum, this amendment to the confined spaces standard does not impose unfunded mandates on state, local, or tribal governments.
However, this action may have some benefits to state and local governments. The record indicates that fire departments around the country have been bearing the burden of rescuing employees from confined spaces [Ex. 161-41], typically the result of inadequate or nonexistent entry procedures. To the extent that the opportunity to observe monitoring results in better adherence to preventive measures required by the existing standard, or that employee participation in program development and implementation improves the effectiveness of the underlying permit spaces plan, these entities will garner benefits from the rule. Additionally, to the extent that employers better understand their obligations for rescue preparedness under the existing standard and coordinate with fire departments more effectively, local fire departments will also benefit.Environmental Assessment
The final permit required confined spaces standard has been reviewed in accordance with the requirements of the National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et seq.), the regulations of the Council of Environmental Quality (CEQ) (40 CFR part 1500), and DOL NEPA procedures (29 CFR part 11). As a result of this review, OSHA has concluded that the rule will not have a significant environmental impact.
Dun and Bradstreet, Norms and Key Business Ratios, Desk-Top Edition, 1994-1995.
U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, October 1994.
U.S. Department of Labor, Bureau of Labor Statistics, "Employer Costs for Employer Compensation", News Release, June 22, 1995.
U.S. Department of Labor, Bureau of Labor Statistics, "Number of nonfatal occupational injuries and illnesses involving days away from work by event or exposure leading to injury or illness and industry division, 1993". Available at BLS Web site at: ftp:// 18.104.22.168/pub/special.requests/ocwc/osh/
Weil, Working Paper 112, Economic Policy Institute, 1994.
Footnote(1) Based upon an assumption of an average of five minutes of labor time required for pre-entry testing. This assumption was presented in the Preliminary Regulatory Impact Analysis (PRIA) for the original rule [Docket S-019, Ex. 15], was not questioned in the record, and was therefore carried over into the final RIA [Docket S- 019, Ex. 149]. The final RIA was not subsequently challenged. (Back to Text)
Footnote (2) Thus comparing 1994 costs to 1994 financial data (discussed further in the Economic Impact Section). The compensation rate was also updated to reflect recent BLS data, which indicates a 39 fringe benefit rate [BLS, 1995], as opposed to the 30 percent rate used in original analysis [Docket S-019, Exhibit 149]. (Back to Text)
Footnote (3) Based on an examination of death certificates for 670 fatalities in confined spaces in NIOSH's National Traumatic Occupational Fatality (NTOF) data base [NIOSH, Worker Deaths in Confined Spaces, January 1994]. This is after excluding cases related to grain engulfment, which are dealt with under OSHA's grain handling standard (§1910.272). This figure is likely conservative, as NIOSH's figures include some trench cave-ins, which are dealt with under OSHA's excavation standard (§1926, Subpart P). (Back to Text)
Footnote (4) The baseline number of lost-workday injuries in confined spaces was estimated to be 5,041 before the rule was published. (While the original projection of baseline injuries was based on a theoretical projection, it has subsequently been verified as being approximately correct, based on now-available 1993 BLS data [BLS, 1996, Table R64].) This leaves a residual of 756 (.15 x 5,041) such injuries annually that would not be prevented by the original rule. If this provision could theoretically prevent 2/3 of these cases, or 507 (.67 x 756), but will only be used 10 percent of the time, this suggests that 50 lost-workday injuries will be prevented annually as a result of this provision. (Back to Text)
[63 FR 66026, December 1, 1998]
Regulations (Preambles to Final Rules) - Table of Contents|