[Federal Register: May 3, 2007 (Volume 72, Number 85)][Notices] [Page 24617-24623]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03my07-94]
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DEPARTMENT OF LABOR
Occupational Safety and Health Administration
[Docket No. OSHA-2007-0038]
Electrical Reliability Services, Inc. (ERS) (Formerly Electro-
Test, Inc.); Application for Renewal of Recognition
AGENCY: Occupational Safety and Health Administration (OSHA), Labor.
ACTION: Notice.
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SUMMARY: This notice announces the application of Electrical
Reliability Services, Inc. (formerly Electro-Test, Inc.) for renewal of
its recognition, and presents the Agency's preliminary finding to deny
renewal of its request.
DATES: You must submit information or comments, or any request for
extension of the time to comment, by the following dates:
Hard copy: Postmarked or sent by July 2, 2007.
Electronic transmission or facsimile: Sent by July 2,
2007.
ADDRESSES: You may submit comments by any of the following methods:
Electronically: You may submit comments electronically at http://www.regulations.gov,
which is the Federal eRulemaking Portal. Follow the instructions on-line
for making electronic submissions.
Fax: If your submissions, including attachments, are not longer
than 10 pages, you may fax them to the OSHA Docket Office at (202) 693-
1648.
Mail, hand delivery, express mail, messenger or courier service:
You must submit three copies of your comments to the OSHA Docket
Office, Docket No. OSHA-2007-0038 (formerly NRTL2-94), U.S. Department
of Labor, Room N-2625, 200 Constitution Avenue, NW., Washington, DC
20210. Deliveries (hand, express mail, messenger and courier service)
are accepted during the Department of Labor's and Docket Office's
normal business hours, 8:15 a.m.-4:45 p.m., e.t.
Instructions: All submissions must include the Agency name and the
OSHA docket number (OSHA Docket No. OSHA-2007-0038; formerly NRTL2-94).
Submissions, including any personal information you provide, are placed
in the public docket without change and may be made available online at
http://www.regulations.gov.
Docket: To read or download submissions or other material in the
docket, go to http://www.regulations.gov or the OSHA Docket Office at
the address above. All documents in the docket are listed in the http://www.regulations.gov
index, however, some information (e.g., copyrighted material) is not
publicly available to read or download through the Website. All submissions,
including copyrighted material, are available for inspection and copying at
the OSHA Docket Office.
Extension of Comment Period: Submit requests for extensions
concerning this notice to the Office of Technical Programs and
Coordination Activities, NRTL Program, Occupational Safety and Health
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Room N-3655, Washington, DC 20210. Or, fax to (202) 693-1644.
FOR FURTHER INFORMATION CONTACT: MaryAnn Garrahan, Director, Office of
Technical Programs and Coordination Activities, NRTL Program,
Occupational Safety and Health Administration, U.S. Department of
Labor, 200 Constitution Avenue, NW., Room N-3655, Washington, DC 20210,
or phone (202) 693-2110.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Occupational Safety and Health Administration (OSHA) is giving
notice that Electrical Reliability Services, Inc. (formerly Electro-
Test, Inc.) (ETI) has applied for renewal of its recognition as a
Nationally Recognized Testing Laboratory (NRTL). (OSHA will refer to
this NRTL by its former name throughout this notice.) OSHA's current
scope of recognition for ETI may be found in the following Web page:
http://www.osha.gov/dts/otpca/nrtl/ers.html. OSHA has reviewed ETI's
renewal application and has preliminarily determined that ETI is not
"independent" (29 CFR 1910.7(b)(3)), a prerequisite to initial and
continued NRTL recognition. For this reason, OSHA is proposing to deny
ETI's application.
OSHA requests comments on this preliminary determination, in
accordance with Appendix A to 29 CFR 1910.7. Any comments must be
received by July 2, 2007.
The most recent application processed by OSHA specifically related
to ETI's recognition granted an expansion of recognition. The final
notice for this expansion was published on March 9, 1999 (64 FR 11500).
The only other Federal Register notice related to ETI's recognition
that OSHA published covered its recognition as an NRTL, which OSHA
granted as described below. The current address of the only ETI site
recognized by OSHA is: Electro-Test, Inc., 6900 Koll Center Parkway,
Suite 416, Pleasanton, CA 94566.
II. Background
a. The NRTL Program and Application Process
Many of OSHA's safety standards require that equipment or products
used in places of employment covered by the Occupational Safety and
Health Act of 1970 be tested and certified to help ensure they can be
used safely (see, e.g., 29 CFR 1910, Subpart S). In general, this
testing and certification must be performed by an NRTL. In order to
ensure that the testing and certification are done appropriately, OSHA
implemented the NRTL Program. The NRTL Program establishes the criteria
that an organization must meet in order to be and remain recognized as
an NRTL.
The NRTL Program requirements are set forth at 29 CFR 1910.7,
"Definition and requirements for a nationally recognized testing
laboratory." To be recognized by OSHA, an organization must: (1) Have
the appropriate capability to test, evaluate, and approve products to
assure their safe use in the workplace; (2) be completely independent
of the manufacturers, vendors, and major users of the products for
which OSHA requires certification; (3) have internal programs that
ensure proper control of the testing and certification process; and (4)
have effective reporting and complaint handling procedures. OSHA
recognition of an NRTL signifies that the organization has met the
legal requirements in Section 1910.7. Recognition is an acknowledgment
that the organization can perform independent safety testing and
certification of the products covered within its scope of recognition
and is not a delegation or grant of government authority.
OSHA requires NRTLs to submit a detailed application when applying
for recognition under the program. Once granted, an NRTL's recognition
is for a period of five years, near the conclusion of which the NRTL
must apply for renewal of recognition. Appendix A to Section 1910.7
establishes the renewal process. This process provides NRTLs with
several opportunities to present information to the Agency to justify
their continued recognition under the program.
The regulations provide for OSHA staff to make a preliminary
finding as to whether an NRTL continues to meet the program
requirements (Appendix A.1.B). If the staff makes a negative finding,
OSHA notifies the applicant of this in writing and allows a reasonable
period for a response (Appendix A.1.B.3). After receipt of this written
notification, the applicant may either: (1) submit a revised
application; or (b) request that the original application be forwarded
to the Assistant Secretary of OSHA to determine whether the renewal
application warrants approval (Id.).
After these initial steps, the Assistant Secretary of OSHA makes a
preliminary finding as to whether the applicant has met the
requirements for renewal of recognition (Appendix A.1.B.4). The Agency
notifies the applicant of the preliminary decision and publishes a
Federal Register notice informing the public, which also provides the
public an opportunity to comment on the applicant's ability to meet the
recognition requirements (Appendix A.1.B.5). After the public comment
period, the Assistant Secretary may make a final decision on the
renewal application. Alternatively, if there is public objection, the
Assistant Secretary may initiate a special review of the information
submitted during the public comment period and may supplement the
record by either reopening the public comment period or convening an
informal hearing (Appendix A.1.B.7). At the conclusion of this process,
a final decision is made by the Assistant Secretary and published in
the Federal Register (Id.).
b. ETI's Application
ETI applied to OSHA for its initial recognition in November 1992.
At that time, it was a privately held organization, incorporated in
California. After processing the application, including performing the
necessary on-site assessments, OSHA announced its preliminary finding
on the application in a notice published in the Federal Register on
June 9, 1995 (60 FR 30595). At the time and unknown to OSHA, ETI was in
the process of being acquired by Emerson Electric Company (Emerson).
The acquisition of ETI by Emerson was consummated on October 4,
1995. The notice to recognize ETI as an NRTL was published in the
Federal Register on October 6, 1995, and ETI provided written
notification of the acquisition by letter dated October 16, 1995. In
that notification, ETI stated that, as a result of the acquisition, it
would report to a new Board of Directors. This new Board consisted of
one person who worked directly for Emerson ("Corporate Development")
and one who worked for another subsidiary of Emerson ("Customer
Service & Support"), the latter named as the new Chairman of the
Board.
Emerson is a global manufacturer of electrical, electromechanical,
and electronic products and systems. It is a Fortune 500 company with
more than 60 divisions that operate over 270 manufacturing locations
around the world. In 2006, Emerson received over $20 billion in
revenues. The electrical products manufactured by Emerson's
subsidiaries, divisions, and units, are the types of products for which
OSHA requires NRTL approval. In its October 16 letter informing OSHA of
the acquisition, ETI stated that the "acquisition will provide [ETI]
the necessary capital to accelerate its growth as a nationwide
organization" (see Exhibit 9-1).
In December 1999, ETI submitted its renewal application. It stated
that the ownership and independence of ETI had not changed since 1995.
Two individuals closely associated with Emerson remained on the ETI
Board of Directors, a "Vice President Emerson Electric" and a
"Director Corporate Development Emerson Electric." The Chairman of
the Board was the "Vice President of Emerson Electric" (see Exhibit
16-1).
On April 19, 2000, OSHA first informed ETI that the information
supplied in its application did "not meet the policy on independence"
(see Exhibit 16-4). In that letter, OSHA asked ETI to respond and
submit additional documentation regarding its independence: "Please
provide a statement to explain or clarify how ETI does meet the
[independence] policy. As a minimum, your statement * * * must present
clear and convincing information showing that the particular
relationship is not applicable to ETI or, if it is applicable, showing
how ETI still meets the requirement for complete independence." OSHA
also attached its policy on independence (described below).
ETI responded to OSHA on May 17, 2000 (see Exhibit 16-5). The
company informed OSHA that it was changing its policies and procedures
to address the independence requirement by including the following
statement in its proposals regarding NRTL work: "In accordance with
[ETI's] corporate policy and due to [ETI's] affiliation with Emerson
Electric, to prevent the appearance of any conflict of interest we will
not knowingly perform any listing or product recognition projects for
other Emerson companies." (Hereinafter this is referred to as the
"corporate no-testing policy.") The May 17 letter indicated no
changes to ETI's Board of Directors. It also did not explain how ETI
intended to implement its corporate no-testing policy.
OSHA again responded to ETI and reiterated its concerns about
independence: (1) ETI had described no policies or procedures to
implement the corporate no-testing policy; (2) two ETI Board members
were still associated with Emerson; and (3) ETI had received
significant financing from Emerson when it was acquired (see Exhibit
16-6).
ETI responded by providing OSHA some internal procedures it
implemented for the corporate no-testing policy. It also informed OSHA
that it was changing its Board of Directors. However, one of the
members of the new Board was President of an Emerson subsidiary, albeit
one that ETI claimed manufactured no products. Another member was the
former Chairman of ETI's Board, who had since retired from Emerson (see
Exhibit 16-7).
OSHA again carefully reviewed ETI's ownership situation and the
efforts it took to address the independence issue. OSHA concluded,
however, that ETI simply did not comply with its independence policy.
In November 2004, OSHA formally informed ETI of the negative finding
and indicated that ETI could either submit a revised application for
further review or submit the original application to the Assistant
Secretary with a statement of reasons supporting application approval.
That letter, and accompanying Federal Register notice document, set
forth in detail the reasons for the negative finding. The notice
explained how ETI's ownership situation violated the independence
policy and how ETI had not addressed the "fundamental relationship of
concern, i.e., its ownership by a manufacturer of the types of products
that must be approved by NRTLs and from which NRTLs must be `completely
independent' " (see Exhibit 16-8).
Upon receipt of this letter, ETI requested additional time to
respond to OSHA, which the Agency granted. The company also asked for
more information from the Agency to further explain OSHA's negative
finding on independence. OSHA responded on July 7, 2005 (see Exhibit
16-9). It reiterated the reasons for denial, and further explained
OSHA's independence policy. On September 1, 2005 (see Exhibit 16-10),
ETI submitted its original application to the Assistant Secretary for
review, along with a supplemental statement of reasons supporting the
application.
c. The NRTL Independence Policy
OSHA requires NRTLs to be "completely independent" of
manufacturers of equipment being tested (29 CFR 1910.7(b)(3)). This
independence requirement is fundamental to the third-party testing and
certification system. When OSHA instituted the NRTL program, it
intended to extend the practices that two NRTLs--Underwriters
Laboratories (UL) and Factory Mutual Research Corporation (FMRC)--had
instituted in their testing and certification programs. UL and FMRC
were at the time, and still are, not affiliated with manufacturers of
the equipment they certify. In many ways, "independence" is the
cornerstone of the NRTL program, which is designed to ensure that
certain dangerous equipment is tested and certified as safe by
organizations that have no affiliation with manufacturers of the
products or employers that might use the products in the workplace.
The NRTL Program application guide that was in effect when ETI
applied for recognition in 1992 addressed independence by specifying
the following: "Written evidence of the independence of the applicant
should be presented to achieve objectivity and preclude conflict of
interest and to meet the provisions of 29 CFR 1910.7, i.e., the NRTL
may not be owned by manufacturers or suppliers of the product(s) to be
tested and certified" (Affiliation, page 2, A Guide For Applying As A
Nationally Recognized Testing Laboratory (Exhibit 17-1) (emphasis
added)). ETI's application letter claimed that it followed the guide in
preparing its application.
In December 1999, OSHA finalized a Directive implementing certain
policies and procedures of the NRTL program. In the Directive, OSHA
further interpreted the independence requirement (see NRTL Program
Policies, Procedures, and Guidelines--CPL 01-00-003--CPL 1-0.3 (NRTL
Program Directive), Appendix C.V). The Directive stated that in order
to meet the independence requirement, NRTLs "must be free from
commercial, financial and other pressures that could compromise the
results of its testing and certification processes." The Directive
makes clear that NRTLs must avoid these pressures from manufacturers of
equipment.\1\
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\1\ NRTLs, including ETI, were given the opportunity to comment
on an early draft of the key policies in the Directive, including
the independence policy. ETI provided no comments on it (Exhibit 17-
2).
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Under its independence policy, OSHA presumes that "pressures"
exist if there is a substantial relationship between the NRTL and a
manufacturer "of products that must be certified which could
compromise the objectivity and impartiality in determining the results
of its testing and certification processes." Substantial, for purposes
of the policy, "means of such a nature and extent as to exert undue
influence on the testing and certification processes." The policy
recognizes that certain relationships between an NRTL and a
manufacturer of products that need to be certified can affect the
objectivity of an NRTL's testing and certification processes. A
laboratory that has these relationships generally would not be
independent and could not be recognized by OSHA as an NRTL.
The Directive also sets forth a non-exclusive list of relationships
that are "substantial" for purposes of the policy:
The NRTL is a supplier or major user of products that an
NRTL must certify, or is organizationally affiliated with such a
supplier or major user;
The NRTL significantly finances, invests in, sells product
design, similar services or products to a supplier or major user of
products that an NRTL must certify;
The NRTL is owned in excess of two percent (2%) by a
supplier or major user of products that an NRTL must certify, or their
major owners;
The NRTL receives significant financing from a supplier or
major user of products that an NRTL must certify, or their major
owners;
A person holding a substantial position with the NRTL has
a significant financial interest in a supplier or major user of
products that an NRTL must certify, or is a director or key personnel
of either.
OSHA has determined that if a laboratory has these relationships it
would not be free from undue influences on its testing and
certification operations and OSHA presumes that pressures exist in
these situations. As stated, however, this is a non-exclusive list;
OSHA may determine in a specific case that other relationships would be
"substantial" for purposes of the policy.
Applicants can rebut the presumption that such pressures exist by
clear and convincing evidence. OSHA intended this rebuttal to provide
applicants an opportunity to clarify their organizational relationships
and explain how the nature of those relationships does not create
pressures. If the applicant cannot rebut the presumption, then the
applicant would not meet the independence requirement.
In some limited situations, the policy allows OSHA to prescribe
"conditions" on NRTLs for initial or continued recognition even when
the Agency determines that pressures exist. Such conditions, however,
"must be consistent with the policy," in that they must effectively
eliminate the pressures stemming from the substantial relationship. The
Directive also provides examples of conditions OSHA may consider
imposing: (1) Restricting the suppliers for whom the NRTL may test and
certify products; or (2) restricting the type of products the NRTL may
test and certify.
Whether imposing conditions on an applicant is appropriate is a
judgment made by the Agency on a case-by-case basis. OSHA has
discretion whether to impose conditions in a particular case. The
independence policy does not require OSHA to impose conditions; it only
allows for conditions to be imposed. In most cases, pressures stemming
from a substantial relationship could not be effectively eliminated and
thus OSHA could not impose conditions "consistent with the policy."
OSHA's ability to impose conditions is limited to those rare instances
when the substantial relationships cause only "minimal" pressures.
In analyzing these situations, OSHA must carefully examine the
ownership situation, the types of products at issue, the scope and
magnitude of the NRTL's operations and the operations of manufacturers
or employers using the products, as well as other factors. OSHA also
must consider the degree to which it can monitor NRTL compliance with
any conditions. This is particularly important. OSHA typically audits
NRTLs once a year to ensure they continue to meet the NRTL requirements
and to maintain the quality of their testing and certification
operations. If imposing conditions on an NRTL would be impossible for
OSHA to audit effectively, on that basis alone conditions would not be
appropriate.
OSHA intends its policy on NRTL independence to be a
straightforward approach for judging the NRTL's compliance with the
Agency's independence requirement under 29 CFR 1910.7. OSHA cannot
perform in-depth analyses of an applicant's or NRTL's ownership or
financial relationships and interests. The applicant or NRTL has the
burden of showing it is independent, and, in considering if it meets
the requirement, those relationships must present none or only minor
pressures.
For the reasons set forth below, OSHA preliminarily finds that ETI
does not meet OSHA's NRTL independence requirement. There is a substantial
relationship between ETI and Emerson, one of the leading global
manufacturers of electric and electronic equipment. This relationship
creates pressures that could compromise the results of ETI's testing
and certification processes, which have not been rebutted by clear and
convincing evidence. In addition, there are no conditions that OSHA
could impose to mitigate the pressures. And, even if such conditions
could be imposed, OSHA has preliminarily concluded that it could not
effectively monitor ETI's compliance with them. In making this
preliminary determination regarding ETI's independence, the Agency
emphasizes that this determination does not include any positive or
negative finding about ETI's other technical capabilities that would be
needed to support continued recognition.
III. Preliminary Finding of Non-Independence
a. ETI Has a "Substantial Relationship" With Emerson
ETI is wholly-owned by Emerson. Emerson is a manufacturer of
electrical and electronic products, many of which require NRTL
certification if used in the workplace. Under the NRTL independence
policy, this constitutes a "substantial relationship": ETI is
organizationally affiliated with--and is owned in excess of two percent
by--a supplier of products requiring NRTL certification. ETI does not
dispute that it has a substantial relationship with Emerson. Because
there is a substantial relationship, OSHA presumes that pressures exist
that could compromise the results of its testing and certification
processes and that ETI is not independent.
b. ETI Has Failed To Rebut the Presumption of Pressures
ETI has attempted to rebut the presumption of pressures. In various
letters to the Agency ETI has explained why it believes it is not
subject to pressures from Emerson that could compromise the results of
its testing and certification processes. ETI states that it has
decision making independence from Emerson, as well as economic
independence. Furthermore, it contends that the organizational
relationship between ETI and any Emerson manufacturing company is
indirect and, as a result, should raise fewer concerns that pressures
exist. Finally, ETI claims that it has taken a variety of steps to
ensure that it does not test or certify any products from Emerson. The
Agency has carefully considered this information; however, it finds
that the presumption of pressures has not been adequately rebutted.
1. ETI's Independence From Emerson
ETI states that it "receives no financing whatsoever from Emerson,
[and] [t]here is no evidence in the record suggesting that Emerson
wields any decision making influence on ETI" (ETI's Statement of
Reasons, p. 6 (Exhibit 16-10)). ETI suggests that it is a completely
separate entity that operates independently from Emerson. OSHA is not
convinced by these statements.
ETI's statements that Emerson possesses no decision making
influence over ETI do not address the fundamental aspect of control
that a parent company has over a "controlled" subsidiary (e.g., a
wholly-owned or majority-owned subsidiary). According to the Securities
and Exchange Commission, control is the "possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise" (17 CFR 230.405). The
parent company of a wholly-owned subsidiary has ultimate control over
the subsidiary even though it may delegate some aspects of that control
to the subsidiary. Control can be exerted through changes in policy,
changes to the leadership of the wholly-owned subsidiary, and even
buying and selling the subsidiary. As the Supreme Court has stated in
the antitrust context:
A parent and its wholly owned subsidiary have a complete unity
of interest. Their objectives are common, not disparate: their
general corporate actions are guided or determined not by two
separate corporate consciousnesses, but one. They are not unlike a
multiple team of horses drawing a vehicle under the control of a
single driver. With or without a formal "agreement," the
subsidiary acts for the benefit of the parent, its sole shareholder.
* * * [T]he parent may assert full control at any moment if the
subsidiary fails to act in the parent's best interests.
Copperweld Corp. et al. v. Independence Tube Corp., 467 U.S. 752, 771-
72 (1984) (emphasis added). At any time, Emerson has the power to
dictate ETI's actions. ETI does not have decision making independence.
ETI's claims of economic independence from Emerson are also
unpersuasive. First, acquisition itself is a form of financing. The
cash or other assets of the purchased company are maintained and
typically enhanced by the purchasing company. In fact, after the
acquisition of ETI by Emerson, ETI stated that "[t]he acquisition will
provide [ETI] the necessary capital to accelerate its growth as a
nationwide organization" (see Exhibit 9-1) (emphasis added)). Second,
while ETI states that to date it has received no additional financing
from Emerson (since the initial acquisition), this could change at any
time. OSHA has received no assurances from Emerson that it will refrain
from making financial contributions to ETI.\2\ In fact, on its Web page
ETI suggests the opposite: "As a wholly-owned subsidiary [of Emerson],
we have direct access to the combined resources of one of the world's
most respected industrial leaders" (see Exhibit 17-3).
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\2\ Even if such assurances were provided, OSHA would be unable
to verify that no financial contributions occurred, given the
technical (non-financial) nature of OSHA's audits and the vast scope
of Emerson's operations.
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2. ETI's Organizational Relationship to Emerson
ETI also contends that Emerson is simply a holding company, which
owns only a "few" subsidiaries that manufacture products that require
NRTL certification (ETI's Statement of Reasons, p. 6. (Exhibit 16-10)).
For this reason, ETI contends that its relationship with Emerson "is
indirect and, as a result, should raise a significantly less concern
that pressures could be exerted on the NRTL" (Id.). Furthermore, ETI
suggests that because no member of its Board of Directors is directly
affiliated with an Emerson owned manufacturer, there is little
opportunity for pressures to be exerted on ETI. OSHA finds that the
organizational relationship between ETI and Emerson does not rebut the
presumption of pressures.
When ETI was first purchased, ETI's Board, which includes a total
of only three members, consisted of two Emerson executives: Director
Corporate Development Emerson; and President, Customer Service &
Support, a subsidiary of Emerson Electric Co. As stated above, ETI
changed its Board of Directors in response to concerns raised by OSHA.
Even so, the replacement Board still consisted of two individuals
closely affiliated with Emerson: One was a former longtime Emerson
employee who was a Vice President of Emerson; and one was the President
of an Emerson-owned subsidiary. The third member was ETI's President.
As a result, these changes in the Board of Directors provided little
organizational separation between ETI and Emerson. With the exception
of the retired Emerson employee, the Board of Directors still included
a director who was part of the Emerson family of companies. Even the
retired member had considerable ties to Emerson and its management from
his many years of working with the company in a variety of capacities.
Due to these close associations, comprising a majority on the ETI Board
of Directors, the potential remains for Emerson to influence ETI's
testing and certification operations, as would be expected with a
wholly-owned subsidiary. At the very least, these associations make
Emerson privy to the Board's deliberations on behalf of ETI.
Furthermore, it is clear that ETI is an integral part of Emerson's
operations. ETI is part of the Emerson Process ManagementTM
brand platform of Emerson. Emerson Process ManagementTM is
one of the largest Emerson brand platforms with over 20 divisions and
subdivisions. ETI is considered a "division" of Emerson and is
highlighted on Emerson's Web pages. ETI itself describes its important
role in Emerson's operations: "Within the Emerson family of companies,
we are an integral part of the Asset Optimization team of Emerson
Process Management which aggregates the service divisions of over 100
Emerson companies. Our goal is to create solutions to optimize the
process industry" (see Exhibit 17-3).
Emerson's Web pages emphasize a close relationship between Emerson
and ETI. For example, Service Data Sheets put out by ETI include the
Emerson Process ManagementTM logo, copyright information,
and address (see Exhibit 17-4). When ETI announced its name change to
Electrical Reliability Services, it stated: "While our new identity
symbolizes our comprehensive solutions offering, it also demonstrates
our relationship to our parent company, Emerson. As part of Emerson's
Asset Optimization Division, Electrical Reliability Services provides
you with full access to Emerson's vast technical and human resources"
(see Exhibit 17-5). OSHA is not convinced that ETI's relationship with
Emerson is so distant that pressures do not and will not exist that
could compromise the results of its testing and certification
processes.
3. Corporate No-Testing Policy
ETI has established a policy that no NRTL testing, evaluation or
certification work will be knowingly completed for Emerson owned
companies. The policy states further that "[t]he ownership of each
client will be verified as not being part of Emerson prior to [ETI]
submitting a proposal and on an ongoing basis for as long as the
listing relationship between the client and [ETI] exists" (see Exhibit
16-7, Attachment 2, page 1). This is a key aspect of ETI's rebuttal.
ETI contends that it will have no pressures because it will not
knowingly test or certify any products produced by Emerson companies.
While OSHA appreciates the steps taken by ETI, these policy changes do
not rebut the presumption of pressures.
First, ETI's policy does not address the fundamental ownership
situation of ETI and the control that Emerson can assert over its
operations. At any time, Emerson can change ETI's policies, including
the corporate no-testing policy. The bottom line is that ETI is owned
in excess of 2% by a major supplier of products that must be NRTL
approved when used in the workplace. This relationship and the control
that can be asserted are not addressed by the corporate no-testing
policy.
Second, ETI's corporate no-testing policy appears to deal only with
final products manufactured by Emerson, and not component parts.
Emerson-owned and affiliated companies produce countless electrical
components used by other manufacturers in final products, and use major
components or products of other manufacturers in Emerson's electrical
final products. The corporate no-testing policy does not affect this
part of Emerson's business, which is a major area of pressures that
could be exerted on ETI. Even if other organizations perform the
testing now, this does not prevent Emerson from establishing a policy
in the future that instead relies on ETI testing for components if
Emerson found this to be beneficial for itself and affiliated
organizations.
Third, the policy does not appear to cover contractors hired by
Emerson or the other affiliations and joint ventures Emerson has
throughout the world. According to Emerson Web pages, Emerson
operations in China alone consist of "30 wholly owned and joint
venture facilities" (see Exhibit 17-6). OSHA anticipates that the
number and scope of these relationships will only increase as Emerson
continues to grow its sales and manufacturing presence around the
world, in such areas as Asia, Latin America, and Eastern Europe (see
Exhibit 17-7). Products from these operations could enter the U.S.
market and thus U.S. workplaces. ETI's corporate no-testing policy in
no way alleviates the pressures that can result from these
relationships.
Furthermore, Emerson's operations are so vast that OSHA seriously
doubts ETI's ability to effectively enforce its own policy. ETI says
that Emerson has a "significant" number of subsidiaries, a "few" of
which manufacture products requiring NRTL certification. OSHA reviewed
Emerson's 2006 10-K filing with the Securities and Exchange Commission,
and it shows that Emerson has over 800 subsidiaries in countries
throughout the world (see Exhibit 17-8). Emerson owns over 270
manufacturing sites and employs approximately 128,000 people worldwide.
Emerson's product lines are also vast. The company's 10-K provides
just a snapshot of the variety of products Emerson companies
manufacture, including: electrical distribution conduit and cable
fittings, plugs and receptacles; industrial lighting, and controls;
uninterruptible AC and DC power systems; cooling products for
computers, telecommunications, and other equipment; refrigeration
products in industrial applications; electric motors, HVAC equipment,
furnaces, fans, heat pumps; professional tools such as wet-dry vacuums;
and other assorted power tools that can be used in the workplace. Some
of these products fit within the two test standards included in ETI's
current scope of recognition. For example, Emerson produces power
conversion units, which can be tested pursuant to UL 508C Power
Conversion Equipment. ETI is currently recognized to test products in
accordance with that test standard. ETI has also requested that OSHA
expand its NRTL recognition to add new test standards that would also
include other Emerson products. Given the vast nature of Emerson's
operations, OSHA believes it is virtually impossible for ETI to
effectively enforce its corporate no-testing policy.
It would also be virtually impossible for OSHA to monitor ETI's
corporate no-testing policy. OSHA typically audits its NRTLs annually
to ensure they are complying with the NRTL regulations and procedures,
as well as their own internal policies and procedures. These audits are
technical in nature and focus on the quality of the NRTL's testing and
certification operations. OSHA does not have, nor did it ever intend to
have, the resources to enable it to audit ETI's corporate no-testing
policy, especially given the vast scope of Emerson's operations. The
number of subsidiaries and other affiliated companies, manufacturing
facilities, and the broad array of products manufactured by Emerson and
its affiliated organizations, would prohibit OSHA from effectively
performing its audit functions.
To add to an already complex situation, OSHA's ability to audit
would be made more difficult because of the changing nature of
Emerson's operations. Emerson is continually buying and selling new
companies. For example, according to its 2005 Annual Report (see Exhibit
17-9, page 18):
The Company acquired Do+Able, a manufacturer of ready-to-
assemble storage products, and Numatics, a manufacturer of pneumatic
and motion control products, and several smaller businesses during
2005. * * * During 2004, the Company acquired the North American
outside plant and power systems business of Marconi Corporation PLC,
as well as several other small businesses for a total of
approximately $414 million in cash.
Emerson describes as part of its business focus to "seek to grow
through emphasis on "strategic acquisitions and divestitures * * *
that better position our company in terms of markets and breadth of
product offerings" (see Exhibit 17-10). Based solely upon the nature
of Emerson's continually changing holdings, it would be almost
impossible for OSHA to continually monitor ETI's adherence to the
corporate no-testing policy.
For all of these reasons, OSHA finds that ETI has failed to rebut
the presumption of pressures. One of the largest electrical
manufacturers in the world wholly owns an NRTL that tests the types of
equipment that the manufacturer produces. This does not satisfy OSHA's
requirement that NRTLs be "completely independent."
c. OSHA Cannot Impose Conditions on ETI
While OSHA has considered its ability to impose conditions in this
case, and discussed this with ETI, OSHA has concluded that conditions
are not appropriate. The relationship between Emerson and ETI is such
that imposing conditions would not be consistent with the independence
policy.
As described above, OSHA's independence policy permits conditions
to be imposed only in those circumstances where there are minimal
pressures and the conditions would not negate the underlying
independence requirement. The extent to which conditions may be imposed
in a situation of a manufacturer-owned NRTL depends upon the ownership
situation, the scope of testing of the NRTL, and the scope of the
products manufactured, among other things.
In this case, Emerson wholly owns ETI; this is not a situation
where a manufacturer owns only a small, minority percentage of an NRTL
and thus could exert only minimal pressures over the NRTL. Furthermore,
the scope of products that Emerson produces is enormous. Emerson
produces a litany of products that require NRTL certification, as
described above. In addition, the types of products that ETI tests
cover the products that Emerson produces. ETI is currently recognized
to test products according to the following test standards: UL 508
Electric Industrial Control Equipment; UL 508C Power Conversion
Equipment. These standards include the products that Emerson companies
produce. ETI has also requested that it be recognized to test products
according to several other test standards that include other products
produced by Emerson. Given these circumstances, OSHA cannot impose
conditions without negating the fundamental requirement that NRTLs be
independent of "any manufacturers or vendors of equipment or materials
being tested for [equipment requirements]" (29 CFR 1910.7(b)(3)).
Finally, when imposing conditions, OSHA must consider whether it
can reasonably monitor an NRTL's compliance with those conditions. OSHA
is simply not equipped to monitor the various aspects of ETI's
ownership relationships and affiliations with the numerous subsidiaries
of Emerson. As noted earlier, the Agency's policy on independence
provides a straightforward, practical approach to determining whether
an organization meets the requirement for independence. OSHA is not
requiring through the policy that its staff analyze actual or potential
business activities or determine possible activities that cause actual
or potential conflicts and pressures. This information is beyond the
reach of OSHA's auditing capabilities under the NRTL Program.
d. OSHA Has Taken a Consistent Position on Independence
ETI contends that OSHA has applied a stricter definition of
independence in ETI's case than it has in other cases (ETI's Statement
of Reasons, pp. 5-6 (Exhibit 16-10)). In particular, it suggests that
OSHA treated another NRTL--Intertek Testing Services NA, Inc.
(Intertek)--differently than it treated ETI. It also suggests that OSHA
has taken different positions on independence in its dealings with ETI
over the last several years. OSHA disagrees. The Agency has
consistently applied its independence policy across the board to all
NRTLs and throughout its dealings with ETI.
OSHA did not apply a different standard for independence in its
dealings with Intertek. Intertek's parent had acquired, and merged into
Intertek's overall laboratory operations, a small manufacturer of
laboratory test equipment, Compliance Design. In discussing this
ownership situation in the context of an application for expansion of
recognition, OSHA stated:
In accordance with OSHA policy, if [Intertek] were to certify
the type of products manufactured or sold by Compliance Design, then
[Intertek] would not meet the requirement in 29 CFR 1910.7 for
complete independence. Also, [Intertek's] parent company is Intertek
Testing Services, Ltd. (ITSLtd). If [Intertek] were to certify a
type of product for an entity owned by ITSLtd, and that entity is
also a supplier of that type of product, then [Intertek] would not
be "completely independent" (65 FR 71124, November 29, 2000).
In short, Intertek was not independent because its parent company owned
a manufacturer of equipment that, under certain circumstances, needed
NRTL approval.
In the case of Intertek, however, OSHA was able to impose a
condition to effectively eliminate the pressures stemming from
Intertek's relationship with Compliance Design.\3\ The condition
included a no-testing policy for Compliance Design, and for any
manufacturer affiliated with Intertek. OSHA had no information showing
that Intertek or its parent owned any other manufacturing interest but
imposed the broader condition as a precaution. This condition could be
imposed because, unlike ETI's situation, the manufacturer at issue was
very small and produced just one type of product. Intertek could
enforce the no-testing policy, and, due to the very small nature of the
operations of Compliance Design, OSHA was able to effectively monitor
Intertek's compliance with the policy. In fact, Intertek's relationship
to Compliance Design was brought to light in the report of an audit of
Intertek. ETI's case, on the other hand, is much different. Emerson's
operations are so vast--with 800 subsidiaries, 270 manufacturing
locations, and countless products manufactured--that there are no
conditions that could mitigate all the pressures and that OSHA could
effectively monitor.\4\
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\3\ OSHA announced the removal of the condition on January 28,
2002 (67 FR 3913), after Intertek informed OSHA that the unit had
ceased operation.
\4\ The only other instance where OSHA imposed a condition on an
NRTL with a known conflict related to independence was for Wyle
Laboratories, Inc. At the time of its recognition, Wyle was part of
an organization with a division that manufactured and distributed
electronic enclosure cabinets. Like Intertek, OSHA was able to
impose a condition that Wyle not test or certify any equipment that
utilized an electronic enclosure manufactured by Wyle. This
condition was easy for Wyle and OSHA to monitor since the only
product at issue was electrical enclosure cabinets. OSHA notes that
the condition is no longer in place since, in 1997, Wyle informed
OSHA that it had sold this division.
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In addition, OSHA has previously informed laboratories that they
could not become NRTLs because they were owned by a manufacturer. In a recent
case, a laboratory applied but stopped the application process after it
better understood OSHA's concerns over its relationship with its owner-
manufacturer, a manufacturer of computer and telecommunications
hardware products. OSHA has applied its policy fairly and its
determinations regarding ETI's independence are consistent with the
Agency's previous positions.
ETI also argues in its rebuttal statement that a draft fax it
received from OSHA staff constituted an "interpretation" of the
independence requirement that is at odds with OSHA's current
interpretation. In December 2001, OSHA staff sent a draft fax to ETI
that detailed some preliminary findings and conclusions about ETI's
lack of independence. These preliminary findings in many ways mirrored
OSHA's other correspondence with ETI. It expressed concerns about the
vast nature of Emerson's operations, the Board of Directors of ETI, and
the fact that neither ETI nor OSHA could effectively monitor the
corporate no-testing policy (see Exhibit 17-11). It also listed some
conditions that ETI could consider as it was evaluating the
independence criteria and its relationship with Emerson.
The draft fax is not a statement of Agency policy (Miller v.
Youakim, 440 U.S. 125, 146 n.25 (1979)). It was intended as a
discussion piece between OSHA and ETI. It is not signed by an Agency
official and is clearly marked draft on each page. ETI knew at the time
that the document was simply a draft that was sent out to solicit
comment from ETI. This is supported by the fact that ETI made no
attempts to implement any of the suggestions included in the draft. In
fact, ETI never formally responded to the draft.
OSHA's official statements regarding ETI's ownership situation have
been entirely consistent. Starting with the first correspondence
related to the independence issue, OSHA has consistently stated that
ETI was not independent because it was wholly owned by Emerson:
See Exhibit 16-5: "Under our policy on independence,
Emerson would be a `supplier' of products that must be certified by an
NRTL. As described in our policy, since Emerson owns ETI and two of its
officers are Directors of ETI, ETI would fail to meet the requirement
for complete independence of an NRTL, under paragraph (b)(3) of 29 CFR
1910.7."
See Exhibit 16-6: "After consulting with attorneys in the
Department of Labor's Office of the Solicitor, we believe that the
information in your May 17 letter does in fact confirm that ETI does
not meet our independence requirement."
See Exhibit 16-8: "The independence requirement in Sec.
1910.7 is intended to prevent relationships that could unduly influence
and thereby compromise the NRTL's testing and certification process.
OSHA considers an NRTL not to be independent if it is owned by a
manufacturer of the type of products for which OSHA requires
certification by NRTLs."
See Exhibit 16-9: "The fundamental reason for denial is
ETI's ownership by Emerson Electrical Corporation (Emerson), a
manufacturer of a wide variety of equipment that OSHA requires to be
approved (i.e., tested and certified) by NRTLs. As such, this violates
the NRTL requirement for independence set forth under 29 CFR
1910.7(b)."
As these statements demonstrate, OSHA has consistently informed ETI
that its ownership by Emerson violated the independence requirement.
OSHA has provided ETI several opportunities to rebut the presumption of
pressures. ETI simply has not met its burden of demonstrating by clear
and convincing evidence that pressures do not and will not exist that
could compromise the results of its testing and certification
processes.
Request for Renewal of Recognition
ETI seeks renewal of its recognition for the site that OSHA has
previously recognized. ETI also seeks renewal of its recognition for
testing and certification of products for demonstration of conformance
to the following two test standards, which OSHA has previously
recognized for ETI. Each of these standards is an "appropriate test
standard," within the meaning of 29 CFR 1910.7(c): UL 508 Industrial
Control Equipment; UL 508C Power Conversion Equipment. The designations
and titles of these test standards were current at the time of the
preparation of this notice.
Preliminary Finding
Following a review of the application file and other pertinent
information, and for the reasons summarized above, OSHA has determined
that ETI has not met all the requirements for renewal of its
recognition. OSHA staff, therefore, recommended to the Assistant
Secretary that the application be denied.
The Assistant Secretary has made a preliminary finding that ETI
fails to meet all the requirements prescribed by 29 CFR 1910.7 for the
renewal of its recognition, and, therefore, OSHA proposes to deny
renewal of that recognition. This preliminary negative finding does not
constitute OSHA's final decision on the application for renewal.
As stated above, OSHA welcomes public comments, in sufficient
detail, as to whether ETI has met the requirements of 29 CFR 1910.7 for
the renewal of its recognition as a NRTL. Your comments should consist
of pertinent written documents and exhibits. Should you need more time
to comment, you must request it in writing, including reasons for the
request. OSHA must receive your written request for extension no later
than the last date for comments. OSHA will limit any extension to 30
days, unless the requester justifies a longer period. We may deny a
request for extension if it is not adequately justified. You may obtain
or review copies of the ETI request, the on-site review report, ETI's
statement of reasons, other pertinent documents, and all submitted
comments, as received, by contacting the Docket Office, Room N2625,
Occupational Safety and Health Administration, U.S. Department of
Labor, at the above address. Docket No. NRTL2-94 contains all materials
in the record concerning the ETI application.
The NRTL Program staff will review all timely comments and, after
resolution of issues raised by these comments, will recommend whether
to grant the ETI renewal request. The Assistant Secretary will make the
final decision on granting the renewal and, in making this decision,
may undertake other proceedings that are prescribed in Appendix A to 29
CFR Section 1910.7. OSHA will publish a public notice of this final
decision in the Federal Register.
Signed at Washington, DC, this 23rd day of April, 2007.
Edwin G. Foulke, Jr.,
Assistant Secretary of Labor for Occupational Safety and Health.
[FR Doc. E7-8455 Filed 5-2-07; 8:45 am]
BILLING CODE 4510-26-P
