CWA §316(b) Phase III Rule - APPA’s “Back of the Envelope” Analysis Do The Potential Benefits Justify Further Regulation of Low Flow Power Producers? Presented at the July 30, 2004 Small Business Administration’s Office of Advocacy Environmental Roundtable Meeting

APPA – Who We Are The American Public Power Association (APPA) is the service organization for the nation's more than 2,000 community-owned electric utilities that serve more than 43 million Americans. Its purpose is to advance the public policy interests of its members and their consumers, and provide member services to ensure adequate, reliable electricity at a reasonable price with the proper protection of the environment.

Purpose of This Presentation Use the administrative costs and commercial/recreational benefits estimated for Phase II Rule facilities to develop a VERY ROUGH estimate of what administrative costs power producers might face under Phase III. Using those administrative costs alone (not counting capital, O&M, monitoring, reporting, recordkeeping, or other compliance costs), develop some sense for the likelihood that requiring Phase III power producers (i.e., those with flow less than 50 MGD) to incur those costs will produce corresponding economic benefits

Caveats About This Analysis APPA recognizes potential differences between Phase II and Phase III facilities and doesn’t suggest that such facilities necessarily are strictly comparable Analysis relies on simplistic assumption that benefits are proportional to flow, which probably is not a valid assumption in many, if any, cases.

Caveats About This Analysis Analysis doesn’t account for many site-specific factors that affect both costs and benefits Analysis doesn’t account for non-use values, to the extent they are likely to exist at all Analysis is based on imperfect information, is highly simplistic, and is a best an educated guess about potential costs and benefits

Power Producers Subject to Regulation Under the Phase II Rule The Phase II Rule regulated 554 power facilities, using an estimated 216 billion gallons per day (“BGD”) of cooling water. This intake flow accounts for 98% of the total cooling water used by power producers in the United States. EPA, Economic and Benefits Analysis for the Final Section 316(b) Phase II Existing Facilities Rule, A2-2, EPA-821-R (Feb. 2004).

Benefits Produced by the Phase II Rule EPA estimated total use benefits produced by the Phase II Rule to be $82.5 million per year (based on a 3% discount rate). 69 Fed. Reg , (July 9, 2004). Regulating 216 BGD of intake flow = $82.5 million in use benefits. This figure does not include possible non-use benefits, which the Agency stated it believed existed but could not monetize.

Low-Flow Power Producers Subject to the Phase III Rule – Who Is Left? EPA informally estimates that 121 power producers could be subject to regulation under the Phase III Rule. These 121 facilities intake approximately 2.4 BGD of cooling water, or less than 2% of all cooling water used by power producers. from Mary T. Smith, Director, EPA’s Engineering and Analysis Division, to various industry representatives (June 18, 2004).

APPA Applied a Simple Ratio, Based on the Affected Flow, to Estimate Potential Phase III Benefits Phase II Rule: 216 BGD = $82.5 million/yr Phase III Rule: 2.4 BGD = $916,666/yr APPA emphasizes that this is only a very crude estimate of potential benefits. However, it certainly adds context to the discussion of whether it is beneficial to regulate low-flow power producers.

Administrative Costs Involved With Obtaining an NPDES Permit Under the Phase II Rule EPA, Economic and Benefits Analysis for the Final Section 316(b) Phase II Existing Facilities Rule, B1-5, EPA-821-R (Feb. 2004).

Factors to Consider When Looking at the Phase II Administrative Costs Not all costs will apply to all facilities. Some costs may apply only if a facility’s flow exceeds certain thresholds. Some costs may apply only if the facility pursues a certain compliance option. Some of these costs are incurred over 1-3 years.

Factors to Consider When Looking at the Phase II Administrative Costs Costs may be reduced substantially for facilities that already have advanced technologies, such as closed-cycle cooling or extremely low through-screen intake velocity (at or below 0.5 fps). EPA has estimated informally, based on preliminary information, that 73% of the power plants in Phase III have re-circulating cooling However, for facilities that are not in compliance with whatever requirements EPA sets, the majority of these administrative costs could be relatively similar for Phase II and III facilities.

Costs Not Included O&M costs for actual construction of the intake technology. Costs for pilot studies verifying the effectiveness of the selected technology. Costs associated with site-specific BTA determinations. Permit renewal costs. Costs associated with ongoing monitoring, record- keeping, and reporting requirements. Costs incurred by state permitting authorities processing permits and administering the program.

Observations Applying a simple ratio, APPA estimates the total use benefits that could be generated from the regulation of all low-flow power producers under the Phase III Rule to be only $916,666 per year. Just the administrative costs for one facility, withdrawing cooling water from a freshwater river, to apply for an NPDES Permit under the Phase II Rule (and, by analogy, the Phase III Rule) is approximately $564,802. Just the administrative costs for one facility, withdrawing cooling water from the ocean, to apply for an NPDES Permit under the Phase II Rule (and, by analogy, the Phase III Rule) is $1,004,061.

Observations (Cont’d) Total Phase III Rule benefits = $916,000 Vs. Admin. costs for two facilities (freshwater) = $1,129,604 Total Phase III Rule benefits = $916,000 Vs. Admin. costs for one facility (ocean) = $1,004,061

Furthermore… Many of the would-be Phase III facilities are small businesses. In fact, over 90% of APPA members meet the SBREFA definition of a small business and have less than 20 employees. Regulation under the Phase III Rule would produce extraordinary burdens for these small, but important power producers. In addition to being small businesses, many are municipal facilities. The costs forced upon these facilities by new regulations amount to “unfunded mandates” that will be born by the local citizens.

Conclusion APPA provides this rough comparison to demonstrate the heavy costs associated with the Phase III Rule relative to the minimal benefits that can be gained from regulating this small population of cooling water users. It is especially important to view these costs in light of the nature and size of the facilities potentially regulated under the Rule. APPA urges EPA to develop a rule that reasonably considers these impacts.

Conclusion (Cont’d) One rationale approach: 1.Determine that facilities already installed with closed-cycle cooling meet BTA. 2.Because the data indicate that applying a uniform technology to these facilities is not economically practicable or justified by the likely environmental benefits, EPA should allow permit writers to use their best professional judgment to determine whether any further CWIS controls are needed for Phase III power plants

Conclusion (Cont’d) EPA also should make it clear that: –Power plants that use re-circulating already have BTA. –Where site-specific conditions warrant some further assessment of the need for CWIS controls, such assessment and any controls should be carefully tailored to the site, and should ensure that the costs incurred by the permittee are commensurate with the benefits likely to be attained.