National Pollutant Discharge Elimination System-- Proposed Regulations To Establish Requirements for Cooling Water Intake Structures at Phase III Facilities [[pp. 68493-68542]]

Note: EPA no longer updates this information, but it may be useful as a reference or resource.

[Federal Register: November 24, 2004 (Volume 69, Number 226)]
[Proposed Rules]
[Page 68493-68542]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24no04-26]

[[pp. 68493-68542]]
National Pollutant Discharge Elimination System--Proposed
Regulations To Establish Requirements for Cooling Water Intake
Structures at Phase III Facilities

[[Continued from page 68492]]
[[Page 68493]]

impingement or entrainment, or significant adverse impacts on energy
markets. In this case, alternative requirements may be imposed in the
permit. See the Phase I final preamble for a more detailed explanation
of this cost-cost test which is different than the cost-cost test for
existing sources (66 FR 65256).
Fixed facilities with seachests and all non-fixed (or ``mobile'')
facilities would not be required to comply with standards for
entrainment. Fixed facilities with seachests may choose either Track I
or Track II to comply with impingement mortality performance standards.
Non-fixed facilities must comply with the 0.5 feet per second through-
screen design intake flow velocity performance standard for impingement
mortality of Track I. In addition, the Director may determine
additional design and construction technologies to minimize impingement
mortality are necessary where there are either protected species of
concern within the hydrologic zone of influence of the cooling water
intake structure, or based on other information from fishery management
services or agencies. The new mobile facility, when applying to operate
under a general permit, would identify where it expects to be
operating. The Director consults with the fishery management agencies,
considers their data as well as any other relevant data, and decides
whether to propose additional requirements based on any concerns the
Director identifies (see Sec. 125.134(b)(4)). For example, Region 10
has established a general permit for Cooks Inlet that established a 0.1
feet per second through-screen design intake flow velocity performance
standard. However, non-fixed facilities would not be required to submit
the source water baseline biological characterization data and some
aspects of the source water physical data requirements. Requirements
for non-fixed facilities are described later in this section.
EPA notes that some mobile facilities (e.g. some jack-ups) may not
have seachests and therefore could feasibly install entrainment
controls. EPA proposes not to require entrainment controls for these
mobile facilities due to the transient nature of their operations and
an expectation that they are not likely to cause significant impacts.
EPA took a similar approach in its Phase II rule when the Agency did
not require entrainment controls at power plants that operate less than
15 percent of the year. EPA solicits comment and data on its proposal
to only require impingement controls at mobile facilities that do not
have seachests.
1. For New Offshore Oil and Gas Extraction Fixed Facilities, What
Information Is Required To Be Collected for the NPDES Application?

Source Water Baseline Biological Characterization Data (Sec.
122.21(r)(4)) (Both Track I and II)

Under today's proposed rule, new offshore oil and gas extraction
fixed facilities would be required to submit source water baseline
biological characterization data as required under Phase I. The data
would be used to characterize the biological community in the vicinity
of the cooling water intake structure and to characterize the operation
of the cooling water intake structure. The data would include existing
data (if available) supplemented with new field studies as necessary.
Detailed data requirements are at Sec. 122.21(r)(4). Under today's
proposed rule, a group of fixed facilities may choose to conduct a
regional study to collect this information as approved by the Director.
EPA recognizes that many offshore oil and gas extraction facilities are
regulated under NPDES general permits and that regional studies are
typically conducted as part of the general permit requirements. EPA
anticipates the regional studies would be conducted once each permit
cycle. Under today's proposed rule, the regional study would also
include annual monitoring requirements.

Velocity Information (Track I)

Today's proposed rule would require that new offshore oil and gas
extraction fixed facilities submit velocity information consistent with
Sec. 125.136(b)(2). The information would be used to demonstrate to
the Director that the facility is complying with the requirement to
meet a maximum through-screen design intake velocity of no more than
0.5 feet per second at the cooling water intake structure. The
following information would be required to be submitted: (1) A
narrative description of the design, structure, equipment, and
operation used to meet the velocity requirement; and (2) design
calculations showing that the velocity requirement would be met at
minimum ambient source water surface elevations (based on best
professional judgment using available hydrological data) and maximum
head loss across the screens or other device or, if the facility uses
devices other than a surface intake screen, at the point of entry to
the device.

Source Waterbody Flow Information (Track I and II)

Today's proposed rule would also require that new offshore oil and
gas extraction fixed facilities submit source waterbody flow
information in accordance with Sec. 125.136(b)(2) or (c)(1). The
information would be used to demonstrate to the Director that the
facility's cooling water intake structure meets the proportional flow
requirements at Sec. 125.134(b)(3) or (c)(2). These requirements would
include specific provisions for fixed facilities located on estuaries
or tidal rivers to provide greater protection for these sensitive
waters. Specifically, the proposed rule would require that the total
design intake flow over one tidal cycle of ebb and flow must be no
greater than one (1) percent of the volume of the water column within
the area centered about the opening of the intake with a diameter
defined by the distance of one tidal excursion at the mean low water
level. Calculations and guidance on determining the tidal excursion is
found in the preamble to the final Phase I rule at section VII.B.1.d.

Design and Construction Technology Plan (Track I)

Today's proposed rule would also require that new offshore oil and
gas extraction fixed facilities submit a design and construction
technology plan consistent with Subpart N requirements at Sec.
125.136(b)(3). The design and construction technology plan would
demonstrate that the facility has selected and will implement the
design and construction technologies necessary to minimize impingement
mortality and/or entrainment in accordance with Sec. 125.134(b)(4)
and/or (5). The design and construction technology plan would require
delineation of the hydrologic zone of influence for the cooling water
intake structure; a description of the technologies implemented (or to
be implemented) at the facility; the basis for the selection of that
technology; the expected performance of the technology, and design
calculations, drawings and estimates to support the technology
description and performance. The Agency recognizes that the selection
of a specific technology or a group of technologies would depend on the
individual facility and waterbody conditions.

Track II Comprehensive Demonstration Study (Track II)

If a fixed facility chooses to comply under the Track II approach,
the facility would perform and submit the results of

[[Page 68494]]

a Comprehensive Demonstration Study (Study). This information would be
used to characterize the source water baseline in the vicinity of the
cooling water intake structure(s); characterize operation of the
cooling water intake(s); and to confirm that the technology(ies)
proposed and/or implemented at the cooling water intake structure
reduce the impacts to fish and shellfish to levels comparable to those
the facility would achieve were it to implement the applicable
requirements in Sec. 125.134(b)(2) and, for facilities without
seachests, Sec. 125.134(b)(5). To meet the ``comparable level''
requirement, the facility would demonstrate that it has reduced both
impingement mortality and entrainment of all life stages of fish and
shellfish to 90 percent or greater of the reduction that would be
achieved through the applicable requirements in Sec. 125.134(b)(2)
and, for facilities without seachests, Sec. 125.134(b)(5).
Similar to the Proposal for Information Collection required in
Phase II, the facility would develop and submit a plan to the Director
containing a proposal for how information will be collected to support
the study. The plan would include:
? A description of the proposed and/or implemented
technology(ies) to be evaluated in the Study;
? A list and description of any historical studies
characterizing the physical and biological conditions in the vicinity
of the proposed or actual intakes and their relevancy to the proposed
Study. If the facility proposes to rely on existing source waterbody
data, the data must be no more than 5 years old, and the facility would
demonstrate that the existing data are sufficient to develop a
scientifically valid estimate of potential impingement mortality and
entrainment impacts, and provide documentation showing that the data
were collected using appropriate quality assurance/quality control
procedures;
? Any public participation or consultation with Federal or
State agencies undertaken in developing the plan; and
? A sampling plan for data that will be collected using
actual field studies in the source waterbody. The sampling plan would
document all methods and quality assurance procedures for sampling, and
data analysis. The sampling and data analysis methods proposed would be
appropriate for a quantitative survey and based on consideration of
methods used in other studies performed in the source waterbody. The
sampling plan would include a description of the study area (including
the area of influence of the cooling water intake structure and at
least 100 meters beyond); taxonomic identification of the sampled or
evaluated biological assemblages (including all life stages of fish and
shellfish); and sampling and data analysis methods.
The facility would submit documentation of the results of the Study
to the Director. Documentation of the results of the Study would
include: Source Water Biological Study, an evaluation of potential
cooling water intake structure effects, and a verification monitoring
plan as described below.
Source Water Biological Study. The Source Water Biological Study
would include:
(1) A taxonomic identification and characterization of aquatic
biological resources including: A summary of historical and
contemporary aquatic biological resources; determination and
description of the target populations of concern (those species of fish
and shellfish and all life stages that are most susceptible to
impingement and entrainment); and a description of the abundance and
temporal/spatial characterization of the target populations based on
the collection of multiple years of data to capture the seasonal and
daily activities (e.g., spawning, feeding and water column migration)
of all life stages of fish and shellfish found in the vicinity of the
cooling water intake structure;
(2) An identification of all threatened or endangered species that
might be susceptible to impingement and entrainment by the proposed
cooling water intake structure(s); and
(3) A description of additional chemical, water quality, and other
anthropogenic stresses on the source waterbody.
Evaluation of potential cooling water intake structure effects.
This evaluation would include:
(1) Calculations of the reduction in impingement mortality and, if
applicable, entrainment of all life stages of fish and shellfish that
would need to be achieved by the technologies selected to implement to
meet requirements under Track II. To do this, the facility would
determine the reduction in impingement mortality and entrainment that
would be achieved by implementing the requirements of Sec.
125.134(b)(2) and, for facilities without seachests, Sec. 125.134(b)(5).
(2) An engineering estimate of efficacy for the proposed and/or
implemented technologies used to minimize impingement mortality and, if
applicable, entrainment of all life stages of fish and shellfish and
maximize survival of impinged life stages of fish and shellfish. The
facility would demonstrate that the technologies reduce impingement
mortality and, if applicable, entrainment of all life stages of fish
and shellfish to a comparable level to that which would be achieved if
the facility were to implement the requirements in Sec. 125.134(b)(2)
and, for facilities without seachests, Sec. 125.134(b)(5). The
efficacy projection would include a site-specific evaluation of
technology(ies) suitability for reducing impingement mortality and
entrainment based on the results of the Source Water Biological Study.
Efficacy estimates may be determined based on case studies that have
been conducted in the vicinity of the cooling water intake structure
and/or site-specific technology prototype studies.
Verification monitoring plan. The fixed facility would include in
the Study a plan to conduct, at a minimum, two years of monitoring to
verify the full-scale performance of the proposed or implemented
technologies, and/or operational measures. The verification study would
begin at the start of operations of the cooling water intake structure
and continue for a sufficient period of time to demonstrate that the
facility is reducing the level of impingement mortality and entrainment
to the level documented under the evaluation of potential cooling water
intake structure effects. The plan would describe the frequency of
monitoring and the parameters to be monitored. The Director would use
the verification monitoring to confirm that the facility is meeting the
level of impingement mortality and entrainment reduction required in
Sec. 125.134(c), and that the operation of the technology has been
optimized.
2. As an Owner or Operator of a New Offshore Oil and Gas Extraction
Fixed Facility, What Monitoring Is Required?
Monitoring requirements for new offshore oil and gas extraction
fixed facilities include impingement mortality and entrainment if the
facility does not have a seachest. If the fixed facility has a
seachest, monitoring requirements include impingement mortality only.
Under today's proposal, monitoring would characterize the
impingement and, if applicable, entrainment rates of commercial,
recreational, and forage base fish and shellfish species identified in
either the Source Water Baseline Biological Characterization data
required by 40 CFR 122.21(r)(3) or the Comprehensive Demonstration
Study required by Sec. 125.136(c)(2), depending on whether the
facility has a seachest.

[[Page 68495]]

The monitoring methods used would be consistent with those used for the
Source Water Baseline Biological Characterization data required in 40
CFR 122.21(r)(4) or the Comprehensive Demonstration Study required by
Sec. 125.136(c)(2).
The fixed facility would be required to follow the monitoring
frequencies identified below for at least two (2) years after the
initial permit issuance. After that time, the Director may approve a
request for less frequent sampling in the remaining years of the permit
term and when the permit is reissued, if supporting data show that less
frequent monitoring would still allow for the detection of any seasonal
and daily variations in the species and numbers of individuals that are
impinged or entrained.
Impingement sampling. The facility would collect samples to monitor
impingement rates (simple enumeration) for each species over a 24-hour
period and no less than once per month when the cooling water intake
structure is in operation.
Entrainment sampling. If the fixed facility does not use a
seachest, it would collect samples to monitor entrainment rates (simple
enumeration) for each species over a 24-hour period and no less than
biweekly during the primary period of reproduction, larval recruitment,
and peak abundance identified during the Source Water Baseline
Biological Characterization required by 40 CFR 122.21(r)(4) or the
Comprehensive Demonstration Study required in Sec. 125.136(c)(2).
Samples would be collected only when the cooling water intake structure
is in operation.
Velocity monitoring. If the facility uses a surface intake screen
system, it would be required to monitor head loss across the screens
and correlate the measured value with the design intake velocity. The
head loss across the intake screen would be measured at the minimum
ambient source water surface elevation (using best professional
judgment based on available hydrological data). The maximum head loss
across the screen for each cooling water intake structure would be used
to determine compliance with the velocity requirement in Sec.
125.134(b)(2). If the facility uses devices other than surface intake
screens, it would monitor velocity at the point of entry through the
device. Head loss or velocity would be monitored during initial
facility startup, and thereafter, at the frequency specified in the
NPDES permit, but no less than once per quarter.
Visual or remote inspections. The facility would conduct visual
inspections or employ remote monitoring devices during the period the
cooling water intake structure is in operation. Visual inspections
would be conducted at least weekly to ensure that any design and
construction technologies required in Sec. 125.134(b)(4), (b)(5), (c),
and/or (d) are maintained and operated to ensure that they will
continue to function as designed. Alternatively, the facility would be
required to inspect via remote monitoring devices to ensure that the
impingement and entrainment technologies are functioning as designed.
3. What Recordkeeping and Reporting Is Required for New Offshore Oil
and Gas Extraction Fixed Facilities?
Owners and operators of new offshore oil and gas extraction fixed
facilities would be required to keep records of all the data used to
complete the permit application and show compliance with the
requirements, any supplemental information developed under Sec.
125.136, and any compliance monitoring data submitted under Sec.
125.137, for a period of at least three years from the date of permit
issuance. The Director may require that these records be kept for a
longer period.
Additionally, today's proposal would require that new offshore oil
and gas extraction fixed facilities submit the following in a yearly
status report:
? Biological monitoring records for each cooling water
intake structure as required by Sec. 125.137(a);
? Velocity and head loss monitoring records for each cooling
water intake structure as required by Sec. 125.137(b); and
? Records of visual or remote inspections as required in
Sec. 125.137(c).
4. For New Non-Fixed (Mobile) Offshore Oil and Gas Extraction
Facilities, What Information Is Required To Be Collected for the NPDES
Application?

Velocity Information (Track I)

Today's proposed rule would require that new nonfixed (mobile)
offshore oil and gas extraction facilities submit velocity information
consistent with Sec. 125.136(b)(1). The information would be used to
demonstrate to the Director that the facility is complying with the
requirement to meet a maximum through-screen design intake velocity of
no more than 0.5 feet per second at the cooling water intake structure.
The following information would be required to be submitted: (1) A
narrative description of the design, structure, equipment, and
operation used to meet the velocity requirement; and (2) design
calculations showing that the velocity requirement would be met at
minimum ambient source water surface elevations (based on best
professional judgment using available hydrological data) and maximum
head loss across the screens or other device.

Design and Construction Technology Plan (Track I)

Today's proposed rule would require that new nonfixed (mobile)
offshore oil and gas extraction facilities submit a design and
construction technology plan only when required by the Director
consistent with Sec. 125.134(b)(4). The design and construction
technology plan would demonstrate that the facility has selected and
will implement the design and construction technologies necessary to
minimize impingement mortality in accordance with Sec. 125.134(b)(4).
The design and construction technology plan would require delineation
of the hydrologic zone of influence for the cooling water intake
structure; a description of the technologies implemented (or to be
implemented) at the facility; the basis for the selection of that
technology; the expected performance of the technology, and design
calculations, drawings and estimates to support the technology
description and performance. The Agency recognizes that the selection
of a specific technology or a group of technologies would depend on the
individual facility and waterbody conditions.
5. As an Owner or Operator of a New Non-Fixed (Mobile) Offshore Oil and
Gas Extraction Facility, What Monitoring Is Required?
Under today's proposal, the Director may require monitoring to
characterize the impingement of commercial, recreational, and forage
base fish and shellfish species as specified by the Director in
accordance with Sec. 125.134(b)(4) or Sec. 125.134(d).
Velocity monitoring. If the mobile facility uses a surface intake
screen system, it would be required to monitor head loss across the
screens and correlate the measured value with the design intake
velocity. The head loss across the intake screen would be measured at
the minimum ambient source water surface elevation (using best
professional judgment based on available hydrological data). The
maximum head loss across the screen for each cooling water intake
structure would be used to determine compliance with the velocity
requirement in Sec. 125.134(b)(2). If the facility uses devices other
than surface intake screens, it would monitor velocity at the

[[Page 68496]]

point of entry through the device. Head loss or velocity would be
monitored during initial facility startup, and thereafter, at the
frequency specified in the NPDES permit, but no less than once per
quarter.
Visual or remote inspections. The facility would conduct visual
inspections or employ remote monitoring devices during the period the
cooling water intake structure is in operation. Visual inspections
would be conducted at least weekly to ensure that any design and
construction technologies required in Sec. 125.134(b)(4), (b)(5), (c),
and/or (d) are maintained and operated to ensure that they will
continue to function as designed. Alternatively, the facility would be
required to inspect via remote monitoring devices to ensure that the
impingement technologies are functioning as designed.
6. What Recordkeeping and Reporting Is Required for New Non-Fixed
(Mobile) Offshore Oil and Gas Extraction Facilities?
Owners and operators of new mobile offshore oil and gas extraction
facilities would be required to keep records of all the data used to
complete the permit application and show compliance with the
requirements, any supplemental information developed under Sec.
125.136, and any compliance monitoring data submitted under Sec.
125.137, for a period of at least three years from the date of permit
issuance. The Director may require that these records be kept for a
longer period.
Additionally, today's proposal would require that new mobile
offshore oil and gas extraction facilities submit the following in a
yearly status report:
? Velocity and head loss monitoring records for each cooling
water intake structure as required by Sec. 125.137(b); and
? Records of visual or remote inspections as required in
Sec. 125.137(c).

E. What Are the Respective Federal, State, and Tribal Roles?

Section 316(b) requirements are implemented through NPDES permits.
Under 40 CFR 123.62(e), any existing approved State or Tribal section
402 permitting program would be revised to be consistent with new
program requirements within one year from the date of promulgation,
unless the NPDES-authorized State or Tribe amends or enacts a statute
to make the required revisions. If a State or Tribe amends or enacts a
statute to conform with any promulgated Phase III rule, the revision
would be required to be made within two years of promulgation. States
and Tribes seeking new EPA authorization to implement the NPDES program
would be required to comply with the requirements when authorization is
requested.
This proposed regulation would not alter State authority under
section 510 of the Clean Water Act. EPA recognizes that some States
have invested considerable effort in developing section 316(b)
regulations and implementing programs. EPA is proposing regulations
that would allow States to continue to use these programs by including
in this national rule a provision that allows States to use their
existing program if the State establishes that such programs would
achieve comparable environmental performance. Specifically, the
proposed rule would allow any State to demonstrate to the Administrator
that it has adopted alternative regulatory requirements that would
result in environmental performance within each relevant watershed that
is comparable to the reductions in impingement mortality and
entrainment that would be achieved under Sec. 125.103.
In addition to updating their programs to be consistent with
today's proposed rule, States and Tribes authorized to implement the
NPDES program would be required to implement the cooling water intake
structure requirements following promulgation of the proposed
regulations. The requirements would have to be implemented upon the
issuance or reissuance of permits containing the requirements of
Subpart K or N. Duties of an authorized State or Tribe under this
regulation may include:
? Review and verification of permit application materials,
including a permit applicant's determination of source waterbody
classification and the flow or volume of certain waterbodies at the
point of the intake;
? Determination of the standards in Sec. 125.103(b) or
Sec. 125.134 that apply to the facility, or authorize alternative
requirements in Sec. 125.135;
? Verification of a permit applicant's determination of
whether it meets or exceeds the applicable performance standards or
requirements;
? Verification that a permit applicant's Design and
Construction Technology Plan demonstrates that the proposed alternative
technologies would reduce the impacts to fish and shellfish to levels
required;
? Verification that a permit applicant meets the cost test
and that permit conditions developed on a site-specific basis are
justified based on documented costs, and, if applicable, benefits;
? Verification that a permit applicant's proposed
restoration measures would meet regulatory standards (existing
facilities only);
? Development of draft and final NPDES permit conditions for
the applicant implementing applicable section 316(b) requirements
pursuant to this rule; and
? Ensuring compliance with permit conditions based on
section 316(b) requirements.
EPA also will implement these requirements where States or Tribes
are authorized to implement the NPDES program but do not have
sufficient authority to implement these requirements.
In the discussion of Federal, State and Tribal roles in the
preamble to the Phase II final regulations (69 FR 41643, 3rd col.), EPA
stated that ``EPA will implement these requirements where States or
Tribes are not authorized to implement the NPDES program. EPA also will
implement these requirements where States or Tribes are authorized to
implement the NPDES program but do not have sufficient authority to
implement these requirements.'' EPA notes that the second sentence in
this quote incorrectly stated EPA's authority. In fact, EPA does not
have authority to issue NPDES permits where States or Tribes are
authorized to administer the NPDES program except after EPA vetoes a
permit. (See Sec. 123.61(c) and Sec. 123.44(h).) Today's preamble
correctly states that States and Tribes authorized to implement the
NPDES program would need to have or obtain sufficient authority to
implement final Phase III regulations. EPA intends to issue guidance to
clarify that, pursuant to Sec. 123.25(a)(36), States and Tribes
authorized to implement the NPDES program must have or obtain
sufficient authority to implement the Phase II regulations.

F. Are Permits for Phase III Facilities Subject to Requirements Under
Other Federal Statutes?

EPA's NPDES permitting regulations at 40 CFR 122.49 contain a list
of Federal laws that might apply to Federally issued NPDES permits.
These include the Wild and Scenic Rivers Act, 16 U.S.C. 1273 et seq.;
the National Historic Preservation Act of 1966, 16 U.S.C. 470 et seq.;
the Endangered Species Act, 16 U.S.C. 1531 et seq.; the Coastal Zone
Management Act, 16 U.S.C. 1451 et seq.; and the National Environmental
Policy Act, 42 U.S.C. 4321 et seq. See 40 CFR 122.49 for a brief
description of each of these laws. In addition, the provisions of the
Magnuson-Stevens Fishery Conservation and Management Act, 16 U.S.C.
1801 et seq., relating to essential

[[Page 68497]]

fish habitat might be relevant. Nothing in this proposed rulemaking
would authorize activities that are not in compliance with these or
other applicable Federal laws.

VIII. Economic Impact Analysis

The discussion in this section summarizes EPA's analysis of total
social cost and economic impacts for three co-proposed options for
existing facilities: the ``50 MGD for All Waterbodies'' option, the
``200 MGD for All Waterbodies'' option, and the ``100 MGD for Certain
Waterbodies'' option. These options are described more fully in section
VI. EPA also conducted analyses for other potential regulatory
definitions, including applying requirements to all facilities with
design intake flow of at least 2 MGD. This definition would have
included all 683 potentially regulated Phase III facilities. This and
other potential regulatory specifications are not being proposed
because of economic practicability concerns, but analyses for them can
be found in ``Economic Analysis for the Proposed Section 316(b) Rule
for Phase III Facilities'' (hereafter referred to as the ``EA''; DCN 7-
0002). This section also presents EPA's estimates of total social cost
and economic impacts for new offshore oil and gas extraction
facilities. EPA's assessment of costs and economic impacts, including
results for all analyzed regulatory definitions, can be found in the EA.

A. Existing Phase III Facilities: Manufacturers and Electric Power
Producers

1. Overview of Affected Industry Sectors
For the economic analyses, EPA distinguished between the types of
facilities as follows:
? Manufacturing and Other Industries (``Manufacturers'')--
facilities in the paper, aluminum, steel, chemicals, petroleum and
other industries. In addition to engaging in production activities,
some of these facilities also generate electricity for their own use
and occasionally for sale.
? Electric power producers (``Electric Generators'')--
facilities owned by investor-owned utilities, municipalities, States,
Federal authorities, cooperatives, and non-utilities.
Within the Manufacturers group, EPA focused its analysis on five
manufacturing industries--Paper, Chemicals, Petroleum, Aluminum, and
Steel (the ``Primary Manufacturing Industries'')--as the industries
using the largest amounts of cooling water outside of the electric
power generating industry. EPA's economic analysis for these industries
is based on a statistically-valid survey sample of facilities in these
five industries. This analysis also considers the effect of the
regulation on facilities in other industries (``Other Industries'')
that use cooling water to a lesser extent than the five Primary
Manufacturing Industries and that are also covered by the proposal. The
analysis for Other Industries is restricted to a limited sample of
facilities for which EPA received detailed surveys but which are not
part of the statistically valid sample. As a result, EPA's analysis of
facilities in the Other Industries group is limited to the known
facilities in this group. EPA has not specifically estimated the total
number of facilities in the Other Industries group that may be subject
to the regulation because EPA does not believe that this number can be
reliably extrapolated from the number of known facilities in this
group. However, because the six surveyed industries (including electric
power) account for 99% of total cooling water withdrawals, EPA believes
that few additional facilities in the Other Industries group are
potentially subject to today's proposed regulation. EPA seeks comment
and data on the number of facilities in the Other Industries group that
may be subject to today's proposal.
EPA's analysis also reflects a limited number facilities in the
Virgin Islands and Puerto Rico for which EPA received detailed survey
responses. These facilities have also been included in EPA's economic
analysis. EPA is clarifying today's proposal would apply to any
facility meeting the applicability criteria in Sec. 125.101. EPA seeks
comment and data on the total number of facilities that may be subject
to today's proposal.
EPA's review of the engineering characteristics of cooling water
intake and use in the Other Industries group indicates that cooling
water intake and use in these industries do not differ materially from
cooling water intake and use in the Primary Manufacturing Industries
and the electric power industry. In addition, EPA specifically analyzed
the economic impacts of the proposed options on known facilities in the
Other Industries group. EPA believes that its findings of no economic
impact to the known facilities in Other Industries and the
practicability of the proposed options are generally applicable to the
full breadth of industries within the regulation's scope. EPA is
seeking comment and data on the economic impact and practicability of
the proposed options on facilities in the Other Industries group.
EPA estimates that as many as 566 facilities in the Manufacturers
segment (including 537 facilities in the Primary Manufacturing
Industries and 29 known facilities in Other Industries), and 117
Electric Generators are potentially subject to this rulemaking, based
on a design intake flow applicability threshold of greater than 2 MGD.
EPA excluded from the analysis for each option those facilities that
are below the option's design intake flow applicability threshold and
would therefore not incur compliance costs. In addition, EPA's analyses
identified existing facilities that are in severe financial distress
independent of regulation. These facilities, referred to as ``baseline
closures,'' were determined as likely to terminate business operations
independent of the proposed options and were also excluded from the
analyses presented in this section.
Exhibit VIII-1 presents, by waterbody type and industry, EPA's
estimates of (1) the number of existing facilities potentially subject
to this rulemaking, (2) the number of baseline closures, and (3) the
number of existing facilities subject to national requirements under
five different design intake flow applicability thresholds.

Exhibit VIII-1.--Phase III Existing Facility Counts, by Waterbody Type and Industry
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facilities subject to national requirements with DIF
Potentially applicability threshold of greater than or equal to (in MGD),
Industry subject to Baseline excluding baseline closures
regulation closure ----------------------------------------------------------------
2 20 50 100 200
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Waterbodies
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary Man. Industries...................................... 537 73 464 290 127 58 23
Other Industries............................................. 29 4 25 12 9 5 2

[[Page 68498]]

Electric Generators.......................................... 117 3 114 51 0 0 0
--------------
Total.................................................... 683 80 603 353 136 63 25
==============
Total DIF (MGD).......................................... 40,441 4,440 36,001 33,683 26,714 21,587 16,144
--------------------------------------------------------------
Coastal and Great Lakes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary Man. Industries...................................... 110 17 94 67 35 17 10
Other Industries............................................. 9 3 6 5 4 2 1
Electric Generators.......................................... 11 0 11 4 0 0 0
--------------
Total.................................................... 130 20 111 76 39 19 11
==============
Total DIF (MGD).......................................... 11,010 2,423 8,587 8,179 7,190 5,747 4,418
--------------------------------------------------------------
Inland
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary Man. Industries...................................... 427 56 371 223 92 41 13
Other Industries............................................. 20 1 19 7 5 3 1
Electric Generators.......................................... 106 3 103 47 0 0 0
--------------
Total.................................................... 553 60 493 277 97 44 14
==============
Total DIF (MGD).......................................... 29,431 2,017 27,414 25,504 19,524 15,841 11,726
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Method for Estimating Costs to Manufacturers and Electric Generators
EPA estimated capital costs of technologies, annual operation and
maintenance costs, installation downtime costs, and permitting costs.
The cost estimates reflect the incremental costs attributed only to
today's proposal. For example, facilities with closed-cycle
recirculating systems already meet the proposed performance standards,
and therefore would not incur costs for new technologies, additional
annual operational costs, or downtime costs (though such facilities
would still incur some components of permitting costs).
For estimating the incremental compliance costs attributable to the
proposed options, EPA developed both facility-specific and model
facility costs. Facility-specific compliance costs require detailed
process information about many, if not all, facilities in the industry.
These data typically include production, capacity, water use,
wastewater generation, monitoring results, geographic location,
financial conditions, technologies and practices already in place, and
other facility-specific data. EPA used a detailed technical survey of
Electric Generators and Manufacturers to collect these data (see
section III for more information on EPA's detailed survey). These data
and detailed process information were used to determine whether new
controls would be necessary to meet the standards of the proposed rule,
and to estimate the cost of installing any new or additional controls.
While the Agency is confident that the suite of available technologies
can achieve compliance with the proposed performance requirements (60-
90 percent reduction in entrainment and 80-95 percent reduction in
impingement mortality relative to the calculation baseline), EPA lacks
sufficient data and resources to determine the precise cost and
performance of each technology on a site-specific basis. Therefore, EPA
first calculated the facility-specific costs for 348 facilities for
which detailed information was available, and applied the model
facility approach to the remaining facilities to calculate the
industry-level costs for the approximately 700 existing Manufacturers
and Electric Generators.
In costing each model facility, EPA, to a degree, departed from its
traditional least-cost approach. The least-cost approach relies on the
principle that the complying facility will choose the most cost-
effective compliance alternative to meet the regulatory requirements.
In most cases, this means the facility will install the least-cost
technology that meets the minimum standard. Instead of selecting the
least-cost compliance alternative (see section VI for a description of
the compliance alternatives), a best-performing technology was assigned
to a model facility utilizing a spreadsheet program called the ``cost-
test tool.'' The cost-test tool determines one of two possible
performance expectations: (1) Impingement requirements only or (2) both
impingement and entrainment requirements. The cost-test tool then
determines a compliance response for the facility/intake by accounting
for existing technologies (such as wedgewire screens) and conditions
(such as a shoreline intake location or the through-screen velocity).
Next, the cost-test tool applies EPA's decision tree for assigning one
of 12 technology modules as the best-performing technology to a site
(see Figure 2-1 of the Phase III TDD for a schematic of this decision
tree). This should not be construed to mean today's proposed options
would require facilities to install the technologies selected by the
cost-test tool. Under today's proposal, facilities could choose any
technology, combination of technologies, or operational measures that
would meet the requirements of the selected compliance alternative
along with any other additional permit requirements. Finally, cost
estimates are derived through a combination of calculations and
functions that apply facility-specific data to the selected technology
module. The cost outputs include capital costs, incremental operating
and maintenance (O&M) costs, and installation downtime (in weeks).

[[Page 68499]]

Based on data from EPA's detailed technical survey, EPA believes
that cooling water intake structures at Electric Generators are, in
general, no different from those intake structures employed by
Manufacturers. Therefore, the Phase II costs attributed to control
technologies were used to calculate costs for potentially regulated
existing Phase III Manufacturers and Electric Generators. EPA generally
utilized the original methodology published in the Phase II NODA (68 FR
13522; March 19, 2003), accounting for comments received from the
public. EPA also used the costing equations it developed for the final
Phase II rule, along with the site-specific data obtained from the
detailed surveys. EPA requests comment, including supporting data, on
the use of technologies and costing equations from the Phase II rule in
the Phase III analysis.
Permit costs, including costs for permitting, monitoring, permit
reissuance, and recordkeeping, are not included in the cost-test tool.
Costs for these activities were developed separately as part of the
Information Collection Request (ICR) for Cooling Water Intake
Structures Phase III Proposed Rule (``ICR''; DCN 7-0001). The per
facility permit costs were added to the incremental compliance costs,
along with installation downtime costs (where appropriate), in
developing the total model facility cost. The per facility permit costs
may be found in Chapter B1 of the EA.
In addition to the capital and annual operating costs of the
selected technology module, 16 facilities (sample-weighted, with more
than 50 MGD intake, and excluding baseline closures) incur downtime
costs. Downtime costs generally reflect decreased revenues due to lost
production or costs of supplemental power purchases during the retrofit
of existing cooling water intake structures. EPA determined that an
additional four facilities with multiple intakes could shut off any one
intake and still meet their average intake flow without exceeding the
total design intake flow of the remaining intakes. Furthermore, these
facilities all have shoreline intakes, negating the need to maintain
costly offshore equipment necessary to retrofit one intake at a time.
EPA assumes these four facilities could retrofit one intake at a time,
thereby avoiding downtime costs. In all other cases, the length of
downtime (in weeks) and the general approach to estimating the cost of
downtime are the same as used for the Phase II analysis. See chapter 5
of the TDD for more details. EPA solicits comment and supporting data
on this approach to estimating downtime costs.
Total social costs are presented in section VIII.C of this
preamble.
Under today's proposal, facilities have five compliance
alternatives for meeting the performance standards. Not all of these
compliance alternatives are addressed by the cost-test tool. The cost-
test tool, and therefore total national costs, do not specifically
adjust for site-specific requirements developed in accordance with
compliance alternative 5 (see also section VI of this preamble). While
costs for facilities requesting alternative requirements based on the
cost-cost test should be comparable to EPA's estimated costs, costs for
facilities requesting alternative requirements based on the cost-
benefit test may be less. In addition, each model facility was costed
for a single best-performing technology module, which does not
necessarily reflect the most cost-effective compliance alternative.
Thus, although EPA's costs for each model facility to install a
specified compliance technology are believed to be accurate, the total
national costs of today's proposal may be overstated.
EPA solicits comment on all aspects of this costing approach.
3. Social Cost for Manufacturers and Electric Generators
EPA calculated the social cost of the three co-proposed options for
existing Manufacturers and Electric Generators using two discount rate
values: 3 percent and 7 percent. All dollar values presented in this
preamble are in 2003 dollars (average or mid-year). For the analysis of
social costs, EPA discounted all costs to the beginning of 2007, the
date at which this proposal is assumed to become effective. EPA assumed
that all facilities subject to the regulation would achieve compliance
between 2010 and 2014, and estimated the time profile of compliance and
related costs over 30 years from the year of compliance for each
complying facility.\42\ Costs incurred by governments for administering
the regulation were analyzed over the same time frame. The last year
for which costs were tallied is 2043. At a 3 percent rate, EPA
estimated total annualized social costs of $47.3 million for the ``50
MGD for All Waterbodies'' option, $22.8 million for the ``200 MGD for
All Waterbodies'' option, and $17.6 million for the ``100 MGD for
Certain Water bodies'' option. At a 7 percent rate, these values are
$50.1 million for the 50 MGD option, $24.1 million for the 200 MGD
option, and $18.3 million for the 100 MGD option. The largest component
of social cost is the pre-tax cost of regulatory compliance incurred by
complying facilities; these costs include pilot study costs, one-time
technology costs of complying with the rule, one-time costs of
installation downtime, annual operating and maintenance costs, and
permitting costs (initial permit costs, annual monitoring costs, and
permit reissuance costs). Social cost also includes implementation
costs incurred by Federal and State governments. Exhibit VIII-2
presents the social cost of the proposed options, by type of cost and
type of facility, using 3 percent and 7 percent discount rates.
---------------------------------------------------------------------------

\42\ Benefits are tallied and discounted in the same way,
although the total time profile for recognition of benefits is
longer than the profile for recognition of costs.

Exhibit VIII-2.--Annualized Social Cost
[In millions, 2003 $]
----------------------------------------------------------------------------------------------------------------
100 MGD
50 MGD all 200 MGD all certain
waterbodies waterbodies waterbodies
----------------------------------------------------------------------------------------------------------------
3% Discount Rate
----------------------------------------------------------------------------------------------------------------
Direct Compliance Cost:
Primary Manufacturing Industries............................... $42.7 $21.7 $16.7
Other Industries............................................... 4.1 1.0 0.7
Electric Generators............................................ 0.0 0.0 0.0
-----------------

[[Page 68500]]

Total Direct Compliance Cost............................... 46.8 22.6 17.5
State and Federal Administrative Cost.............................. 0.6 0.1 0.2
-----------------
Total Social Cost.............................................. 47.3 22.8 17.6
--------------------------------------------------------------------
7% Discount Rate
----------------------------------------------------------------------------------------------------------------
Direct Compliance Cost:
Primary Manufacturing Industries............................... 45.1 23.1 17.4
Other Industries............................................... 4.4 0.9 0.7
Electric Generators............................................ 0.0 0.0 0.0
-----------------
Total Direct Compliance Cost............................... 49.5 24.0 18.1
State and Federal Administrative Cost.............................. 0.6 0.1 0.2
-----------------
Total Social Cost.............................................. 50.1 24.1 18.3
----------------------------------------------------------------------------------------------------------------

As shown in Exhibit VIII-2, compliance cost in the Manufacturers
segment accounts for the substantial majority of total social cost and
direct compliance cost under all three options. No Electric Generators
would be subject to the national requirements under any of the three
co-proposed options. On a per facility basis and at a 3 percent
discount rate, annualized pre-tax costs in the Manufacturers segment
amount to $349,000 under the ``50 MGD for All Waterbodies'' option,
$920,000 under the ``200 MGD for All Waterbodies'' option, and $929,000
under the ``100 MGD for Certain Waterbodies'' option. The corresponding
values using a 7 percent discount rate are $369,000 under the ``50 MGD
for All Waterbodies'' option, $974,000 under the ``200 MGD for All
Waterbodies'' option, and $962,000 under the ``100 MGD for Certain
Waterbodies'' option. Because the 200 MGD option and the 100 MGD option
apply national categorical requirements to a smaller number of higher
flow facilities than the 50 MGD option, they result in a lower total
national cost but a higher cost per regulated facility. Individual
facilities that are subject to the requirements of the 200 MGD option
or the 100 MGD option incur the same compliance costs as under the 50
MGD option (in which they are also included); however, the average
costs per regulated facility are higher under the 200 MGD and 100 MGD
options because only the higher flow, and therefore higher cost,
facilities incur costs under these options.
EPA's estimate of Federal and State government costs for
administering this proposal is comparatively minor in relation to the
estimated direct cost of regulatory compliance. EPA estimates
government annual administrative costs of approximately $0.6 million
(50 MGD option), $0.1 million (200 MGD option), and $0.2 million (100
MGD option) under both discount rates.
4. Economic Impacts for Manufacturers and Electric Generators
The economic impact analyses assess how facilities, and the firms
that own them, are expected to be affected financially by the analyzed
options. The facility impact analysis starts with compliance cost
estimates (see section VIII.A.2) and then calculates how these
compliance costs would affect financial performance and other economic
conditions.
a. Manufacturers (Primary Manufacturing Industries and Other Industries)
This section presents EPA's estimated economic impacts on
Manufacturers for the three co-proposed options. Measures of economic
impact include facility closures and associated losses in employment,
financial stress short of closure (``moderate impacts''), and firm-
level impacts. EPA eliminated from the analysis those facilities
showing materially inadequate financial performance in the baseline,
that is, in the absence of the rule. EPA judges these facilities, which
are referred to as baseline closures, to be at substantial risk of
financial failure regardless of any additional financial burden that
might result from the proposed Phase III regulation.
For the remaining facilities, EPA identified a facility as a
regulatory closure if it would have operated under baseline conditions
but would fall below an acceptable financial performance level under
the new regulatory requirements. EPA's analysis of regulatory closures
is based on the estimated change in facility after-tax cash flow (cash
flow) as a result of the regulation and specifically examines whether
the change in cash flow would be sufficient to cause the facility's
going concern business value to become negative. EPA calculated
business value using a discounted cash flow framework in which cash
flow is discounted at an estimated cost of capital to calculate the
going concern value of the facility. The specific definition of cash
flow used in these analyses is after-tax free cash flow available to
all capital--equity and debt. Correspondingly, the cost of capital
reflects the combined cost, after-tax, of equity and debt capital. For
its analysis of economic/financial impacts on the Manufacturers
industry segment, EPA used 7 percent as a real, after-tax cost of capital.
In these analyses, EPA first calculated the baseline going concern
value of the facility using its baseline cash flow--i.e., facility cash
flow before compliance-related outlays. For this calculation, EPA used
the three-year average of cash flow as reported in each facility's
survey response and adjusted to constant 2003 dollars. In addition to
adjusting facility cash flow values for inflation to 2003, EPA adjusted
facility baseline cash flow to reflect the estimated real change (i.e.,
independent of inflation) in business performance in the manufacturing
industries from the time of the facility survey, 1996-1998, to the
present. EPA also estimated an ongoing outlay for replacement of the
facility's capital equipment and included this as an adjustment to
baseline cash flow. EPA included an allowance of ongoing capital
outlays in

[[Page 68501]]

the calculation of cash flow because such outlays for replacement and
refurbishment of capital equipment occur in the ordinary course of
business and represent a cash outlay for the business. EPA estimated
these outlays based on an econometric analysis of actual capital
outlays over an 11-year period by businesses in the five Manufacturers
industry segments. This analysis accounted for national economic
conditions, business conditions in the specific industry segments, and
financial performance of the individual businesses (see EA, Chapter B3
for details of this analysis and the details of the cash flow
calculation). Using this adjusted baseline cash flow, if EPA found the
facility's estimated going concern value to be negative, then the
facility was judged a baseline closure--i.e., likely to fail
financially, independent of incurrence of compliance costs--and removed
the facility from further consideration in the impact analysis.
As the second step in the facility impact analysis, EPA adjusted
the baseline cash flow to reflect the expected financial effects of
compliance technology installation and operation. For this analysis,
EPA assumed that none of the facility's compliance costs could be
passed on to its customers as price and revenue increase--i.e., all
compliance costs must be absorbed within the facility's cash flow. EPA
then recalculated the facility's business value using the adjusted
post-compliance cash flow. If this analysis found that the facility's
business value would become negative as a result of meeting compliance
requirements, then EPA judged the facility to be a regulatory closure.
EPA also identified facilities that would likely incur moderate
financial impacts, but that are not expected to close, as a result of
the proposed rule. EPA established thresholds for two measures of
financial performance and condition--interest coverage ratio (ICR) and
pre-tax return on assets (PTRA)--and compared the facilities'
performance before and after compliance under each regulatory option
with these thresholds. EPA calculated ICR as pre-tax operating cash
flow--earnings before interest, taxes, and depreciation--divided by
interest expense. This measure provides insight into a business'
ability to service its debt on the basis of current, ongoing financial
performance and to borrow for capital investments. EPA calculated PTRA
as the ratio of pre-tax operating income--earnings before interest and
taxes--to assets. This ratio measures the operating performance and
profitability of a business' assets independent of financial structure
and tax circumstances. For this analysis, EPA developed industry-
specific thresholds from data compiled by Risk Management Association,
Inc. (RMA). The threshold values represent the 25th percentile values
of PTRA and ICR for statements received by RMA for the eight years from
1994 to 2001 within relevant industries. Thresholds by sector ranged
from 1.8% to 2.9% for PTRA and from 2.0 to 2.4 for ICR (see EA Chapter
B3 for additional information). EPA attributed incremental moderate
impacts to the rule if both financial ratios exceeded threshold values
in the baseline (i.e., there were no moderate impacts in the baseline),
but at least one financial ratio fell below the threshold value in the
post-compliance case.
i. Baseline Closure Analysis
Exhibit VIII-3 presents projected baseline closures for the
estimated facilities in the Primary Manufacturing Industries and
additional known facilities in Other Industries.\43\ From the analysis
as outlined above, EPA determined that 76 facilities (or 14 percent) of
the estimated 532 regulated facilities in the five Primary
Manufacturing Industries are baseline closures. The highest percentages
of baseline closures occur in the Steel industry sector (43 percent)
and Aluminum industry sector (33 percent). An additional four
facilities (or 18 percent) of the 22 known facilities in Other
Industries are projected to be baseline closures. These facilities were
excluded from the post-compliance analysis of regulatory impacts.
---------------------------------------------------------------------------

\43\ The estimated number of Manufacturers considered in the
impact analysis (554) differs from the number reported in the
broader analyses (566) because of the exclusion of some sample
surveys with missing data and the rescaling of the remaining surveys
to extrapolate national impacts. EPA determined that the survey
responses of 14 sample facilities lacked certain financial data
needed for the facility impact analysis while containing sufficient
data to support estimates of facility counts and compliance costs.
EPA therefore retained these sample facilities (37 sample weighted
facilities) in the broader analyses but excluded them from the
impact analysis. When these sample facilities were excluded from the
impact analysis, the sample weights for the remaining facilities
within the affected sample frames were adjusted upwards to account
for their removal. The difference in the reported facility totals in
the impact and social cost analyses reflects the removal of these 14
facilities and the use of adjusted sample weights. The removal of
specific sample facilities from the analysis universe and
simultaneous adjustment of sample weights to account for their
removal yields the same estimate of the total combined population of
Manufacturers and Electric Generators for the analysis. However, as
a result of the sample stratification methodology, the estimates of
the total facility populations for Manufacturers only differ
slightly between the two sample facility cases. Both values are
valid statistical estimates of the same, but unknown, value of the
Manufacturers facility population.

Exhibit VIII-3.--Summary of Baseline Closures for Manufacturers
----------------------------------------------------------------------------------------------------------------
Number of Percentage of
Sector Total number baseline baseline Operating in
of facilities closures closures baseline
----------------------------------------------------------------------------------------------------------------
Paper........................................... 230 32 13.9 198
Chemicals....................................... 178 4 2.2 173
Petroleum....................................... 36 5 13.9 30
Steel........................................... 68 29 42.6 40
Aluminum........................................ 21 7 33.3 14
-----------------
Total Facilities in Primary Manufacturing 532 76 14.3 456
Industries.................................
Additional known facilities in Other Industries. 22 4 18.2 18
-----------------
Total Manufacturers......................... 554 80 14.4 474
----------------------------------------------------------------------------------------------------------------

[[Page 68502]]

ii. Number of Facilities Passing the Baseline Closure Analysis and
Subject to National Categorical Requirements
As described above, the number of Manufacturers subject to national
categorical requirements differs according to (1) the options' design
intake flow (DIF) applicability thresholds, and (2) the type of
waterbodies to which they would apply. Of the three co-proposed options
presented here, the ``100 MGD for Certain Waterbodies'' option would
apply to the smallest number of the facilities that passed the baseline
closure analysis (``baseline-pass facilities'')--20 facilities, or 18
facilities in the Primary Manufacturing Industries and two known
facilities in Other Industries (see Exhibit VIII-4). The ``200 MGD for
All Waterbodies'' option would apply to 24 baseline-pass facilities, or
22 facilities in the Primary Manufacturing Industries and two known
facilities in Other Industries. The ``50 MGD for All Waterbodies''
would apply to 133 baseline-pass facilities, or 127 facilities in the
Primary Manufacturing Industries and 6 known facilities in Other Industries.

Exhibit VIII-4.--Number of Baseline-Pass Manufacturing Facilities Subject to National Categorical Requirements by Option and Sector
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of facilities subject to national categorical requirements
-----------------------------------------------------------------------------
Total 50 MGD all waterbodies 200 MGD all waterbodies 100 MGD certain
Sector operating ---------------------------------------------------- waterbodies
in baseline -------------------------
Number Percent Number Percent Number Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Paper........................................................ 198 37 18.7 3 1.5 0 0.0
Chemicals.................................................... 173 52 30.1 5 2.9 7 4.0
Petroleum.................................................... 30 13 43.3 3 10.0 5 16.7
Steel........................................................ 40 22 55.0 9 22.5 6 15.0
Aluminum..................................................... 14 5 35.7 1 7.1 0 0.0
--------------
Total Facilities in Primary Manufacturing Industries..... 456 127 27.9 22 4.8 18 3.9
Additional known facilities in Other Industries.............. 18 6 33.3 2 11.1 2 11.1
--------------
Total Manufacturers...................................... 474 133 28.1 24 5.1 20 4.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: May not sum to totals due to independent rounding.

iii. Post-Compliance Impact Analysis; Summary of Impacts
Of the 474 Manufacturers potentially subject to regulation after
baseline closures, EPA estimated that no facilities would close or
incur employment losses as a result of the three co-proposed options
considered here. EPA also found that none of the 474 baseline-pass
facilities would incur a moderate economic impact as a result of the
three co-proposed options.
Exhibit VIII-5 summarizes the estimated impacts of the proposed
rule on Manufacturers by option, including facility impacts and total
annualized compliance costs on an after-tax basis. The reported costs
include no compliance costs for facilities assessed as baseline
closures. The total annualized, after-tax compliance cost reported in
Exhibit VIII-5 represents the cost actually incurred by complying
firms, taking into account the reductions in tax liability resulting
from compliance outlays and assuming no recovery of costs from
customers through increased prices. The after-tax analysis uses a
combined Federal/State tax rate, and accounts for facilities' baseline
tax circumstances. Specifically, tax offsets to compliance costs are
limited not to exceed facility-level tax payments as reported in
facility questionnaire responses. The total annualized, after-tax
compliance cost reported here is the sum of annualized, after-tax costs
by facility at the year of compliance, using a 7 percent after-tax cost
of capital. This cost calculation differs in concept from the
calculation of compliance costs as included in the calculation of the
total social costs of the regulation. For the social cost calculation,
which is presented in section VIII.A.2, the year-by-year stream of
total pre-tax compliance costs for all facilities is discounted to the
assumed effectiveness date of the 316(b) Phase III final rule--
beginning of year 2007--and then annualized. Two social discount rate
values, 3 percent and 7 percent, are used in the social cost analysis.

Exhibit VIII-5.--Facility Impacts for Manufacturers
----------------------------------------------------------------------------------------------------------------
100 MGD
50 MGD all 200 MGD all certain
waterbodies waterbodies waterbodies
----------------------------------------------------------------------------------------------------------------
Primary Manufacturing Industries
----------------------------------------------------------------------------------------------------------------
Number of Facilities Operating in Baseline................... 456 456 456
Number of Facilities Subject to National Requirements........ 127 22 18
Percentage of Facilities Subject to National Requirements.... 27.9 4.8 3.9
Number of Closures (Severe Impacts).......................... 0 0 0
Percentage of Facilities Closing............................. 0.0 0.0 0.0
Number of Facilities with Moderate Impacts................... 0 0 0
Percentage of Facilities with Moderate Impacts............... 0.0 0.0 0.0
Annualized Compliance Costs (after tax, million $2003)....... $32.8 $13.7 $15.8
--------------------------------------------------------------

[[Page 68503]]

Additional Known Facilities in Other Industries
----------------------------------------------------------------------------------------------------------------
Number of Facilities Operating in Baseline................... 18 18 18
Number of Facilities Subject to National Requirements........ 6 2 2
Percentage of Facilities Subject to National Requirements.... 33.3 11.1 11.1
Number of Closures (Severe Impacts).......................... 0 0 0
Percentage of Facilities Closing............................. 0.0 0.0 0.0
Number of Facilities with Moderate Impacts................... 0 0 0
Percentage of Facilities with Moderate Impacts............... 0.0 0.0 0.0
Annualized Compliance Costs (after tax, million $2003)....... $5.2 $0.7 $0.6
----------------------------------------------------------------------------------------------------------------

iv. Firm-Level Impact
In addition to analyzing the impact of the regulation at the
facility level, EPA also examined the impact of the proposed rule on
firms that own manufacturing facilities with cooling water intake
structures. A firm that owns multiple facilities could be adversely
affected due to the cumulative burden of regulatory requirements over
these facilities. EPA also used the firm-level analysis to compare
impacts on small versus large firms, as required by the Regulatory
Flexibility Act as amended by the Small Business Regulatory Enforcement
Fairness Act. Section XI.C of this preamble discusses RFA/SBREFA
issues. For the assessment of firm-level effects, EPA calculated
annualized after-tax compliance costs as a percentage of firm revenue
and reports here the estimated number and percentage of affected firms
incurring compliance costs in three cost-to-revenue ranges: less than 1
percent; at least 1 percent but less than 3 percent; and 3 percent or
higher.
EPA's sample-based analysis of facilities in the Primary
Manufacturing Industries supports specific estimates of the number of
facilities expected to be affected by the regulation and the total
compliance costs expected to be incurred in these facilities. However,
the sample-based analysis does not support specific estimates of the
number of firms that own facilities in the Primary Manufacturing
Industries. In addition, and as a corollary, the sample-based analysis
does not support specific estimates of the number of regulated
facilities that may be owned by a single firm, or of the total of
compliance costs across regulated facilities that may be owned by a
single firm. For the firm-level analysis, EPA therefore considered two
approximate bounding cases based on the sample weights developed from
the facility survey. These cases provide a range of estimates for the
number of firms incurring compliance costs and the costs incurred by
any firm owning a regulated facility. The cases are as follows:
1. Upper bound estimate of number of firms owning facilities that
face requirements under the regulation; lower bound estimate of total
compliance costs that a firm may incur. For this case, EPA assumed (1)
that a firm owns only the regulated sample facility(ies) that it is
known to own from the sample analysis and (2) that this pattern of
ownership, observed for sampled facilities and their owning firms,
extends over the facility population represented by the sample
facilities. This case minimizes the possibility of multi-facility
ownership by a single firm and thus maximizes the count of affected
firms, but also minimizes the potential cost burden to any single firm.
2. Lower bound estimate of number of firms owning facilities that
face requirements under the regulation; upper bound estimate of total
compliance costs that a firm may incur. For this case, EPA inverted the
prior assumption and assumed that any firm owning a regulated sample
facility(ies), owns the known sample facility(ies) and all of the
sample weights associated with the sample facility(ies). This case
yields an approximate lower bound estimate of the count of affected
firms, and an approximate upper bound estimate of the potential cost
burden to any single firm (see EA Chapter B3 for information on the
analysis of firm-level impacts).
EPA included the additional known facilities in Other Industries in
these analyses but since these facilities have no sample weight (i.e.,
they are not modeled to represent facilities other than themselves),
the upper and lower bound estimates were not applicable to them.
Exhibit VIII-6 summarizes the results of the firm-level analysis
for these two analytic cases.

Exhibit VIII-6.--Firm-Level After-Tax Annual Compliance Costs as a Percentage of Revenue
--------------------------------------------------------------------------------------------------------------------------------------------------------
No costs Number and percentage with after tax annual compliance costs/
---------------------- annual revenue of
-----------------------------------------------------------------
Number of firms in the analysis Pot. reg. Less than 1% 1-3% At Least 3%
Number Percent -----------------------------------------------------------------
Number Percent Number Percent Number Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary Manufacturing Industries
--------------------------------------------------------------------------------------------------------------------------------------------------------
Case 1: Upper bound estimate of number of firms owning facilities that face requirements under the regulation; lower bound estimate of total compliance
costs that a firm may incur
--------------------------------------------------------------------------------------------------------------------------------------------------------
50 MGD All Waterbodies............................... 313 208 66 105 34 0 0 0 0
200 MGD All Waterbodies.............................. 313 292 93 21 7 0 0 0 0
100 MGD Certain Waterbodies.......................... 313 293 94 21 7 0 0 0 0
------------------------------------------------------

[[Page 68504]]

Case 2: Lower bound estimate of number of firms owning facilities that face requirements under the regulation; upper bound estimate of total compliance
costs that a firm may incur
--------------------------------------------------------------------------------------------------------------------------------------------------------
50 MGD All Waterbodies............................... 100 54 54 46 46 0 0 0 0
200 MGD All Waterbodies.............................. 100 86 86 14 14 0 0 0 0
100 MGD Certain Waterbodies.......................... 100 88 88 12 12 0 0 0 0
------------------------------------------------------
Other Industries
--------------------------------------------------------------------------------------------------------------------------------------------------------
50 MGD All Waterbodies............................... 14 10 71 4 29 0 0 0 0
200 MGD All Waterbodies.............................. 14 13 93 1 7 0 0 0 0
100 MGD Certain Waterbodies.......................... 14 13 93 1 7 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------

As presented in Exhibit VIII-6, EPA estimated that the number of
firms owning regulated facilities in the Primary Manufacturing
Industries range from 100 (Case 2 estimate) to 313 (Case 1 estimate),
depending on the assumed ownership cases outlined above. An additional
14 firms are known to own facilities in Other Industries. No firms are
estimated to incur total compliance costs equal to or exceeding 1
percent of revenue under any of the regulatory options.
b. Electric Generators
All Electric Generators with a design intake flow of 50 MGD or
greater were already covered by the final Phase II regulation. As a
result, no Electric Generators are subject to the national categorical
requirements of the three co-proposed options.

B. New Offshore Oil and Gas Extraction Facilities

1. Overview of Affected Industry Sectors
The proposed rule establishes requirements for new facilities that
would apply to new offshore oil and gas extraction facilities that
employ a cooling water intake structure (CWIS) and are designed to
withdraw greater than 2 million gallons per day (MGD) from waters of
the United States.\44\ Offshore oil and gas extraction facilities
(``Oil and Gas Facilities'') are facilities primarily engaged in oil
and gas production and drilling activities. This analysis includes oil
and gas production platforms/structures and mobile offshore drilling
units (MODUs). EPA estimates that 21 new oil and gas extraction
platforms and 103 new MODUs would be subject to the national
requirements of the proposed option, assuming a 20-year period of
construction from 2007 (the assumed effective date of the rule) to
2026. Each newly-constructed facility is assumed to operate for 30
years, extending the entire analysis period over 49 years (2007 to
2055). Different methods of discounting over time are used for the
social cost and impact analyses. Social costs are discounted to 2007,
the assumed effective date of the rule, and then annualized over 30
years using 3% and 7% discount rates. For the impact analysis,
compliance costs are discounted for each individual facility to the
year of compliance (the year the vessel is launched or the platform/
structure comes on line, which ranges from 2007 to 2026) and then
summed to produce an aggregate present value of compliance costs. This
aggregate present value is then annualized over 30 years using 3% and
7% discount rates.
---------------------------------------------------------------------------

\44\ See section II.B for a definition of a new offshore oil and
gas extraction facility for the purposes of this proposal.
---------------------------------------------------------------------------

2. Social Cost for New Offshore Oil and Gas Extraction Facilities
The total annualized social cost of the proposed option for new Oil
and Gas facilities is estimated at $3.7 million using a 3 percent
discount rate, and $3.0 million using a 7 percent discount rate. The
largest component of social cost is the pre-tax cost of regulatory
compliance incurred by complying facilities; these costs include one-
time technology costs of complying with the rule, annual operating and
maintenance costs, and permitting costs (initial permit costs, annual
monitoring costs, and permit reissuance costs). Social cost also
includes implementation costs incurred by the Federal government. EPA
expects that for the most part, the proposed regulation would be
implemented under general permits, two in the Gulf of Mexico, and one
in Cook Inlet Alaska.\45\ States are thus not likely to be involved in
administering the permits for new regulated offshore oil and gas
facilities because the facilities in the Gulf of Mexico operate in non-
State waters (beyond the 3-mile limit) and Alaska does not have NPDES
authority. EPA requests comment on its projections about the operating
locations of new facilities.
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\45\ Because individual permits are not issued, costs for pre-
permitting and re-permitting studies are assumed to be shared among
groups of new facilities expected to be covered by the general
permits (see DCN 7-4036 for detailed information on how permitting
costs are assumed to be shared under the general permits).
---------------------------------------------------------------------------

EPA estimates that direct compliance costs would be $3.2 million
and $2.7 million, using a 3 percent and 7 percent discount rate,
respectively. The estimated Federal government cost for administering
the rule for new facilities is comparatively minor in relation to the
estimated direct cost of regulatory compliance. Federal administrative
costs are estimated to be $0.4 million and $0.3 million per year under
the 3 percent and 7 percent discount rates, respectively.
3. Economic Impacts for New Offshore Oil and Gas Extraction Facilities
The following two subsections present economic impacts for MODUs
and production platforms/structures, respectively. Certain aspects of
the methodology differ between the two segments. Oil and gas production
operations involve production of a finite resource, which limits the
potential life of a production platform. Thus, the analysis for
production platforms/structures must account for the production and
resulting exhaustion of the finite oil and gas resource. Key
considerations in the platforms analysis are: (1) When does production

[[Page 68505]]

terminate? and (2) would the year of termination change due to
regulation? The economic life of a MODU is not limited by such
considerations and the analysis for MODUs is accordingly simpler. The
EA and the rulemaking record contain additional data and details on the
methodology and assumptions used in these analyses.
a. MODUs
EPA projects that 80 new jackups, 20 new semi-submersibles, and
three new drill ships will be constructed over the 20 years for which
new facility additions are analyzed. The economic impact analysis for
these new MODUs is conducted at two levels: the vessel level and the
firm level. EPA conducted two vessel-level analyses and one firm-level
analysis:
? The first vessel-level analysis is a closure analysis,
which assesses changes in vessel cash flow and net income. Because the
financial condition of new vessels is unknown, EPA used financial
information from representative existing vessels, collected in EPA's
316(b) survey of MODUs (DCN 7-0008), to represent the financial
characteristics of new facilities. The financial information from these
representative vessels is used for a general assessment of how well
these vessels would perform financially if costs of the proposed option
applied. This analysis is used as an alternative assessment of the
potential for a barrier to entry.
? The second vessel-level analysis is a standard barrier-to-
entry analysis for new facilities. This analysis computes the present
value of estimated initial permitting costs, which are assumed to be
incurred over five years prior to the incorporation of section 316(b)
permit requirements in the applicable general permits (see DCN 7-4036)
and are discounted to the year of compliance (the year the vessel is
assumed to be launched). The one-time capital costs of compliance
(assumed to be incurred in the year of compliance) are then added to
this figure. These summed compliance costs are then compared to the
baseline construction costs for each type of MODU. Neither recurring
costs of compliance (e.g., repermitting costs or recurring capital
costs of CWIS controls) nor recurring baseline costs (e.g., O&M,
refitting costs) are considered in this analysis. The analysis compares
baseline start-up costs and incremental start-up costs associated with
the proposed rule.
? The firm-level analysis is a cost-to-revenue test which
compares the annualized compliance costs for representative new vessels
to the revenues of firms likely to construct MODUs, assuming each of
these firms builds a share of the 103 new MODUs expected to be
constructed over the 20-year construction time frame. This analysis was
conducted on a pre-tax and after-tax basis.
i. Vessel-Level Closure Analysis
To estimate potential closures (or more precisely, decisions not to
proceed with constructing and placing a vessel into service) as a
result of today's proposal for new MODUs, EPA used two models: (1) A
net income model, which computes the estimated present value of
baseline after-tax net income (i.e., without compliance costs) for
representative MODUs (based on survey data from existing MODUs) over a
30-year operating period for each new facility,\46\ and (2) an after-
tax cost calculation model, which estimates the present value of after-
tax compliance costs using engineering and permitting cost inputs.
Comparing the results of these two models shows the potential effect of
costs on vessel net income.
---------------------------------------------------------------------------

\46\ Consistent with generally accepted methods of business
value analysis, EPA would have preferred to use the present value of
after-tax cash flow instead of net income as the basis for this
analysis. However, because it could not reliably estimate all of the
elements of cash flow, the Agency instead used the present value of
net income for its closure test. In particular, EPA was unable to
estimate the ongoing capital outlays (apart from those resulting
from regulatory compliance) that MODUs would need to make as part of
their ordinary business operations. In performing the analysis in
this way, the Agency essentially used the facility's reported
depreciation and amortization--which, being non-cash items, are
normally excluded from cash flow accounting--as an approximation of
ongoing capital outlays. How use of reported depreciation and
amortization, instead of a reliable estimate of capital outlays,
affects the findings from this analysis cannot be precisely known.
For some businesses--in particular those with relatively strong
financial performance--depreciation and amortization may be less
than ongoing capital outlays; for these businesses, the analysis
will tend to overstate business value and understate the potential
effect of compliance outlays on financial performance and business
value. On the other hand, for some businesses--in particular those
with relatively weak financial performance--depreciation and
amortization may exceed ongoing capital outlays; for these
businesses, the analysis will tend to understate business value and
overstate the potential effect of compliance outlays on financial
performance and business value.
---------------------------------------------------------------------------

EPA estimated after-tax net income for eight MODUs, using data
provided by surveyed operators of existing MODUs (EPA received economic
surveys for three semi-submersibles, three jackups, and two drill
ships). EPA was only able to undertake financial analysis for those
MODUs with a positive net income for the three years of financial
information provided in the survey (2000 to 2002). EPA assumed that any
MODU whose net income is negative over the three years is unlikely to
be a viable operation in the baseline and cannot be analyzed with
respect to compliance costs.
EPA used the net income over the three years of survey data to
create a moving cycle of net income over the period of analysis. Among
the years of data collected (2000 to 2002), 2002 was generally a poor
year of financial condition for the industry as a whole. EPA was thus
able to represent industry financials in both good and bad years. The
three-year cycle simulates the effect of volatility in oil and gas
prices and other business conditions (e.g., rig utilization rates) over
each facility's 30-year operating period. Future operating periods are
likely to include major swings in the prices of oil and gas, the
driving force behind the level of operations, rig pricing, and, thus,
financial performance of the newly constructed vessels. EPA assumed
that net income will be flat, on a three-year average basis, over the
30 years of analysis and thus did not apply any factors to increase or
decrease net income over the years of analysis. The net income figures
from the survey, therefore, repeat every three years for 30 years. EPA
then computed the present value of that stream of net income and
compared it to the present value of after-tax compliance costs for the
proposed option.
EPA used the estimated compliance cost elements--capital, O&M, and
permitting costs--for each new MODU to calculate the present value of
the after-tax cost of compliance with today's proposed requirements.
Each compliance-related cost was accounted for in the year it is
assumed to be incurred. Tax effects of compliance outlays were based on
the owner company's marginal tax rate as determined from the firm's
average taxable earnings over the three years of survey data (converted
to a mid-year 2003 basis). EPA calculated depreciation for the
compliance capital outlay using the modified accelerated cost recovery
system (MACRS) and included it in the pre-tax compliance cost stream.
The compliance cost stream was then reduced by the amount of avoided
tax liability, based on the estimated marginal tax rate, to yield the
after-tax compliance cost stream (for more information on these
calculations, see DCN 7-4016). The final result of these calculations
is the present value of after-tax compliance costs.
The present value of after-tax compliance costs was then subtracted
from the present value of baseline net income for the vessel. If the
present value of net income remained positive

[[Page 68506]]

after accounting for compliance costs, EPA assumed that the MODU would
operate post-compliance. If the present value of net income became
negative, EPA assumed that the new MODU would not be a financially
viable project and was counted as a potential ``regulatory closure.''
The analysis is based on the assumption that costs cannot be passed
through to customers. Because existing MODUs will not have to meet the
requirements of the proposal, and new MODUs must compete with these
existing MODUs, assuming zero cost pass-through provides a realistic
estimate of potential economic impacts on new MODUs.
This analysis found that no new MODUs (based on an assumption that
finances for new MODUs will look like those for existing MODUs) would
be a regulatory closure as a result of the incremental compliance costs
associated with the proposed option (detailed results are provided in
the CBI portion of today's record; DCN 7-4020).
ii.Vessel-Level Barrier-to-Entry Analysis
The barrier-to-entry analysis compares the present value of
compliance costs (including the present value of initial permitting
costs discounted to the compliance year and first-time capital/
installation costs, excluding recurring costs), to the costs of
constructing a new MODU. If compliance costs comprised a small fraction
of construction costs, EPA assumed that compliance costs would have no
effect on the decision to build a new MODU.
EPA developed incremental compliance costs for new MODUs using
estimated initial permitting costs and technology cost estimates. The
initial permitting costs are based on each new MODU's share of regional
permitting costs (EPA expects that facilities in a particular
geographic region would collect data from representative facilities in
that region) and individual administrative start-up and permit
application costs. The technology costs are based on the weighted
average cost of installing controls at existing MODUs, by type of MODU,
for all existing MODUs with technical data. The estimated present value
of the initial permitting cost stream, plus the first-time capital/
installation costs of compliance costs, sum to $127,000 for semi-
submersibles, $258,000 for jackups, and $247,000 for drill ships.
According to IADC (May/June, 2003), the cost of new MODUs planned to be
built in the next few years averages $250 million for semi-submersibles
and $125 million for jackups. A drill ship completed in 1998 cost
approximately $275 million (R&B Falcon's Pathfinder). The present value
of initial permitting costs plus one-time capital/installation
compliance costs is therefore estimated to range from 0.05 percent to
0.21 percent of construction costs for the three types of MODU. Because
total up-front costs represent a very small fraction of total costs of
construction (and even of contingency costs, which typically range from
10 percent to 20 percent of capital costs), EPA believes that these
costs would not have a material effect on decisions to build new MODUs.
iii. Firm-Level Cost-to-Revenue Analysis
EPA's research showed that firms likeliest to build MODUs with a
design intake flow of greater than 2 MGD are those that currently own
such MODUs. EPA identified seven firms owning jackups, semi-
submersibles, or drill ships that would be subject to the proposed
requirements for new facilities if newly constructed. They also are
among the largest firms in the industry and are thus likely to be
involved in new construction. EPA estimates that these seven firms
would own the 103 new MODUs subject to the proposed national
requirements for new facilities. To determine the potential impact of
the proposed option on the seven firms determined likely to build new
MODUs subject to regulation, EPA used a cost-to-revenue test, which
compares the annualized pre-tax and after-tax costs of compliance
(calculated for representative new MODUs), with 2002 revenues reported
by these firms. Because nearly all of the firms (other than foreign-
owned) are publicly owned, EPA relied on revenue data compiled from
corporate 10K reports (see Chapter C2 of the EA). EPA then assigned a
number of MODUs potentially subject to regulation to each of the firms
and used the average per-MODU compliance costs multiplied by the number
of these MODUs to calculate the total compliance costs that might be
faced by these firms.
Estimated total annual pre-tax compliance costs are approximately
$15,000 for a semi-submersible, $33,000 for a jackup, and $37,000 for a
drill ship. Estimated after-tax costs are approximately $10,000,
$21,000, and $24,000, respectively, based on a 35 percent marginal
corporate tax rate assumption. These annualized costs are very small
compared to the revenues a MODU might receive for drilling even one
exploratory well in deepwater, which could approach $25 to $30 million
(DCN 7-4017). They are also small compared to the typical day rates
(daily charges) paid to MODUs while drilling wells. These rates can
range from $150,000 to $250,000 per day (DCN 7-4042). Five firms are
assumed to build 12 jackups or semi-submersibles over the time frame of
the analysis (approximately one MODU every other year). The two
additional firms, GlobalSantaFe and Transocean, are the dominant firms
in the industry. These two firms are each assumed to build 20 jackup or
semi-submersibles, plus one drill ship and two drill ships,
respectively, over the time frame of the analysis for a total of 21 or
22 MODUs in total. EPA used the higher cost of a jackup rig to
represent the cost of compliance for both jackups and semi-
submersibles. For simplicity, and to be conservative, EPA assumed that
the annualized costs of compliance for all MODUs constructed over the
period of analysis by each firm are incurred in one year for comparison
to one year's revenues.
Using these assumptions, EPA estimates that the annualized pre-tax
costs per firm range from $0.4 to $0.7 million, and the after-tax costs
range from $0.3 to $0.5 million. The pre-tax cost-to-revenue ratio
ranges from 0.03 percent to 0.06 percent, while the after-tax ratios
range from 0.02 percent to 0.04 percent. Given that the highest
estimated ratio is 0.06 percent, EPA concludes that firm-level impacts
would not pose a barrier to entry.
b. Oil and Gas Production Platforms
EPA projects that 20 deepwater platforms and one Alaska platform
will be constructed over the 20 years over which new facility additions
are analyzed. The economic impact analysis for these new platforms is
conducted at two levels: the platform level and the firm level. EPA
conducted two platform-level analyses and one firm-level analysis:
? The first platform-level analysis assesses the potential
effects of compliance costs on platform operation. Two effects of the
proposed option are considered: (1) A reduction in the expected
economic value of the platform, driven by all costs of compliance,
which could prevent oil and gas resources from being brought into
production, and (2) earlier production shut-in, driven by the increase
in O&M costs. The baseline operating and financial profile for this
analysis is based on data from existing platforms whose cooling water
intake rates would cause them to be subject to the proposed rule if
they were being newly constructed after rule promulgation. These
existing platforms serve as a baseline model of the

[[Page 68507]]

operating and financial conditions of new platforms that would be
regulated under the proposal. Estimated compliance costs are added to
the baseline cost profile in the analysis of compliance costs on
platform operations.
? The second platform-level analysis is a barrier-to-entry
analysis for new facilities. This analysis compares the present value
of estimated initial permitting costs plus the one-time capital costs
of compliance (excluding any recurring costs) to the construction costs
for each type of platform.
? The firm-level analysis is a cost-to-revenue test, which
compares the annualized compliance costs for representative new
platforms to the revenues of firms likely to construct new platforms/
structures. This analysis assumes that each firm likely to build a
deepwater platform/structure subject to regulation would bring four
platforms/structures on line over the time frame of the analysis; and
that only one firm will build an Alaska platform during the analysis
period. For simplicity and to be conservative, firms assumed to bring
four deepwater structures on line are assigned the annualized costs of
compliance for four platforms in one year for comparison against one
year's revenues. This analysis was conducted on a pre-tax and after-tax
basis.
i. Platform-Level Production/Shut-In Analysis
Compliance costs resulting from the proposed option may affect a
platform's financial performance and related operating decisions in two
ways. First, increased costs from regulatory compliance will reduce the
expected economic value of an oil and gas production project, and may
prevent an otherwise financially viable project from being undertaken.
Second, even if a project overall remains financially viable, increased
operating costs may lead to an earlier production shut-in than would
occur in the baseline. Details of the analysis of these effects are
provided below.
For the analysis of these effects, EPA constructed a general
platform analysis model, which simulates the operations and economics
of oil and gas development and production. The platform model analyzes
production over a period extending as long as 30 years. Pre-tax costs
(including costs incurred in pre-production years, O&M, monitoring
costs, and repermitting costs) are input into the model in the year in
which they occur, until the model shows the platform is uneconomical to
operate. To determine the shut-in year, projected net revenue is
compared to operating costs in each production year. Net revenue is
based on an assumed price of oil, current and projected production of
oil and gas, well production decline rates, and severance and royalty
rates. Operating costs are based on a calculated cost per barrel of oil
equivalent (BOE) produced. The model simulates operations for the
lesser of 30 years or to the year when operating costs exceed
production revenue, at which point the operator is assumed to terminate
production. The model calculates the lifetime of the project, total
production, and the net present value of the operation (net income of
the operation over the life of the project in terms of today's
dollars). A comparison of the baseline model outputs to the post-
compliance model outputs yields any losses of production and project
lifetimes and the net present value of the operation. If the net
present value of the operation is positive in the baseline but negative
post-compliance, the project is considered nonviable post-compliance.
It is assumed the platform would not be built.
The model uses as baseline data, financial information from
representative existing platforms, collected in EPA's 316(b) survey of
production platforms (DCN 7-0008) to represent the financial
characteristics of future platforms that would be subject to this
proposed regulation. EPA received an economic survey from only one
deepwater platform with cooling water intake structure flows meeting
the proposed regulatory criteria. EPA used data from this survey and
from other sources of publicly available information, such as the
Minerals Management Service, to develop a model new deepwater oil and
gas production platform. EPA also received a survey from a platform in
Alaska but did not include it in the analysis because the surveyed
platform is a very old structure and at the end of its productive life.
It is likely that it would not be representative of new platforms being
built after the Phase III rule is finalized. The Alaska platform is
therefore analyzed only in the barrier to entry analysis.

Analysis of Project Viability

As noted above, any increase in costs, whether operating, capital,
or permitting, will reduce the expected economic value of an oil and
gas project, as represented by the present value of project net income,
and may cause an otherwise economic oil and gas production project to
never be undertaken. In this case, the entire economic value of the
project and its otherwise recoverable oil and gas production are
assumed to be lost (note: this loss need not be permanent but may only
be delayed until higher product prices, or reduced development and
production costs allow the project to become financially viable). For
this potential impact, EPA analyzed whether the reduction in value from
all regulatory compliance outlays would be sufficient to cause the
expected discounted net income of an otherwise economically viable oil
and gas production project to be negative--at the outset. In this case,
the operator is assumed not to proceed with development and production.
If the platform has a positive net present value under baseline
conditions but a negative net present value in the post-compliance
scenario, EPA notes an impact on the platform and estimates the lost
production resulting from the costs of regulatory compliance.

Analysis of Production Shut-In Effects

Although a project overall remains financially viable, the
increased operating costs from regulatory compliance may lead to an
earlier production shut-in than would occur in the baseline. Shut-in
refers to lost production from non-production of producible reserves
for reasons such as tests, repairs, or to await construction of
gathering lines. Apart from the financial impact, an earlier shut-in
will also lead to reduced production of otherwise economically
recoverable oil and gas. For this analysis, projected net revenue is
compared to operating costs at each year for the model project.\47\ Net
revenue (after subtracting royalties and severance, which are payments
to the lease owner and a State, if relevant) is based on an assumed
price of oil, current and projected production of oil and gas, well
production decline rates, and severance and royalty rates. Operating
costs are based on a calculated cost per barrel of oil equivalent (BOE)
produced. The model simulates operations for the lesser of 30 years or
to the year when operating costs exceed production revenue, at which
point the operator is assumed to terminate production. A comparison of
total production and total project lifetime in the baseline vs. post-
compliance shows any differences in these variables following the
imposition of compliance costs.
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\47\ Following engineering review of surveyed deepwater
platforms/structures, only one was determined to have a total design
CWIS intake flow rate meeting the proposed 316(b) thresholds for
regulation of oil and gas facilities, had the structure been newly
constructed, so only one model of deepwater structures was developed.

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[[Page 68508]]

This analysis found no impacts on deepwater oil and gas development
or production as a result of the incremental compliance costs
associated with the proposed option for the one platform that was
analyzed. Impacts on net present value were very small. (Detailed
results are included in the CBI portion of today's record; DCN 7-4038.)
ii. Platform-Level Barrier-to-Entry Analysis
The barrier-to-entry analysis compares the present value of the
initial permitting cost stream (discounted to the year of compliance)
plus one-time capital/installation costs to the costs of constructing a
new platform. If compliance costs comprise a small fraction of
construction costs, EPA assumes that compliance costs would not have an
effect on the decision to build a new platform.
The estimated total present values of incremental compliance costs
are $291,000 for deepwater projects and $685,000 for Alaska projects.
Costs for constructing new deepwater platforms are estimated to range
from $114 million to $2.3 billion (see EA for the Synthetic Drilling
Fluid Effluent Limitations Guidelines in the rulemaking record, DCN 7-
4017). For Alaska, EPA used a value of $120 million (DCN 7-4028). The
ratio of incremental compliance costs to current total construction
costs therefore ranges from 0.01 percent to 0.3 percent for deepwater
projects and 0.6 percent for an Alaska project. Because this represents
a small fraction of total construction costs (and even of contingency
costs), EPA believes that these costs would not have a material effect
on decisions to build new platforms.
iii. Firm-Level Cost-to-Revenue Analysis
To determine the potential impact of the proposed option on firms,
EPA used a cost-to-revenue test, which compares the annualized pre-tax
and after-tax costs of compliance (calculated for a representative new
platform times the maximum number of platforms assumed built by each
firm in any one year), with 2002 revenues reported by all firms
determined likely to be affected by this regulation. The firms that are
considered affected are (1) those identified as currently having
existing deepwater platforms or structures that would be subject to
regulation if they were newly constructed and (2) the likeliest type of
firm to build a new Alaska platform during the time frame of the
analysis. EPA assumed each of the five firms operating in the deepwater
Gulf would bring on-line four platforms during the period of analysis
(for a total of 20 platforms). For simplicity and to be conservative,
EPA assumes the four platforms come on line in one year for comparison
with one year's revenues at each firm. One small firm is assumed to
build the one Alaska platform over the period of analysis, and the
annualized compliance cost is also compared to one year's revenues at
that firm.
Using these assumptions, EPA estimates that the annualized pre-tax
costs per firm are about $0.3 million, and the after-tax costs are
about $0.2 million. The pre-tax cost-to-revenue ratio ranges from
< 0.001 percent to 0.01 percent, while the after-tax ratios range from
< 0.001 percent to 0.007 percent. Given that the highest estimated ratio
is 0.01 percent, EPA concludes that firm-level impacts would not pose a
barrier to entry.
c. Total Facility Compliance Costs and Impacts for All New Offshore Oil
and Gas Extraction Facilities
Exhibit VIII-7 summarizes the total facility compliance costs and
impacts associated with the proposed option for Phase III new offshore
oil and gas extraction facilities. Annualized after-tax costs total
$1.8 million per year for MODUs and $1.2 million per year for
platforms, or a total of $3.1 million per year for all affected new oil
and gas operations estimated to be constructed over the period of the
analysis (using a 7 percent discount rate).\48\
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\48\ Costs are incurred assuming 20 years of new facility
construction, with each facility incurring costs over a 30-year
operating period, discounted to the year the facility is launched or
comes on-line. The present value of private after-tax costs is less
than the previously described present value of social costs, which
are based on pre-tax costs, because of differences in the
discounting for private costs and social costs. Private costs are
discounted, for each analysis, only to the first year of compliance.
In contrast, for the social cost calculation, all costs are
discounted to the beginning of 2007, regardless of when new
facilities come into operations. Because new facilities are
scheduled to begin operation for a 20 year period following rule
promulgation, the total effect of discounting is much greater for
the present value of social cost calculation than for the private
cost calculation. As a result, the present value of social costs,
even though based on pre-tax costs, is less than the present value
of private, after-tax cost.

Exhibit VIII-7.--Summary of Private Costs and Impacts for New Oil and Gas Facilities
----------------------------------------------------------------------------------------------------------------
Annualized
private after-
Number of new tax compliance Facility
Type of O&G facility facilities costs (in impacts Firm impacts
millions, 2003
$)
----------------------------------------------------------------------------------------------------------------
MODUs........................................... 103 $1.8 0 0
Platforms....................................... 21 1.2 0 0
-----------------
Total....................................... 124 3.1 0 0
----------------------------------------------------------------------------------------------------------------
Note: Component values may not sum to the reported total due to independent rounding.

C. Summary of Total Social Costs and Impacts

As discussed earlier, EPA is proposing national categorical
requirements for existing Phase III facilities, as defined by one of
the three co-proposed flow-threshold-based options, and is proposing
requirements similar to certain provisions of the rule for new offshore
oil and gas extraction facilities. EPA estimated a total annualized
social cost for the ``50 MGD for All Waterbodies'' option for existing
facilities and the proposed option for new oil and gas extraction
facilities of $51.0 million at a 3 percent discount rate, and $53.1
million, at a 7 percent discount rate. EPA estimates that 260
facilities would be subject to national requirements and that none of
these facilities would experience adverse impacts. Exhibit VIII-8
summarizes these findings.

[[Page 68509]]

Exhibit VIII-8.--Summary of Economic Analysis: ``50 MGD for All Waterbodies'' Option for Existing Facilities
Plus New Offshore Oil and Gas Facilities > 2 MGD
----------------------------------------------------------------------------------------------------------------
Annualized social cost (in Number of
millions, 2003 $) facilities Number of
-------------------------------- subject to facilities
3% Discount 7% Discount national with impacts*
rate rate requirements
----------------------------------------------------------------------------------------------------------------
Direct Compliance Cost:
Manufacturing Industries.................... $42.7 $45.1 127 0
Other Industries............................ 4.1 4.4 9 0
Electric Generators......................... N/A N/A N/A N/A
New O&G Facilities.......................... 3.2 2.7 124 0
-----------------
Total................................... 50.0 52.2 260 0
State and Federal Administrative Cost........... 1.0 0.9 .............. ..............
-----------------
Total Social Cost........................... 51.0 53.1 .............. ..............
----------------------------------------------------------------------------------------------------------------
* The impact measures for existing Manufacturers are facility closure and moderate financial impact (see also
section VIII.A.3.a). The two impact measures for new Oil and Gas facilities are facility closures and barrier
to entry (see also section VIII.B.3). Numbers may not add up to totals due to independent rounding.

EPA estimated a total annualized social cost for the ``200 MGD for
All Waterbodies'' option for existing facilities and the proposed
option for new oil and gas extraction facilities of $26.4 million at a
3 percent discount rate, and $27.2 million, at a 7 percent discount
rate. EPA estimates that 149 facilities would be subject to national
requirements and that none of these facilities would experience adverse
impacts. Exhibit VIII-9 summarizes these findings.

Exhibit VIII-9.--Summary of Economic Analysis: ``200 MGD for All Waterbodies'' Option for Existing Facilities
Plus New Offshore Oil and Gas Extraction Facilities
----------------------------------------------------------------------------------------------------------------
Annualized social cost (in Number of
millions, 2003 $) facilities Number of
-------------------------------- subject to facilities
3% Discount 7% Discount national with impacts*
rate rate requirements
----------------------------------------------------------------------------------------------------------------
Direct Compliance Cost:
Manufacturing Industries.................... $21.7 $23.1 23 0
Other Industries............................ 1.0 0.9 2 0
Electric Generators......................... N/A N/A N/A N/A
New O&G Facilities.......................... 3.2 2.7 124 0
-----------------
Total................................... 25.9 26.7 149 0
State and Federal Administrative Cost........... 0.5 0.4 .............. ..............
-----------------
Total Social Cost........................... 26.4 27.2 .............. ..............
----------------------------------------------------------------------------------------------------------------
* The impact measures for existing Manufacturers are facility closure and moderate financial impact (see also
section VIII.A.3.a). The two impact measures for new Oil and Gas facilities are facility closures and barrier
to entry (see also section VIII.B.3). Numbers may not add up to totals due to independent rounding.

EPA estimated a total annualized social cost for the ``100 MGD for
Certain Waterbodies'' option for existing facilities and the proposed
option for new oil and gas extraction facilities of $21.3 million at
both a 3 percent and 7 percent discount rate. EPA estimates that 143
facilities would be subject to national requirements and that none of
these facilities would experience adverse impacts. Exhibit VIII-10
summarizes these findings.

Exhibit VIII-10.--Summary of Economic Analysis: ``100 MGD for Certain Waterbodies'' Option for Existing
Facilities Plus New Offshore Oil and Gas Extraction Facilities
----------------------------------------------------------------------------------------------------------------
Annualized social cost (in Number of
millions, 2003 $) facilities Number of
-------------------------------- subject to facilities
3% Discount 7% Discount national with impacts*
rate rate requirements
----------------------------------------------------------------------------------------------------------------
Direct Compliance Cost:
Manufacturing Industries.................... $16.7 $17.4 17 0
Other Industries............................ 0.7 0.7 2 0
Electric Generators......................... N/A N/A N/A N/A
New O&G Facilities.......................... 3.2 2.7 124 0
-----------------

[[Page 68510]]

Total................................... 20.7 20.8 143 0
State and Federal Administrative Cost........... 0.6 0.5 .............. ..............
-----------------
Total Social Cost........................... 21.3 21.3 .............. ..............
----------------------------------------------------------------------------------------------------------------
* The impact measures for existing Manufacturers are facility closure and moderate financial impact (see also
section VIII.A.3.a). The two impact measures for new Oil and Gas facilities are facility closures and barrier
to entry (see also section VIII.B.3). Numbers may not add up to totals due to independent rounding.

IX. Benefits Analysis

A. Introduction

This section presents EPA's estimates of the national economic
benefits of the three co-proposed regulatory options for the section
316(b) regulation for Phase III existing facilities: The ``50 MGD for
All Waterbodies'' option, the ``200 MGD for All Waterbodies'' option,
and the ``100 MGD for Certain Waterbodies'' option. The benefits occur
due to the reduction in impingement mortality and entrainment at
cooling water intake structures affected by this rulemaking (see
section II for a description of the facilities to which this rulemaking
potentially applies). By reducing impingement mortality and
entrainment, the co-proposed options would increase the number of fish,
shellfish, and other aquatic life in local aquatic ecosystems. This, in
turn, will directly and indirectly generate use benefits such as those
associated with recreational and commercial fishing. Other types of
benefits that are independent of any current or anticipated uses of the
resource could also be realized; these are known as non-use values.
Section IX.D provides an overview of types and sources of benefits
anticipated, how these benefits were estimated, and what level of
benefits have been estimated for each of the three co-proposed options.
For a comparison of social benefits and total social costs, refer to
Section X.
To estimate the economic benefits of reducing impingement mortality
and entrainment at cooling water intake structures, all the beneficial
outcomes need to be identified and, where possible, quantified and
assigned appropriate monetary values. Estimating economic benefits can
be challenging because of the many steps of analysis that are necessary
to link a reduction in impingement mortality and entrainment to changes
in impacted fisheries and other aspects of relevant aquatic ecosystems,
and then to link these ecosystem changes to the resulting changes in
quantities and values for the associated environmental goods and
services that ultimately are linked to human welfare. The methodologies
used in the estimation of benefits of the proposed regulatory options
are largely built upon those used for estimating benefits of the final
rule for Phase II facilities (see 69 FR 41576). The Regional Benefits
Assessment for the Proposed Section 316(b) Rule for Phase III
Facilities (see DCN 7-0003), hereafter known as the Regional Analysis
Document, provides EPA's analyses for the benefit assessment for the
proposed options.
The benefit estimates for this rule are derived from a series of
regional studies for a range of waterbody types throughout the U.S.
Section IX.B provides detail on the regional study design. Sections
IX.C and IX.D describe the methods EPA used to estimate impingement
mortality and entrainment impacts at potentially regulated existing
facilities and to derive an economic value of such losses. National
benefits were estimated using a set of statistical weights for each
potentially regulated facility. The weights were developed as part of
EPA's design of the survey of the industries.
The benefit estimates presented in the following sections reflect
changes in impingement mortality and entrainment reductions at existing
facilities only. EPA was unable to assess benefits of reducing
impingement and entrainment at new offshore oil and gas extraction
facilities due to significant data gaps at the time of proposal.
Therefore, the benefits estimates presented in this section should be
compared only to the cost estimates for existing Phase III facilities.
EPA solicits submission of data on impingement mortality and
entrainment impacts at offshore oil and gas extraction facilities.

B. Study Design and Methods

EPA's evaluation of impingement mortality and entrainment data had
four main objectives: (1) To develop a national estimate of the
magnitude of impingement and entrainment at potentially regulated
facilities; (2) to standardize impingement and entrainment rates using
common biological metrics so that rates could be compared across
species, years, facilities, and geographical regions; (3) to estimate
changes in these metrics as a result of projected reductions in
impingement and entrainment under the proposed rule options; and (4) to
obtain data that can be used to estimate the national economic benefits
of reduced impingement and entrainment.
Harvested species were the main focus of EPA's analysis, primarily
because of the availability of economic methods for valuing these
species. EPA's approach to estimating changes in harvest assumed that
impingement and entrainment losses result in a reduction in the number
of harvestable adults in the years following the time that individual
fish are killed by impingement and entrainment and that future
reductions in impingement and entrainment will lead to future increases
in fish harvest. This approach only estimates the incremental yield
that is foregone because of the number of deaths due to impingement and
entrainment and is not intended to provide an estimate of absolute
population levels. EPA intends to investigate the feasibility of
applying a population modeling approach to estimate expected changes in
harvest levels and fish population sizes. Such an approach would use
available data and life-stage specific estimates of natural mortality,
impingement and entrainment mortality, and fishing mortality, plus an
explicit function describing density-dependent reproductive success to
attempt to estimate long-term changes in average

[[Page 68511]]

harvest levels and stock sizes. A population model could serve as a
supplement or as an alternative to the current modeling approach based
on age one equivalent losses. EPA invites comment on ways that it might
develop a population model to support an estimate of the national
benefits of this rulemaking.
1. Extrapolation of Impingement and Entrainment Rates
To obtain a national estimate of losses at all potentially
regulated facilities, it was necessary to extrapolate impingement and
entrainment rates from facilities with data (model facilities) to
facilities without data. Extrapolation of impingement and entrainment
rates was necessary because not all potentially regulated facilities
within a given region have conducted impingement and entrainment
studies. Model facilities included both Phase II facilities and
potentially regulated Phase III facilities,\49\ based on the assumption
that impingement and entrainment rates at Phase II and Phase III
facilities are similar after normalization by intake flow. Phase II
facilities were included to make use of the largest possible data set
and to accommodate the lack of impingement and entrainment data from
potentially regulated Phase III facilities in some regions. Impingement
and entrainment data from 72 Phase II facilities and 16 potentially
regulated Phase III facilities were evaluated.
---------------------------------------------------------------------------

\49\ ``Potentially regulated Phase III facilities'' refers to
all existing facilities with design intake flows greater than 2 MGD,
not regulated in the Phase II rule.
---------------------------------------------------------------------------

Impingement and entrainment data were extrapolated on the basis of
operational intake flow in millions of gallons per day (MGD), where MGD
is the average operational flow over the period 1996-1998 as reported
by facilities in response to EPA's survey of the industry. Operational
flow at each facility was rescaled using factors reflecting the
relative effectiveness of currently in-place technologies for reducing
impingement and entrainment. The extrapolation procedure is described
in Chapter A1 of Part A of the Regional Analysis Document. While there
may be variations from these estimates in the actual losses (and
benefits) per MGD across individual facilities, EPA believes that this
method of extrapolation is a reasonable basis for developing an
estimate of national-level benefits.
2. Study Regions and Facilities
EPA's analysis examined cooling water intake structure impacts and
regulatory benefits at the regional scale, and then combined regional
results to develop national estimates. The Agency evaluated the
benefits of the proposed regulatory options in six study regions based
on the locations of potentially regulated Phase III facilities and
similarities in the affected ecosystems, aquatic species present, and
characteristics of commercial and recreational fishing activities
within each region. The four coastal regions (California, North
Atlantic, Mid-Atlantic, and Gulf of Mexico) correspond to those of the
National Oceanographic and Atmospheric Association (NOAA) Fisheries
agency (formerly the National Marine Fisheries Service). The Great
Lakes region includes all potentially regulated Phase III facilities
that withdraw water from Lakes Ontario, Erie, Michigan, Huron, and
Superior, or are located on a waterway with open fish passage to a
Great Lake and within 30 miles of the lake. The Inland region includes
the remaining facilities that withdraw water from freshwater lakes,
rivers, and reservoirs. Exhibit IX-1 indicates the number of
potentially regulated Phase III facilities in each study region. The
exhibit also shows the number of facilities subject to national
technology requirements under each of the co-proposed regulatory options.

Exhibit IX-1.--Phase III Facilities in Each Region
----------------------------------------------------------------------------------------------------------------
Number of Number of facilities subject to national
potentially technology requirements under proposed
regulated regulatory options \b\ (weighted)
Region existing phase -----------------------------------------------
III 100 MGD
facilities \a\ 50 MGD all 200 MGD all certain
(weighted) waterbodies waterbodies waterbodies
----------------------------------------------------------------------------------------------------------------
California...................................... 9 1 0 0
North Atlantic.................................. 5 4 1 3
Mid-Atlantic.................................... 13 3 2 2
South Atlantic.................................. 4 0 0 0
Gulf of Mexico.................................. 11 7 2 7
Great Lakes..................................... 68 19 5 6
Inland.......................................... 493 69 12 0
-----------------
Total, Study Regions........................ 599 103 22 18
-----------------
National total \c\.......................... 603 103 22 18
----------------------------------------------------------------------------------------------------------------
\a\ Potentially regulated existing Phase III facilities include electric generators with CWIS that withdraw more
than 2 MGD but less than 50 MGD and manufacturers with CWIS that withdraw more than 2 MGD, that use at least
25% of the water for cooling purposes.
\b\ Numbers of facilities reflect only those that are subject to technology requirements; those facilities that
only have permitting costs are excluded.
\c\ Eighty potentially regulated facilities estimated to close under the baseline scenario are excluded from
this analysis.

3. Species Groups
Life history data are very limited for many of the species that are
impinged and entrained, and as a result, there are many data gaps for
individual species. To overcome this limitation in its national benefit
analysis, EPA used available life history data to construct
representative life histories for groups of closely related species.
Aggregation of species into groups of similar species with a common
life history type facilitated parameterization of the fisheries models
used by EPA to evaluate facility impingement and entrainment monitoring
data. Groups were based on family groups and groups used by NOAA
Fisheries for landings

[[Page 68512]]

data. For example, bay goby, blackeye goby, yellowfin goby, and other
gobies were grouped together as ``gobies.'' An exception was made for
species of exceptionally high commercial or recreational value (e.g.,
striped bass), which were evaluated as single species.

C. Impingement and Entrainment

EPA's analysis is based on facility-provided biological monitoring
data. As discussed in Chapter A2 of Part A of the Regional Analysis
Document, there are several types of uncertainty associated with these
data. Major sources of uncertainty are the imperfect precision and
accuracy of impingement and entrainment data reported by facilities and
of growth and mortality rates obtained from the scientific literature.
This results from unavoidable sampling and measurement errors. While
these uncertainties may lead to imprecision in impingement and
entrainment estimates, EPA found no evidence of statistical bias. Given
the goal of its benefit analysis, EPA believes that the data available
from facility studies are sufficiently robust for developing estimates
of the relative magnitude of impingement and entrainment nationwide.
Using standard fishery modeling techniques,\50\ EPA constructed
models that combined facility-derived impingement and entrainment
counts with relevant life history data to derive estimates of (1) age-
one equivalent losses (the number of individuals of different ages
impinged and entrained by facility intakes expressed as an equivalent
number of age-one fish), and (2) foregone fishery yield (pounds of
commercial harvest and numbers of recreational fish and shellfish that
are not harvested due to impingement and entrainment). In addition to
direct losses of harvested species, estimates of foregone fishery yield
include the yield of harvested species that is lost due to losses of
forage species, which provide food for harvested species. Details of
the methods used to calculate these metrics are provided in Chapter A1
of Part A of the Regional Analysis Document. For all analyses, EPA used
the impingement and entrainment estimates provided by the facility and
assumed 100 percent entrainment mortality based on the analysis of
entrainment survival studies presented in Chapter A7 of Part A of the
Regional Analysis Document. If there is some entrainment survival, this
last assumption may lead to some overestimate of baseline entrainment
losses.
---------------------------------------------------------------------------

\50\ Ricker, W.E. 1975. Computation and interpretation of
biological statistics of fish populations. Fisheries Research Board
of Canada, Bulletin 191; Hilbourn, R. and C.J. Walters. 1992.
Quantitative Fisheries Stock Assessment, Choice, Dynamics and
Uncertainty. Chapman and Hall, London and New York; Quinn, T.J., II.
and R.B. Deriso. 1999. Quantitative Fish Dynamics. Oxford University
Press, Oxford and New York; Dixon, D.A. 1999. Catalog of Assessment
Methods for Evaluating the Effects of Power Plant Operations on
Aquatic Communities. Final Report. Report number TR-112013.
---------------------------------------------------------------------------

1. Summary of Current Annual Impingement and Entrainment by Region
Exhibit IX-2 presents EPA's estimates of current annual impingement
and entrainment (I&E) in the study regions.

Exhibit IX-2.--Current Annual Impingement and Entrainment, by Region
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impingement Entrainment Total I & E
-----------------------------------------------------------------------------------------------
Region Foregone Foregone Foregone
Age-1 fishery yield Age-1 fishery yield Age-1 fishery yield
equivalents (lbs) equivalents (lbs) equivalents (lbs)
--------------------------------------------------------------------------------------------------------------------------------------------------------
California.............................................. 21,000 701 1,290,000 95,100 1,310,000 95,800
North Atlantic.......................................... 20,100 141 2,320,000 44,800 2,340,000 45,000
Mid-Atlantic............................................ 3,890,000 540,000 19,400,000 381,000 23,200,000 920,000
South Atlantic.......................................... 423,000 49,100 1,090,000 73,700 1,520,000 123,000
Gulf of Mexico.......................................... 6,140,000 623,000 6,580,000 1,370,000 12,700,000 1,990,000
Great Lakes............................................. 31,800,000 413,000 2,570,000 76,400 34,400,000 489,000
Inland.................................................. 28,600,000 232,000 15,700,000 263,000 44,200,000 495,000
-----------------
National total a.................................... 70,900,000 1,860,000 48,900,000 2,300,000 120,000,000 4,160,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

The estimates in Exhibit IX-2 make use of data from available
impingement and entrainment studies conducted at both Phase II and
Phase III facilities. Using data solely from the limited number of
Phase III studies available (4 studies for the Great Lakes region and
11 studies for the Inland region), estimates of loss of age-1
equivalents to impingement and entrainment are 5,160,000 at Great Lakes
facilities and 14,700,000 at Inland facilities. Estimates of foregone
fishery yield are 16,500 pounds at Great Lakes facilities and 250,000
pounds at Inland facilities.
2. Summary of Annual Reductions in Impingement and Entrainment for
Three Options
Exhibit IX-3 presents EPA's estimates of annual impingement and
entrainment reductions under the ``50 MGD for All Waterbodies'' option.
Exhibit IX-4 presents EPA's estimates of annual impingement and
entrainment reductions under the ``200 MGD for All Waterbodies''
option. Exhibit IX-5 presents results for the ``100 MGD for Certain
Waterbodies'' option.
a. Reductions in Annual Impingement and Entrainment for the ``50 MGD
for All Waterbodies'' Option
See Exhibit IX-3 for reductions in annual impingement and
entrainment for the ``50 MGD for All Waterbodies'' option.

[[Page 68513]]

Exhibit IX-3.--Reductions In Annual Impingement and Entrainment for the
``50 MGD for All Waterbodies'' Option, by Region
------------------------------------------------------------------------
Foregone
Region Age-1 fishery yield
equivalents (lbs)
------------------------------------------------------------------------
California.............................. 383,000 28,000
North Atlantic.......................... 930,000 17,900
Mid-Atlantic............................ 13,400,000 600,000
Gulf of Mexico.......................... 8,380,000 1,250,000
Great Lakes............................. 11,600,000 169,000
Inland.................................. 14,800,000 157,000
-----------------
National total...................... 49,500,000 2,220,000
------------------------------------------------------------------------

The estimates in Exhibit IX-3 make use of data from available
impingement and entrainment studies conducted at both Phase II and
Phase III facilities. Using data solely from the limited number of
Phase III studies available (4 studies for the Great Lakes region and
11 studies for the Inland region), estimates of reductions in loss of
age-1 equivalents to impingement and entrainment are 1,700,000 at Great
Lakes facilities and 5,450,000 at Inland facilities. Estimates of
reductions of foregone fishery yield are 5,570 pounds at Great Lakes
facilities and 93,000 pounds at Inland facilities.
b. Reductions in Annual Impingement and Entrainment for the ``200
MGD for All Waterbodies'' Option
See Exhibit IX-4 for reductions in annual impingement and
entrainment for the ``200 MGD for All Waterbodies'' option.

Exhibit IX-4.--Reductions In Annual Impingement and Entrainment for the
``200 MGD for All Waterbodies'' Option, by Region
------------------------------------------------------------------------
Foregone
Region Age-1 fishery yield
equivalents (lbs)
------------------------------------------------------------------------
California.............................. 0 0
North Atlantic.......................... 198,000 3,800
Mid Atlantic............................ 11,900,000 534,000
Gulf of Mexico.......................... 4,580,000 682,000
Great Lakes............................. 7,710,000 116,000
Inland.................................. 9,650,000 107,000
-----------------
National total...................... 34,000,000 1,440,000
------------------------------------------------------------------------

The estimates in Exhibit IX-4 make use of data from available
impingement and entrainment studies conducted at both Phase II and
Phase III facilities. Using data solely from the limited number of
Phase III studies available (4 studies for the Great Lakes region and
11 studies for the Inland region), estimates of reductions in loss of
age-1 equivalents to impingement and entrainment are 1,100,000 at Great
Lakes facilities and 3,270,000 at Inland facilities. Estimates of
reductions in foregone fishery yield are 3,690 pounds at Great Lakes
facilities and 55,700 pounds at Inland facilities.
c. Reductions in Annual Impingement and Entrainment for the ``100 MGD
for Certain Waterbodies'' Option
See Exhibit IX-5 for reductions in annual impingement and
entrainment for the ``100 MGD for Certain Waterbodies'' option.

Exhibit IX-5.--Reductions In Annual Impingement and Entrainment for the
``100 MGD for Certain Waterbodies'' Option, by Region
------------------------------------------------------------------------
Foregone
Region Age-1 fishery yield
equivalents (lbs)
------------------------------------------------------------------------
California.............................. 0 0
North Atlantic.......................... 754,000 14,500
Mid Atlantic............................ 11,900,000 534,000
Gulf of Mexico.......................... 8,380,000 1,250,000
Great Lakes............................. 8,740,000 130,000
-----------------
National total...................... 29,800,000 1,930,000
------------------------------------------------------------------------

The estimates in Exhibit IX-5 make use of data from available
impingement and entrainment studies conducted at both Phase II and
Phase III facilities. Using data solely from the limited number of
Phase III studies available (4 studies for the Great Lakes region), the
estimate of reductions in loss of age-1 equivalents to impingement and

[[Page 68514]]

entrainment is 1,260,000 and the estimate of reductions in foregone
fishery yield is 4,190 pounds at Great Lakes facilities.
d. Reductions in Annual Impingement and Entrainment for Other Policy
Options
EPA considered a wide range of policy options in developing the
proposed section 316(b) regulation for the Phase III facilities. The
Regional Analysis Document provides results for all evaluated options
considered in this rulemaking.

D. National Benefits

1. Overview
Economic benefits of the co-proposed options for the section 316(b)
regulation for Phase III existing facilities can be broadly defined
according to categories of goods and services provided by the species
affected by impingement and entrainment by cooling water intake
structures.
The first category includes benefits that pertain to the use
(direct or indirect) of the affected fishery resources. Use value
reflects the value of all current direct and indirect physical uses of
a good or service (Mitchell and Carson, 1989; DCN 5-1287). The direct
use benefits can be further categorized according to whether or not
affected goods and services are traded in the market. The ``direct
use'' benefits of the section 316(b) regulation stem both
from''market'' commodities (e.g., commercial fisheries) and from
``nonmarket'' goods (e.g., recreational angling). Indirect use benefits
also can be linked to either market or nonmarket goods and services--
for example, the manner in which reduced impingement and entrainment-
related losses of forage species leads through the aquatic ecosystem
food web to enhance the biomass of species targeted for commercial
(market) and recreational (nonmarket) uses.
The second category includes benefits that are independent of any
current or anticipated use of the resource; these are known as ``non-
use'' or ``passive use'' values.\51\ Non-use values include
``nonmarketed'' goods and services, which reflect human values
associated with existence, bequest, and altruistic motives. Existence
value is the value that individuals may hold for simply knowing that a
particular good exists regardless of their present or expected use. For
example, ecological goods and services such as diversity of aquatic and
terrestrial species and habitat for threatened and endangered species
are often valued for their existence. Bequest value exists when someone
gains utility through the knowledge that an amenity will be available
for others (family or future generations) in the future (Fisher and
Raucher, 1984; DCN 4-0043). Altruistic values arise from interpersonal
concerns (valuing the happiness that others get from enjoying the resource).
---------------------------------------------------------------------------

\51\ The benefits analysis of the proposed options for
potentially regulated Phase III facilities does not assess option
value as a distinct component of value because it is increasingly
recognized that option value ``cannot be a separate component of
value'' (Freeman, 2003; p. 249).
---------------------------------------------------------------------------

The economic value of benefits from the proposed options for Phase
III facilities is estimated using a range of valuation methods, with
the specific approach being dependent on the type of benefit category,
data availability, and other suitable factors. Commercial fishery
benefits are valued using market data. Recreational angling benefits
are valued using a combination of primary and secondary research
methods. Methodologies for estimating use values for recreational (non-
market values) and commercial (market values) species are well
developed, and some of these species have been extensively studied. As
a result, these values are relatively easy to estimate. A detailed
description of the approaches used for valuing commercial and
recreational benefits of the proposed options can be found in Chapters
A4 and A5 of the Regional Analysis Document.
Estimating benefits from reduced impingement and entrainment of
forage species is more challenging because these species are not
targeted directly by commercial or recreational anglers and have no
direct use values that can be observed in markets or inferred from
revealed actions of anglers. To estimate a portion of the indirect use
benefits from reducing impingement and entrainment losses to forage
species, EPA used a trophic transfer model that translates changes in
impingement and entrainment losses of forage fish into changes in the
harvest of commercial and recreational species that are subject to
impingement and entrainment (i.e., not the whole food web). This method
is described in Chapter A1 of Part A of the Regional Analysis Document.
Stated preference methods, or benefit transfer based on stated
preference studies, are the generally accepted techniques for
estimating non-use values.
Stated preference methods rely on carefully designed surveys, which
ask people either to state their willingness to pay for particular
ecological improvements, such as increased protection of aquatic
species or habitats with particular attributes; or to choose between
competing hypothetical ``packages'' of ecological improvements and
household cost. In either case, analysis of survey responses allows
estimation of values.
Economists generally consider non-use values more difficult to
assess than use values for several reasons:
a. Non-use values are not associated with easily observable
behavioral trails;
b. Non-use values may be held by both users and non-users of a
resource, and non-users may be less familiar with particular services
provided by affected resources;
c. The development of a defensible stated preference survey that
meets the NOAA blue ribbon panel requirements is often a time and
resource intensive process,\52\ and
---------------------------------------------------------------------------

\52\ The NOAA blue ribbon panel provided an extensive set of
guidelines for survey construction, administration, and analysis to
ensure that ``* * * CV produces estimates reliable enough to be the
starting point of a judicial process of damage assessment, including
passive-use values [i.e. non-use values]'' (see FR 58:10 pp.4601-4614, 1993).
---------------------------------------------------------------------------

d. Even carefully designed surveys may be subject to certain biases
associated with the hypothetical nature of survey responses (Mitchell
and Carson 1989).
Reducing impingement and entrainment losses of fish and shellfish
may result in both use and non-use benefits. Of the organisms which are
anticipated to be protected by the proposed options for the section
316(b) regulation for Phase III facilities, approximately 3.3 percent
will eventually be harvested by commercial and recreational fishers and
therefore can be valued with direct use valuation techniques.
Unharvested fish, which have no direct use value, represent 96.7
percent of the total loss. These unlanded fish include forage fish and
the unlanded portion of the stock of harvested species. Because
unlanded fish contribute to the yield of harvested fish, they have an
indirect use value that is captured by the direct use value of the fish
that are caught. However, this indirect use value represents only a
portion of the total value of unlanded fish. In fact, society may value
both landed and unlanded fish for reasons unrelated to their use value.
Such non-use values include the value that people may hold simply for
knowing these fish exist. While non-use values are difficult to
quantify, EPA believes it is important to consider such values,
particularly since 96.7 percent of impinged and entrained organisms
have no direct use value.
EPA considered several approaches to quantifying non-use values for the

[[Page 68515]]

proposed rule, including a stated preference study and meta-analysis of
surface water valuation studies. The Agency has begun exploring the
development of a stated preference survey that would measure non-use
benefits from reduced impingement and entrainment attributable to the
proposed options for the section 316(b) regulation for Phase III
facilities. Although this primary study effort could not be completed
in time for the publication of the proposed regulation, EPA expects to
complete the study in time to rely on its findings for the final
regulation. A number of studies have found that meta-analysis has
considerable promise in benefits transfer and that meta-analysis can
produce more reliable results than other benefit transfer methods
(Bergstrom and De Civita, 1999, DCN 6-3109; Florax et al., 2002, pp.
117-135, DCN 7-5132). However, the usefulness of meta-analysis results
is dependent on both the quality of the underlying studies and their
applicability to the policy question at hand. Given the difficulties in
estimating non-use benefits at the national level using benefit
transfer methods and the small number of studies that have attempted to
value fish losses, particularly those related to impingement and
entrainment at cooling water intake sites, EPA has not included
monetary measures of non-use values in the benefit analysis for the
proposed options. Instead, the Agency analyzed potential non-use
benefits of the proposed options qualitatively.
2. Timing of Benefits
Discounting is the economic conversion of future benefits and costs
to their present values, accounting for the fact that individuals tend
to value future outcomes less than comparable near-term outcomes.
Discounting is important when the value of benefits (or costs) may vary
from year to year and when the time profiles of benefits and costs are
not the same. Discounting enables a consistent comparison of benefits
to costs across time periods.
For the section 316(b) rulemaking, the difference in timing in
costs and benefits arises from two sources. First, facilities are not
expected to achieve compliance with the regulation until several years
after its promulgation. Benefits are equal to zero from the
promulgation of the rule (i.e., beginning of 2007) until facilities
reach compliance. Thus, EPA discounted the benefits from each facility
by the number of years between the year in which the rule is
promulgated and the year in which the facility complies. Since benefits
were estimated on a regional basis, EPA estimated benefits from each
facility by multiplying total regional benefits by the percentage of
total regional flow that is attributable to each facility. EPA used
current permit expiration information for model facilities to identify
the projected year of compliance for each facility in the analysis.
The second difference in timing in costs and benefits arises from
the fact that additional time will pass between implementation of best
technology available and resulting increased fishery yields. This is
because one or more years may pass between the time an organism is
spared impingement and entrainment and the time of its ultimate
harvest. For example, a larval fish spared from entrainment (in effect,
at age 0) may be caught by a recreational angler at age 3, meaning that
a 3-year time lag arises between the installation of best technology
available and the realization of the estimated recreational benefit.
Likewise, if a 1-year old fish is spared from impingement and is then
harvested by a commercial fisherman at age 2, there is a 1-year lag
between the installation of best technology available and the
subsequent commercial fishery benefit.
Recognizing that avoided fish deaths occur mainly in fish that are
younger than harvestable age (eggs, larvae and juveniles), and that the
benefits from avoided impingement and entrainment of these fish would
be realized typically 3-4 years after their avoided death, EPA
developed a benefits recognition schedule for facilities in each
region. The benefits schedule is based on an estimate of benefit delay
that reflects the estimated age and species composition of impingement
and entrainment losses, by region. Following achievement of compliance,
benefits from facilities in most regions are assumed to increase over a
7-year period to a long-term, steady State average, equal to the
approximated per-facility benefit value discussed above, according to a
numerical profile of < 0.0, 0.1, 0.2, 0.8, 0.9, 0.95, 1.0 >. This
profile indicates the fraction of the steady State benefit value that
is realized in each of the first seven years following the achievement
of compliance at a facility. After seven years, this fraction remains
1.0 for 23 additional years. After these combined 30 years the facility
is assumed to cease compliance, which is consistent with the time
period over which costs are evaluated. In the same way that the
benefits profile builds up over time following compliance, the benefits
profile declines at the end of the compliance period. Specifically, in
the seven years following the end of compliance, the fraction of the
steady State benefit value achieved follows the profile of < 1.0, 0.9,
0.8, 0.2, 0.1, 0.05, 0.0 >. Therefore, the analysis of benefits
encompasses a 37-year period starting with the first year of
compliance. There are 35 years when benefits do not equal zero for a
facility; 25 years when benefits are 100%; 10 years when benefits are a
percentage of the total. These profile values are approximations based
on a review of the age-specific fishing mortality rates that were used
in the impingement and entrainment analysis and best professional
judgment. Although EPA believes this approach is sufficient for this
analysis, EPA could potentially refine these profile values through the
use of a population model and will consider the feasibility of doing so.
For regions with a relatively high contribution of impingement to
total impingement and entrainment (Inland, Great Lakes, and the Gulf of
Mexico regions), EPA used an adjusted benefits profile of < 0.1, 0.2,
0.8, 0.9, 0.95, 1.0 >. This adjusted profile reflects that impinged
fish are usually larger and older than entrained fish and thus benefits
will be realized sooner in these regions.
EPA used these profiles of benefits to calculate a total present
value of benefits and then to calculate a constant annual equivalent
value (annualized value) of the present value. EPA performed the
calculations of present value and annualized value using two discount
rate values: a rate of 3% and a rate of 7%. As described above, the
time profile of benefits, and therefore the discounting analysis,
varies by facility. For all facilities, the first year of the analysis
is 2007 (the promulgation of the rule). However, the first year in
which benefits are realized varies by facility. Following this year, as
outlined above, benefits increase over a six-or seven-year period,
remain constant until the 30th year, and then decline over a six-or
seven-year period. For a detailed discussion of the discounting
methodology, refer to Chapter A8, ``Discounting Benefits'' and for a
discussion of the time line of benefits, refer to Chapter H1, ``Total
National Benefits'' in the Regional Analysis Document (DCN 7-0003).
3. Recreational Fishing Valuation
The recreational fishing benefits of the proposed options for the
section 316(b) rule for Phase III facilities were estimated for six
study regions (North Atlantic, Mid-Atlantic, Gulf of Mexico,
California, Great Lakes, Inland) based on similarities in the affected
ecosystems, aquatic species present, and characteristics of
recreational fishing

[[Page 68516]]

activities within each of the six regions. To estimate recreational
benefits of the proposed options for Phase III facilities, EPA
developed a benefit transfer approach based on a meta-analysis of
recreational fishing valuation studies designed to measure the various
factors that determine willingness-to-pay for catching an additional
fish per trip. To validate the meta-analysis results, EPA also used
regional models of recreational fishing behavior developed for the
Phase II analysis (DCN 6-0003) to estimate benefits from reduced
impingement and entrainment at potentially regulated Phase III
facilities for the four coastal regions and the Great Lakes region.\53\
---------------------------------------------------------------------------

\53\ No RUM model was generated in the Phase II analysis for the
Inland region because of a lack of data for that region so we could
not verify the meta-analysis results for the Inland region.
---------------------------------------------------------------------------

a. Valuation Methods for Recreational Fishing
As the first step in its recreational fishing analysis, EPA
conducted a comprehensive review of recreational fishing valuation
literature to identify prior estimates of recreational use benefits
that may be applicable to the section 316(b) regulation. Based on this
review, EPA identified 48 studies that use established economic
estimation techniques to measure the value of changes in marine or
freshwater recreational catch (DCN 7-0003). All of these studies
provide estimates of the marginal value to fishermen of catching an
additional fish, or provide enough information for EPA to calculate
such a value.
To examine the relative influence of methodology, sample, and
fishery characteristics on the marginal value of catching an additional
fish, EPA conducted a regression-based meta-analysis of these 48
studies. Although the valuation studies include estimates for a large
number of different species, for the purposes of the model these
species were aggregated into groups of similar species, including four
saltwater species groups (big game, small game, flatfish, and other
saltwater), two anadromous species groups (salmon and steelhead trout),
and six freshwater species groups (panfish, bass, walleye/pike,
muskellunge, rainbow trout, and other trout). The other saltwater group
includes bottom fish species, species caught by anglers not targeting
any particular species, and species that did not clearly fit in one of
the other groups. The panfish group includes freshwater species such as
yellow perch, catfish, and other warm water species. For the meta-
analysis, some species groups were modeled interactively with regional
variables to allow for variation in species value across different
geographic regions.
The regression results from this analysis reveal both statistically
significant and intuitively correct patterns in the way that factors
influence the value to fishermen of catching an additional fish. These
results allow for calculation of the marginal value per fish for
different species based on resource and policy context characteristics.
Additional detail on the methods EPA used in this analysis can be found
in Chapter A5 of the Regional Analysis Document.
b. Validating the Recreational Analysis Based on the Region-Specific
RUM Models
EPA also analyzed recreational fishing benefits from reduced
impingement and entrainment based on region-specific random utility
models (RUM) of recreational anglers' behavior for the four coastal
regions and the Great Lakes region. These models were initially
developed by the Agency for analysis of the final section 316(b)
regulation for Phase II facilities.\54\ For that regulation, EPA
developed original RUM models for three of the four coastal regions
(California, the Mid-Atlantic, and the Gulf of Mexico) and the Great
Lakes region. For the North Atlantic region, EPA used a model developed
by the National Marine Fisheries Service (NMFS) by Hicks et al. (Hicks,
Steinback, Gautam, and Thunberg, 1999. Volume II: The Economic Value of
New England and Mid-Atlantic Sportfishing in 1994--DCN 5-1271). Chapter
A11 of the Phase II Regional Analysis Document provide more detailed
discussion of the methodology used in EPA's RUM analysis (DCN 7-0003).
---------------------------------------------------------------------------

\54\ The RUM models for the North Atlantic, Mid-Atlantic, Gulf
of Mexico, and California have not changed from the Phase II
analysis. The Great Lakes RUM model was slightly refined for the
Phase III analysis. The main differences between the Phase III and
Phase II models include: (1) The ability to estimate separate values
for yellow perch and bass and (2) the inclusion of site amenity
effects in the site choice model (Besedin et al., 2004: DCN 7-5000).
---------------------------------------------------------------------------

The regional recreational fishing studies used information on
recreational anglers' behavior to infer anglers' economic value for the
quality of fishing in the case study areas. The models' main assumption
is that anglers will get greater satisfaction, and thus greater
economic value, from sites where the catch rate is higher due to
reduced impingement and entrainment, all else being equal. This benefit
may occur in two ways: first, an angler may get greater enjoyment from
a given fishing trip when catch rates are higher, and thus get a
greater value per trip; second, anglers may take more fishing trips
when catch rates are higher, resulting in greater overall value for
fishing in the region. EPA modeled an angler's decision to visit a site
as a function of site-specific cost, fishing trip quality, and
additional site attributes such as presence of boat launching
facilities or fish stocking at the site.
The Agency used 5-year historical catch rates per hour of fishing
as a measure of baseline fishing quality in the regional studies. Catch
rate is a policy variable of concern because catch rate is a function
of fish abundance, which is affected by fish mortality caused by
impingement and entrainment.
The Agency used the estimated model coefficients in conjunction
with the estimated changes in impingement and entrainment in a given
region to estimate per-day welfare gain to recreational anglers due to
the proposed regulatory options for Phase III facilities. For the North
Atlantic region, EPA used model coefficients estimated by Hicks et al.
(1999) (DCN 5-1271).
To estimate the total economic value to recreational anglers for
changes in catch rates resulting from changes in impingement and
entrainment in a given region, EPA multiplied the total number of
fishing days for a given region by the estimated per-day welfare gain
due to the regulation. EPA estimated that the proposed regulatory
options for Phase III facilities would cause only negligible changes in
recreational fishing participation due to the improved quality of the
fishing sites. Therefore, the welfare estimates for the four coastal
regions and the Great Lakes are based on estimates of baseline
recreational fishing participation provided by NOAA Fisheries and the
Fish and Wildlife Service's Annual Survey of Fishing, Hunting, and
Wildlife-Related Recreation (U.S. Department of the Interior, 2001, DCN
6-3231).
Results of the RUM models are presented in Chapter B4 through F4 of
the Regional Analysis Document. In general, the RUM-based results fall
within the range of values estimated based on the meta-model.\55\ That
the values from the two independent analyses are relatively close
corroborates the use of meta-analysis in

[[Page 68517]]

estimating the value of incremental recreational fishing improvments
resulting from the proposed section 316(b) regulation for Phase III
facilities.
---------------------------------------------------------------------------

\55\ The RUM models produced lower estimated recreational
benefits in the Gulf of Mexico, Mid-Atlantic, and California
regions, and higher estimates in the Great Lakes and North Atlantic
regions. But no RUM estimates were outside of the lower and upper
bound meta analysis values computed using the Krinksy and Robb
approach.
---------------------------------------------------------------------------

c. Application of the Meta-Analysis Results to the Analysis of
Recreational Benefits of the Proposed 316(b) Rule
This section briefly discusses the use of the meta-analysis results
to estimate the recreational benefits of the regulatory options
evaluated for the proposed rule. Additional detail on this analysis,
including EPA's treatment of uncertainty in per fish values, can be
found in the Regional Analysis Document in Chapter A5. EPA began by
calculating per fish values from the meta-analysis regression
coefficients, based on regional and species specific values of the
input variables. Because estimates from regression meta-models are
subject to uncertainty, EPA used the Krinksy and Robb approach to
estimate lower and upper bound marginal values for each species (DCN 6-
3160). EPA also conducted a sensitivity analysis to determine how per
fish values could change based on different selections for the
independent variables. The per fish values and bounds used in this
analysis of the recreational benefits of the regulatory options are
based on EPA's best estimates of values for independent variables. The
resulting per fish values are presented in Exhibit IX-6.

Exhibit IX-6.--Estimated Marginal Value per Fish to Recreational Anglers
----------------------------------------------------------------------------------------------------------------
Marginal value per fish caught, by region: saltwater fish \a\ (June 2003 $)
-----------------------------------------------------------------------------
Region Other
Small game Flatfish saltwater
\b\
----------------------------------------------------------------------------------------------------------------
California........................ $12.57 $15.61 $4.52
North Atlantic.................... 7.64 8.06 4.20
Mid-Atlantic...................... 6.87 6.91 3.73
Gulf of Mexico.................... 5.32 ........... 2.88
-----------------------------------
Marginal value per fish caught, by region: freshwater fish \a\ (June 2003 $)
--------------
Region Small game Walleye/ Bass Panfish Salmon Trout \d\
\c\ Pike
-----------------------------------
Great Lakes....................... ........... $4.58 $5.90 $1.06 $11.19 $7.99
Inland............................ $7.38 5.15 6.96 0.97 ........... 2.79
----------------------------------------------------------------------------------------------------------------
\a\ Marginal values per fish are presented only for species in regions in which they are affected by one of the
regulatory options evaluated for the proposed rule.
\b\ Other saltwater species include bottom fish and other miscellaneous species.
\c\ Anadromous species such as striped bass and American shad can be found in freshwater coastal rivers as well
as in saltwater.
\d\ The trout category includes all trout species except rainbow trout and lake trout.

To estimate the benefits of the alternative regulatory options, EPA
multiplied the per fish values from Exhibit IX-6 by the number of
additional fish that would be caught by anglers under each regulatory
option due to reductions in impingement and entrainment, compared to
current levels of recreational catch. Exhibits IX-7, IX-8, and IX-9
present the results of these calculations for the ``50 MGD for All
Waterbodies,'' ``200 MGD for All Waterbodies,'' and ``100 MGD for
Certain Waterbodies'' options. The proportion of impingement and
entrainment losses of fishery species that were valued as lost
recreational catch was determined from stock-specific fishing mortality
rates, which indicate the fraction of a stock that is harvested by
recreational anglers. Because fishing mortality rates are typically
less than 20 percent, a proportion of the losses of fishery species
were not valued in the recreational benefits analysis.
Exhibit IX-7 shows the annual increase in total recreational catch
and resulting monetized benefits resulting from the ``50 MGD for All
Waterbodies'' option. The exhibit shows that compared to the current
national level of recreational catch, anglers would catch 620,000
additional fish per year under this option, resulting in total
undiscounted benefits of $2.12 million per year. The annualized value
of these additional fish is $1.77 million and $1.39 million, evaluated
at 3 percent and 7 percent discount rates, respectively. Increased
recreational catch is largest in the Gulf of Mexico region, where the
rule would increase annual recreational catch by 183,000 fish,
resulting in an undiscounted recreational welfare gain of $0.67 million.
Exhibit IX-7 also presents lower and upper confidence bounds for
the benefits of the ``50 MGD for All Waterbodies'' option. These bounds
are based on using the Krinsky and Robb technique to estimate the 95th
and 5th confidence limits on the marginal value per fish predicted by
the meta-analysis. Undiscounted national benefits of this option range
from $1.02 million to $4.47 million per year, and benefits in the Gulf
of Mexico region range from $0.30 million to $1.50 million per year,
based on 90 percent confidence limits on the marginal value per fish
predicted by the meta-analysis.

Exhibit IX-7.--Recreational Benefits Under the ``50 MGD for All Waterbodies'' Option
----------------------------------------------------------------------------------------------------------------
Increase in Annualized benefits (thousands, 2003 $) \a\
annual -----------------------------------------------
recreational
catch compared
Region to current
recreational Low Mean High
catch
(thousands of
fish)
----------------------------------------------------------------------------------------------------------------
California...................................... 5 $12 $28 $66

[[Page 68518]]

North Atlantic.................................. 13 36 77 169
Mid-Atlantic.................................... 159 290 612 1,301
Gulf of Mexico.................................. 183 298 667 1,499
Great Lakes..................................... 92 192 385 756
Inland.......................................... 167 189 358 675

National total (evaluated at 3%) \c\............ 620 843 1,765 3,704
National total (evaluated at 7%) \c\............ 620 665 1,391 2,919
----------------------------------------------------------------------------------------------------------------
\a\ Lower and upper bounds are calculated using the Krinsky and Robb technique to estimate the 95th and 5th
percentile limits on the marginal value per fish predicted by the meta-analysis.
\b\ Undiscounted benefits are calculated from the annual increase in recreational catch, evaluated at a steady
State condition. All regional results presented in this table are undiscounted. Undiscounted benefits are not
directly comparable to cost.
\c\ Annualized benefits represent the value of all recreational benefits generated over the time frame of the
analysis, discounted to 2007, and then annualized over a thirty year period. For a more detailed discussion of
the discounting methodology, refer to section IX.D.2 of this preamble.

Exhibit IX-8 shows the annual increase in recreational catch and
resulting monetized benefits resulting from the ``200 MGD for All
Waterbodies'' option. The exhibit shows that compared to the current
national level of recreational catch, anglers would catch 419,000
additional fish per year under this option, resulting in total
undiscounted benefits of $1.43 million per year. The annualized value
of these additional fish is $1.18 million and $0.92 million, evaluated
at 3 percent and 7 percent, respectively. Increased recreational catch
is largest in the Mid-Atlantic region, where this option would increase
annual recreational catch by 141,000 fish, resulting in an undiscounted
welfare gain of $0.55 million.
The exhibit also presents lower and upper confidence bounds for the
benefits of the ``200 MGD for All Waterbodies'' option. Undiscounted
national benefits of this option range from $0.69 million to $2.99
million per year, and benefits in the Mid-Atlantic region range from
$0.26 million to $1.16 million per year, based on 90 percent confidence
limits on the marginal value per fish predicted by the meta-analysis.

Exhibit IX-8.--Recreational Benefits Under the ``200 MGD for All Waterbodies'' Option
----------------------------------------------------------------------------------------------------------------
Increase in Annualized benefits (thousands, 2003 $) \a\
annual -----------------------------------------------
recreational
catch compared
Region to current
recreational Low Mean High
catch
(thousands of
fish)
----------------------------------------------------------------------------------------------------------------
California...................................... 0 $0 $0 $0
North Atlantic.................................. 3 8 16 36
Mid-Atlantic.................................... 141 258 545 1,158
Gulf of Mexico.................................. 100 163 364 819
Great Lakes..................................... 64 132 266 523
Inland.......................................... 111 128 242 456

National total (evaluated at 3%) \c\............ 419 567 1,181 2,463
National total (evaluated at 7%) \c\............ 419 443 922 1,922
----------------------------------------------------------------------------------------------------------------
\a\ Lower and upper bounds are calculated using the Krinsky and Robb technique to estimate the 95th and 5th
percentile limits on the marginal value per fish predicted by the meta-analysis.
\b\ Undiscounted benefits are calculated from the annual increase in recreational catch, evaluated at a steady
State condition. All regional results presented in this table are undiscounted. Undiscounted benefits are not
directly comparable to cost.
\c\ Annualized benefits represent the value of all recreational benefits generated over the time frame of the
analysis, discounted to 2007, and then annualized over a thirty year period. For a more detailed discussion of
the discounting methodology, refer to section IX.D.2 of this preamble.

Exhibit IX-9 shows the annual increase in recreational catch and
resulting monetized benefits resulting from the ``100 MGD for Certain
Waterbodies'' option. The exhibit shows that compared to the current
national level of recreational catch, anglers would catch 407,000
additional fish per year under this option, resulting in total
undiscounted benefits of $1.57 million per year. The annualized value
of these additional fish is $1.29 million and $1.01 million, evaluated
at 3 percent and 7 percent, respectively. Increased recreational catch
is largest in the Gulf of Mexico, where this option would increase
annual recreational catch by 183,000 fish, resulting in an

[[Page 68519]]

undiscounted welfare gain of $0.67 million.
The exhibit also presents lower and upper confidence bounds for the
benefits of the ``100 MGD for Certain Waterbodies'' option.
Undiscounted national benefits of this option range from $0.73 million
to $3.38 million per year, and benefits in the Gulf of Mexico region
range from $0.30 million to $1.50 million per year, based on 90 percent
confidence limits on the marginal value per fish predicted by the meta-
analysis.

Exhibit IX-9.--Recreational Benefits Under the ``100 MGD for Certain Waterbodies'' Option
----------------------------------------------------------------------------------------------------------------
Increase in Annualized benefits (thousands, 2003 $) \a\
annual -----------------------------------------------
recreational
catch compared
Region to current
recreational Low Mean High
catch
(thousands of
fish)
----------------------------------------------------------------------------------------------------------------
California...................................... 0 $0 $0 $0
North Atlantic.................................. 11 29 63 137
Mid-Atlantic.................................... 141 258 545 1,158
Gulf of Mexico.................................. 183 298 667 1,499
Great Lakes..................................... 72 148 299 586
Inland.......................................... 0 0 0 0
-----------------
National total (undiscounted) \b\............... 407 733 1,573 3,380
National total (evaluated at 3%) \c\............ 407 602 1,292 2,779
National total (evaluated at 7%) \c\............ 407 468 1,006 2,164
----------------------------------------------------------------------------------------------------------------
\a\ Lower and upper bounds are calculated using the Krinsky and Robb technique to estimate the 95th and 5th
percentile limits on the marginal value per fish predicted by the meta-analysis.
\b\ Undiscounted benefits are calculated from the annual increase in recreational catch, evaluated at a steady
State condition. All regional results presented in this table are undiscounted. Undiscounted benefits are not
directly comparable to cost.
\c\ Annualized benefits represent the value of all recreational benefits generated over the time frame of the
analysis, discounted to 2007, and then annualized over a thirty year period. For a more detailed discussion of
the discounting methodology, refer to section IX.D.2 of this preamble.

d. Limits and Uncertainties
Benefit transfers by definition are characterized by a difference
between the context in which resource values are estimated and that in
which benefit estimates are desired. The ability of meta-analysis to
adjust for the influence of study, economic, and resource
characteristics on recreational values can minimize, but not eliminate,
potential biases. The meta-analysis model presented here provides a
close but not perfect match to the context in which values are desired.
Some of the key limitations inherent to the meta-model and the
subsequent benefit transfer are the following:
A. The per fish values estimated from the model depend on the
values of the input variables in the meta-analysis. EPA assigned values
to the input variables based on established economic theory and
characteristics of the affected species and regions. However, because
the input values for some variables are uncertain, the resulting per
fish values and benefits estimates are also uncertain.
B. As mentioned above, the economic and resource characteristics of
the 48 studies used in the meta-analysis are not perfectly matched to
the economic and resource characteristics of sites affected by the
regulatory options evaluated for the proposed rule. In particular,
although most of the Inland studies take place in the Great Lakes
region, the regulatory options affect sites all across the Inland
region. However, EPA believes that regional differences in per fish
values for specific Inland species are relatively small.
C. By aggregating species into categories, EPA was able to improve
the fit of the meta-analysis model. However, this aggregation results
in a lower level of detail in the values that can be predicted. In
particular, the panfish category and other saltwater category include
relatively diverse species.
D. Projected changes in recreational catch may be overestimated
because potential compensatory effects in affected species'
reproduction or survival rates were not taken into account.
E. In estimating recreational fishery losses, EPA used impingement
and entrainment data provided by the facilities. While EPA used the
most current data available, in some cases these data are 20 years old
or older. Thus, they may not reflect current conditions. Also, data
from Phase II facilities may not be representative of Phase III facilities.
F. Impingement and entrainment estimates include only individuals
directly lost to impingement and entrainment, not their progeny, and
may therefore be underestimates.
G. In estimating the benefits of improved recreational angling, the
Agency only assigned a monetary benefit to the increases in consumer
surplus for the baseline number of fishing days. Thus, benefits will be
understated if participation increases in response to increased
availability of fishery species as a result of reduced impingement and
entrainment. This approach omits the portion of recreational fishing
benefits that arise when improved conditions lead to higher levels of
participation. Empirical evidence suggests that the omission of
increased angling days can lead to an underestimate of total
recreational fishing benefits. However, the magnitude of this error is
likely to be small.
4. Commercial Fishing Valuation
Reductions in impingement and entrainment at cooling water intake
structures are expected to benefit the commercial fishing industry. The
effect is straightforward: Reducing the number of fish killed will
probably increase the number of fish available for harvest. Measuring
the benefits of this effect is less straightforward. This section
presents the methods EPA used to estimate commercial benefits, as well
as the resulting benefits estimates.
a. Methods
EPA estimated commercial benefits by first estimating the value of
total losses under current impingement and entrainment conditions (or
the total

[[Page 68520]]

benefits of eliminating all impingement and entrainment). Then, based
on review of the empirical literature, EPA assumed that producer
surplus is equal to 40 percent of baseline losses. Finally, EPA
estimated benefits under different options for the proposed section
316(b) rule for Phase III facilities by applying the estimated
percentage reduction in impingement and entrainment to the estimated
producer surplus to obtain the estimated increase in producer surplus
attributable to the option. This methodology was applied in each region
except the Inland region (which does not include any significant
commercial fishing). See Chapter A4 of the Regional Analysis Document
for details about EPA's methodology.
To determine regional losses and benefits, EPA conducted several
analyses. EPA estimated losses to commercial harvest (in pounds of
fish) attributable to impingement and entrainment under current
conditions by modeling these fish losses by applying a linear stock-to-
harvest assumption (i.e., a 10 percent change in the stock would result
in a 10 percent change in harvest). The percentage of fish harvested is
based on data on historical fishing mortality rates. EPA estimated
gross revenue of lost commercial catch (i.e., the increase in gross
revenue that would be expected if all current impingement and
entrainment were eliminated) by using landings and dockside prices ($/
lb) as reported by the NOAA Fisheries for the period 1991-2001. The
conceptually suitable measure of benefits is the sum of any changes in
producer and consumer surplus. The methods used for estimating the
change in surplus depend on whether the physical impact on the
commercial fishery market appears sufficiently small such that it is
reasonable to assume there will be no appreciable price changes in the
markets for the impacted fisheries.
For the regions and magnitude of losses included in this analysis,
it is reasonable to assume no change in price, which implies that the
welfare change is limited to changes in producer surplus. This change
in producer surplus is assumed to be equivalent to a portion of the
change in gross revenues. EPA assumes a range of 0 percent to 40
percent of the estimated gross revenue losses as a means of estimating
the change in producer surplus. This is based on a review of empirical
literature and is consistent with recommendations made in comments on
the Phase II proposal.
EPA believes this is a reasonable approach to estimating producer
surplus when there are no anticipated price changes. EPA's (2000)
Guidelines for Preparing Economic Analyses (EPA 240-R-00-003) describes
options for estimating ecological benefits for fisheries, and notes
that ``if changes in service flows are small, current market prices can
be used as a proxy for expected benefit * * * a change in the
commercial fish catch might be valued using the market price for the
affected species.'' In EPA's review of the commercial fishing
literature two alterative methods for computing producer surplus as a
percentage of gross revenues also came to the fore. The more common
approach to calculating benefits relies on estimating normal profit as
a percentage of gross revenue. In the surveyed studies this percentage
of gross review ranges from -5 percent to 91.2 percent. The second
approach to estimating commercial benefits, which may produce the more
appropriate measure of welfare, computes the producer surplus as a
percentage of gross revenue. The studies that use this method return
percentages that range from 0 to 37, due to reduced profit estimates
that include a return to the owners as part of costs. In light of these
findings EPA has chosen to use 0 percent to 40 percent as the estimated
range of percent of gross revenue that best captures the additional
benefit that will accrue to commercial fishers.
Once the commercial surplus losses associated with impingement and
entrainment under baseline conditions have been estimated, EPA
estimates the percentage reduction in impingement and entrainment at
each facility under each regulatory option. This analysis is conducted
for each region.
b. Results
Exhibit IX-10 presents the estimated annualized commercial fishing
benefits attributable to three co-proposed options: The ``50 MGD for
All Waterbodies'' option (50 MGD All); the ``200 MGD for All
Waterbodies'' option (200 MGD All); and the ``100 MGD for Certain
Waterbodies'' option (100 MGD oceans, estuaries, tidal rivers, or one
of the Great Lakes). The results reported include the total reduction
in losses in pounds of fish and the value of this reduction discounted
at 0 percent, 3 percent, and 7 percent. Total annualized commercial
fishing benefits, applying a 3 percent discount rate, are estimated to
be $0 to $132,000 per year for the 50 MGD option, $0 to $79,000 per
year for the 200 MGD option, and $0 to $118,000 per year for the 100
MGD for certain waterbodies option. When a 7 percent discount rate is
applied, the total annualized commercial fishing benefits for the 50
MGD option are estimated to be $0 to $104,000, under the 200 MGD option
benefits equal $0 to $79,000, and for the 100 MGD for certain
waterbodies option the discounted benefits are $0 to $93,000.

Exhibit IX-10.--Annualized Commercial Fishing Benefits for Impinged and Entrained Fish Expected Under the Co-
Proposed Options a
----------------------------------------------------------------------------------------------------------------
Reduction in lost yield (thousands of Benefits (thousands; $ 2003) c d
lbs) --------------------------------------
---------------------------------------
Region \b\ 100 MGD 100 MGD
50 MGD all 200 MGD all certain 50 MGD all 200 MGD all certain
waterbodies waterbodies
----------------------------------------------------------------------------------------------------------------
California........................ 16 0 0 $6 $0 $0
North Atlantic.................... 8 2 6 4 1 3
Mid-Atlantic...................... 459 408 408 31 27 27
Gulf of Mexico.................... 313 171 313 93 51 93
Great Lakes....................... 86 59 66 25 17 19
--------------
National total,\e\ (undiscounted). 882 640 794 159 96 143
National total, (evaluated at 3%). 882 640 794 132 79 118
National total, (evaluated at 7%). 882 640 794 104 62 93
----------------------------------------------------------------------------------------------------------------
\a\ Benefits are upper bound benefits based on 40% of gross revenue. The lower bound is $0.
\b\ No significant commercial fishing takes place in the Inland region, and thus this region is excluded from
this analysis.
\c\ Discounted to account for lag in implementation and lag in time required for fish lost to I&E to reach a
harvestable age.

[[Page 68521]]

\d\ Annualized benefits represent the value of all commercial benefits generated over the time frame of the
analysis, discounted to 2007, and then annualized over a thirty year period. For a more detailed discussion of
the discounting methodology, refer to Section IX.D.2 of this preamble.
\e\ Undiscounted benefits are not comparable to costs.

c. Limitations and Uncertainties
Some of the major uncertainties and assumptions of EPA's commercial
fishing analysis include:
A. The analysis only includes individuals that are directly killed
by impingement and entrainment, not their progeny and may therefore
underestimate projected changes in harvest.
B. Projected changes in commercial catch may be overestimated
because potential compensatory effects in affected species'
reproduction or survival rates were not taken into account.
C. Projected changes in harvest may be too high or too low because
interactions with other stressors are not considered.
D. EPA used impingement and entrainment data provided by the
facilities. While EPA used the most current data available, in some
cases these data are 20 years old or older. Thus, they may not reflect
current conditions. Also data from Phase II facilities may not be
representative of Phase III facilities.
E. EPA assumes a linear stock to harvest relationship (i.e., a 10
percent change in stock would have a 10 percent change in landings);
this may be low or high, depending on the condition of the stocks.
Region-specific fisheries regulations also will affect the validity of
the linear assumption.
F. EPA assumes that NOAA Fisheries landings data are accurate and
complete. However, in some cases prices and/or quantities may be
reported incorrectly.
G. EPA currently estimates that the increase in producer surplus as
a result of the rule will be between 0 percent and 40 percent of the
estimated change in gross revenues. The research used to develop this
range is not region-specific; thus the true value may fall outside this
range for some regions and species.
5. Non-Use Benefits
To assess public policy significance or importance of the
ecological gains from the proposed regulation for Phase III facilities,
EPA developed the relevant information and considered non-use benefits
of the proposed options qualitatively. This assessment is discussed below.
a. Qualitative Assessment
EPA is able to assign direct use value to only a very small
fraction of the fish lost to impingement and entrainment. As shown in
Exhibit IX-11, fish with a direct use value, which include only those
fish that are harvested, account for only 3.3 percent of the total age-
1 equivalent impingement and entrainment loss. Unharvested fish (i.e.,
forage fish and the unlanded portion of the stock of harvested
species), which have no direct use value, represent 96.7 percent of the
total loss. A portion of the total benefits of these unharvested
commercial, recreational, and forage species, can be derived indirectly
from the estimated use values of the harvested animals. As noted in
section IX.D.1, society may value both landed and unlanded fish for
reasons unrelated to their use value. Such non-use values include the
value that people may hold simply for knowing these fish exist. EPA
believes it is important to consider such values, at least
qualitatively, particularly since such a large percentage of impinged
and entrained organisms have no direct use value.

Exhibit IX-11.--Number and Percentage of Baseline Impingement and Entrainment Losses by Species Category
----------------------------------------------------------------------------------------------------------------
Age-1 adult equivalents (millions)
------------------------------------------------------------------
I&E of
Commercial Harvested harvested
Region Forage and commercial species as
All species species recreational and percentage
species recreational of total
species I&E
----------------------------------------------------------------------------------------------------------------
California................................... 1.31 0.666 0.642 0.0594 4.54
North Atlantic............................... 2.34 1.77 0.572 0.0542 2.32
Mid-Atlantic................................. 23.2 14.8 8.47 1.46 6.29
South Atlantic............................... 1.52 0.78 0.74 .011 7.41
Gulf of Mexico............................... 12.7 3.71 9.01 1.2 9.43
Great Lakes.................................. 34.4 32.8 1.54 0.543 1.58
Inland....................................... 44.2 35.6 8.6 0.511 1.15
--------------
National total \a\....................... 120 90.2 29.6 3.94 3.29
----------------------------------------------------------------------------------------------------------------
\a\ The national total includes baseline impingement and entrainment losses at four sample-weighted potentially
regulated facilities in the South Atlantic region.

Changes in cooling water intake system design or operations
resulting from the proposed section 316(b) regulations for Phase III
facilities are expected to reduce impingement and entrainment losses of
fish, shellfish, and other aquatic organisms and, as a result, are
expected to increase the numbers of individuals present and benefit
local and regional fishery populations. Depending on the nature and
magnitude of the reduced losses and of conditions at a given site, this
may ultimately contribute to the enhanced environmental functioning of
affected waterbodies (rivers, lakes, estuaries, and oceans) and
associated ecosystems. EPA does not have the data to determine whether
reducing impingement and entrainment losses at Phase III facilities
will have significant ecological benefits. However, the discussion that
follows describes benefits that may result from reducing impingement
and entrainment losses generally.
EPA believes that reducing fish mortality from impingement and

[[Page 68522]]

entrainment would contribute to the health and sustainability of the
affected fish populations by reducing the overall level of mortality
for those populations. Fish populations suffer from numerous sources of
mortality; some are natural and others are anthropogenic. Natural
sources include weather, predation by other fish, and the availability
of food. Human impacts that affect fish populations include fishing,
pollution, habitat changes, and impingement and entrainment losses at
cooling water intake structures. Fish populations decline when they are
unable to sufficiently compensate for their overall level of mortality.
Lowering the overall mortality level increases the probability that a
population will be able to compensate for mortality at a level
sufficient to maintain the long-term health of the population.
In addition to their importance in providing food and other goods
of direct use to humans, the organisms lost to impingement and
entrainment may be critical to the continued functioning of the
ecosystems of which they are a part depending on the magnitude of the
actual impingement and mortality losses attributable to Phase III
facilities. The discussion that follows describes the kinds of impacts
that EPA believes may be due to impingement mortality and entrainment
losses generally, not necessarily those at Phase III facilities. Fish
are essential for energy transfer in aquatic food webs, regulation of
food web structure, nutrient cycling, maintenance of sediment
processes, redistribution of bottom substrates, the regulation of
carbon fluxes from water to the atmosphere, and the maintenance of
aquatic biodiversity (Peterson and Lubchenco, 1997; Postel and
Carpenter, 1997; Holmlund and Hammer, 1999; Wilson and Carpenter,
1999). Examples of impacts on ecological conditions, functions and
services that may result from impingement and entrainment include: (1)
Decreased numbers of ecological keystone, rare, sensitive, or
threatened and endangered species; (2) decreased numbers of popular
commercial and recreational fish species that are not fished, perhaps
because the fishery is closed; (3) increased numbers of exotic or
disruptive species that compete well in the absence of species lost to
impingement and entrainment (impingement and entrainment may also help
remove some exotic or disruptive organisms); (4) disruption of
ecological niches and ecological strategies used by aquatic species;
(5) disruption of energy transfer through the food web; (6) decreased
local biodiversity; (7) disruption of predator-prey relationships; (8)
disruption of age class structures of species; (9) disruption of
natural succession processes. Many of these functions and services can
only be maintained by the continued presence of all life stages of fish
and other aquatic species in their natural habitats. While some
ecological services of aquatic species have been studied, other
ecosystems services, relationships, and interrelationships are unknown
or poorly understood. To the extent that the latter are not captured in
the benefits analyses, total benefits may be underestimated.
Scientific and public interest in protecting ecosystem services is
increasing with the recognition that these services are vulnerable to a
wide range of human activities and are difficult, if not impossible, to
replace with human technologies (Meffe, 1992; DCN 7-5250). Reducing
impingement and entrainment losses could contribute to restoring (or
preserving) the biological integrity of the ecosystems of substantial
national importance.
In the 1987 amendments to the CWA, Congress established the
National Estuary Program because the ``Nation's estuaries are of great
importance to fish and wildlife resources and recreation and economic
opportunity * * * [, and]
maintaining the health and ecological
integrity of these estuaries is in the national interest (Water Quality
Act of 1987 (Pub. L. 100-4), Sec. 317(a)(1)(A) and (B) adding Sec.
320 to the CWA, 33 US.C. 1330). So far, there are 28 estuaries
designated under the National Estuary Program (NEP). In addition, the
largest estuary in the United States, Chesapeake Bay, is protected
under its own Federally mandated program, separate but related to NEP.
Of the 15 estuaries from which the potentially regulated Phase III
facilities withdraw cooling water, 12 are nationally significant
estuaries designated under NEP or the Chesapeake Bay Program.
Substantial Federal and State resources have been directed to NEP
to enhance conservation and knowledge about the estuaries designated
under this program. Since 1998, more than $95 million dollars has been
devoted to NEP to benefit the health of the nationally significant
estuaries (NEP, 2004, DCN 7-5125).
Reducing impingement and entrainment at potentially regulated Phase
III facilities may also benefit freshwater ecosystems of national
significance, including the Great Lakes Basin, Mississippi River, and
Columbia River. These waterbodies are subject to large-scale ecosystem
restoration efforts that are good indicators of great public interest
in restoring the ecological health of these ecosystems (U.S. Fish and
Wildlife Service, 2004, DCN 7-5126; U.S. Department of the Interior,
2004, DCN 7-5127; Northeast Midwest Institute, 2004, DCN 7-5128; The
Upper Mississippi River Basin Association, 2004, DCN 7-5129). The
ecosystem restoration efforts focus on many issues, including coastal
habitat restoration, protection of fish species, conservation of
migratory birds and endangered species. For example, between 1992 and
2001, more than $17 million was devoted to projects to restore and
conserve the Great Lakes ecosystem, and $102 million was spent on
improving the Mississippi River ecosystem (U.S. EPA, 2004, DCN 7-5130;
and Brescia, 2002, DCN 7-5131). Reducing impingement and entrainment of
aquatic organisms may improve the quality of aquatic habitat and
contribute to improvement of the biological integrity and health of
these ecosystems.
Finally, reducing impingement and entrainment in waterbodies that
do not have national significance may contribute to restoration or
protection of ecosystems of regional or local importance.
Today's proposed rule may also help preserve threatened and
endangered species by reducing the number of individuals lost to
impingement and entrainment. Threatened and endangered (T&E) and other
special status species directly affected by impingement and entrainment
include, pallid sturgeon, delta smelt, Sacramento splittail, and
longfin smelt. Threatened and endangered species can also suffer
indirect impacts if impingement and entrainment at cooling water intake
structures disrupts their food source or their critical habitat. The
loss of individuals of listed species from impingement and entrainment
is particularly important because, by definition, these species are
already rare and at risk of irreversible decline because of other
stressors. EPA explored several methods for valuing reductions in
threatened and endangered species losses. However, EPA has not included
quantitative measures of non-use values associated with protection of
threatened and endangered species in the proposed section 316(b) rule
for Phase III facilities benefit analysis due to current uncertainty
about the extent of Phase III facilities' impact on threatened and
endangered species at the national level and EPA's inability to
monetize such benefits given the available economic valuation
literature. Details about possible non-use benefits valuation
approaches are presented in Chapter A9

[[Page 68523]]

of the 316(b) Regional Analysis Document (DCN 7-0003).
6. National Benefits
Quantifying and monetizing reduction in impingement and entrainment
losses due to today's proposed rule is challenging, and the preceding
sections discuss specific limitations and uncertainties associated with
estimation of commercial, recreational, and non-use benefit categories.
National benefit estimates are subject to uncertainties inherent in
valuation approaches used for assessing the three benefits categories.
The combined effect of these uncertainties is of unknown magnitude or
direction (i.e., the estimates may over or under state the anticipated
national-level benefits); however, EPA has no data to indicate that the
results for each benefit category are atypical or unreasonable. Since
the Agency was unable to monetize non-use benefits, the estimates of
total benefits reflect use values only.
Exhibit IX-13 presents EPA's estimates of the total monetized
benefits from impingement and entrainment reduction under the ``50 MGD
for All Waterbodies'' option. The annualized use benefits from
impingement and entrainment reduction post regulation are $1.90 million
per year (2003$), with lower and upper bounds of $0.98 million and
$3.84 million, discounted at three percent. Discounted at seven
percent, annualized use benefits are $1.50 million per year, with lower
and upper bounds of $0.77 million and $3.02 million.

Exhibit IX-13.--Summary of Monetized Social Benefits ``50 MGD for All Waterbodies'' Option
[Thousands; 2003 $]
\a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized recreational fishing Total annualized value of monetizable
Annualized benefits impingement and entrainment
Region commercial --------------------------------------- reductions \b\
fishing --------------------------------------
benefits Low Mean High Low Mean High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Evaluated at a 3 percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California................................................... $0-$5 $10 $24 $57 $16 $29 $62
North Atlantic............................................... 0-3 29 63 138 32 66 141
Mid-Atlantic................................................. 0-25 235 497 1,057 260 522 1,082
Gulf of Mexico............................................... 0-78 249 558 1,254 327 636 1,332
Great Lakes.................................................. 0-20 157 316 621 178 337 641
Inland \c\................................................... 0 162 306 577 162 306 577
--------------
National total........................................... 0-132 843 1,765 3,704 975 1,897 3,836
--------------------------------------------------------------
Evaluated at a 7 percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California................................................... 0-4 9 20 47 13 24 51
North Atlantic............................................... 0-2 22 49 107 25 51 109
Mid-Atlantic................................................. 0-19 181 382 811 200 401 830
Gulf of Mexico............................................... 0-62 198 444 998 260 506 1,061
Great Lakes.................................................. 0-16 122 246 483 138 262 499
Inland \c\................................................... 0 133 251 473 133 251 473
--------------
National total........................................... 0-104 665 1,391 2,919 769 1,495 3,023
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All benefits presented in this exhibit are annualized. These annualized benefits represent the value of all benefits generated over the time frame
of the analysis, discounted to 2007, and then annualized over a thirty year period. For a more detailed discussion of the discounting methodology,
refer to section IX.D.2 of this preamble.
\b\ The total monetizable value of impingement and entrainment reductions includes use benefits only. EPA evaluated non-use benefits only
qualitatively. A range of recreational fishing benefits is provided, based on the Krinsky and Robb technique to estimate the 95th and 5th percentile
limits on the marginal value per fish predicted by the meta-analysis. Commercial fishing benefits are computed based on a range from 0 percent to 40
percent of the change in gross revenue, as explained in the text. To calculate the total monetizable value columns (low, mean, and high), the high end
value for commercial fishing benefits is added to the low, medium and high values for recreational fishing benefits respectively.
\c\ There are no commercial fishing benefits in the Inland region.

Exhibit IX-14 presents EPA's estimates of the total monetized
benefits from impingement and entrainment reduction under the ``200 MGD
for All Waterholes'' option. The annualized use benefits from
impingement and entrainment reduction post regulation are $1.26 million
per year (2003$), with lower and upper bounds of $0.65 million and
$2.54 million, discounted at three percent. Discounted at seven
percent, annualized use benefits are $0.98 million per year, with lower
and upper bounds of $0.51 million and $1.98 million.

[[Page 68524]]

Exhibit IX-14.--Summary of Monetized Social Benefits ``200 MGD for All Waterbodies'' Option
[Thousands; 2003 $]
\a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized recreational fishing Total annualized value of monetizable
Annualized benefits impingement and entrainment
Region commercial --------------------------------------- reductions \b\
fishing --------------------------------------
benefits Low Mean High Low Mean High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Evaluated at a 3 percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California................................................... $0 $0 $0 $0 $0 $0 $0
North Atlantic............................................... 0-1 6 13 28 7 14 29
Mid-Atlantic................................................. 0-22 208 440 934 230 462 956
Gulf of Mexico............................................... 0-43 136 305 685 179 347 728
Great Lakes.................................................. 0-14 108 216 425 122 230 439
Inland \c\................................................... 0 110 207 390 110 207 390
--------------
National total........................................... 0-79 567 1,181 2,463 647 1,260 2,542
--------------------------------------------------------------
Evaluated at a 7 percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California................................................... 0 0 0 0 0 0 0
North Atlantic............................................... 0 4 10 21 5 10 21
Mid-Atlantic................................................. 0-17 158 334 709 175 350 726
Gulf of Mexico............................................... 0-34 108 243 545 142 277 579
Great Lakes.................................................. 0-11 83 166 326 93 177 337
Inland \c\................................................... 0 90 170 321 90 170 321
--------------
National total........................................... 62 443 922 1,922 505 984 1,984
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All benefits presented in this exhibit are annualized. These annualized benefits represent the value of all benefits generated over the time frame
of the analysis, discounted to 2007, and then annualized over a thirty year period. For a more detailed discussion of the discounting methodology,
refer to section IX.D.2 of this preamble.
\b\ The estimate of the total monetizable value of impingement and entrainment reductions includes use benefits only.
\c\ There are no commercial fishing benefits in the Inland region.

Exhibit IX-15 presents EPA's estimates of the total monetized
benefits from impingement and entrainment reduction under the ``100 MGD
for Certain Waterbodies'' option. The annualized use benefits from
impingement and entrainment reduction post regulation are $1.41 million
per year (2003$), with lower and upper bounds of $0.72 million and
$2.90 million, discounted at three percent. Discounted at seven
percent, annualized use benefits are $1.10 million per year, with lower
and upper bounds of $0.56 million and $2.26 million.

Exhibit IX-15.--Summary of Monetized Social Benefits ``100 MGD for Certain Waterbodies'' Option
[Thousands; 2003 $]
\a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized recreational fishing Total annualized value of monetizable
Annualized benefits impingement and entrainment
Region commercial --------------------------------------- reductions \b\
fishing --------------------------------------
benefits Low Mean High Low Mean High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Evaluated at a 3 percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California................................................... $0 $0 $0 $0 $0 $0 $0
North Atlantic............................................... 0-2 24 52 113 26 54 115
Mid-Atlantic................................................. 0-22 208 440 934 230 462 956
Gulf of Mexico............................................... 0-78 249 558 1,254 327 636 1,332
Great Lakes.................................................. 0-16 121 243 478 137 259 494
Inland \c\................................................... 0 0 0 0 0 0 0
--------------
National total........................................... 0-118 602 1,292 2,779 720 1,411 2,897
--------------------------------------------------------------
Evaluated at a 7 percent discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California................................................... 0 0 0 0 0 0 0
North Atlantic............................................... 0-2 19 40 88 20 42 90
Mid-Atlantic................................................. 0-17 158 334 709 175 350 726
Gulf of Mexico............................................... 0-62 198 444 998 260 506 1,061
Great Lakes.................................................. 0-12 93 188 368 105 200 381
Inland \c\................................................... 0 0 0 0 0 0 0
--------------

[[Page 68525]]

National total........................................... 0-93 468 1,006 2,164 561 1,099 2,257
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All benefits presented in this exhibit are annualized. These annualized benefits represent the value of all benefits generated over the time frame
of the analysis, discounted to 2007, and then annualized over a thirty year period. For a more detailed discussion of the discounting methodology,
refer to section IX.D.2 of this preamble.
\b\ The estimate of the total monetizable value of impingement and entrainment reductions includes use benefits only.
\c\ There are no commercial fishing benefits in the Inland region.

EPA considered a wide range of policy options in developing the
proposed section 316(b) regulation for the Phase III facilities. The
Regional Analysis Document provides EPA's complete benefit assessment
for the alternative policy options considered in this rulemaking.

X. Comparison of Benefits and Costs

This section presents two measures that compare the benefits and
costs of the regulatory options: (1) A benefit-cost analysis, and (2) a
break-even analysis of the minimum non-use benefits required for total
annualized benefits to equal total annualized costs, on a per household
basis. Each measure is presented by study region.

A. Benefit-Cost Analysis

The benefit-cost analysis for each of the co-proposed regulatory
options compares total annualized use benefits to total annualized pre-
tax costs (social costs) at existing facilities that remain open in the
baseline.\56\ Benefits and costs were discounted using both a 3 percent
and 7 percent discount rate. The cost estimates include costs of
compliance to facilities subject to the proposed rule as well as
administrative costs incurred by State and local governments and by the
Federal government. The benefits estimates include monetized benefits
to commercial and recreational fishing. The total monetizable benefits
include only use benefits. The non-use benefits were evaluated
qualitatively. Thus, the benefit-cost analysis compares a generally
complete measure of social costs with an incomplete measure of social
benefits and should be interpreted bearing in mind this inconsistency.
---------------------------------------------------------------------------

\56\ This section only includes benefits and costs for existing
facilities because EPA was unable to assess benefits of reducing
impringement mortality and entrainment at new offshore oil and gas
facilities.
---------------------------------------------------------------------------

1. Benefit-Cost Analysis Results
Exhibit X-1 presents a summary of total annualized use benefits,
total annualized costs, and net benefits for the ``50 MGD for All
Waterbodies'' option. Under this option, 136 facilities (excluding
baseline closures) are subject to the regulation. Of those facilities,
it is assumed that 103 are required to install technologies to reduce
impingement mortality and entrainment, and 32 will incur permitting
costs only. The exhibit shows that the use benefits of the 50 MGD
option are not projected to exceed the costs in any of the study
regions. In the California region, costs exceed use benefits by $0.8
million or $0.9 million when discounted at 3 percent and 7 percent
respectively. In the Inland region, costs are $19.4 million or $20.4
million greater than the use benefits. At the national level, EPA
projects the costs of this option to exceed its use benefits by $45.4
million per year, discounted at 3 percent, or by $48.6 million per
year, discounted at 7 percent.

Exhibit X-1.--Summary of Social Benefits and Costs ``50 Mgd for All Waterbodies'' Option
[Millions; $ 2003]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Total annualized use value Net benefits \c\
Number of facilities of I&E reductions \a\ Total -----------------------------
Study region facilities ------------------------------ annualized
subject to installing costs \b\ Low Mean High
option technology Low Mean High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Evaluated at a 3% discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California.............................................. 1 1 $0.02 $0.03 $0.06 $0.8 -$0.8 -$0.8 -$0.8
North Atlantic.......................................... 5 4 0.03 0.07 0.14 4.6 -4.5 -4.5 -4.5
Mid-Atlantic............................................ 3 3 0.26 0.52 1.08 2.6 -2.3 -2.0 -1.5
Gulf of Mexico.......................................... 7 7 0.33 0.64 1.33 9.1 -8.7 -8.4 -7.7
Great Lakes............................................. 23 19 0.18 0.34 0.64 10.1 -9.9 -9.7 -9.4
Inland.................................................. 97 69 0.16 0.31 0.58 19.7 -19.5 -19.4 -19.1
-------------
National total...................................... 136 103 0.97 1.90 3.84 47.3 -46.4 -45.4 -43.5
---------------------------------------------------------
Evaluated at a 7% discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California.............................................. 1 1 0.01 0.02 0.05 1.0 -1.0 -0.9 -0.9
North Atlantic.......................................... 5 4 0.02 0.05 0.11 5.0 -5.0 -5.0 -4.9
Mid-Atlantic............................................ 3 3 0.20 0.40 0.83 2.4 -2.2 -2.0 -1.6

[[Page 68526]]

Gulf of Mexico.......................................... 7 7 0.26 0.51 1.06 10.2 -9.9 -9.7 -9.1
Great Lakes............................................. 23 19 0.14 0.26 0.50 10.2 -10.1 -9.9 -9.7
Inland.................................................. 97 69 0.13 0.25 0.47 20.6 -20.5 -20.4 -20.2
-------------
National total...................................... 136 103 0.77 1.50 3.02 50.1 -49.3 -48.6 -47.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits only qualitatively. The ranges (low,
medium, and high) for annualized use value is computed by adding the high end value for commercial fishing benefits (based on assumed producer surplus
of 40% of gross revenue) to the low, mean, and high values for recreational fishing benefits respectively (see Section IX).
\b\ Total costs are based on pre-tax facility costs. National total costs also include State, local, and Federal administrative costs of $0.6 million
that cannot be attributed to individual study regions.
\c\ Net benefits are computed by subtracting total annualized costs from total annual use values. The net benefits presented here are based on the
comparison of a generally complete measure of social costs with an incomplete measure of social benefits, and should be interpreted with caution.

Exhibit X-2 presents a summary of total annualized benefits, total
annualized costs, and net benefits for the ``200 MGD for All
Waterbodies'' option. Under this option, 25 facilities (excluding
baseline closures) are subject to the regulation. Of those facilities,
it is assumed that 22 are required to install technologies to reduce
impingement mortality and entrainment. The exhibit shows that the use
benefits of the 200 MGD option are not projected to exceed the costs in
any of the study regions. In the North Atlantic region, costs exceed
use benefits by $0.5 million, evaluated at both the 3 percent and 7
percent discount rates. In the Inland region, costs are $12.1 million
or $13.5 million greater than the use benefits. At the national level,
EPA projects the costs of this option to exceed its use benefits by
$21.5 million per year, discounted at 3 percent, or by $23.1 million
per year, discounted at 7 percent.

Exhibit X-2.--Summary of Social Benefits and Costs ``200 MGD for All Waterbodies'' Option
[Millions; $2003]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Number of Total annualized use value of Net benefits \c\
facilities facilities I&E reductions \a\ Total --------------------------------
Study region subject to installing --------------------------------- annualized
option technology Low Mean High costs \b\ Low Mean High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Evaluated at a 3% discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California........................................ 0 0 $0.00 $0.00 $0.00 $0.0 $0.0 $0.0 $0.0
North Atlantic.................................... 1 1 0.01 0.01 0.03 0.5 -0.5 -0.5 -0.5
Mid-Atlantic...................................... 2 2 0.23 0.46 0.96 2.0 -1.7 -1.5 -1.0
Gulf of Mexico.................................... 2 2 0.18 0.35 0.73 3.8 -3.6 -3.5 -3.1
Great Lakes....................................... 5 5 0.12 0.23 0.44 4.1 -3.9 -3.8 -3.6
Inland............................................ 14 12 0.11 0.21 0.39 12.3 -12.2 -12.1 -11.9
-------------
National total................................ 25 22 0.65 1.26 2.54 22.8 -22.1 -21.5 -20.2
---------------------------------------------------
Evaluated at a 7% discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California........................................ 0 0 $0.00 $0.00 $0.00 $0.0 $0.0 $0.0 $0.0
North Atlantic.................................... 1 1 0.00 0.01 0.02 0.5 -0.5 -0.5 -0.4
Mid-Atlantic...................................... 2 2 0.17 0.35 0.73 1.8 -1.6 -1.4 -1.1
Gulf of Mexico.................................... 2 2 0.14 0.28 0.58 4.4 -4.2 -4.1 -3.8
Great Lakes....................................... 5 5 0.09 0.18 0.34 3.7 -3.6 -3.5 -3.3
Inland............................................ 14 12 0.09 0.17 0.32 13.7 -13.6 -13.5 -13.4
-------------
National total................................ 25 22 0.51 0.98 1.98 24.1 -23.6 -23.1 -22.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The total monetizable value of I&E reductions includes use benefits only. EPA did not estimate non-use benefits quantitatively. The low and high use
values reflect the range of recreational fishing values presented in Section 9 of the preamble. They were calculated using the Krinsky and Robb
technique to estimate the 95th and 5th percentile limits on the marginal value per fish predicted by the meta-analysis.
\b\ Total costs are based on pre-tax facility costs. National total costs also include State, local, and Federal administrative costs of $0.1 million
that cannot be attributed to individual study regions.
\c\ The net benefits presented here are based on the comparison of a generally complete measure of social costs with an incomplete measure of social
benefits, and should be interpreted with caution.

[[Page 68527]]

Exhibit X-3 presents a summary of total annualized benefits, total
annualized costs, and net benefits for the regulatory option with a
design intake flow of 100 MGD or more for facilities withdrawing from
oceans, estuaries, and tidal rivers, or the Great Lakes (``100 MGD for
Certain Waterbodies''). Under this option, 19 facilities (excluding
baseline closures) are subject to the regulation. Of those facilities,
it is assumed that 18 are required to install technologies to reduce
impingement mortality and entrainment, and one will incur permitting
costs only. The exhibit shows that the use benefits of the 100 MGD for
certain waterbodies option are not projected to exceed the costs in any
of the study regions. In the Mid-Atlantic region, costs exceed use
benefits by $1.5 million or $1.4 million, evaluated at 3 percent and 7
percent discount rates. In the Gulf of Mexico region, costs are $8.4
million or $9.7 million greater than the use benefits. At the national
level, EPA projects the costs of this option to exceed its use benefits
by $16.2 million per year, discounted at 3 percent, or by $17.2 million
per year, discounted at 7 percent.

Exhibit X-3.--Summary of Social Benefits and Costs 100 MGD for Certain Waterbodies'' Option
[millions; $2003]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Number of Total annualized use value of Net benefits c
facilities facilities I&E reductions a Total --------------------------------
Study region subject to installing --------------------------------- annualize
option technology Low Mean High d Costs b Low Mean High
--------------------------------------------------------------------------------------------------------------------------------------------------------
Evaluated at a 3% discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California......................................... 0 0 $0.00 $0.00 $0.00 $0.0 $0.0 $0.0 $0.0
North Atlantic..................................... 3 3 0.03 0.05 0.12 2.0 -2.0 -1.9 -1.9
Mid Atlantic....................................... 2 2 0.23 0.46 0.96 2.0 -1.7 -1.5 -1.0
Gulf of Mexico..................................... 7 7 0.33 0.64 1.33 9.1 -8.7 -8.4 -7.7
Great Lakes........................................ 8 6 0.14 0.26 0.49 4.5 -4.3 -4.2 -4.0
Inland............................................. 0 0 0.00 0.00 0.00 0.0 0.0 0.0 0.0
-------------
National total................................. 19 18 0.72 1.41 2.90 17.6 -16.9 -16.2 -14.7
----------------------------------------------------
Evaluated at a 7% discount rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
California......................................... 0 0 $0.00 $0.00 $0.00 $0.0 $0.0 $0.0 $0.0
North Atlantic..................................... 3 3 0.02 0.04 0.09 2.0 -2.0 -2.0 -1.9
Mid Atlantic....................................... 2 2 0.17 0.35 0.73 1.8 -1.6 -1.4 -1.1
Gulf of Mexico..................................... 7 7 0.26 0.51 1.06 10.2 -9.9 -9.7 -9.1
Great Lakes........................................ 8 6 0.11 0.20 0.38 4.1 -4.0 -3.9 -3.7
Inland............................................. 0 0 0.00 0.00 0.00 0.0 0.0 0.0 0.0
-------------
National total................................. 19 18 0.56 1.10 2.26 18.3 -17.7 -17.2 -16.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The total monetizable value of I&E reductions includes use benefits only. EPA did not estimate non-use benefits quantitatively. The low and high use
values reflect the range of recreational fishing values presented in Section 9 of the preamble. They were calculated using the Krinsky and Robb
technique to estimate the 95th and 5th percentile limits on the marginal value per fish predicted by the meta-analysis.
\b\ Total costs are based on pre-tax facility costs. National total costs also include State, local, and Federal administrative costs of $0.2 million
that cannot be attributed to individual study regions.
\c\ The net benefits presented here are based on the comparison of a generally complete measure of social costs with an incomplete measure of social
benefits, and should be interpreted with caution.

B. Break-even Analysis

Estimating non-use values is an extremely challenging and uncertain
exercise, particularly when, due to time and resource constraints,
primary research using stated preference methods was not a feasible
option for this proposed rule. In Section IX.D.5 above, EPA described
possible alternative approaches for developing non-use benefit
estimates based on benefits transfer and associated methods. Due to the
uncertainties of providing estimates of the magnitude of non-use values
associated with the regulatory options considered for this proposal,
this section provides an alternative approach for evaluating the
significance of non-use values. The approach used here applies a
``break-even'' analysis to identify what non-use values would have to
be in order for the options to have monetized benefits that are equal
to costs.
The break-even approach uses EPA's estimated commercial and
recreational use benefits for the regulatory options and subtracts them
from the estimated annual compliance costs incurred by existing
facilities subject to the regulatory options. The resulting ``net
cost'' enables one to work backwards to estimate what non-use values
would need to be in order for total annual benefits to equal annualized
costs. EPA computed the per household willingness-to-pay for all three
options proposed today and found that the non-use values necessary to
equate total annual benefits with total annual social cost ranged from
$1.43 per household, for the ``100 MGD for Certain Waterbodies'' option
discounted at 3 percent, to $2.13 per household for the ``50 MDG for
All Water bodies'' option discounted at 7 percent. EPA also calculated
the break-even non-use value per (age-1 equivalent) fish saved. The per
fish value necessary to have the total annual costs and benefits of the
proposed options equate range from $0.54 for the ``100 MGD for Certain
Waterbodies'' option, discounted at 3 percent, to $0.98 for the ``50
MDG for All Water bodies'' option, discounted at 7 percent. For a
detailed discussion of the estimation and results of both the per
household and per fish break-even values see the Regional Analysis Document.

[[Page 68528]]

XI. Statutory and Executive Order Reviews

A. E.O. 12866: Regulatory Planning and Review

Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to Office of Management and Budget (OMB) review
and the requirements of the Executive Order. The order defines a
``significant regulatory action'' as one that is likely to result in a
rule that may:
? Have an annual effect on the economy of $100 million or
more or adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or Tribal governments or
communities;
? Create a serious inconsistency or otherwise interfere with
an action taken or planned by another agency;
? Materially alter the budgetary impact of entitlements,
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or
? Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this proposed rule is a ``significant regulatory
action.'' As such, this action was submitted to OMB for review. Changes
made in response to OMB suggestions or recommendations will be
documented in the public record.

B. Paperwork Reduction Act

The information collection requirements in this proposed rule have
been submitted for approval to the Office of Management and Budget
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The
Information Collection Request (ICR) document prepared by EPA has been
assigned EPA ICR number 2169.01.
The information collected under today's proposed rule would assist
EPA in regulating environmental impacts, namely impingement mortality
and entrainment, at cooling water intake structures at Phase III
facilities and new offshore oil and gas extraction facilities. This
information would be used by these parties to prepare comprehensive
demonstration studies, monitor impingement mortality and entrainment,
verify compliance, and prepare annual/biennial reports as required
under today's proposal. The information collected would be reviewed by
EPA and State Directors to ensure that appropriate National Pollutant
Discharge Elimination System (NPDES) permit conditions regulating
cooling water intake structures would be developed. Compliance with the
applicable information collection requirements imposed under this
proposed rule is mandatory (see Sec. Sec. 122.21(r), 125.136, 125.137,
125.138, 125.104, 125.105, 125.106, 125.107, 125.108).
EPA does not consider the specific data that would be collected
under this proposed rule to be confidential business information.
However, if a respondent does consider this information to be
confidential, the respondent may request that such information be
treated as confidential. All confidential data will be handled in
accordance with 40 CFR 122.7, 40 CFR Part 2, and EPA's Security Manual
Part III, Chapter 9, dated August 9, 1976.
Today's proposed rule would modify regulations at Sec. 122.21 to
require existing Phase III facilities and new offshore oil and gas
extraction facilities to prepare and submit some of the same
information required for Phase I and Phase II facilities. The proposed
application requirements would require owners or operators of Phase III
existing facilities to submit two general categories of information
when they apply for a reissued NPDES permit. The general categories of
information would include (1) permit application information, and (2)
verification monitoring data. A detailed list of required data items is
provided below.
As discussed in section II of the preamble, EPA is proposing three
regulatory options for existing facilities in today's proposed rule
based on design intake flow including: (1) A 50 MGD option for
facilities withdrawing water from all waterbody types; (2) a 200 MGD
option for facilities withdrawing water from all waterbody types; and
(3) a 100 MGD option for facilities which withdraw water specifically
from an ocean, estuary, tidal river, or one of the Great Lakes. Under
the co-proposed 50 MGD threshold-based option, the total average annual
burden, during the first three years after promulgation of the rule, of
the information collection requirements associated with today's
proposed rule is estimated at 215,885 hours. The corresponding
estimates of average annual cost other than labor (labor and non-labor
costs are included in the total cost of the proposed rule discussed in
section VIII of this preamble) is $2.81 million for 87 facilities (56
existing manufacturers and 31 new offshore oil and gas facilities) and
45 States and one Territory during the first three years after
promulgation of the rule. Under the co-proposed 200 MGD threshold-based
option, the total average annual burden, during the first three years
after promulgation of the rule, of the information collection
requirements is estimated at 62,280 hours. The corresponding average
annual non-labor cost is $1.46 million for 44 facilities (13 existing
manufacturers and 31 new offshore oil and gas facilities), and 45
States and one Territory during the first three years after
promulgation of the rule. Under the co-proposed 100 MGD threshold-based
option, the total average annual burden, during the first three years
after promulgation of the rule, of the information collection
requirements is estimated at 85,622 hours. The corresponding average
annual non-labor cost is $1.62 million for 42 facilities (11 existing
manufacturers and 31 new offshore oil and gas facilities), and 45
States and one Territory during the first three years after
promulgation of the rule.
Non-labor costs include activities such as capital costs for remote
monitoring devices, laboratory services, photocopying, and the purchase
of supplies. The burden and costs are for the information collection,
reporting, and recordkeeping requirements for the three-year period
beginning with the assumed effective date of today's rule. Additional
information collection requirements will occur after this initial
three-year period as existing facilities continue to be issued permit
renewals, new offshore oil and gas extraction facilities are issued
permits, and such requirements will be counted in a subsequent
information collection request.
Burden means the total time, effort, or financial resources
expended by persons to generate, maintain, retain, or disclose or
provide information to or for a Federal agency. This includes the time
needed to review instructions; develop, acquire, install, and utilize
technology and systems for the purposes of collecting, validating, and
verifying information, processing and maintaining information, and
disclosing and providing information; adjust the existing ways to
comply with any previously applicable instructions and requirements;
train personnel to be able to respond to a collection of information;
search data sources; complete and review the collection of information;
and transmit or otherwise disclose the information.
Studies to be submitted by both Phase III existing facilities and
new offshore oil and gas extraction facilities under today's proposed
rule are listed below. Both Phase III existing facilities and

[[Page 68529]]

new offshore oil and gas fixed platforms would be required to collect
the general information listed below.
? Source Water Physical Data (Sec. 122.21(r)(2)) (both
Phase III existing facilities and new offshore oil and gas facilities)
? Cooling Water Intake Structure Data (Sec. 122.21(r)(3))
((both Phase III existing facilities and new offshore oil and gas facilities)
? Cooling Water System Description (Sec. 122.21(r)(5))
(Phase III existing facilities only)
Depending on the compliance alternative selected by the individual
facility, Phase III existing facilities may be required to submit the
following information:
? Proposal for Information Collection (Sec. 125.104(b)(1))
? Source Waterbody Flow Information (Sec. 125.104(b)(2))
? Impingement Mortality and/or Entrainment Characterization
Study (Sec. 125.104(b)(3))
? Technology Compliance and Assessment Information (Sec. 125.104(b)(4))
? Restoration Plan (Sec. 125.104(b)(5))
? Information to Support Site-specific Determination of Best
Technology Available for Minimizing Adverse Environmental Impact (Sec.
125.104(b)(6))
? Verification Monitoring Plan (Sec. 125.104(b)(7))
New offshore oil and gas extraction facilities would be required to
submit the following information under Track I:
? Source Water Baseline Biological Characterization Data
(Sec. 122.21(r)(4)) (not required for non-fixed facilities)
? Velocity Information (Sec. 125.136(b)(2))
? Source Waterbody Flow Information (Sec. 125.136(b)(3))
(not required for non-fixed facilities)
? Design and Construction Technology Plan (Sec.
125.136(b)(4))
In addition to the information requirements of the permit renewal
application, NPDES permits normally specify monitoring and reporting
requirements to be met by the permitted entity. Existing facilities
that fall within the scope of this proposed rule would be required to
perform biological monitoring as required by the Director to
demonstrate compliance. New offshore oil and gas extraction fixed
facilities would be required to perform monitoring as determined by the
Track I or Track II requirements in Sec. 125.136. Additional ambient
water quality monitoring may also be required of facilities depending
on the specifications of their permits. New offshore oil and gas
extraction facilities would be expected to analyze the results from
their monitoring efforts and provide these results in an annual status
report to the permitting authority. Existing Phase III facilities would
be required to submit a status report every two years that included
appropriate monitoring data and any other information specified by the
Director. Finally, facilities would be required to maintain records of
all submitted documents, supporting materials, and monitoring results
for at least three years. (Note that the Director may require that
records be kept for a longer period to coincide with the life of the
NPDES permit.)
All impacted facilities would carry out the specific activities
necessary to fulfill the general information collection requirements.
The estimated burden includes developing a water balance diagram that
can be used to identify the proportion of intake water used for
cooling, make-up, and process water. Facilities would also gather data
to calculate the reduction in impingement mortality and entrainment of
all life stages of fish and shellfish that would be achieved by the
technologies and operational measures they select. The burden estimates
include sampling, assessing the source waterbody, estimating the
magnitude of impingement mortality and entrainment, and reporting
results in a comprehensive demonstration study. The burden may also
include conducting a pilot study to evaluate the suitability of the
technologies and operational measures based on the species that are
found at the site.
Some of the Phase III existing facilities (those choosing to use
restoration measures to maintain fish and shellfish) would need to
prepare a plan documenting the restoration measures they would
implement and how they would demonstrate that the restoration measures
were effective. However, for purposes of this paperwork burden
analysis, EPA assumed all facilities would comply using design and
construction technologies.
Some facilities may choose to request a site-specific determination
of best technology available because of costs significantly greater
than those EPA considered in establishing the performance standards or
because costs are significantly greater than the benefits of complying
with the performance standards. These facilities would be required to
perform a comprehensive cost evaluation study and, if applicable, a
valuation of the monetized benefits of reducing impingement mortality
and entrainment, as well as submitting a site-specific technology plan
characterizing the design and construction technologies, operational
measures and restoration measures they have selected. However, for
purposes of this paperwork burden estimate, EPA assumed all facilities
would comply by meeting the applicable performance standards.
The assumption that facilities will not use restoration or request
a site-specific determination of best technology available may lead to
an underestimate of paperwork burden, since there are additional
documentation requirements associated with both of these approaches.
However, since both are optional, EPA assumes that facilities would not
choose them unless total burden, including both paperwork burden and
compliance costs is less than the total burden under the approach EPA
assumed for its PRA analysis.
Exhibits XI-1 through 3 present a summary of the average burden
estimates for a facility to prepare a permit application and monitor
and report on cooling water intake structure operations for the three
options for existing manufacturers as required by this proposed rule.
Exhibit XI-4 presents a summary of the average burden estimates for a
facility to prepare a permit application and monitor and report on
cooling water intake structure operations for new offshore oil and gas
extraction facilities as required by this proposed rule. For the
purpose of estimating the average burden for new offshore oil and gas
extraction facilities, EPA assumed all facilities would pursue Track I
of today's proposed rule. It is unknown how many facilities would
select Track I versus Track II so the actual burden estimate may be
slightly higher or lower than that presented in this section.

[[Page 68530]]

Exhibit XI-1.--Average Annual Reporting Burden and Costs per Facility for NPDES Permit Application and Monitoring and Reporting Activities
[50 MGD all waterbodies option]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
Annual Annual Annual Annual O&M Three year annual Average Average
Activities hours per labor cost capital cost per respondent frequency annual annual cost
facility per cost per facility a total of hours b
facility facility responses
--------------------------------------------------------------------------------------------------------------------------------------------------------
Start-up Activities............................. 43 2,121 0 50 56 19 803 40,527
Permit Application Activities................... 247 9,951 0 510 56 19 4,611 195,279
Proposal for Collection of Information for 272 12,344 0 770 43 14 3,899 187,964
Comprehensive Demonstration Study..............
FW River/Stream Source Water Body Flow 100 3,381 0 200 15 5 500 17,904
Information....................................
FW Lake/Reservoir Source Water Body Flow 112 3,946 0 200 2 1 75 2,764
Information....................................
Design and Construction Technology Plan 31 1,368 0 0 31 10 320 14,132
(Impingement)..................................
Design and Construction Technology Plan 31 1,368 0 0 20 7 207 9,117
(Entrainment)..................................
Design and Construction Technology Plan (All)... 30 922 0 380 33 11 330 14,322
Freshwater Baseline Monitoring for Impingement 2,210 102,549 0 1,538 23 13 29,460 1,387,834
Mortality and/or Entrainment Study.............
Freshwater Monitoring for Impingement Mortality 1,105 51,544 0 773 23 13 14,727 697,560
Study..........................................
Freshwater Monitoring for Entrainment Study..... 845 39,727 0 39,596 4 3 2,252 211,527
Marine Baseline Monitoring for Impingement 2,841 131,350 0 1,970 20 19 53,041 2,488,651
Mortality and/or Entrainment Study.............
Marine Monitoring for Impingement Mortality 1,414 65,430 0 981 16 15 21,680 1,018,309
Study..........................................
Marine Monitoring for Entrainment Study......... 1,076 50,083 0 51,451 20 19 20,090 1,895,311
Impingement Mortality & Entrainment 373 22,042 0 0 43 14 5,346 315,931
Characterization Study Initial Analysis........
Impingement Mortality & Entrainment 399 18,875 0 614 33 11 4,389 214,381
Characterization Study Final Report............
Pilot Study Impingement Monitoring (Freshwater) 661 33,927 804,252 0 1 0 220 279,393
for Pilot Study................................
Pilot Study Entrainment Monitoring (Freshwater) 541 28,473 0 6,000 1 0 180 11,491
for Pilot Study................................
Pilot Study Impingement Monitoring (Marine) for 831 41,572 189,062 0 10 3 2,768 768,781
Pilot Study....................................
Pilot Study Entrainment Monitoring (Marine) for 675 34,482 0 7,800 10 3 2,248 140,941
Pilot Study....................................
Pilot Study Entrainment Monitoring (All) for 354 17,487 0 1,020 11 4 1,298 67,858
Pilot Study....................................
Technology Installation and Operation Plan...... 52 2,372 0 80 35 12 607 28,611

[[Page 68531]]

Verification Monitoring Plan.................... 128 5,918 0 410 35 12 1,493 73,827
--------------
Total for NPDES Permit Application ........... ........... ........... ........... 56 227 170,544 10,082,416
Activities.................................
-------------------------------------------------
Average Burden and Costs per Facility for Annual Monitoring and Reporting Activities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Monitoring for Impingement (Freshwater).. 379 18,504 0 510 11 5 2,021 101,406
Annual Monitoring for Impingement (Marine)...... 482 23,564 0 660 12 5 2,569 129,193
Annual Monitoring for Entrainment (Freshwater).. 614 30,376 0 8,310 4 2 1,228 77,371
Annual Monitoring for Entrainment (Marine)...... 776 38,069 0 10,800 14 7 5,173 325,790
Biannual Status Report Activities............... 324 16,618 0 770 27 9 2,916 156,492
Verification Study.............................. 118 6,772 0 510 27 9 1,062 65,540
--------------
Total for Annual Activities................. ........... ........... ........... ........... 27 37 14,969 855,792
--------------------------------------------------------------------------------------------------------------------------------------------------------
a Cost of supplies, filing cabinets, photocopying, boat renting, etc.
b Costs for restoration activities and site-specific studies were not estimated as EPA cannot determine how many facilities would choose to select this
option and the option is voluntary.

Exhibit XI-2.--Average Annual Reporting Burden and Costs per Facility for NPDES Permit Application and Monitoring and Reporting Activities
[200 MGD all waterbodies option]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
Annual Annual Annual Annual O&M Three year annual Average
Activity hours per labor cost capital cost per respondent frequency annual Average
facility per cost per facilitya total of hours annual cost
facility facility responses
--------------------------------------------------------------------------------------------------------------------------------------------------------
Start-up Activities............................. 43 $2,121 $0 $50 13 4 186 $9,408
Permit Application Activities................... 247 9,951 0 510 13 4 1,070 45,333
Proposal for Collection of Information for 272 12,344 0 770 9 3 816 39,341
Comprehensive Demonstration Study..............
FW River/Stream Source Water Body Flow 100 3,381 0 200 1 0 33 1,194
Information....................................
FW Lake/Reservoir Source Water Body Flow ........... 0 0 200 ........... 0 0 0
Information....................................
Design and Construction Technology Plan 31 1,368 0 0 5 2 52 2,279
(Impingement)..................................
Design and Construction Technology Plan 31 1,368 0 0 4 1 41 1,823
(Entrainment)..................................
Design and Construction Technology Plan (All)... 30 922 0 380 5 2 50 2,170
Freshwater Baseline Monitoring for Impingement 2,210 102,549 0 1,538 2 1 2,210 104,088
Mortality and/or Entrainment Study.............
Freshwater Monitoring for Impingement Mortality 1,105 51,544 0 773 2 1 1,105 52,317
Study..........................................
Freshwater Monitoring for Entrainment Study..... ........... 0 0 39,596 ........... 0 0 0

[[Page 68532]]

Marine Baseline Monitoring for Impingement 2,841 131,350 0 1,970 7 6 17,049 799,923
Mortality and/or Entrainment Study.............
Marine Monitoring for Impingement Mortality 1,414 65,430 0 981 6 5 7,541 354,194
Study..........................................
Marine Monitoring for Entrainment Study......... 1,076 50,083 0 51,451 7 6 6,458 609,207
Impingement Mortality & Entrainment 373 22,042 0 0 9 3 1,119 66,125
Characterization Study Initial Analysis........
Impingement Mortality & Entrainment 399 18,875 0 614 5 2 665 32,482
Characterization Study Final Report............
Pilot Study Impingement Monitoring (Freshwater) 661 33,927 804,252 0 1 0 220 279,393
for Pilot Study................................
Pilot Study Entrainment Monitoring (Freshwater) 541 28,473 0 6,000 1 0 180 11,491
for Pilot Study................................
Pilot Study Impingement Monitoring (Marine) for 831 41,572 183,241 0 4 1 1,107 299,751
Pilot Study....................................
Pilot Study Entrainment Monitoring (Marine) for 675 34,482 0 7,800 4 1 899 56,376
Pilot Study....................................
Pilot Study Entrainment Monitoring (All) for 354 17,487 0 1,020 5 2 590 30,845
Pilot Study....................................
Technology Installation and Operation Plan...... 52 2,372 0 80 6 2 104 4,905
Verification Monitoring Plan.................... 128 5,918 0 410 6 2 256 12,656
--------------
Total for NPDES Permit Application ........... ........... ........... ........... 13 50 41,752 2,815,302
Activities.................................
-------------------------------------------------
Average Burden and Costs per Facility for Annual Monitoring and Reporting Activities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Monitoring for Impingement (Freshwater).. 379 18,504 0 510 1 1 253 12,676
Annual Monitoring for Impingement (Marine)...... 482 23,564 0 660 3 1 482 24,224
Annual Monitoring for Entrainment (Freshwater).. 614 30,376 0 8,310 1 0 205 12,895
Annual Monitoring for Entrainment (Marine)...... 776 38,069 0 10,800 3 1 776 48,869
Biannual Status Report Activities............... 324 16,618 0 770 5 2 540 28,980
Verification Study.............................. 118 6,772 0 510 5 2 197 12,137
--------------
Total for Annual Activities................. ........... ........... ........... ........... 5 7 2,452 139,780
--------------------------------------------------------------------------------------------------------------------------------------------------------
a Cost of supplies, filing cabinets, photocopying, boat renting, etc.

[[Page 68533]]

Exhibit XI-3.--Average Annual Reporting Burden and Costs per Facility for NPDES Permit Application and Monitoring and Reporting Activities
[100 MGD certain waterbodies option]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
Annual Annual Annual Annual O&M Three year annual Aveage
Activity hours per labor cost capital cost per respondent frequency annual Average
facility per cost per facility total of hours annual cost
facility facility \a\ responses
--------------------------------------------------------------------------------------------------------------------------------------------------------
Start-up Activities............................. 43 $2,121 $0 $50 11 4 158 $7,961
Permit Application Activities................... 247 9,951 0 510 11 4 906 38,358
Proposal for Collection of Information for 272 12,344 0 770 11 4 997 48,084
Comprehensive Demonstration Study..............
FW River/Stream Source Water Body Flow -- 0 0 0 -- 0 0 0
Information....................................
FW Lake/Reservoir Source Water Body Flow -- 0 0 0 -- 0 0 0
Information....................................
Design and Construction Technology Plan 31 1,368 0 0 8 3 83 3,647
(Impingement)..................................
Design and Construction Technology Plan 31 1,368 0 0 8 3 83 3,647
(Entrainment)..................................
Design and Construction Technology Plan (All)... 30 922 0 380 8 3 80 3,472
Freshwater Baseline Monitoring for Impingement -- 0 0 1,538 -- 0 0 0
Mortality and/or Entrainment Study.............
Freshwater Monitoring for Impingement Mortality -- 0 0 773 -- 0 0 0
Study..........................................
Freshwater Monitoring for Entrainment Study..... -- 0 0 039,596 -- 0 0 0
Marine Baseline Monitoring for Impingement 2,841 131,350 0 1,970 11 10 28,415 1,333,206
Mortality and/or Entrainment Study.............
Marine Monitoring for Impingement Mortality 1,414 65,430 0 981 10 9 13,1976 19,840
Study..........................................
Marine Monitoring for Entrainment Study......... 1,076 50,083 0 051,451 11 10 10,763 1,015,345
Impingement Mortality & Entrainment 373 22,042 0 0 11 4 1,368 80,820
Characterization Study Initial Analysis........
Impingement Mortality & Entrainment 399 18,875 0 614 8 3 1,064 51,971
Characterization Study Final Report............
Pilot Study Impingement Monitoring (Freshwater) -- 0 0 0 -- 0 0 0
for Pilot Study................................
Pilot Study Entrainment Monitoring (Freshwater) -- 0 0 6,000 -- 0 0 0
for Pilot Study................................
Pilot Study Impingement Monitoring (Marine) for 831 41,572 221,548 0 6 2 1,661 526,240
Pilot Study....................................
Pilot Study Entrainment Monitoring (Marine) for 675 34,482 0 7,800 6 2 1,349 84,564
Pilot Study....................................
Pilot Study Entrainment Monitoring (All) for 354 17,487 0 1,020 6 2 708 37,014
Pilot Study....................................
Technology Installation and Operation Plan...... 52 2,372 0 80 8 3 139 6,540

[[Page 68534]]

Verification Monitoring Plan.................... 128 5,918 0 410 8 3 341 16,875
--------------
Total for NPDES Permit Application ........... ........... ........... ........... 11 66 61,310 3,877,583
Activities.................................
-------------------------------------------------
Average Burden and Costs per Facility for Annual Monitoring and Reporting Activities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Monitoring for Impingement (Freshwater).. -- 0 0 510 -- 0 0 0

Annual Monitoring for Impingement (Marine)...... 482 23,564 0 660 7 3 1,284 64,596
Annual Monitoring for Entrainment (Freshwater).. -- 0 0 8,310 -- 0 0 0
Annual Monitoring for Entrainment (Marine)...... 776 38,069 0 10,800 7 3 2,069 130,316
Biannual Status Report Activities............... 324 16,618 0 770 7 2 756 40,572
Verification Study.............................. 118 6,772 0 510 7 2 275 16,992
--------------
Total for Annual Activities................. ........... ........... ........... ........... 7 10 4,385 252,476
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Cost of supplies, filing cabinets, photocopying, boat renting, etc.

Exhibit XI-4.--Average Annual Reporting Burden and Costs per Facility for NPDES Permit Application and Monitoring and Reporting Activities
[New offshore oil and gas extraction facilities \a\]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
Annual Annual Annuallized Annual O&M Three year annual Average
Activity hours per labor cost capital cost per respondent frequency annual Average
facility per cost per facilitya b total of hours annual cost
facility facility responses
--------------------------------------------------------------------------------------------------------------------------------------------------------
Start-up Activities............................. 43 $2,121 $0 $50 31 10 444 $22,435
Permit Application Activities................... 25 795 0 130 19 6 158 5,857
Source Water Body Flow Information.............. 38 1,341 0 75 19 6 241 8,968
CWIS Velocity Information....................... -- 0 0 0 -- 0 0 0
Design and Construction Technology Plan 35 1,021 0 120 15 5 175 5,706
(Impingement Only).............................
Design and Construction Technology Plan 35 1,021 0 120 1 0 12 380
(Entrainment Only).............................
Design and Construction Technology Plan 38 1,162 0 120 3 1 38 1,282
(Impingement & Entrainment)....................
Develop Regional Study Design and Submit to 78 5,007 0 0 2 1 52 3,338
Director.......................................
Deep Water Baseline Monitoring for Source Water 309 17,260 0 43,200 9 9 2,778 544,137
Baseline Biological Characterization Study.....
Deep Water Impingement Monitoring for Source 144 7,987 7,621 667 9 9 1,296 146,473
Water Baseline Biological Characterization
Study..........................................

[[Page 68535]]

Deep Water Entrainment Monitoring for Source 144 7,987 0 3,120 3 3 432 33,321
Water Baseline Biological Characterization
Study..........................................
Alaska Basline Monitoring for Source Water 384 20,337 0 49,200 1 1 384 69,537
Baseline Biological Characterization Study.....
Alaska Entrainment Monitoring for Source Water 192 10,169 0 3,120 1 1 192 13,289
Baseline Biological Characterization Study.....
Initial Sourcewater Baseline Biological 366 20,584 0 0 10 3 1,220 68,613
Characterization Data..........................
Sourcewater Baseline Biological Characterization 288 18,389 0 0 2 1 192 12,259
Data Study Final Regional Report...............
Use Regional Study Results for Individual 166 7,591 0 0 19 6 1,051 48,079
Facility Studies...............................
Source Water Baseline Biological -- 0 0 13,270 9 3 0 39,810
Characterization Study Other Direct Costs for
Deep Water.....................................
Source Water Baseline Biological -- 0 0 19,910 1 0 0 6,637
Characterization Study Other Direct Costs for
Alaska.........................................
--------------
Total for NPDES Permit Application ........... ........... ........... ........... 31 67 8,665 1,030,123
Activities.................................
-------------------------------------------------
Average Burden and Costs per Facility for Annual Monitoring and Reporting Activities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Biological Monitoring for Impingement........... 530 25,823 0 1,660 -- 0 0 0
Biological Monitoring for Entrainment........... 370 17,647 0 15,780 -- 0 0 0
Biological Monitoring for Entrainment (Alaska).. 516 24,298 0 21,780 -- 0 0 0
Velocity Monitoring............................. 163 5,692 0 500 13 7 1,087 41,283
Yearly Status Report Activities................. 223 11,304 0 770 13 7 1,487 80,495
--------------
Total for Annual Activities................. ........... ........... ........... ........... 13 14 2,573 121,778
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Track I requirements only estimated.
\b\ Cost of supplies, filing cabinets, photocopying, boat renting, etc.

EPA believes that all 45 States and one Territory with NPDES
permitting authority would undergo start-up activities in preparation
for administering the provisions of the proposed rule. As part of these
start-up activities, States and Territories would be expected to train
junior technical staff to review materials submitted by facilities, and
then use these materials to evaluate compliance with the specific
conditions of each facility's NPDES permit.
Each State's/Territory's actual burden associated with reviewing
submitted materials, writing permits, and tracking compliance would
depend on the number of in-scope facilities that would come up for
permit renewal in the State/Territory during the ICR approval period
and which flow threshold-based option EPA selects for Phase III
existing facilities. EPA expects that State and Territory technical and
clerical staff will spend time gathering, preparing, and submitting the
various documents. EPA's burden estimates reflect the general staffing
and level of expertise that is typical in States/Territories that
administer the NPDES permitting program. EPA considered the time and
qualifications necessary to complete various tasks such as reviewing

[[Page 68536]]

submitted documents and supporting materials, verifying data sources,
planning responses, determining specific permit requirements, writing
the actual permit, and conferring with facilities and the interested
public. Exhibits XI-5 through 7 provide a summary of the average burden
estimates for States/Territories performing various activities for
existing manufacturing facilities required by the proposed rule.
States/Territories are not involved in administering the permits for
new offshore oil and gas extraction facilities since the offshore oil
and gas industry is currently permitted under general permits at the
regional EPA level. This practice is likely to continue in the
forseeable future.

Exhibit XI-5.--Estimating State/Territory Average Burden and Costs for Activities
[50 MGD all waterbodies option]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
Average Annual Annual Annual O&M Three year annual Average
Activity annual labor cost capital cost per respondent frequency annual Average
hours per per cost per facility total of hours annual cost
facility facility facility \a\ responses
--------------------------------------------------------------------------------------------------------------------------------------------------------
Director Start-up Activities.................... 100 $3,894 $0 $50 46 15 1,533 $60,475
Director Permit Issuance Activities............. 803 35,979 0 310 56 19 14,989 677,398
Verification Study Review....................... -- 0 0 10 -- 0 0 0
Annual Director Activities...................... 50 1,851 0 30 27 9 450 16,932
--------------
Total for Director Activities............... ........... ........... ........... ........... 46 43 16,972 754,804
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Cost of supplies, filing cabinets, photocopying, boat renting, etc.

Exhibit XI-6.--Estimating State/Territory Average Burden and Costs for Activities
[200 MGD all waterbodies option]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
Average Annual Annual Annual O&M Three year annual Average
Activity annual labor cost capital cost per respondent frequency annual Average
hours per per cost per facility total of hours annual cost
facility facility facility \a\ responses
--------------------------------------------------------------------------------------------------------------------------------------------------------
Director Start-up Activities.................... 100 $3,894 $0 $50 46 15 1,533 $60,475
Director Permit Issuance Activities............. 706 31,417 0 310 13 ........... 43,060 137,482
Verification Study Review....................... -- 0 0 10 -- 0 0 0
Annual Director Activities...................... 50 1,851 0 30 5 2 83 3,136
--------------
Total for Director Activities............... ........... ........... ........... ........... 46 21 4,677 201,092
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Cost of supplies, filing cabinets, photocopying, boat renting, etc.

Exhibit XI-7.--Estimating State/Territory Average Burden and Costs for Activities
[100 MGD All Waterbodies Option]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
Average Annual Annual Annual O&M Three year annual Average
Activity annual labor cost capital cost per respondent frequency annual Average
hours per per cost per facility total of hours annual cost
facility facility facility \a\ responses
--------------------------------------------------------------------------------------------------------------------------------------------------------
Director Start-up Activities.................... 100 $3,894 $0 $50 46 15 1,533 $60,475
Director Permit Issuance Activities............. 1330 60,163 0 310 11 4 4,878 221,733
Verification Study Review....................... -- 0 0 10 -- 0 0 0
Annual Director Activities...................... 50 1,851 0 30 7 2 117 4,390
--------------
Total for Director Activities............... ........... ........... ........... ........... 46 21 6,528 286,598
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Cost of supplies, filing cabinets, photocopying, boat renting, etc.

An Agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR Part 9.
To comment on the Agency's need for this information, the accuracy
of the provided burden estimates, and any suggested methods for
minimizing respondent burden, including the use of automated collection
techniques, EPA has established a public docket for this rule, which
includes this ICR, under Docket ID number OW-2003-0005. Submit any
comments related to the ICR for this proposed rule to EPA and OMB. See
``Addresses'' section at the beginning of this notice for where to
submit comments to EPA. Send comments to OMB at the Office of
Information and Regulatory Affairs,

[[Page 68537]]

Office of Management and Budget, 725 17th Street, NW., Washington, DC
20503, Attention: Desk Office for EPA. Since OMB is required to make a
decision concerning the ICR between 30 and 60 days after November 24,
2004, a comment to OMB is best assured of having its full effect if OMB
receives it by December 27, 2004. The final rule will respond to any
OMB or public comments on the information collection requirements
contained in this proposal.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) as amended by the Small
Business Regulatory Flexibility Act generally requires an agency to
prepare a regulatory flexibility analysis of any rule subject to notice
and comment rulemaking requirements under the Administrative Procedure
Act or any other statute unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities. This section summarizes EPA's analyses in compliance with the
RFA.
1. Definition of Small Entity
Small entities include small businesses, small organizations, and
small governmental jurisdictions. For assessing the impacts of today's
proposal on small entities, a small entity is defined as: (1) A small
business as defined by the Small Business Administration's (SBA)
regulations at 13 CFR 121.201; (2) a small governmental jurisdiction
that is a government of a city, county, town, school district or
special district with a population of less than 50,000; and (3) a small
organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.
The SBA small business size standards changed from a SIC code-based
system to a NAICS code-based system on October 1, 2000. Since EPA
conducted its data collection effort for existing facilities before
this change, EPA performed the small entity analysis for existing
facilities based on SIC codes. EPA then conducted a subsequent analysis
to determine if the size standards based on NAICS codes would have any
effect on the results of the small entity analysis. This analysis
showed that for the three co-proposed options, there would be no
changes to the small entity determination, and therefore to small
entity impacts, as a result of switching from SIC-based size standards
to NAICS-based size standards.
2. Certification Statement
After considering the economic impacts of today's proposal on small
entities, I certify that this action will not have a significant
economic impact on a substantial number of small entities. This
proposal applies to existing facilities that employ a cooling water
intake structure and are designed to withdraw either (1) 50 MGD or more
from all waterbodies, (2) 100 MGD or more from certain waterbodies, or
(3) 200 MGD or more from all waterbodies that are waters of the United
States. It also applies to new offshore oil and gas extraction
facilities that withdraw greater than 2 MGD from waters of the United
States.
3. Statement of Basis
EPA estimates that this proposal will not apply national
categorical standards to any small entities in the Manufacturers or
Electric Generators industry segments (entities that operate facilities
subject to permitting based on best professional judgement are excluded
from this analysis). In the new offshore oil and gas extraction
industry segment, EPA estimates that the proposed option will apply
national standards to only one small entity, a new offshore oil and gas
platform. EPA estimates that this entity would incur annualized, after-
tax compliance costs of less than 0.1 percent of annual revenue. EPA
does not know precisely which firms would be undertaking construction
of new offshore oil and gas extraction facilities. However, based on
the firms that are currently active in building the types of facilities
representative of those covered by the rulemaking, EPA believes that
the small firm analyzed represents the smallest firm that would be
involved in such activities over the period of the analysis.
4. Summary of Small Business Advocacy Review Panel
Although the RFA does not require a Small Business Advocacy Review
(SBAR) Panel for this rule (because EPA has determined that this
proposal would not have a significant economic impact on a substantial
number of small entities), EPA convened a panel to obtain advice and
recommendations from small entity representatives (SERs) potentially
subject to this proposed rule's requirements because at the time EPA
had not yet determined the scope of the proposed rule and thus the
potential for small entity impacts. This section summarizes EPA's small
entity outreach and information on the composition, process, and
findings of the SBAR panel.
a. Summary of Small Entity Outreach
EPA actively involved stakeholders, including small entities, in
the development of the proposed rule in order to ensure the quality of
information, identify and understand potential implementation and
compliance issues, and explore regulatory alternatives. EPA conducted
numerous meetings with the electric power industry over the past six
years and met twice with manufacturing industry representatives in the
past two years; during these meetings, EPA received direct input about
the impacts of the proposed rule on the industry.
In the past three years, EPA held two conference calls with small
entity representatives from the manufacturing and electric power
industries to improve the Agency's understanding of cooling water
intakes in these industries, and of the potential impacts of new
requirements from an economic and business perspective. Before
convening the Panel, EPA held a conference call/meeting on October 1,
2002, and another on January 22, 2004, to receive information from
prospective SERs about plans for convening the Panel and their early
concerns about the planned proposed regulation.
b. Panel Members
The Panel consisted of EPA's Small Business Advocacy Chairperson,
the Director of the Engineering and Analysis Division of the Office of
Science and Technology (EPA/OW), the Administrator of the Office of
Information and Regulatory Affairs within the Office of Management and
Budget (OMB), and the Chief Counsel for Advocacy of the Small Business
Administration (SBA).
c. SERs
After consultation with the Small Business Administration Office of
Advocacy, EPA invited six municipal power plant representatives and six
representatives from manufacturing industries to serve as potential
SERs during the pre-panel outreach process. Ultimately, three municipal
power plant representatives and four representatives from manufacturing
industries provided comments to the Panel.
d. Summary of Panel Process
The Panel convened on February 27, 2004. The Panel held an outreach
meeting and telephone conference for SERs on March 16, 2004. Materials
were provided to SERs in advance of the meeting and additional
materials on specific topics of interest to SERs were provided during
the Panel process. SERs provided comments to the Panel on (1)

[[Page 68538]]

the number and types of small entities affected; (2) potential
reporting, record keeping, and compliance requirements; (3) related
Federal rules; (4) regulatory flexibility alternatives; and (5)
methodological issues.
The Panel evaluated the assembled materials and small entity
comments on issues related to the elements of the initial regulatory
flexibility analysis (IRFA). A copy of the Panel report, ``Final Report
of the Small Business Advocacy Review Panel on EPA's Planned Proposed
Rule for Cooling Water Intake Structures at Section 316(b) Phase III
Facilities,'' is included in the docket for this proposed rule (DCN 7-
0006).
e. Panel Recommendations
The Panel provided several recommendations pertaining to reporting,
record keeping, and compliance requirements; regulatory flexibility
alternatives; and methodological issues relevant to the assessment of
the impacts of a Phase III rule on small entities. The following is a
summary of the Panel's recommendations and EPA's responses:
? Recommendation: The Panel noted that significant
implementation flexibility was included in the Phase II rule. For
example, facilities were allowed up to three and one half years
following rule promulgation to submit their initial demonstration study
and related application materials. The Panel recommended that this
level of flexibility be provided for Phase III requirements. The Panel
also recommended that EPA consider the availability of contractor
resources as it develops the implementation schedule for Phase III.
Response: EPA has provided in the proposed rule the same
implementation flexibility contained in the Phase II rule. EPA will
consider the availability of contractor resources and would like to
receive comments on this issue.
? Recommendation: The Panel recommended that EPA analyze a
range of potential applicability thresholds, particularly those between
20 MGD and 50 MGD. The Panel believed that an effective way to
substantially reduce potential economic impacts on small entities would
be to set an applicability threshold of 20 MGD. Facilities below 20 MGD
represent a small proportion of the total flow associated with the
Phase III rulemaking.
Response: In response to the Panel's recommendations, EPA analyzed
several policy options with different regulatory requirements and
applicability thresholds based on flow range categories. As a result of
these analyses, EPA is co-proposing three options with minimum
applicability thresholds of 50 MGD, 100 MGD, and 200 MGD, respectively.
Under these thresholds, no Phase III existing facilities owned by small
entities would be subject to national categorical requirements.
? Recommendation: The Panel recognized the implementation
challenges associated with using actual flows instead of design flows
to structure regulatory requirements. However, the Panel believed that
this approach merits further consideration.
Response: EPA notes that since the proposed thresholds exclude
existing small entities, no implementation challenges to small entities
would result. With regard to facilities within the scope of the
proposed rule, EPA believes that it would be most appropriate to be
consistent with the regulatory approach taken in Phase II.
? Recommendation: The American Public Power Association
(APPA) raised several methodological issues regarding EPA's analysis of
the impacts of a Phase III rule on small entities, including alternate
estimates of the number of regulated small electric utilities and
issues concerning the downtime required for retrofitting. The Panel
recommended that EPA seek further information from APPA to identify any
necessary modifications to the assumptions used for its cost and
economic impact analyses. The Panel also recommended that EPA review
its assumptions used to develop costs and economic impacts to ensure
that these assumptions are appropriate for facilities with smaller
budgets and staffs.
Response: Because of the choice EPA made to propose larger design
intake flow thresholds (i.e., 50 MGD, 100 MGD, and 200 MGD), all
electric power producers not covered by Phase II will be exempt from
the national categorical requirements of this proposed rule, but will
continue to be subject to site-specific 316(b) requirements based on
the best professional judgment of the permit writer.
5. Small Entity Flexibility Analysis
Despite the determination that this rule would not have a
significant economic impact on a substantial number of small entities,
EPA prepared a Small Entity Flexibility Analysis that has all the
components of an Initial Regulatory Flexibility Analysis (IRFA). An
IRFA examines the impact of a proposed rule on small entities along
with regulatory alternatives that could reduce that impact. The Small
Entity Flexibility Analysis (which is described in detail in the
Economic Analysis document) is available for review in the docket.
Under the three co-proposed options, EPA estimates that only one
small entity (a new offshore oil and gas extraction facility) would be
subject to the national categorical requirements. Under these
thresholds, no Phase III existing facilities owned by small entities
would be subject to national categorical requirements. This facility is
estimated to have a cost-to-revenue ratio of less than 0.1 percent.
EPA continues to be interested in the potential impacts of this
proposal on small entities and welcomes comments on issues related to
such impacts.

D. Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.
L. 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and Tribal
governments and the private sector. Under section 202 of the UMRA, EPA
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local, and Tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
one year. Before promulgating an EPA rule for which a written statement
is needed, section 205 of the UMRA generally requires EPA to identify
and consider a reasonable number of regulatory alternatives and adopt
the least costly, most cost-effective, or least burdensome alternative
that achieves the objectives of the rule. The provisions of section 205
do not apply when they are inconsistent with applicable law. Moreover,
section 205 allows EPA to adopt an alternative other than the least
costly, most cost-effective, or least burdensome alternative if the
Administrator publishes with the final rule an explanation why that
alternative was not adopted. Before EPA establishes any regulatory
requirements that may significantly or uniquely affect small
governments, including Tribal governments, it must have developed under
section 203 of the UMRA, a small government agency plan. The plan must
provide for notifying potentially affected small governments, enabling
officials of affected small governments to have meaningful and timely
input in the development of EPA regulatory proposals with significant
intergovernmental mandates, and informing, educating, and advising
small governments on compliance with regulatory requirements.

[[Page 68539]]

The following subsections present a brief summary of UMRA
considerations for the proposed rule. Each subsection includes the
results of the proposed option for new offshore oil and gas extraction
facilities together with one of the three co-proposed options for
existing facilities.\57\
---------------------------------------------------------------------------

\57\ These sections exclude facilities estimated to be baseline
closures and their costs (see discussion in section VIII.B.2) and
administrative costs for Federal agencies.
---------------------------------------------------------------------------

? 2 MGD Option for new facilities and 50 MGD All Waterbodies
Option for existing facilities: EPA estimates the total annualized
after-tax costs of compliance to be $44.8 million (2003$). All of these
direct facility costs are incurred by the private sector (including 136
manufacturing facilities and 124 offshore oil and gas extraction
facilities). No facility owned by State or local governments is subject
to the national requirements under this proposed option. Additionally,
State and local permitting authorities are estimated to incur $0.5
million annually to administer this option, including labor costs to
write permits and to conduct compliance monitoring and enforcement
activities. As required per section 202 of the UMRA, EPA estimates that
the highest undiscounted after-tax cost incurred by the private sector
in any one year is approximately $280 million in 2011.
? 2 MGD Option for new facilities and 200 MGD All
Waterbodies Option for existing facilities: EPA estimates the total
annualized after-tax costs of compliance to be $21.4 million (2003$).
All of these direct facility costs are incurred by the private sector
(including 25 manufacturing facilities and 124 offshore oil and gas
extraction facilities). No facility owned by State or local governments
is subject to the national requirements under this proposed option.
Additionally, State and local permitting authorities are estimated to
incur $0.1 million annually to administer this option, including labor
costs to write permits and to conduct compliance monitoring and
enforcement activities. As required per section 202 of the UMRA, EPA
estimates that the highest undiscounted after-tax cost incurred by the
private sector in any one year is approximately $91 million in 2010.
? 2 MGD Option for new facilities and 100 MGD for Certain
Waterbodies Option for existing facilities: EPA estimates the total
annualized after-tax costs of compliance to be $17.4 million (2003$).
All of these direct facility costs are incurred by the private sector
(including 19 manufacturing facilities and 124 offshore oil and gas
extraction facilities). No facility owned by State or local governments
is subject to the national requirements under this proposed option.
Additionally, State and local permitting authorities are estimated to
incur $0.1 million annually to administer this option, including labor
costs to write permits and to conduct compliance monitoring and
enforcement activities. As required per section 202 of the UMRA, EPA
estimates that the highest undiscounted after-tax cost incurred by the
private sector in any one year is approximately $236 million in 2011.
Thus, EPA has determined that this proposal contains a Federal
mandate that may result in expenditures of $100 million or more for
State, local, and Tribal governments, in the aggregate, or the private
sector in any one year. Accordingly, EPA prepared a written statement
under section 202 of the UMRA, which is summarized below. (See Economic
Analysis, Chapter D2: UMRA Analysis, for more detailed information.)
1. Summary of Written Statement
a. Authorizing Legislation
This proposal is issued under the authority of sections 101, 301,
304, 306, 308, 316, 401, 402, 501, and 510 of the Clean Water Act
(CWA), 33 U.S.C. 1251, 1311, 1314, 1316, 1318, 1326, 1341, 1342, 1361,
and 1370. This proposal fulfills an obligation of the U.S.
Environmental Protection Agency (EPA) under a consent decree in
Riverkeeper, Inc. et al. v. Leavitt, United States District Court,
Southern District of New York, No. 93 Civ. 0314 (AGS). See section II
of this preamble for detailed information on the legal authority of
this regulation.
b. Cost-Benefit Analysis
For the analysis of costs and benefits to society of this proposal,
the Agency calculated a total present value of estimated costs and
benefits and then calculated the constant annual equivalent value
(annualized value) of these present values. The Agency calculated these
present values and annualized values using two social discount rate
values: 3 percent and 7 percent. Since benefits for new offshore oil
and gas extraction facilities could not be estimated, EPA's comparison
of costs and benefits includes only costs associated with Phase III
existing facilities (i.e., the Manufacturers industry segments--no
Electric Generators are subject to the national requirements under any
of the co-proposed options).\58\ Benefit-cost relationships for Phase
III existing facilities under the three co-proposed options are as
follows:\59\
---------------------------------------------------------------------------

\58\ Total social costs of this proposal, including existing and
new facilities, are presented in section VIII.C of this preamble.
\59\ Benefits include only use benefits from commercial and
recreational fishing. EPA was unable to monetize non-use benefits.
---------------------------------------------------------------------------

? 50 MGD All Waterbodies Option: Total annualized social
costs are estimated at $47.3 (3 percent discount rate) and $50.1
million (7 percent discount rate). Total mean value of annualized use
benefits are estimated at $1.9 million (3 percent discount rate) and
$1.5 million (7 percent discount rate). Thus, social costs exceed total
use benefits by $45.4 million (3 percent discount rate) and $48.6
million (7 percent discount rate).
? 200 MGD All Waterbodies Option: Total annualized social
costs are estimated at $22.8 (3 percent discount rate) and $24.1
million (7 percent discount rate). Total mean value of annualized use
benefits are estimated at $1.3 million (3 percent discount rate) and
$1.0 million (7 percent discount rate). Thus, social costs exceed total
use benefits by $21.5 million (3 percent discount rate) and $23.1
million (7 percent discount rate)
? 100 MGD for Certain Waterbodies Option: Total annualized
social costs are estimated at $17.6 (3 percent discount rate) and $18.3
million (7 percent discount rate). Total mean value of annualized use
benefits are estimated at $1.4 million (3 percent discount rate) and
$1.1 million (7 percent discount rate). Thus, social costs exceed total
use benefits by $16.2 million (3 percent discount rate) and $17.2
million (7 percent discount rate).
It should be noted that this cost-benefit analysis compares a
relatively complete measure of social costs with an incomplete measure
of benefits, and should be interpreted with caution. For a more
detailed comparison of the costs and benefits of the proposed rule,
including a qualitative discussion and ``break-even'' analysis of non-
use benefits, refer to section X of this preamble.
EPA notes that States may be able to use existing sources of
financial assistance to revise permits and implement the proposed
options, when promulgated. Section 106 of the Clean Water Act
authorizes EPA to award grants to States, Tribes, intertribal
consortia, and interstate agencies for administering programs for the
prevention, reduction, and elimination of water pollution. These grants
may be used for various activities to develop

[[Page 68540]]

and carry out a water pollution control program, including permitting,
monitoring, and enforcement. Thus, State and Tribal NPDES permit
programs represent one type of State program that can be funded by
section 106 grants.
c. Macro-Economic Effects
EPA estimates that this proposal would not measurably affect the
national economy, including productivity, economic growth, employment
and job creation, and international competitiveness of U.S. goods and
services. Macroeconomic effects on the economy are generally not
considered to be measurable unless the total economic impact of a rule
reaches at least 0.25 percent to 0.5 percent of Gross Domestic Product
(GDP). In 2003, the Bureau of Economic Analysis reported the nominal
U.S. GDP at $11.0 trillion. Thus, in order to be considered measurable,
this proposal would have to generate annualized costs of at least $27
billion to $55 billion. Since EPA estimates that total social costs
(including existing and new facilities) under the most costly of the
three proposed options for existing facilities, the 50 MGD All
Waterbodies option, would be $51 million at a 3 percent discount rate
and $53 million at a 7 percent discount rate, the Agency believes that
this proposal would not perceptibly affect the national economy.
d. Summary of State, Local, and Tribal Government Input
EPA consulted with State governments and representatives of local
governments in developing the regulation. The outreach activities are
discussed in section III of this preamble.
e. Least Burdensome Option
EPA considered and analyzed several alternative regulatory options
for existing facilities to determine the best technology available for
minimizing adverse environmental impact. These regulatory options are
discussed in section VI of this preamble. EPA is co-proposing these
three options because they would meet the requirement of section 316(b)
of the CWA--that the location, design, construction, and capacity of
cooling water intake structures reflect the best technology available
for minimizing adverse environmental impact--and because they are
economically achievable, address a large percentage of flow (in
combination with the Phase II rule), are highly flexible, and impact a
minimal number of small businesses. EPA believes the three co-proposed
options would reflect the most cost-effective and flexible approaches
among the options considered. They regulate 74 percent (50 MGD All
Waterbodies Option), 45 percent (200 MGD All Waterbodies Option), and
16 percent (100 MGD for Certain Waterbodies Option), respectively, of
total design intake flow potentially covered under Phase III, result in
no closures, and affect only one small entity (a new offshore oil and
gas facility). By providing five compliance alternatives, this proposal
would offer Phase III existing facilities a high degree of flexibility
in selecting the most cost-effective approach to meeting section 316(b)
requirements. Under the proposal, these facilities would be able to
demonstrate that existing flow or cooling water intake structure
technologies fulfill section 316(b), by identifying impingement and
entrainment design and control technologies, and/or use operational
measures or restoration measures to fulfill the proposal's
requirements. The proposal would also ensure that any applicable
requirements are economically practicable through the inclusion of the
site-specific compliance alternative at Sec. 125.103(a)(5). EPA
further notes that the compliance alternative specified in Sec.
125.103(a)(4) and 125.108(a) and (b) would be included in part to
provide additional flexibility to Phase III existing facilities, as
well as to reduce the burden of determining, implementing, and
administering section 316(b) requirements among all relevant parties.
Finally, the Agency believes that the three co-proposed options would
extend additional flexibility to States by providing that where a State
has adopted alternative regulatory requirements that achieve
environmental performance comparable to that required under the rule,
the Administrator would approve such alternative requirements.
2. Impact on Small Governments
EPA has determined that this proposal would contain no regulatory
requirements that might significantly or uniquely affect small
governments. No government-owned facility would be subject to the
national categorical requirements of the three co-proposed options.

E. Executive Order 13132: Federalism

Executive Order 13132 (64 FR 43255, August 10, 1999) requires EPA
to develop an accountable process to ensure ``meaningful and timely
input by State and local officials in the development of regulatory
policies that have federalism implications.'' ``Policies that have
federalism implications'' are defined in the Executive Order to include
regulations that have ``substantial direct effects on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government.''
Under section 6 of Executive Order 13132, EPA may not issue a
regulation that has federalism implications, that imposes substantial
direct compliance costs, and that is not required by statute unless the
Federal government provides the funds necessary to pay the direct
compliance costs incurred by State and local governments or EPA
consults with State and local officials early in the process of
developing the proposed regulation. EPA also may not issue a regulation
that has federalism implications and that preempts State law, unless
the Agency consults with State and local officials early in the process
of developing the proposed regulation.
This proposed rule would not have federalism implications. It would
not have substantial direct effects on the States, on the relationship
between the Federal government and the States, or on the distribution
of power and responsibilities among the various levels of government,
as specified in Executive Order 13132. Rather, this proposed rule would
result in minimal administrative costs to States that have an
authorized NPDES program. Under the co-proposed 50 MGD All Waterbodies
Option, EPA expects an annual burden of 16,972 hours with an annual
cost of $6,823 (non-labor costs) for States to collectively administer
this proposed rule. Under the co-proposed 200 MGD All Waterbodies
Option, EPA expects an annual burden of 4,677 hours with an annual cost
of $2,160 (non-labor costs) for States to collectively administer this
proposed rule. Under the co-proposed 100 MGD Certain Waterbodies
Option, EPA expects an annual burden of 6,528 hours with an annual cost
of $1,973 (non-labor costs) for States to collectively administer this
proposed rule. It is noted that States do not incur any burden hours
and non-labor costs to administer the proposed rule for new offshore
oil and gas extraction facilities since these facilities are outside of
the jurisdiction of the States. EPA has identified zero Phase III
existing facilities that are owned by federal, state or local
government entities; therefore, the annual impacts on these facilities
is zero.
The proposed national cooling water intake structure requirements
would be implemented through permits issued under the NPDES program.
Forty-five

[[Page 68541]]

States and the Virgin Islands are currently authorized pursuant to
section 402(b) of the Clean Water Act to implement the NPDES program.
In States not authorized to implement the NPDES program, EPA issues
NPDES permits. Under the Clean Water Act, States are not required to
become authorized to administer the NPDES program. Rather, such
authorization is available to States if they operate their programs in
a manner consistent with section 402(b) and applicable regulations.
Generally, these provisions require that State NPDES programs include
requirements that are as stringent as Federal program requirements.
States retain the ability to implement requirements that are broader in
scope or more stringent than Federal requirements. (See section 510 of
the Clean Water Act.)
Today's proposed rule would not have substantial direct effects on
either authorized or nonauthorized States or on local governments
because it would not change how EPA and the States and local
governments interact or their respective authority or responsibilities
for implementing the NPDES program. Today's proposed rule would
establish national requirements for Phase III facilities with cooling
water intake structures. NPDES-authorized States that currently do not
comply with the regulations based on today's proposal might need to
amend their regulations or statutes to ensure that their NPDES programs
are consistent with Federal section 316(b) requirements. See 40 CFR
123.62(e). For purposes of this proposed rule, the relationship and
distribution of power and responsibilities between the Federal
government and the States and local governments are established under
the Clean Water Act (e.g., sections 402(b) and 510); nothing in this
proposed rule would alter that. Thus, the requirements of section 6 of
the Executive Order do not apply to this rule.
Although section 6 of Executive Order 13132 does not apply to this
rule, EPA did consult with State governments and representatives of
local governments in developing the proposed rule. During the
development of the proposed and final Phase I and Phase II section
316(b) rules, EPA conducted several outreach activities through which
State and local officials were informed about this proposal and they
provided information and comments to the Agency. The outreach
activities were intended to provide EPA with feedback on issues such as
adverse environmental impact, best technology available, and the
potential cost associated with various regulatory alternatives. These
outreach activities are discussed in section I.C of the preamble to
today's proposed rule.
In the spirit of this Executive Order and consistent with EPA
policy to promote communications between EPA and State and local
governments, EPA specifically solicits comment on this proposed rule
from State and local officials.

F. E.O. 13175: Consultation and Coordination With Indian Tribal
Governments

Executive Order 13175, entitled ``Consultation and Coordination
with Indian Tribal Governments'' (59 FR 22951, November 6, 2000),
requires EPA to develop an accountable process to ensure ``meaningful
and timely input by tribal officials in the development of regulatory
policies that have tribal implications.'' ``Policies that have tribal
implications'' is defined in the Executive Order to include regulations
that have ``substantial direct effects on one or more Indian Tribes, on
the relationship between the Federal government and the Indian Tribes,
or on the distribution of power and responsibilities between the
Federal government and Indian Tribes.''
This proposed rule would not have tribal implications. It would not
have substantial direct effects on tribal governments, on the
relationship between the Federal government and Indian Tribes, or on
the distribution of power and responsibilities between the Federal
government and Indian Tribes, as specified in Executive Order 13175.
EPA's analyses show that no facility subject to this proposed rule is
owned by tribal governments. This proposed rule would not affect Tribes
in any way in the foreseeable future. Accordingly, the requirements of
Executive Order 13175 do not apply to this rule.

G. E.O. 13045: Protection of Children From Environmental Health Risks
and Safety Risks

Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any
rule that (1) is determined to be ``economically significant'' as
defined under Executive Order 12866, and (2) concerns an environmental
health or safety risk that EPA has reason to believe might have a
disproportionate effect on children. If the regulatory action meets
both criteria, the Agency must evaluate the environmental health and
safety effects of the planned rule on children, and explain why the
planned regulation is preferable to other potentially effective and
reasonably feasible alternatives considered by the Agency. This
proposed rule is not an economically significant rule as defined under
Executive Order 12866 ($100 million threshold). Further, it does not
concern an environmental health or safety risk that would have a
disproportionate effect on children. Therefore, it is not subject to
Executive Order 13045.

H. Executive Order 13211: Actions That Significantly Affect Energy
Supply, Distribution, or Use

This proposal is not a ``significant energy action'' as defined in
Executive Order 13211, (``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR
28355, May 22, 2001)) because it is not likely to have a significant
adverse effect on the supply, distribution, or use of energy. Based on
our analysis (see section VIII), EPA has determined that the proposal
contains no compliance requirements that would:
? Reduce crude oil supply in excess of 10,000 barrels per day;
? Reduce fuel production in excess of 4,000 barrels per day;
? Reduce coal production in excess of 5 million tons per day;
? Reduce electricity production in excess of 1 billion
kilowatt hours per day or in excess of 500 megawatts of installed
capacity;
? Increase energy prices in excess of 10 percent;
? Increase the cost of energy distribution in excess of 10 percent;
? Significantly increase dependence on foreign supplies of energy; or
? Have other similar adverse outcomes, particularly unintended ones.
EPA analyzed the potential for impacts of the three co-proposed
options and the proposed rule for new offshore oil and gas extraction
facilities and found that none of them would lead to adverse outcomes.
From these analyses, EPA concludes that this proposal would have
minimal energy effects at a national and regional level. As a result,
EPA did not prepare a Statement of Energy Effects. For more detail on
the potential energy effects of this proposal, see the ``Economic
Analysis for the Proposed Section 316(b) Rule for Phase III
Facilities'' (DCN 7-0002). EPA requests comments on these determinations.

I. National Technology Transfer and Advancement Act

Section 12(d) of the National Technology Transfer and Advancement
Act (NTTAA) of 1995, Public Law 104-113, Sec. 12(d) directs EPA to use
voluntary consensus standards in its regulatory activities unless to do
so would be inconsistent with applicable law or otherwise impractical.
Voluntary consensus standards are technical

[[Page 68542]]

standards (e.g., materials specifications, test methods, sampling
procedures, and business practices) that are developed or adopted by
voluntary consensus standard bodies. The NTTAA directs EPA to provide
Congress, through the Office of Management and Budget (OMB),
explanations when the Agency decides not to use available and
applicable voluntary consensus standards.
This proposed rule does not involve such technical standards.
Therefore, EPA is not considering the use of any voluntary consensus
standards. EPA welcomes comments on this aspect of the proposed rule
and, specifically, invites the public to identify potentially
applicable voluntary consensus standards and to explain why such
standards should be used in this proposed rule.

J. E.O. 12898: Federal Actions To Address Environmental Justice in
Minority Populations and Low-Income Populations

Executive Order 12898 requires that, to the greatest extent
practicable and permitted by law, each Federal agency must make
achieving environmental justice part of its mission. E.O. 12898
provides that each Federal agency must conduct its programs, policies,
and activities that substantially affect human health or the
environment in a manner that ensures such programs, policies, and
activities do not have the effect of excluding persons (including
populations) from participation in, denying persons (including
populations) the benefits of, or subjecting persons (including
populations) to discrimination under such programs, policies, and
activities because of their race, color, or national origin.
Today's proposed rule would require that the location, design,
construction, and capacity of cooling water intake structures at Phase
III existing facilities reflect the best technology available for
minimizing adverse environmental impact. For several reasons, EPA does
not expect that this proposed rule would have an exclusionary effect,
deny persons the benefits of the participating in a program, or subject
persons to discrimination because of their race, color, or national origin.
To assess the impact of the rule on low-income and minority
populations, EPA calculated the poverty rate and the percentage of the
population classified as non-white for populations living within a 50-
mile radius of each of the 348 (unweighted) facilities in the Phase III
universe. The results of the analysis, presented in the Economic
Analysis, show that the populations affected by the in-scope facilities
have poverty levels and racial compositions that are quite similar to
the U.S. population as a whole. Based on these results, EPA does not
believe that this rule would have an exclusionary effect, deny persons
the benefits of the NPDES program, or subject persons to discrimination
because of their race, color, or national origin.
In fact, because EPA expects that this proposed rule would help to
preserve the health of aquatic ecosystems located in reasonable
proximity to Phase III existing facilities, it believes that all
populations, including minority and low-income populations, would
benefit from improved environmental conditions as a result of this rule.

K. E.O. 13158: Marine Protected Areas

Executive Order 13158 (65 FR 34909, May 31, 2000) requires EPA to
``expeditiously propose new science-based regulations, as necessary, to
ensure appropriate levels of protection for the marine environment.''
EPA may take action to enhance or expand protection of existing marine
protected areas and to establish or recommend, as appropriate, new
marine protected areas. The purpose of the Executive Order is to
protect the significant natural and cultural resources within the
marine environment, which means ``those areas of coastal and ocean
waters, the Great Lakes and their connecting waters, and submerged
lands thereunder, over which the United States exercises jurisdiction,
consistent with international law.''
This proposed rule recognizes the biological sensitivity of tidal
rivers, estuaries, oceans, and the Great Lakes and their susceptibility
to adverse environmental impact from cooling water intake structures.
This proposal provides requirements for reducing both impingement and
entrainment using technologies to minimize adverse environmental impact
for cooling water intake structures located on these types of
waterbodies.
EPA expects that this proposed rule would reduce impingement and
entrainment at Phase III existing facilities. The rule would afford
protection of aquatic organisms at individual, population, community,
or ecosystem levels of ecological structures. Therefore, EPA expects
today's proposed rule would advance the objective of the Executive
Order to protect marine areas.

L. Plain Language Directive

Executive Order 12866 and the President's memorandum of June 1,
1998, require each agency to write all rules in plain language. We
invite your comments on how to make this proposed rule easier to
understand. For example: Have we organized the material to suit your
needs? Are the requirements in the rule clearly stated? Does the rule
contain technical language or jargon that is not clear? Would a
different format (grouping and order of sections, use of headings,
paragraphing) make the rule easier to understand? Would more (but
shorter) sections be better? Could we improve clarity by adding tables,
lists, or diagrams? What else could we do to make the rule easier to
understand?

List of Subjects

40 CFR Part 9

Environmental protection, Reporting and recordkeeping requirements.

40 CFR Part 122

Environmental protection, Administrative practice and procedure,
Confidential business information, Hazardous substances, Reporting and
recordkeeping requirements, Water pollution control.

40 CFR Part 123

Environmental protection, Administrative practice and procedure,
Confidential business information, Hazardous substances, Indians-lands,
Intergovernmental relations, Penalties, Reporting and recordkeeping
requirements, Water pollution control.

40 CFR Part 124

Environmental protection, Administrative practice and procedure,
Air pollution control, Hazardous waste, Indians-lands, Reporting and
recordkeeping requirements, Water pollution control, Water supply.

40 CFR Part 125

Environmental protection, Cooling water intake structure, Reporting
and recordkeeping requirements, Waste treatment and disposal, Water
pollution control.

Dated: November 1, 2004.
Michael O. Leavitt,
Administrator.
For the reasons set forth in the preamble, chapter I of title 40 of
the Code of Federal Regulations is proposed to be amended as follows:

PART 9--OMB APPROVALS UNDER THE PAPERWORK REDUCTION ACT

1. The authority citation for part 9 continues to read as follows:

Authority: 7 U.S.C. 135 et seq., 136-136y; 15 U.S.C. 2001, 2003,
2005, 2006, 2601-2671,

[[Continued on page 68543]]

Notices For
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994

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