Memorandum
      To:	316(b) Record
      From:	316(b) Team, Engineering and Analysis Division, U.S. Environmental Protection Agency
      Date:	May 15, 2014
      Re:	Applicability Threshold of the Existing Facilities Rule
The cost information presented below is for the existing unit provision of the final rule, to facilitate comparison with the propose rule, where existing and new unit costs were not added together and reported as such. When costs of the new unit provision are added, the total cost of the final rule becomes $275 million. See the Technical Development Document (TDD) (DCN 12-0005) and the Economic Analysis (EA) (DCN 12-0002) for detailed analyses.
1. There are substantial environmental benefits that result from having the rule apply to facilities below 50 mgd.
    Facilities with DIF below 50 mgd are twice as likely to have no controls in place for impingement or entrainment as are those facilities with DIF greater than 50 mgd. 
    A higher threshold ignores the site-specific impacts of these lower flow intakes and forgoes the site-specific benefits of reducing the impacts, including non-monetized benefits that are not accounted for in the benefits analysis because they are difficult to monetize (e.g., ecosystem benefits). 
    More than 63 percent of facilities with DIF below 50 mgd are co-located with other intakes on fresh water rivers; cumulative impacts are not accounted for in the quantified or monetized benefits analysis for this rule. (See TDD Chapter 5)
    At least 19 percent of all facilities below 50 mgd and located on rivers (38 known facilities with data) withdraw a significant volume of the source water (DIF is more than 5 percent of the mean annual flow of the fresh water sources on which they are located). (See TDD Chapter 5) Using the same analysis methods applied in TDD Chapter 5, EPA also determined that 14 percent of the 110 known facilities below 20 mgd with data located on rivers have an intake designed to withdraw more than 5 percent of the mean annual flow of the source water.

1. The rule is not costly to lower flow facilities and there is no appreciable difference in the cost effectiveness of the rule for facilities that are 2 mgd to less than 50 mgd and those 50 mgd and above.
    The cost effectiveness of the rule with a threshold of 2 mgd is $0.418 per age-one equivalent loss (A1E) and at a threshold of 50 mgd, the cost effectiveness is $0.410 per A1E for existing units.  See Table 1.
    Of the total $272 million cost of the rule for existing units at 1,065 facilities, $20 million (7 percent) will be incurred by the 471 facilities below 50 mgd, and $252 million (93 percent) will be incurred by the 593 facilities at or above 50 mgd. In other words, the 44 percent of facilities below 50 mgd are estimated to incur only 7 percent of the costs, while 56 percent of the facilities at or above 50 mgd are estimated to incur 93 percent of the costs (for existing units).
    The total cost of the rule with a threshold of 2 mgd is negligible for the electric power industry, accounting for less than 0.1 percent of annual electricity sector revenues, which exceed $126 billion.
    Costs for lower flow facilities are so small that the average annual household utility bill would not measurably decrease by changing the threshold from 2 to 50 mgd.

1. A higher threshold provides no significant small business advantage. 
      *       If the goal is to protect small manufacturing businesses, a low flow threshold of 50 mgd is far too blunt a tool.  See Table 2.
              o       Small businesses account for only 17% of facilities between 2 and 50 mgd (79 of 471).  Small businesses account for 10% of facilities above 50 mgd (57 of 593); of these, just 6 are manufacturers.  Thus, most of the small manufacturers (61 of 67) are below 50 mgd.
              o       The converse - that the 471 firms between 2 and 50 mgd are mostly small manufacturers (61) - is not true.  The most prevalent type of firm under 50 mgd is a large manufacturer (313), the second most prevalent is a large electric generator (79), followed by small manufacturers (61) and small generators (18).
      *       Even the Small Business Panel from the Phase III rulemaking (manufacturers and low flow electric generators) did not select a 50 mgd threshold.
              o       The panel found that "an effective way to substantially reduce potential impacts on small businesses would be to set an applicability threshold of 20 mgd" and recommended analyzing thresholds between 20 and 50 mgd.
              o       At that time, EPA was considering requirements that covered entrainment as well as impingement, making for a more expensive rule.
      *       For the final rule, EPA finds that no small entities that own manufacturers facilities have a cost-to-revenue ratio of 3 percent, and only three to four small entities have a cost-to-revenue ratio exceeding 1 percent; further, this analysis assumes zero cost pass-through to the consumer. The results of EPA's analysis of the impacts on small businesses lead the agency to certify no significant economic impacts on a substantial number of small entities (no SISNOSE).

2. Rule costs are already less than either of EPA's preferred options at proposal; Proposal Option 1 and the least costly, Proposal Option 4.
    The final rule`s total cost of $272 million (existing units) is $127 million less than EPA's preferred option at proposal (Proposal Option 1) because of added flexibilities and elimination of a single numeric Impingement Mortality performance standard.  The final rule also costs $55 million less than Proposal Option 4, which included a 50 mgd threshold at a total cost of $327 million, for existing units (see Table 13-4 of the Economic and Benefits Analysis for Proposed Section 316(b) Existing Facilities Rule (DCN 10-0002)).
   
1. Even if lower flow facilities were exempted from the rule's impingement requirements, they would still be subject to BPJ permitting for 316(b) requirements.
    In a recent review of permits (DCN 12-2932), EPA found more frequent use of BPJ permitting than in an earlier review (DCN 10-6623). Permits in 8 of the 18 States EPA reviewed more recently contain no 316(b) requirements. However, permits in the remaining 10 States do include 316(b) requirements with varying levels of information submission requirements and associated administrative burden and cost.
    EPA did not account for the costs that permitting authorities and facilities otherwise incur for BPJ-based permit activity, as currently occurs in the absence of a national 316(b) regulation. To the extent that permitting authorities and facilities are incurring these costs, those costs should be analyzed as an avoided cost of the final rule.  Any baseline BPJ costs imply that the costs reported in the Economic Analysis (EA) of the regulation are overstated.
       EPA's cost estimates do not account for BPJ costs, following EPA's 2010 Guidelines for Preparing Economic Analyses.  The guidance there is to estimate the costs of the rule (or options analyzed) as the difference between costs in the world with the rule (or option) and the world without the rule (or option). When analyzing an option that is BPJ for facilities below 50 mgd, both the world with the option and the world without the option include BPJ permitting.  Therefore, the difference in costs is zero.
    Exempting lower-flow facilities would not mean zero permitting or compliance costs because these facilities would be issued permits with BPJ-based 316(b) requirements. For example, based on the Phase II ICR ($395k to $679k per facility initial application, $7k annual reporting and monitoring), submission of basic characterization studies and permit application materials upon which site-specific impingement requirements would be based, cost the 531 facilities with a DIF less than 50 mgd from $59.8 million to $99.3 million per year in aggregate ($2012).
    Raising the threshold would increase the number of individual BPJ permits, which can increase uncertainty, complexity and the amount of time required for permitting. The burden on State permitting authorities would also be higher for BPJ-based permits compared to permits developed under national requirements.
    Realizing the $23 million cost "savings" associated with a 50 mgd threshold is predicated on the outcome of BPJ permitting being "no additional controls" at all these facilities, even though the rule contains specific requirements for facilities above 50 mgd that could be easily applied.
      
1. A 2 mgd threshold was adopted in Phase I.
    The Phase I 316(b) New Facilities rule states, "All cooling water intake flow results in the potential for impingement and Entrainment," and, "The 2 MGD threshold was chosen because this threshold addresses 99.7 percent of the total flow and 62 percent of all in-scope facilities. EPA estimates that 58 percent of the manufacturers, 70 percent of the non-utilities, and 100 percent of the utilities will be regulated at the 2 MGD threshold."
      
1. Small flow facilities already have closed-cycle.
    Most facilities are in the below 50 mgd category because they already have closed-cycle cooling. The permit application process is highly streamlined for closed-cycle.
    51 percent of facilities with DIF below 50 mgd have closed-cycle cooling.
    30 percent of manufacturers with DIF below 50 mgd have closed-cycle cooling.

            Table 1  -  Comparison of 2 versus 50 mgd Thresholds[1]
                                       

Greater than 2 mgd
Greater than or equal to 50 mgd
Number of facilities
1,065
593
Number of facilities owned by small entities[5] 
136
57
DIF as percent of total DIF[2]
100% (408,286 mgd)
97%
AIF as percent of total AIF[3]
100% (237,832 mgd)
98%
Total Option Costs (existing units)
$272 million
$252 million
Quantified benefits[4]
652 million A1E
614 million A1E
Cost effectiveness (existing units)
$0.418A1E
$0.410/A1E

[1]The numbers presented in this table are aggregate national numbers and do not indicate the extent of site-specific impacts.
[2]DIF (design intake flow) -- the maximum instantaneous rate of flow of water the cooling water intake system is capable of withdrawing from a source waterbody.
[3] AIF (actual intake flow) -- the average volume of water withdrawn on an annual basis by the cooling water intake structures over the past three years.
[4]A1E (age-one equivalent losses) -- the number of individual organisms of different ages impinged and entrained by facility intakes, standardized to equivalent numbers of one-year-old fish.
5 Small entity as defined under the Small Business Administration size standards. See Chapter 10 of the EA for more details.

Table 2  -  Counts of All Facilities by DIF Flow and Parent Entity Size[1][,2,3]
                                       
                             Size of Parent Entity
                              Electric Generators
                                 Manufacturers
                                     Total
                DIF Greater than Two MGD but Less than 50 MGD 
                                     Small
                                      18 
                                      61 
                                      79 
                                     Large
                                      79 
                                     313 
                                     392 
                                     Total
                                      97 
                                     374 
                                     471 
                           DIF of 50 MGD or Greater
                                     Small
                                      51 
                                      6 
                                      57 
                                     Large
                                      396 
                                     141 
                                     537 
                                     Total
                                      447 
                                     146 
                                     593 
                           DIF Greater than Two MGD
                                     Small
                                      69 
                                      67 
                                     136 
                                     Large
                                      475 
                                     454 
                                     929 
                                     Total
                                      544 
                                     521 
                                    1,065 
1 This table reports counts of facilities owned by entities that EPA classified either small or large based on Small Business Administration (SBA) entity size criteria.
[2] DIF (design intake flow) -- the maximum instantaneous rate of flow of water the cooling water intake system is capable of withdrawing from a source waterbody.
[3] Individual values may not sum to totals due to independent rounding.


