
                                  MEMORANDUM



Tetra Tech, Inc.
10306 Eaton Place, Suite 340
Fairfax, VA 22030
phone	703-385-6000
fax	703-385-6007

TO:			Paul Shriner and Lisa Biddle, EPA
FROM:		John Sunda, Tetra Tech
DATE: 		June 24, 2013

SUBJECT : 	Evaluation of American Chemistry Council Cost Estimate for Closed Cycle Cooling Retrofit Costs Submitted Proposal Comment (2207-A1)
The American Chemistry Council (ACC) (Comment 2207-A1) provided in an appendix to their comments on the Proposed Rule which provides a somewhat detailed estimate of capital and O&M costs for closed-cycle cooling systems at manufacturing plants. Costs are provided for small (5,000 gpm), medium (20,000 gpm) and large (100,000 gpm) systems. This document presents a comparison of the ACC cost estimates to the EPA cost estimates for the three sizes of systems presented by ACC. The comparable EPA capital and O&M costs are scaled by size but use a linear approach applying the same unit costs for all size systems. The typical individual cooling tower cells  that are used by power plants are usually designed to cool from 12,000 to 15,000 gpm/cell and a single cell would represent the smallest unit. Thus, the EPA costs should be comparable to the 20,000 and 100,000 gpm ACC estimates.

Capital Costs

In applying the EPRI model costs to manufacturing facilities, EPA recognized that closed cycle retrofits for non-contact cooling water at manufacturing plants would tend to be more costly due to both the more numerous and smaller sized units, and the higher potential for greater complexity and difficulty in the design and installation. EPA therefore, chose to use the "difficult" capital cost factor from the three EPRI difficulty categories for estimating cost for non-power generation manufacturing units. The capital cost factor selected by EPA was equal to $423/gpm cooling water in 2010 dollars. A similar unit cost can be derived for the ACC estimates by dividing the total capital costs by the cooling water flow rate. Table 1 shows a comparison of the EPA and ACC $/gpm capital cost values. Figure 1 (attached) shows a graphical presentation of the ACC and EPA capital costs based on the unit costs in Table 1.

                                    Table 1
                 Comparison of ACC and EPA Unit Capital Costs
                                     Flow
                                 ACC Estimate
                                      EPA
                                       
                                 Capital Cost
                                   Unit Cost
                                   Unit Cost
                                      gpm
                                   Dollars 
                                     $/gpm
                                     $/gpm
                                        5,000 
                                  $3,400,000
                                     $680
                                     $424
                                      20,000 
                                  $9,900,000
                                     $495
                                     $424
                                     100,000 
                                  $39,500,000
                                     $395
                                     $424
                  Fourth quarter 2010 dollars

The EPA cost estimates are similar in magnitude for both the medium and large systems with the EPA estimate slightly higher for the large system, and with the differences being well within the range of expected variation for preliminary engineering cost estimates of this type. However, the ACC capital cost for 5,000 gpm systems is over 50% higher than EPA's estimate. EPA identified three primary reasons for this discrepancy.

The first difference between the ACC and EPA capital costs are that the EPA cost approach uses a linear equation that does not account well for economies of scale for very small systems.

Second, the detailed cost estimates include components that should already be present at an existing plant. Therefore the costs are not incremental costs. The ACC estimate includes costs for:

 Intake structure and screens
 Intake line
 Intake pumps
 Clarifier
 Makeup water tank
 Feed pumps
 Chemical treatment
 Cooling tower and basin
 Circulating pumps

These costs appear to represent a new stand-alone CWIS system in which all of the components listed above would be constructed independently of any existing cooling water equipment. In most circumstances the non-cooling tower components (such as the intake structure, pumps, and screens) are not necessary since the facility already has sufficient existing intake screening and pumping capacity to operate the plant. These existing cost components comprise approximately 11% of the ACC costs for the small system. These first two factors also affect the medium and large ACC facility costs. Thus, based on these first two factors, the ACC costs are likely overstated.

Third, in some cases the make-up source water is assumed to require additional clarification equipment. This comprises 19% of the small system costs. EPA notes that since the CCRS system at a manufacturing facility is designed to operate at a fairly high cycle of concentration (approaching 5.0) the need for clarified make-up water might be justified. These factors combined result in ACC's capital cost estimates for medium and high flow facilities as being higher than EPA's , the low flow units as being lower than EPA's costs, and overall the ACC costs are comparable to EPA's cost estimates.

O&M Costs

Table 2 shows the ACC O&M costs from Tables 4-3, 4-5, and 4-7 (Comment 2207) plus the comparable EPA O&M costs. The EPA cost estimates shown are derived using the same cooling flow values, auxiliary energy costs, and capacity utilization rate assumptions used in the ACC estimates. As can be seen, the ACC O&M cost estimates were much higher than EPA's estimates, even for the large system. After examining the ACC cost data EPA has identified two major differences:

   * ACC labor costs which are cited at $262,800/yr for all three systems regardless of size. EPA notes no detail was provided regarding the basis of this cost item. The labor costs are overstated in comparison to EPRI's cost estimates.
   * The ACC use of total fan and pump energy required does not subtract out existing energy requirements. The EPA estimate is based on the net increase in energy required taking into account existing once-through pumping.

The EPA cost estimates are based on the net increase in costs for retrofit applications. The existing once-through cooling system already requires both labor and pumping energy to operate. When the once-through is replaced by closed-cycle, the flow requirements are reduced by more than 90 percent. The correlating 90 percent reduction in costs will offset a significant portion of the new closed cycle system operating costs. Adjustments to compensate for these differences are described below and the adjusted ACC O&M costs are also presented in Table 2.

Additional labor will be required to maintain and operate the cooling tower and clarifier. The circulating pumps labor will be similar to the intake pumps but the size and operation of the existing intake screens will be scaled back requiring less O&M labor. Neither the cooling tower nor clarifier will require a full time operator. Therefore EPA finds that a net increase would be labor of about 0.5, 1.0, and 1.5 full time equivalents (FTE) for small, medium and large cooling systems, respectively, plus an additional 10% of hours for a supervisor. Table 2 presents the estimated labor costs based on the FTE estimates and a loaded hourly wage of $45/hr for laborer and $98/hr for a supervisor. The adjusted ACC O&M costs are derived by deducting the $262,000 cost and substituting the estimated net labor cost shown in Table 2.

Besides labor, one of the primary components of the ACC O&M costs are for the energy requirements of the fans and pumps. In particular, the recirculating pump energy requirement is based on electricity costs for a pumping head of 160 ft. It is not clear why this value was selected because Figure 4-1 in the comment shows a pumping head of 100 ft. This 160 ft pumping head is assumed to include both the process system static and dynamic head losses plus those for the tower. A typical pumping head for just the cooling tower portion would be 25 to 35 ft. Assuming the existing once-through pumping head would be equal to the total head, minus the tower component, the once-through pumping head in the ACC system design (for which operating costs are already expended for the existing once-through system) is assumed to be 125 ft (160 ft  -  35 ft). The ACC O&M are adjusted to reflect the net pump energy increase by deducting the associated costs of once-through pumping at a head of 125 ft shown in Table 2.

Figure 2 (attached) shows a graphical presentation of the ACC adjusted and unadjusted O&M costs along with the EPA O&M costs. As the figure shows, the EPA estimated O&M costs are similar in magnitude and somewhat lower than the adjusted ACC O&M costs and are within 10% of ACC estimates for larger systems.

The EPA O&M costs are based on estimates provided by EPRI with some additional costs included for chemical treatment of blowdown. The ACC costs include a chemical treatment component that is more than 4 times greater than the EPA additions and may reflect the fact that the design cycle of concentration for the ACC system was a fairly high value of 5, as noted above.

                                    Table 2
Comparison of Estimated Annual Closed Cycle O&M Costs derived Using EPA Cost Equations to ACC O&M Estimates and ACC Estimates with Adjustments to Labor and Energy Costs
                                Flow Rate (gpm)
                                  ACC O&M
                         Once-through Pumps at 125 ft
                                   Labor FTE
                              Net Labor Costs[1]
                            Adjusted ACC O&M[2]
                             EPA Estimated O&M
                                     5,000
                                   $500,000 
                                    $88,230
                                      0.5
                                    $56,992
                                   $206,000 
                                $        89,000 
                                    20,000
                                  $1,080,000 
                                   $352,921
                                       1
                                   $113,984
                                   $578,300 
                                 $     356,000 
                                    100,000
                                  $3,820,000 
                                  $1,764,604
                                       2
                                   $227,968
                                  $2,020,600 
                                 $  1,779,000 
[1] Based on worker loaded hourly wage of $45 plus 10% of hours for supervisor at $98/hr
2 Deducts once-through pumping and replaces labor cost of $262,800 with value shown.

Conclusion

This analysis confirms that EPA's capital and O&M costs are mostly in agreement with the ACC estimates. In fact, EPA's capital costs are slightly higher for the large system. The same is not true for smaller systems and the differences suggest that the EPRI (and EPA) approach using linear cost equations may have limitations when estimating costs for the smallest flow systems where the effects of economies of scale are more pronounced. For manufacturing intakes currently operating as once-through an estimated 80% of total industry-wide manufacturing facility non-contact cooling water flow is associated with systems with a non-contact cooling flow over 20,000 gpm. For purposes of estimating national industry-wide level costs, since the larger systems comprise the majority of the total non-contact cooling water flow, this difference in costs is not significant.

For purposes of estimating annual costs, EPA evaluated a 30 year amortization at a 9 percent interest rate (giving an annualization factor of 9.7). EPA finds that for the large model, both annualized cost estimates are in strong agreement (within 1 percent). For the medium and small models, the annualized cost estimates using the adjusted ACC O&M rates are within 30 percent. As noted, EPA finds the ACC costs are overstated with respect to incremental costs and O&M costs, and is likely further overstated for manufacturing facilities that do not require clarification of make-up water. After considering that the ACC costs do not represent incremental (net) costs, include costs not required by all facilities, and include labor rates not documented by the commenter, EPA finds the Agency's costs are reasonable.

EPA further notes that it may have overestimated closed cycle retrofit cooling technology costs for Proposal Options 2 and 3 for manufacturing facilities on an industry-wide basis. The reason for this is EPA estimated non-contact cooling water flow rates based the proportion of DIF that is non-contact cooling water. This likely represents an overestimation of the flow that would be subject to the rule and thus ultimately would have been included in the retrofit to closed cycle. EPA notes that manufacturing facilities have opportunities to reduce all or a portion of the volume of cooling water flow by reusing the non-contact cooling water as process water. This reuse of water for multiple purposes poses a significantly lower overall cost. This option is generally not available to power plants which use a much smaller quantity of process water compared to cooling water.

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