                FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION
FDEP Review of EPA's "Preliminary Estimate of Potential Compliance Costs and Benefits Associated with EPA's Proposed Numeric Nutrient Criteria for Florida" 
         Prepared January 2010 by the Environmental Protection Agency
                                       
             Division of Environmental Assessment and Restoration
                                   4/28/2010






Contents
Preliminary Estimate of Potential Compliance Costs and Benefits Associated with EPA's Proposed Numeric Nutrient Criteria for Florida	1
Overall Comment: The above cost estimates significantly underestimate those that would be incurred for compliance with EPA's proposed criteria.	1
Background on Preliminary Cost Estimates	1
Municipal WWTPs	1
Assessment Procedure	1
Industrial Dischargers	1
Assessment Procedure	1
Urban Storm Water	1
Assessment Procedure	1
Agriculture	1
Assessment Procedure	1
Septic Systems	1
Assessment Procedure	1
Benefits Analysis	1
Conclusions	1



Preliminary Estimate of Potential Compliance Costs and Benefits Associated with EPA's Proposed Numeric Nutrient Criteria for Florida

EPA's Economic Analysis stated
   
   EPA conducted a preliminary estimate of the potential incremental compliance and state resource costs associated with EPA's proposed nutrient criteria for lakes and streams in Florida.  Incremental costs associated with the proposed rule represent the costs above and beyond the costs that would be incurred for compliance with the baseline criteria. For this analysis, baseline costs represent the costs necessary for compliance with FDEP's draft water quality standard (WQS) changes (Chapter 62-302 and 62-303; July 2009), and any costs incurred to reduce nutrient loads to waters on the existing state Clean Water Act (CWA) Section 303(d) list or with an existing total maximum daily load (TMDL). The preliminary cost estimates described in Attachment #1 to this Report are based on criteria representative of these draft changes1, and thus, represent potential baseline expenditures.
   
   The incremental costs (cost savings) associated with implementation of the proposed numeric nutrient criteria include incremental compliance and government resource costs. Exhibit ES-1 summarizes the preliminary estimates of compliance costs; actual costs will depend on the procedures for assessing waters for compliance and the site-specific source reductions needed to attain the criteria.
   
   Exhibit ES-1. Preliminary Estimates of Potential Annual Control Costs Under the Proposed Rule (2009 dollars) [DEP note  -  the costs listed in Exhibit ES-1 of the EPA document did not match the summary costs in the summary table (Exhibit 8-1) in Chapter 8  -  it is assumed that the Chapter 8 costs, which are consistent with those set forth in the individual chapters, are correct.  Therefore, the corrected costs are shown in the revised table below]

                                Source Sector 
                              Potential Controls 
                           Annual Costs (millions) 
Major Municipal WWTPs 
BNR to reduce TN and/or TP 
                                    $42.7 
Minor Municipal WWTPs 
BNR to reduce TN and/or TP 
                                     $9.3 
Industrial Dischargers 
Process optimization/source control 
                                     $2.3 
General Dischargers 
Process optimization/source control 
                                     $0.6 
Urban Storm Water 
Uncertain 
                               Not estimated[1] 
Agriculture
Nutrient management 
Riparian forest buffers 
Livestock fencing 
                              $27.9 
$5.1 
$1.9 
Septic Systems 
Upgrade to advanced nutrient treatment 
                               $12.4  -  $40.2 
Total 
 
                              $102.1  -  $130.0 
BNR= Biological Nutrient Removal
TN = total nitrogen
TP = total phosphorus
WWTP = wastewater treatment plant
[1]Costs are not estimated because the need for incremental controls is uncertain.

The EPA report also notes that "In addition, state resource costs to complete TMDLs for the 973 potential incrementally impaired waters could be approximately $2.5 million per year, based on national average costs, assuming a 9-year implementation schedule. This estimate does not include the potential cost saving that could be associated with the 39 waters currently listed as impaired for nutrients that may not exceed the numeric criteria, or incremental costs and cost savings associated with completed TMDLs for which the current TN and TP targets are higher or lower than FDEP's draft criteria."

1 Note that FDEP's draft numeric nutrient criteria differ slightly from those used to estimate preliminary baseline
compliance costs.
Overall Comment: The above cost estimates significantly underestimate those that would be incurred for compliance with EPA's proposed criteria.  
The Department performed a cost estimate that indicates that the EPA significantly underestimated the costs to achieve the proposed EPA criteria.  One of the primary reasons is that EPA assumed for all the estimates that certain costs would have already been incurred in order to meet the Department's proposed numeric nutrient criteria (NNC).  This assumption is invalid because the Department's proposed NNC have not yet been adopted.  Therefore, all of the Department's estimates are based on additional costs that would be incurred above the currently implemented controls in order to achieve EPA's proposed criteria.  In addition, the Department has used the best available technical information to perform a more comprehensive analysis, which has also resulted in increases in the cost estimates.  The specific reasons for the increases are as follows and are described in more detail in the discussion regarding each of the assessed source sectors:
   * For domestic wastewater facilities, the level of technology used by EPA to estimate costs was not sufficient to achieve the proposed criteria.  Additional technologies, such as reverse osmosis, will likely be required to meet the proposed criteria.
   * For industrial wastewater facilities, EPA used an assumption that process controls on the order of $25,000 per year would be sufficient for industrial wastewater facilities to meet the proposed criteria.  However, source controls alone will not be sufficient to meet the proposed criteria.  Some industrial facilities, such as pulp mills, have organic wastewaters similar to domestic wastewater in nature, and will require tertiary treatment similar to domestic wastewater treatment systems to meet the proposed criteria.  Other industrial facilities, such as fertilizer manufacturing facilities, have inorganic wastewater streams high in nitrogen and phosphorus that are not amenable to biological treatment and will require the use of chemical and physical treatment systems, such as reverse osmosis, to meet the proposed criteria.
   * EPA failed to estimate any costs for the treatment of urban stormwater needed to meet the proposed criteria.  Even though Florida has had stormwater treatment requirements for new development since the early 1980s, it is highly likely that "older" urban areas will need to construct stormwater system retrofits to meet the proposed EPA criteria.
   * For agriculture, EPA significantly underestimated the affected acreage of agriculture (6.13 million acres versus 13.6 million acres for the FDACS estimate).  In addition, the EPA cost estimate assumed that only a subset of typical BMPs (nutrient retention, forested buffers and livestock fencing) would be needed to achieve the criterion.  In contrast, the FDACS estimate assumed that ALL typical BMPs would be necessary (FDACs has developed BMP manuals for a variety of agricultural operations, and the BMP manuals developed to date and a map showing the locations of BMPs implemented are provided as supplemental information to DEP's comments).   In fact, based on modeled reduction estimates for typical BMPs, the FDACs estimate concluded that additional on-farm water treatment/retention facilities would be necessary to achieve the EPA's proposed criteria.   
   
   A comparison of the Department's estimated annual costs for each source sector with the EPA estimated cost for that source sector is shown in Table 1, below.
Table 1  -  A Comparison of FDEP estimated annual costs with EPA estimated annual costs (M$)
                                       
                        Annual Costs (in Millions)[1] 

                                 FDEP Estimate
                                 EPA Estimate
                                Source Sector 
                                      Low
                                     High
                                      Low
                                     High
Municipal WWTPs
                                     $456 
                                     $52 
Industrial  & General Dischargers 
                                    $2,113 
                                      $3 
Urban Storm Water 
                                    $1,967 
                                       -
Agriculture[2] 
                                     $271 
                                                                          $974 
                                     $35 
Septic Systems 
                                     $937 
                                                                        $2,888 
                                     $12 
                                                                           $40 
Total 
                                    $5,744 
                                                                        $8,398 
                                     $102 
                                                                          $130 
[1]Assumptions for annual cost estimates are set forth in individual source sector methodology descriptions.
[2]FDEP estimate for agricultural source sector prepared by Florida Department of Agriculture and Consumer Services, in cooperation with the University of Florida Institute for Food and Agricultural Sciences and Soil and Water Engineering Technology, Inc.
[3]FDACS estimates cover annual capital costs + O&M.  Additional lost revenues would also be incurred and are described in more detail in the agricultural section.
Background on Preliminary Cost Estimates
The Department performed a cost estimate for each source sector identified in the EPA cost estimates.  The methodology and assumptions used in deriving these estimates are described in detail in the section covering each source sector.  Table 2 shows the potential source controls employed in the Department's estimate for each source sector and the resultant annual costs associated with those controls.

Table 2  -  FDEP potential controls and associated annual costs for source sectors
                                 Source Sector
                              Potential Controls
                            Annual Costs (Millions)
                                Municipal WWTPs
Advanced Waste Treatment +Reverse Osmosis and brine disposal or Injection well[1]
                                                                           $456
                            Industrial Dischargers
Reverse Osmosis and brine disposal
                                                                         $2,113
                               Urban Storm Water
Retrofit to current stormwater treatment standards (retention & detention + chemical treatment)
                                                                         $1,967
                                  Agriculture
All typical owner-implemented BMPs + on-farm water treatment/retention facilities
                                                                    $271 - $974
                                Septic Systems
Upgrade to high nutrient removal Septic Systems
                                                                   $937 - $2888
                                     Total

                                                                $5,744 - $8,398
[1]In counties with existing injection wells
Municipal WWTPs
EPA estimated 47 major and 53 minor municipal discharges to lakes and freshwater streams that would be affected by the proposed rule.  EPA considered the limit of technology (LOT) for biological nutrient removal to be 3 mg/L for TN and 0.1 mg/L for TP.  EPA's cost estimate acknowledged that "All of the proposed TN criteria are below the LOT" and "Proposed TP criteria for flowing waters are at or below the LOT in three of the five regions" and "proposed TP criteria for lakes are below the LOT".  The EPA cost estimates were based on retrofitting existing biological treatment trains to achieve the LOT for TN and TP.  The estimates noted that "where it may be technologically infeasible to attain the standards, a use attainability analysis may be needed".  
The Department performed a cost estimate, which assumed technologies such as reverse osmosis could be used to meet the proposed criteria, or that facilities may elect to cease their surface water discharges through the use of less costly deep well injection.  The Department's analysis indicates that the EPA estimates significantly underestimate the costs to achieve the proposed criteria for the following reasons:
             *       The EPA cost estimate assumed that only a few facilities would be required to upgrade to meet the EPA WQC because most facilities would already be upgraded to meet the proposed DEP numeric nutrient criteria (NNC).  This assumption is invalid, since the proposed DEP NNC have not yet been adopted.  This estimate includes costs associated with meeting the proposed EPA NNC over and above the cost of meeting current discharge limitations. 
       *       The EPA cost estimate was based on a level of treatment (LOT) for biological nutrient removal that would not meet the EPA WQC.  For example, in the panhandle region the EPA cost estimate was based on a LOT of TN < 3 mg/L and TP < 0.1 mg/L.  However, EPA's WQC for the region was TN < 0.824 mg/L and TP < 0.043 mg/L. 
       *       For the most part, the EPA Report used capital and Operational and Maintenance (O & M) unit costs derived from CAPDETWorks for various treatment schemes. Unit costs that were used in the EPA Report appeared to be low when compared to comparable facilities constructed in Florida.
       *       Costs for two facilities on EPA's list were not included since one was inactivated and the other no longer discharges to surface water. 
To highlight EPA's significant under-estimation of costs, the city of Cross City (0.4 million gallons/day permitted capacity) estimated its capital costs to comply with the proposed nutrient criteria to be $5,800,000. The EPA Report estimated Cross City's capital costs at $422,799 (see Appendix A of EPA Report).                   
Table 3 below summarizes the Department's estimates for total capital costs, O & M costs, and annual costs for domestic wastewater treatment facilities in the State that currently discharge to freshwater streams and lakes:
 
         Table 3  -  Cost Estimates for Domestic Wastewater Facilities
                              Total Capital Cost 
                               for Retrofit (M$)
                          Annual O & M costs (M$)
                         30-year Annualized Costs (M$)
                                    $4,167
                                     $185
                                     $456

Assessment Procedure
                                  1. Only domestic wastewater facilities discharging to fresh waters (streams and lakes) with NPDES permits were included in the estimate. The lists of domestic wastewater facilities contained in both Exhibit 8 (page 7) and Appendix A of the EPA's Preliminary Estimate of Potential Compliance Costs and Benefits Associated with EPA's Proposed Numeric Nutrient Criteria for Florida, January 2010, ("EPA Report") were used.
                                  2. Advanced biological treatment and reverse osmosis were assumed to be needed to meet the proposed EPA water quality criteria (WQC) for both nitrogen and phosphorus prior to discharge to surface waters. Disposal by injection wells after filtration/high level disinfection instead of surface water discharge were assumed feasible in lieu of advanced biological treatment and reverse osmosis in Florida counties with existing domestic injection well disposal systems.
                                  3. Permitted flow capacity was used to calculate capital costs.
                                  4. Unit capital costs to upgrade were based on: 
       * For facilities that do not currently provide advanced biological wastewater treatment - $16.30/gallon (advanced treatment ($8.20/ gallon)+ reverse osmosis ($5.00/ gallon)+ brine disposal ($3.10/ gallon));
       * For facilities that currently provide advanced biological wastewater  treatment - $8.10/gallon (reverse osmosis ($5.00/ gallon)+ brine disposal ($3.10/ gallon)); and 
       *           For facilities that are located in counties with existing domestic injection wells that are assumed to cease their current surface water discharges - $2.10/gallon (filtration/high level disinfection ($1.00/gallon) + and injection well disposal ($1.10/gallon)).  
5.	Twenty five percent was added to unit capital costs for planning, engineering and construction contingencies.
6.	Fifty percent of the permitted flow capacity was used to calculate O&M costs as facilities typically operate at less than their permitted capacities.
7.	Unit operation and maintenance costs were based on:
   *           For facilities that do not currently provide advanced waste treatment - $4.00/1000 gallons (advanced treatment/membrane filter/reverse osmosis ($1.00/1000 gallons) + brine disposal ($3.00/1000 gallons));
   *           For facilities that currently provide advanced biological wastewater  treatment - $3.00/1000 gallons (brine disposal ($3.00/ 1000 gallons)); and
   *           For facilities that are located in counties with existing domestic injection wells that are assumed to cease their current surface water discharges - $1.60/1000 gallons (filtration/high level disinfection ($0.50/1000 gallons) + injection well disposal ($1.10/1000 gallons)).   
8.	The 30-year annualized cost assumed a 5% interest rate.
9.	The following unit costs were obtained from the report prepared for the Florida Water Environment Association Utilities Council, Technologies to Meet Numeric Nutrient Criteria at Florida's Domestic Wastewater Reclamation Facilities, March 2, 2010, by Carollo Engineers ("FWEA Report").  The unit costs contained in the FWEA Report were extensively documented and determined by the Department to be reasonable.  
       * Unit capital costs - advanced treatment ($8.20/ gallon), reverse osmosis ($5.00/ gallon), brine disposal ($3.10/ gallon), and injection well disposal ($1.10/gallon); and   
       *           Unit operation and maintenance costs - advanced treatment/membrane filter/reverse osmosis ($1.00/1000 gallons), brine disposal ($3.00/1000 gallons), and injection well disposal ($1.10/1000 gallons).   
10.	The following unit costs were obtained from cost curves contained in EPA's Innovative and Alternative Technology Assessment Manual (EPA-430/9-78-009) updated for 2010 costs: 
       * Unit capital costs - filtration/high level disinfection ($1.00/gallon); and   
       *           Unit operation and maintenance costs - filtration/high level disinfection ($0.50/1000 gallons).
Detailed costs for each NPDES domestic wastewater facility are set forth in Appendix 1.                
Industrial Dischargers
The EPA estimate noted that "In most cases, it is more cost effective for industrial dischargers to control the source of nutrients in the effluent through BMPs, product substitution, process modifications, or process optimization than to treat the entire effluent prior to discharge."  Their estimate also noted that such costs would be highly site specific.  To illustrate the potential magnitude of costs, EPA estimated that, if dischargers spend an average of $25,000 per year on source control and process optimization to reduce nutrient loads, total annual costs to the industrial and general-permitted dischargers (Exhibit 2-2) would be $2.9 million.

The Department performed a cost estimate, which assumes that source controls alone would be insufficient to meet the proposed criteria, and that reverse osmosis would be required to meet the proposed criteria.  The Department's analysis indicates that the EPA estimates significantly underestimate the costs to achieve the proposed criteria for the following reasons:
   * For industrial wastewater facilities EPA used an assumption that process controls in the order of $25,000 per year would be sufficient for industrial wastewater facilities to meet the proposed criteria.  However, source controls alone will not be sufficient to meet the proposed criteria.  Some industrial facilities, such as pulp mills, have organic wastewaters similar to domestic wastewater in nature, and therefore will require tertiary treatment similar to domestic wastewater treatment systems to meet the proposed criteria.  Other industrial facilities, such as fertilizer manufacturing facilities have inorganic wastewater streams high in nitrogen and phosphorus that are not amenable to biological treatment, and will require the use of chemical and physical treatment systems, such as reverse osmosis to meet the proposed criteria.
   * EPA assumed 94 Industrial Wastewater (IW) facilities would be affected by numeric criteria.  The Department excluded certain Standard Industrial Code (SIC) categories unlikely to discharge nutrients and added other SIC categories, resulting in a net total of 78 facilities.
   * EPA assumed a 20 year payment period with a fixed interest rate of 7%.  The Department used the values of 30 years and 5% to be consistent with the estimates for domestic wastewater and urban runoff.
Table 4 below summarizes the Department's estimates for total capital costs, operational and maintenance costs, and annual costs for industrial wastewater facilities discharging to fresh water streams or lakes: 
   Table 4  -  Cost Estimates for Retrofit of Industrial and General Dischargers
                              Total Capital Cost 
                               for Retrofit (M$)
                          Annual O & M costs (M$)
                         30-year Annualized Costs (M$)
                                    $23,792
                                     $493
                                    $2,113

Assessment Procedure
1. This estimate is restricted to IW facilities that discharge to freshwater flowing streams and lakes under individual NPDES permits.
2. The list of facilities is further restricted to: 
 a.       facilities that have numeric discharge limitations for any form of nitrogen and/or phosphorus in their NPDES IW permits, 
 b.       facilities that are required to report the concentration of any form of nitrogen and/or phosphorus in their NPDES IW permits, and
 c.       other NPDES permitted IW facilities that are not currently required to monitor nutrients, but are in the SIC categories for a and b, above.
3. The following facilities are not included:
 a.       Potable water facilities (SIC 4941) that use membrane processes, primarily Reverse osmosis (RO), for demineralization are not included in this exercise.  This exercise assumes that the reject wastewater stream from membrane separation processes will be disposed by other means than surface water discharge; 
 b.       Stormwater Treatment Areas (STAs) (SIC 3822) developed for Everglades restoration efforts within the Everglades Protection Area have separate criteria and are not included.  
 c.       NPDES permitted facilities in various SIC categories that meet the criteria in items 1 and 2, above, but which have not discharged to surface water within the past five years, based on U.S. Environmental Protection Agency's (EPA) Permit Compliance System (PCS) database.
4. RO is likely needed for treating IW effluent to meet numeric nutrient criteria.  RO produces a concentrated wastewater stream that will need to be disposed by other means than surface water discharge.
5. Discharge estimation assumptions are as follows:
 a.       The discharge flows used are based on data obtained from WAFR/PCS, as reported on Discharge Monitoring Reports (DMRs) from permitted facilities for the five year period from January 1, 2005 through December 31, 2009.  Only data for outfalls with nutrient limits are used in the analysis.  
 b.       Estimated annual discharges were assumed for 340 days/year of discharge, except for facilities that are known to have intermittent discharges, in which case actual or estimated days/year for discharge were used.  
 c.       Monthly average flows were used as the flow basis in estimating annual O&M costs.
 d.       Daily maximum flow data were used as a rough equivalent of maximum design capacity for estimating capital costs.
6. Cost estimation assumptions are as follows:
 a.       Costs assume that reverse osmosis (RO) will be used to provide tertiary treatment to meet the proposed numeric nutrient criteria.
 b.       Unit costs for reverse osmosis from the FWEA Report were used, under the assumption the unit costs were applicable to both domestic and industrial wastewater.  However, costs for reverse osmosis for industrial wastewaters are likely to be significantly higher than those for domestic wastewater.  Industrial wastewaters may be concentrated, higher strength wastewaters with more variation in their characteristics that may result in low RO membrane recoveries and require additional pre and post RO treatment.
 c.       A unit cost of $3.00/1,000 gallons RO treatment with brine concentrator, cited in the FWEA Report, was used to estimate annual O&M costs.
 d.       Capital cost estimates assumed a rate of $8.10/gallon of maximum design capacity per facility for construction ($5.00/gal for RO system construction + $3.10/gal for brine disposal system construction).  An additional 25% was added to the construction cost for engineering and contingency.
 e.       The thirty year annualized cost assumed a 5% interest rate.
7. There is some limited experience and cost data available in the use of RO to treat process waters from gypsum stack systems associated with fertilizer manufacturing facilities (SIC 2874).  These costs have been in the range of $15-$25 per thousand gallons of water treated using RO and are indicative of the high strength nature of process wastewater.  These costs included both capital and O&M costs.  During operation a fertilizer manufacturing plant does not discharge, except during unusual rain events.  However, when a plant ceases operation, process water contained in the Gypsum stacks and cooling ponds must be treated and discharged over a five year closure period, followed by post-closure treatment and discharge of water draining from the gypsum stack systems over periods of up to 50 years.  An average unit cost of $20/1000 gallons was multiplied by the estimated process water volumes over the closure and post closure periods obtained from closure cost estimates developed by the owners of the gypsum stacks and maintained by the Department's Bureau of Mining and Minerals Regulation.  The total additional costs for treating 55.54 billion gallons of process water from gypsum stacks by RO to meet the proposed EPA criteria are estimated at $1,110,800,000.  A 30-year annualized cost was calculated using a 5% interest rate.  The resultant annual costs were $72 million.
Detailed costs for NPDES Industrial wastewater facilities in affected SIC categories are provided in Appendix 2. 
Urban Storm Water
The EPA did not estimate costs for implementation of additional nonpoint source controls because "the need for incremental controls is uncertain", although the EPA document did note that "Numeric nutrient criteria may affect urban storm water dischargers through changes to permit requirements or the TMDL and BMAP process."  In order to provide an estimate for such potential costs, the Department performed analyses as set forth in the following procedure.  The estimate is restricted to NPDES municipal separate storm sewer systems (MS4) that are covered under either a Phase I individual permit or the Phase II Generic Permit and only those permitted MS4s that either have 100% of the stormwater discharge to freshwater bodies, or the relative portion of the MS4 that has a discharge to freshwater bodies.  Total costs, O&M costs, annual costs and annual costs per household are in Table 5 below:
          Table 5  -  Cost Estimates for Retrofit of MS4 Projects[1]
                        Capital Cost for Retrofit (M$)
                          Annual O & M costs (M$)
                         30-year Annualized Costs (M$)
                              30-year Annual Cost
                               per Household ($)
                                    $17,101
                                     $855
                                    $1,967
                                     $359
[1]The above costs do not account for urban nonpoint source runoff coming from lands within local government jurisdictions, especially for counties, that are not part of the permitted MS4 system.  This urban nonpoint stormwater is covered by a Load Allocation within an adopted TMDL and local governments are responsible for meeting these load reductions.  This, this estimation of urban stormwater costs underestimates the total costs likely to be incurred to reduce urban stormwater loadings as needed to meet the proposed EPA criteria.
Assessment Procedure  
   1. The estimated total urban land area for the MS4s in Florida was determined from the 2000 U.S. Census.
   2. The subtotal of the pre-1982 urban area that discharged to freshwater was estimated from a GIS analysis.  The analysis involved creating overlaying GIS layers of the urban areas and the freshwater WBIDs that overlapped the pre-1982 urban areas and then determining the freshwater subtotal from the resultant overlapping layers.   The total urban area discharging to freshwater was determined to be 3,009,297 acres.
   3. The subtotal of the area determined in step 2 that was developed prior to 1982 was then determined.  For the purposes of this estimate, it was assumed that implementation of urban stormwater measures subsequent to the 1982 stormwater rules would achieve the proposed EPA criteria, but that urban areas without such measures would not.  The urban land use data from 1982 indicated that there were 3,141,631 urban land use acres at that time.  That area increased to 4,032,659 acres based on the 2000 U.S. Census urban area information, for a percent change of approximately 22%.  Therefore, for the purpose of this estimate it was assumed that this relative percentage would apply uniformly to all urban areas assessed.  Therefore the urban area requiring treatment was determined by multiplying the urban areas discharging to freshwaters by 78% (3,009,297 x ~78% = 2,344,242 acres).
   4. Florida has undertaken numerous retrofit projects to address pollutant loading from municipal stormwater runoff, many of which required monitoring in order to show the effectiveness of the retrofit.  The data from these projects have been compiled into a database by the Department, which include information on the acreage of the area that was retrofitted.  This information was used to derive a cost per unit acre to retrofit urban areas for nutrient removal.   The median cost per acre for such retrofit projects was $7,295 per acre, with a range of $863 per acre to $37,002 per acre from the 10[th] to the 90[th] percentile.  For the purposes of this estimate, the median value was used.  
   5. Using the acreage derived in step 3 and the unit area retrofit costs in step 4, the total capital cost to implement such retrofit projects was estimated as $17,100,683,851.
   6. The O&M costs were estimated based on literature available.  Although actual costs can often exceed this rate, a conservative estimate of 5% of the capital outlay was chosen for this estimate.  The O & M costs were not escalated for inflation.  The resultant estimated annual O & M costs were $855,034,192.  
   7. A 30-year annualized cost was calculated using a 5% interest.  The resultant annual costs were $1,967,458,217.92
   8. Using the 2000 Census data, the number of households in the State of Florida within the freshwater portion of the urban area was calculated at 5,475,652.  This value was determined by dividing the urban area population (13,470,104) by the average number of persons per household (2.46) in 2000.  The 30 year annualized cost per household was then calculated by dividing the 30 year annualized costs by the number of households.  The resultant annual cost per household was approximately $359.
Detailed costs for each MS4 are set forth in Appendix 3. 
Agriculture
EPA estimated that annual costs for implementation of agricultural Best Management Practices (BMPs) would be $27.8 million for nutrient management, $5.0 million for forest buffers, and $1.9 million for livestock fencing.  Nutrient management costs were based on a useful life of 3 years and a discount rate of 7%, the forest buffer costs were based on a useful life of 30 years and a discount rate of 7%, and the livestock fencing costs were based on a 10-year useful life and a rate of 7%.  These estimates assume that there are no O & M costs and that the Department's proposed numeric nutrient criteria are already in place.  
The Florida Department of Agriculture and Consumer Services (FDACS), in coordination with the University of Florida Institute for Food and Agricultural Science and Soil and Water Engineering Technology, Inc., performed an independent cost estimate (Appendix 4) that indicates that the EPA estimates significantly underestimate the costs to achieve the proposed criteria for the following primary reasons:
   * The EPA cost estimate assumed that only 6.13 million acres of agricultural land would be required to implement BMPs to meet the EPA WQC because most agriculture in the state would already have BMPs implemented to meet the proposed DEP numeric nutrient criteria (NNC) and that the proposed EPA criteria would have only an "incremental" impact.  This assumption is invalid, since the proposed DEP NNC have not yet been adopted.  The full estimate resulted in a gross area of affected agricultural land of 13.60 million acres.
   * The EPA cost estimate assumed that only a subset of typical BMPs (nutrient retention, forested buffers and livestock fencing) would achieve the criterion.  The FDACS estimate assumed that ALL typical BMPs would be necessary.  In addition, based on modeled reduction estimates for typical BMPs, the FDACs estimate concluded that additional on-farm water treatment/retention facilities would be necessary to achieve the EPA's proposed criteria.  Thus, additional costs for the on-farm water treatment/retention facilities would be incurred.  These additional costs account are reflected in the upper end of the range shown.
Total capital costs, annual operational and maintenance costs, and 20-year annual costs are in Table 6 below: 
                   Table 6   -  Cost Estimates for Agriculture
                          Total Capital Cost for BMPs
                                     (M$)
                            Annual O & M costs 
                                     (M$)
                           20-year Annualized Costs 
                                     (M$)



                                855  -  3,069 
                                  171 - 614 
                                  271 - 974 
In addition to the additional capital and O & M costs estimated to be incurred by the agricultural industry, the FDACS estimate also estimated regional economic impacts of production land displacement, since approximately 10 percent of agricultural land was estimated to be taken out of production due to implementation of on-farm water treatment/retention systems.  Those economic impacts were estimated to be a $631 million direct loss of annual agricultural industry output and a total direct loss (includes other affected sectors) of $1.148 billion.  The loss of employment was estimated to be 7,780 agricultural jobs and 14,545 total jobs.
Assessment Procedure
   1. The net and gross area (acres) of land used in Florida for each agricultural industry or commodity subject to the proposed EPA standards was taken from the 2007 Census of Agriculture and the Forest Inventory and Analysis (USDA-Forest Service).  Agricultural sectors were classified according the North American Industry Classification System (NAICS).
   2. The estimated per-acre costs for agricultural producers to implement BMPs were taken from a report prepared for the South Florida Water Management District.  BMPs included the full range of typical owner-implemented practices, such as fertilizer management, grazing management, and livestock exclusion from waterways.  Additional on-farm water treatment/retention practices include wetland restoration, water recovery/re-use systems, and on-site water treatment/retention systems. 
   3.  Initial capital cost estimates include materials, labor and engineering.  
   4. Total annual costs include O & M (estimated at 20 percent of the capital costs) and amortization of the capital investment at 10 percent interest over 20 years.
Septic Systems
The EPA cost estimate assumed that only a limited number of septic system upgrades would be necessary to meet the EPA proposed numeric nutrient criteria because many septic systems in the state would already have septic system upgrades necessary to meet the proposed DEP numeric nutrient criteria (NNC) and that the proposed EPA criteria would have only an "incremental" impact.  As we have noted previously, this assumption is invalid, since the proposed DEP NNC have not yet been adopted.  The EPA analysis estimated the number of septic systems in incrementally impaired waters at approximately 177,200.  The EPA noted that the septic systems could be required to upgrade when they failed and based their annual costs on an average failure rate of 3.49%.  Their estimated costs to upgrade the failed systems to achieve nutrient removal were in the range of $2000 to $6500 per system.  The annualized costs were estimated to range from $12.4 million to $40.2 million.
The Department performed a cost estimate for septic system upgrades necessary to achieve the proposed EPA criteria.  The Department's analysis assumed that conventional septic systems on lots larger than three acres would be able to achieve the proposed EPA criteria, thus no additional costs were assumed
Assessment Procedure
   1. Florida Department of Health reviewed permit records to determine how many of Florida's 2.6 million septic systems are on lots less than 3 acres in size.  The review indicated that approximately 83% of new septic systems were on lots less than 3 acres and approximately 90 % of old systems were on lots less than 3 acres1.  For the purpose of this estimate a value of 85% was chosen.
   2. The Department's estimate for urban stormwater indicated that approximately 75% of Florida's urban areas discharge to fresh waters.  It was assumed that proportion would be a reasonable assumption to make in order to calculate septic system costs.
   3. Construction costs for estimate were taken from an Interim Report prepared for the Department entitled Onsite Sewage Treatment and Disposal Systems Evaluation for Nutrient Removal January 7, 2010, Stormwater Management Academy, University of Central Florida. Costs for septic systems with high levels of nutrient removal ranged from $9,320 to $18,200 per unit.  Operation and maintenance costs were also estimated from this report, which indicated values ranging from $200 - $1,800 per year.
   4. 20-year annualized costs were calculated using an assumed interest rate of 5%.  The O & M costs were not escalated for inflation.
   5. The above method is a worst case scenario based on a complete replacement in the first year of all systems on smaller lots than 3 acres and discharging to groundwater that eventually becomes freshwater.  The method produces annual cost estimates ranging from approximately $1.6  -  $5.5 billion.  Since immediate replacement of septic systems may not be justifiable or feasible, a more reasonable estimate and one more consistent with the EPA estimate would be a replacement rate of 5% a year, which is still higher than the repair rates of 0.5  -  1 % per year
The resultant total capital costs, annual operational and maintenance costs, and 20-year annual costs are in Table 7 below: 
                  Table 7  -  Cost Estimates for Septic Systems
                   SEPTIC SYSTEM COST ESTIMATE CALCULATIONS
                                           Number of Septic Systems in Florida=
                                           2,500,000 
                                       
                             Proportion of Septic Systems on Lots < 3 acres=
                                      90%

                      Proportion of Septic Systems discharging to fresh waters=
                                      75%

                                  Total Number of Septic Systems to be Upgraded
                                           1,687,500 

 
                                      Low
                                     High
                                Costs for High Nutrient Removal Septic Systems=
                                    $9,320
                                    $18,200
                                                   O & M per Septic System=
                                     $200
                                    $1,800
                                               Instant Replacement  Total Cost=
                                                                $15,727,500,000
                                                                $30,712,500,000
                              Instant Replacement Total O & M over 20 years
                                                                   $337,500,000
                                                                 $3,037,500,000
                                              Instant Replacement Annual Costs=
                                                                 $1,599,515,290
                                                                 $5,501,950,459
                                           5% per year replacement annual costs
                                                                   936,612,536 
                                                                 2,887,762,828 
                                         
Benefits Analysis
The Department did not undertake a separate benefit analysis to compare with the EPA estimate.  However, we would note that the Department's cost estimates lead to an annual cost of approximately $313 - $458 per person, compared to the Willingness to Pay values in EPAs estimate of $0.34 - $0.37 per person.
Conclusions
In summary, the cost estimates to comply with EPA's proposed numeric nutrient criteria compiled by the Department indicate that EPA underestimated the costs.  The Department's estimates indicate annual costs ranging from $6 - $12+ billion a year.  While the State of Florida is very interested in ensuring our waters are restored and protected, the magnitude of these costs underscore the need to develop correct and accurate criteria using the best science available.  In addition, the costs also underscore the need to ensure that the implementation of numeric nutrient criteria is done in a manner that makes efficient and effective use of Florida's resources. 
                                       
