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MEMORANDUM


TO:	Steam Electric Rulemaking Record

FROM:	TJ Finseth and Danielle Lewis, ERG

DATE:	January 29, 2013

SUBJECT:	Flue Gas Desulfurization Future Profile Sensitivity Analysis


ERG is providing technical support to the U.S. Environmental Protection Agency's Office of Water, Engineering and Analysis Division (EAD) for development of effluent limitations guidelines and standards (ELGs) for the Steam Electric Power Generating Industry. As part of this technical support, EPA, with support from ERG, estimated compliance costs and baseline and post-compliance loadings for all plants identified as currently discharging FGD wastewater. The analyses and the conclusions that EPA presented in the proposed rule (e.g., compliance costs, pollutant loadings, economic achievability) reflect wastestreams generated by air pollution controls that will likely be in operation at plants at the time EPA takes final action on this rulemaking. However, EPA recognizes that some recently promulgated Clean Air Act requirements may lead to additional air pollution controls (and resulting wastestreams) at existing plants beyond this date. In an effort to take these potential changes into account, EPA conducted a sensitivity analysis that forecasts future installations of air pollution controls through 2020 and estimated the associated costs of complying with the proposed regulatory requirements for the wastewater that may result from the forecasted air pollution control installations. This memorandum discusses the sensitivity analysis EPA performed to assess how the forecasted future installations of FGD systems may affect the estimated costs and pollutant removals for the proposed ELGs.
EPA has two primary data sources upon which to predict future air pollution control installations: 1) Integrated Planning Model projections for the final Mercury and Air Toxics Standards (MATS) rule; and 2) responses to EPA's Questionnaire for the Steam Electric Power Generating Effluent Guidelines (Steam Electric Survey). At the time EPA promulgated the MATS rule in 2011, it projected air pollution control retrofits using Integrated Planning Model (IPM) modeling (which also included projected retrofits associated with the Cross-State Air Pollution Rule (CSAPR) and other state and federal requirements). To support the ELG rulemaking, EPA's Steam Electric Survey asked the industry to report plans for installing certain new air pollution controls at facilities through the year 2020. EPA has no reason to conclude that either the IPM FGD projections or the survey responses are more accurate than the other. In fact, both of these sources may overstate actual installations. Prior to MATS becoming final, many plant owners and operators assumed that wet scrubbers would be the only technology available to meet emissions limits for acid gases. However, as EPA gathered and published additional data on facility emission rates (which informed how the Agency set the standards), and as stakeholders researched and published additional information on the performance of less capital-intensive control technologies such as dry sorbent injection, it has become clear that many facilities will find it more cost-effective to forgo wet scrubbers in favor of other emission reduction strategies. Furthermore, major economic variables such as electricity demand and natural gas prices have changed substantially since the market conditions prevalent when respondents were answering the survey in 2010. For example, it is possible that a facility originally indicating an expectation in the Steam Electric Survey to install a wet scrubber by 2020 may now find itself no longer competitive in the updated marketplace with substantially lower natural gas prices and lower electricity demand growth than previously expected. Consequently, the facility may elect to retire and thereby neutralize the previously reported intent to install a wet FGD system. Nevertheless, these two sources remain the best available information EPA has with which to estimate future predictions.
As a first step in conducting the sensitivity analysis, EPA compared the projections from the two sources. This comparison demonstrated that the IPM projections for the MATS Policy Case and the Steam Electric Survey responses are consistent at the aggregate level. Furthermore, in a very large part, both the survey and IPM identify the same generating units as being wet-scrubbed, either currently or in the future (the two sources are in agreement for approximately 94 percent of the wet scrubbed units). The two sources also predict similar wet-scrubbed generating capacities on an industry level. In the very few cases where there are differences between the two sources, the difference is primarily due to the expected variation at a unit-level (e.g., IPM model predicts wet FGD at unit A and dry FGD at unit B, but instead the survey responses report wet FGD at unit B and dry FGD at unit A). Another difference between the MATS IPM estimates and the industry survey estimates is that, in a very few cases, the IPM results predict that certain plants would retire (and therefore would not install wet scrubbers). In conducting the analyses for the ELGs, EPA made the conservative assumption (i.e., one that would tend to overestimate costs, if anything) that a plant would still be in operation in 2020 unless the plant has formally announced that it would close by then. The comparison of the IPM FGD projections and the Steam Electric Survey are included in document titled "Comparison of Current Industry Profile of IPM Projections" (DCN SE00818).
EPA developed a conservative upper-bound estimate of future FGD installations by combining the information from both sources to develop its "future steam profile." By this, EPA means it combined any source that reported or projected a wet FGD into one "future steam profile." Clearly, this "future steam profile" is conservative because it reflects more wet FGDs than are anticipated to actually be installed  -  by aggregating the IPM projections and the Steam Electric Survey responses it results in a total number of wet FGD systems and wet-scrubbed capacity that is greater than predicted by either of those individual sources. EPA identified twenty-one "future steam profile" plants based on only the IPM forecast estimates. Using both IPM projections and the Steam Electric Survey, EPA identified a complete "future steam profile" of twenty-nine plants that may install a wet FGD system after EPA promulgates the final ELGs.
For each plant identified as having a future wet FGD system in the "future steam profile," EPA estimated the costs for these plants to install the FGD treatment technology options considered for the proposed rule. To estimate the costs, EPA first determined the wastewater flow rate associated with the new wet FGD system. EPA determined the flow rate by either using projected flow rates provided in the Steam Electric Survey, or by using the methodology EPA developed for planned FGD systems that did not report FGD wastewater flow rate, described in EPA's Incremental Costs and Pollutant Removals for Proposed Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category. EPA also evaluated the level of FGD wastewater treatment that would be installed at each plant in the "future steam profile."  The Steam Electric Survey requested each plant to describe the treatment technology that they planned to use to treat the wastewater from the planned FGD system. EPA categorized these proposed treatment systems as either a settling pond or chemical precipitation system based on the survey responses. For the planned FGD systems identified by only the IPM projection (i.e., no survey data available regarding the future installation), EPA categorized the system as a settling pond unless the plant already has a currently operating FGD system. For these IPM-identified plants that already operate at least one wet FGD system, EPA assumed that the new wastewater treatment system would be similar to the FGD treatment system already operating at the plant. EPA used the FGD wastewater flow and treatment-in-place data for each plant in the "future steam profile" to estimate the pre-tax engineering compliance cost for each technology option for the proposed rule. These costs are presented in Table 1.
EPA compared the compliance costs for the "future steam profile" to the costs for the current profile.  EPA determined that even under this conservative analysis that would overestimate costs, incorporating the "future steam profile" into the ELG analyses would increase the costs of the proposed rule by no more than 10 to 15 percent. Table 2 presents the total annualized costs of compliance to society for Regulatory Options 3 and 4, for both the "current steam profile" and the "future steam profile." Even assuming these higher costs, EPA finds that these additional costs are economically achievable.
EPA also estimated the pollutant loadings associated with the projected wastewater discharges from the "future steam profile" plants. EPA used the FGD wastewater flow and treatment-in-place data described above to evaluate baseline loadings and post-compliance loadings for each FGD treatment technology option. Table 3 presents the estimated baseline and post-compliance loadings for the "future steam profile." Loadings from the "future steam profile" plants would increase the total industry baseline loadings by approximately seven percent.
EPA calculated the pollutant removals that would be realized by these "future steam profile" plants complying with each of the FGD treatment technology options. Pollutant removals are presented in Table 4. Accounting for pollutant removals from the "future steam profile" plants would increase total industry pollutant removals by seven percent for the preferred regulatory options. See DCN SE01756 for the complete plant-level loadings output, including baseline and post-compliance loadings.
Using the baseline loadings discussed above, EPA conducted an environmental assessment (EA) analysis to determine if the additional baseline loadings from "future steam profile" plants would result in additional water quality exceedances. The EA analysis showed that water quality exceedances would increase for the evaluated criteria by between zero and ten percent. The freshwater national recommended water quality criteria are most affected by the increased pollutant loadings with exceedances increasing by ten percent. Other evaluated criteria for cancer risks, ecological health, and other national recommended water quality criteria would increase zero to five percent. While the "future steam profile" increases the number of baseline exceedances (i.e., those exceedances prior to implementation of revised ELGs), EPA expects most of these additional exceedances would go away under the preferred options for the proposed rule, which would also result in increased benefits associated with the proposed rule.
EPA notes that subsequent to its analysis, the CSAPR was vacated by the D.C. Circuit Court of Appeals. EPA will continue to assess the potential impacts that changes to air pollution regulations may have on future installations of wet FGD systems. For the purpose of FGD wastewater analyses for this rulemaking, EPA has made a conservative assumption that all of the previously projected wet scrubber additions in the CSAPR-inclusive baseline (which also included MATS, state rules, consent decrees, etc.) would continue to be built, and that discharges from those additional wet scrubbers would therefore be subject to the proposed revisions to the ELGs.
Table 1. Estimated Compliance Cost for the "Current Steam Profile" and "Future Steam Profile"
                                 Cost Element
                          "Current Steam Profile"
            "Future Steam Profile"  -  Based on IPM Projection 
"Future Steam Profile"  -  Based on Combined IPM and Steam Electric Survey Projection
One-Stage Chemical Precipitation Costs
   Total Capital Cost
$1,450,000,000
$1,600,000,000
$1,650,000,000
   Total O&M Cost
$194,000,000
$215,000,000
$221,000,000
One-Stage Chemical Precipitation with Biological Treatment Costs
   Total Capital Cost
$2,500,000,000
$2,770,000,000
$2,850,000,000
   Total O&M Cost
$257,000,000
$285,000,000
$293,000,000
One-Stage Chemical Precipitation with Vapor-Compression Evaporation Costs
   Total Capital Cost
$6,240,000,000
$6,970,000,000
$7,160,000,000
   Total O&M Cost
$1,030,000,000
$1,120,000,000
$1,150,000,000
Note: Values rounded to three significant figures.
Note: Values presented in the "Future Steam Profile" columns represent the entire industry in the future, including the "current steam profile." To obtain values associated with just the future profile generating units (i.e., excluding the currently operating units), subtract the "Current Steam Profile" from the "Future Steam Profile."

Table 2. Total Annualized Social Costs for the "Current Steam Profile" and "Future Steam Profile" for Regulatory Options 3 and 4
                               Regulatory Option
                          "Current Steam Profile"
            "Future Steam Profile"  -  Based on IPM Projection 
"Future Steam Profile"  -  Based on Combined IPM and Steam Electric Survey Projection
                                       3
$572,000,000
$613,000,000
$625,000,000
                                       4
$1,380,000,000
$1,420,000,000
$1,430,000,000
Note: Assumes a 3 percent discount rate.
Note: Values presented in the "Future Steam Profile" columns represent the entire industry in the future, including the "current steam profile." To obtain values associated with just the future profile generating units (i.e., excluding the currently operating units), subtract the "Current Steam Profile" from the "Future Steam Profile."

Table 3. Estimated Pollutant Loadings for the "Current Steam Profile" and "Future Steam Profile"
                               Technology Option
                          "Current Steam Profile"
            "Future Steam Profile"  -  Based on IPM Projection
"Future Steam Profile"  -  Based on Combined IPM and Steam Electric Survey Projection
                                       
                                  Pounds/Year
                                   TWPE/Year
                                  Pounds/Year
                                   TWPE/Year
                                  Pounds/Year
                                   TWPE/Year
Baseline 
                                 3,240,000,000
3,030,000
                                 3,420,000,000
3,200,000
                                 3,470,000,000
3,260,000
Chemical Precipitation Option
3,650,000,000[a]
1,490,000
3,890,000,000[a]
1,590,000
3,960,000,000
1,620,000
Chemical Precipitation with Biological Treatment Option
2,080,000,000
411,000
2,220,000,000
438,000
2,250,000,000
444,000
Chemical Precipitation with Vapor-Compression Evaporation Option
13,500,000
36,400
14,200,000
38,600
14,400,000
39,100
Note: Values rounded to three significant figures.
Note: Values presented in the "Future Steam Profile" columns represent the entire industry in the future, including the "current steam profile." To obtain values associated with just the future profile generating units (i.e., excluding the currently operating units), subtract the "Current Steam Profile" from the "Future Steam Profile."
a  -  Characterization data used to estimate pollutant concentrations for baseline FGD surface impoundments does not include concentration data for ammonia, hexavalent chromium, and TKN. These pollutants are included in the post-compliance loadings and as a result appear to increase in concentration from baseline to technology option.


Table 4. Estimated Loadings Removals for the "Future Steam Profile"
                               Technology Option
                          "Current Steam Profile"
            "Future Steam Profile"  -  Based on IPM Projection
"Future Steam Profile"  -  Based on Combined IPM and Steam Electric Survey Projection
                                       
                                  Pounds/Year
                                   TWPE/Year
                                  Pounds/Year
                                   TWPE/Year
                                  Pounds/Year
                                   TWPE/Year
Reduction: 
Baseline -> Chemical Precipitation Option
-417,000,000[a]
1,530,000
-472,000,000[a] 
1,610,000
-492,000,000
1,640,000
Reduction: 
Baseline -> Chemical Precipitation with Biological Treatment Option
1,160,000,000
2,620,000
1,210,000,000
2,760,000
1,220,000,000
2,810,000
Reduction: 
Baseline -> Chemical Precipitation with Vapor-Compression Evaporation Option
3,220,000,000
2,990,000
3,410,000,000
3,160,000
3,450,000,000
3,220,000
Note: Values rounded to three significant figures.
Note: Values presented in the "Future Steam Profile" columns represent the entire industry in the future, including the "current steam profile." To obtain values associated with just the future profile generating units (i.e., excluding the currently operating units), subtract the "Current Steam Profile" from the "Future Steam Profile."
a  -  Characterization data used to estimate pollutant concentrations for baseline FGD surface impoundments does not include concentration data for ammonia, hexavalent chromium, and TKN. These pollutants are included in the post-compliance loadings and as a result appear to increase in concentration from baseline to technology option.


