Existing Facilities With Design Intake Flow Between 2 MGD and 50 MGD
DIF; Uniform Entrainment Controls for All New Units at Existing
Facilities
    Under Option 4, only in-scope existing facilities with a design
intake flow of 50 MGD or more would be required to comply with uniform
national impingement regulatory requirements as described in Option 1
above. In-scope facilities with a design intake flow less than 50 MGD
would not be subject to the national impingement requirements in
today's proposed rule but would continue to have their 316(b) permit
requirements established on a case-by-case, best professional judgment
basis. In the case of an existing facility below 50 MGD that adds a new
unit, the flow associated with the new unit would be subject to the
uniform entrainment requirements based on closed cycle cooling.
Finally, all existing facilities withdrawing in excess of 2 MGD of
design intake flow would be subject to entrainment controls established
on a site-specific basis.
    EPA considered additional thresholds, subcategories, and other
factors to explore other options; see Chapter 7 of the TDD for more
information. In particular, EPA considered an approach that required
impingement mortality controls only, but is not proposing such an
approach because it would only address one-third of the mortality due
to impingement and entrainment on a nationwide basis and EPA believes
there is value in the structured site-specific entrainment BTA
determination required in Option 1. As discussed in Section VI.E, EPA
is aware of technologies that can further reduce entrainment mortality
for some facilities. EPA also considered an approach that would
establish both impingement and entrainment mortality requirements on a
case-by-case basis taking into account the factors at a particular
facility, but is not proposing such an approach because there are low-
cost technologies for impingement mortality that are available,
feasible, and demonstrated for facilities on a national basis. EPA
requests comment on these and the other approaches discussed in Chapter
7.

E. Option Selection

    EPA is proposing Option 1 as best technology available for
minimizing adverse environmental impact under section 316(b) of the
CWA. As previously explained, in evaluating

technologies that reduce impingement or entrainment mortality as the
possible basis for section 316(b) requirements, EPA assessed a number
of different technologies. Based on this technology assessment, EPA
concluded that closed-cycle cooling reduces impingement and entrainment
mortality to the greatest extent.
    But EPA has determined that closed cycle cooling is not the ``best
technology available'' for this proposal. After considering all of the
relevant factors, EPA proposes that it should not establish a uniform
BTA entrainment standard based on closed-cycle cooling for existing
facilities other than for new units. Instead, for existing facilities
other than new units, EPA is proposing that the permitting authority
should establish BTA entrainment mortality controls on a site-specific
basis. Site-specific proceedings are the appropriate forum for weighing
all relevant considerations in establishing BTA entrainment mortality
controls as discussed in section F below.
    EPA proposes to reject closed-cycle cooling as the basis for
national entrainment controls and choose an option under which the
permitting authority would establish entrainment controls on a site-
specific basis after considering specified factors. EPA concluded that
closed-cycle is not the best technology available for minimizing
adverse environmental impact on a national basis. The record shows that
closed-cycle cooling is not practically feasible in a number of
circumstances. While EPA cannot identify with precision the extent of
these limitations on installation on closed-cycle on a nation-wide
basis, EPA knows that the circumstances are not isolated or
insignificant. In light of this, EPA decided that it should not
establish closed-cycle cooling as the presumptive BTA entrainment
control. Instead, entrainment controls should be determined in a site-
specific setting where the opportunity for local community input in
decision-making process will be maximized.
    Four factors, in particular, led EPA, for this proposal, to reject
a uniform standard based on closed-cycle cooling and illustrate why
site-specific standard setting is the proper approach here. These
factors are energy reliability, air emissions permits, land
availability, and remaining useful plant life. Further explanation is
provided below as to why these factors support establishing BTA
entrainment mortality control on a site-specific basis as discussed in
section F below.
    As noted, the Supreme Court in its Entergy decision determined that
EPA may permissibly consider the benefits, both quantitative and
qualitative, derived from reductions in the adverse environmental
impacts associated with cooling water intake structures and the costs
of achieving them and determine the extent of reductions warranted
under the circumstances. Further, E.O. 13563 directs agencies, to the
extent permitted by law, to propose or adopt a regulation only upon a
reasoned determination that its benefits justify its costs (recognizing
that some benefits and costs are difficult to quantify). E.O. 13563,
Sec. 1(b)(1).
    Pursuant to the principles spelled out in the Executive Order, EPA
has assessed costs and benefits for its proposed regulatory option and
has reasonably determined that the benefits of its proposed rule
justify the costs. EPA has analyzed the social cost of this rule to be
$384 million annually. New unit requirements would cost $15 million per
year. As will be described in more detail below, there are significant
benefits associated with the proposed rule. These benefits include the
annual reduction in impingement of 615 million age-one equivalents. In
addition, there are important other benefits that EPA was not able to
fully quantify such as reductions in impingement and entrainment at new
units, impacts to many shellfish species, and non-use values associated
with the vast majority of fish and shellfish. The rule would also
require establishing site-specific entrainment control through a
process in which specific environmental conditions and the localized
benefits of entrainment reductions will be assessed along with the
costs of controls. The information generated in the required studies
would enhance the transparency of decision-making, and the opportunity
for meaningful public participation and ensure decision-making based on
the best available data. Overall, these requirements will foster
protection and restoration of healthy aquatic ecosystems that have
important commercial, recreational, aesthetic and cultural values to
their surrounding communities. Many of the benefits that would result
from the rule are not quantified, and as a result the Agency's
quantitative benefits analysis underestimates the totality of the
rule's benefits. Based on the record, EPA has determined that the
proposed impingement and entrainment mortality controls will result in
benefits that justify the costs of the rule.
    EPA would also note that its valuation of the benefits is not yet
complete. For example, EPA's analysis does not fully quantify or
monetize certain potentially important categories of benefits, such as
existence values for threatened and endangered species, secondary and
tertiary ecosystem impacts, benthic community impacts, shellfish
impacts and the impacts arising from reductions in thermal discharges
that would be associated with closed cycle. Changes in fish assemblages
due to impingement, entrainment and thermal effects are also not fully
valued. These categories of benefits that are not fully valued are
often referred to as non-use benefits: those benefits people derive
absent a use or activity, such as fishing; the value one places on
knowing that an aquatic ecosystem is healthy is a non-use value. Non-
use benefits could be more completely evaluated than they have been to
date. EPA intends to characterize these benefits more fully through the
use of a stated preference survey of the general population and will
consider the results of this survey analysis in development of the
final rule. Although not discussed in this preamble, EPA also conducted
an alternative benefits analysis that is suggestive of the potential
for a more complete analysis to result in monetary benefits that are
much more in line with social costs (see chapter 9 of the EEBA). These
factors all lend further support to EPA's conclusion that benefits
associated with the proposal justify its costs.
    EPA is proposing that the permitting authority would consider
social costs and benefits on a site specific basis in establishing
entrainment mortality controls. This approach is consistent with the
direction of E.O. 13563 and supported by several considerations.
    On the basis of currently available information, a national
evaluation of benefits no matter how accurate would necessarily fail to
account for the variations in benefits from location to location. A
national assessment would tend to mask variations in benefits and costs
from different geographical locations for different water bodies. Thus
for example, some fish species at coastal facilities have biological
spawning attributes that differ from those at other locations. The
proportion of the receiving water withdrawn for cooling may also vary
among sites. The values that communities place on their resources may
vary from site to site. As a consequence, for example, one ecological
environment may experience large masses of hardier eggs subject to
potential entrainment while another will have fewer but less hardy eggs
susceptible to entrainment. The resulting differences in the value of
reduced entrainment--which may be dramatic for some sites--necessarily
disappear in a national aggregation of

results. The Agency has decided this masking of variation in benefits
supports a requirement to consider the localized benefits of
entrainment control technologies in the site-specific process to
establish entrainment mortality controls.
    Today's proposed rule establishes requirements based on closed-
cycle cooling for new units added to an existing facility that are not
a ``new facility'' as defined at Sec.  125.83. The requirements for new
units are essentially the same as the requirements for a new facility
in the Phase I rule.
    EPA also considered a variation of Option 1 that would exclude
existing facilities (except existing facilities that add a new unit)
with a design intake flow under 50 MGD from the national impingement
mortality requirements of today's proposal (Option 4). These smaller
facilities would continue to be permitted on a case-by-case, best
professional judgment basis for both impingement and entrainment
controls. Under this option, 98.9 percent of the monetized benefits of
Option 1 are realized. In addition, almost all small businesses would
be excluded from the impingement requirement of the national rule,
thereby reducing impacts of the national rule to small businesses. The
cost of Option 4 would result in savings of $57 million over Option 1.
    EPA rejected Option 4 for the proposal as BTA because EPA found
that Option 1 is available, feasible, and demonstrated for all in-scope
facilities on a national basis. Moreover, EPA analysis showed that
economically Option 1 does not have a significant impact on a
substantial number of small entities, including those that would be
exempted from the national impingement mortality controls under Option
4. Of the 13 full-facility closures discussed below in Section VII,
none are predicted to be small businesses. Additionally, the analysis
performed under the Regulatory Flexibility Analysis showed that under
Option 1, five to six small entities would incur costs exceeding 1
percent of revenue and 3 small entities would incur costs exceeding 3
percent of revenue. As percentages of the estimated total of small in-
scope entities (56-96 small in-scope entities, see above), these small
entities represent 5-13 percent of small in-scope entities at the 1
percent of revenue threshold, and 3-5 percent of small in-scope
entities at the 3 percent of revenue threshold.
    Option 4 is similar to the final determination with respect to the
Phase III rule, which relied on BPJ to determine impingement and
entrainment BTA for all facilities with DIF less than 50 MGD. Unlike
the Phase III determination, Option 4 would not rely on BPJ for new
units at existing facilities or manufacturing facilities with DIF
greater than 50 MGD. This is consistent with the recommendations of the
Small Business Advocacy Review Panel for the Phase III rule, which
noted that an applicability threshold in the range of 20 to 50 MGD
would remove a significant number of Phase III facilities, but only a
small percent of flow, from coverage under national requirements, and
recommended that EPA analyze a range of potential thresholds,
particularly those between 20 and 50 MGD. EPA is also aware of concerns
that even though Option 1 by itself does not have a significant adverse
impact on a substantial number of small entities, many of the small
entities affected by the rule, particularly those in the electric power
sector, are subject to cumulative impacts from a number of other major
regulations that will likely have to be implemented in the same time
frame as this rule. For the final rule, EPA will also evaluate the
relative costs and benefits of Option 4, once it has more complete
benefits information, including results from its WTP Survey on impacts
to fish populations. EPA solicits comment on Option 4 and the impacts,
including the cumulative impacts of today's proposal on small entities
generally. EPA also requests comment on whether, if Option 4 were
adopted for the final rule, it should include uniform national
requirements for new units at existing facilities with DIF less than 50
MGD based on closed-cycle cooling.

F. Four Factors Support EPA's Decision To Establish Site-Specific BTA
Entrainment Controls for Existing Facilities

    The four key factors that support determining entrainment mortality
controls on a site-specific basis (except with respect to new units)
and rejecting Options 2 and 3 are energy reliability, increased air
emissions, land availability, and remaining useful life. First, EPA
recognized that there may be potential adverse consequences to the
reliability of energy delivery on the local level from the installation
of cooling towers. Second, EPA also is aware that increased air
emissions may be associated with increased combustion of fossil fuel as
the result of installation of closed cycle cooling, and additional PM
formulation associated with plume drift (even with plume abatement
technology). These increased air emissions have human health, welfare,
and global climate change impacts which must be considered.
Furthermore, it may be difficult or impossible to obtain air permits
for cooling towers at existing facilities located in nonattainment
areas or attainment areas with maintenance plans. Third, EPA has
identified land availability concerns that might limit the feasibility
of the installation of cooling towers on a site-specific basis.
Finally, EPA concluded that there are circumstances in which
construction and installation of cooling towers might not be warranted
given the remaining useful life of a particular facility. How all of
these factors support the Agency's conclusion that site-specific, not
national, entrainment controls for most existing facilities except
those installing new units is discussed in detail below.
1. Energy Reliability Should Be Considered on a Localized Basis
    During EPA's site visits, several urban areas were identified where
the existing transmission system would not be able to transfer
sufficient electricity during periods of extended downtime. This
limitation to reliability occurs even when a surplus of electricity can
be generated within the same NERC region. For example, EPA identified
localized circumstances in Los Angeles and Chicago where an extended
outage of one or more generating units could not be readily replaced by
excess capacity in nearby areas. Currently available models are not
able to predict localized impacts, and instead are limited to measures
of reserve capacity in broader geographic regions. This uncertainty
about the extent and likelihood of local reliability impacts is an
important consideration in the decision to propose requiring site-
specific development of section 316(b) entrainment requirements.
    One approach EPA could have adopted in today's proposed rule would
have been to establish a uniform entrainment requirement and then to
address these local reliability concerns by providing permitting
authorities the flexibility to establish extended compliance timelines
(i.e., 10 to 15 years) (see Option 2). This would have allowed
facilities to develop more workable construction schedules with their
permit writers and coordinate with NERC to schedule installation down
times accounting for generating supply reliability needs. This approach
would have been consistent with EPA's assessment that, at the national
level (rather than local level), closed-cycle cooling would not pose
material energy reliability consequences; see EA for more information.
EPA was concerned that such a flexible approach, however, would not
resolve all local reliability

concerns, because currently available information is not adequate to
establish either the extent or significance of possible electric
reliability concerns.
    These same concerns would not apply in the case of the installation
of new units because of the smaller nature of such projects and the
availability of options like seasonal operation and portable cooling
towers to address the flow reduction requirements. Since the unit is
not yet online, the potential for local energy reliability to be
compromised is minimal; also, local energy reliability is likely
improved with the addition of the new unit, even if older units are
later retired.
2. Increased Air Emissions Could Be a Factor on a Local Basis
    As previously discussed, closed-cycle cooling would result in
increased air emissions of various pollutants, including particulates,
sulfur dioxide, nitrogen oxides, mercury, and greenhouse gases, among
others.\52\ As a result of the installation of closed-cycle cooling
structures, fossil-fueled facilities would need to burn additional fuel
(thereby emitting additional PM, CO2, SO2,
NOX, and Hg). There are two reasons for this: (1) To
compensate for energy required to operate cooling towers, and (2)
slightly lower generating efficiency attributed to higher turbine
backpressure. In contrast to retrofits, new units can have their
cooling water intake systems optimized for cooling towers, reducing the
size of the cooling towers, increasing their efficiency, and reducing
energy requirements (see Section VI.E).
---------------------------------------------------------------------------

    \52\ EPA recognizes that retrofitting closed cycle cooling could
be combined with other energy efficiency or pollution control
technologies with the net effect of reducing air emissions; however,
facilities could (and may well have to under other rules) install
such technologies anyway, without converting to closed cycle cooling
as well. Comparing closed-cycle cooling to once-through cooling with
all other technologies held constant, there is an energy penalty
that would lead to greater air emissions.
---------------------------------------------------------------------------

    The impact of the increased emissions varies based on the local
circumstances. The increased emissions may consist of cooling tower
emissions, stack emissions from increased fuel usage, and plumes of
water vapor. EPA's analysis suggests that the most significant impacts
will be specifically for PM2.5, which, in addition to
increased mortality and morbidity, may result in a facility having
difficulty in obtaining air permits in those localities in non-
attainment for PM2.5 because of the need to identify offsets
to its emissions. EPA notes that while there is the potential for
increases in PM (e.g., salt drift) in the vicinity of any wet cooling
tower, there are plume abatement and drift eliminator technologies that
may address this concern (and EPA has included costs for such
technologies in its analysis of Options 2 and 3). However, emissions
may not be eliminated entirely. EPA expects most effects of PM from
cooling tower emissions would be so localized as to be wholly on the
facility's property. (See DCN 10-6954.) EPA recognizes this is separate
from PM emissions from the stack as a result of increased fuel usage.
In addition, plumes of water vapor from the cooling tower may cause
safety issues due to icing of nearby roadways, and visibility
constraints for facilities located near an airport. EPA's review of
emissions data from E-GRID (year 2005) suggests that impacts from other
pollutants will be less significant, but on a localized basis these
could still be significant. They include human health, welfare, and
global climate change impacts associated with a variety of pollutant
that are emitted from fossil fuel combustion generally. EPA is not able
to quantify the frequency with which facilities may experience these
local impacts, and therefore EPA believes a site-specific assessment
must be conducted to fully address such local impacts.
    EPA believes that emissions are less of a concern at new units. The
condensers can be optimized for closed-cycle, reducing energy
requirements, and high efficiency cooling towers can be incorporated
into the design of the new unit, potentially allowing for installation
of smaller cooling towers. Turbine backpressure and the associated
energy penalty can be eliminated in a new unit. However, new units will
still have a parasitic energy penalty. Therefore energy penalties and
air emissions for tower operations can be minimized but not eliminated.
The effects of requiring closed cycle cooling at new units of existing
facilities is similar to the effects of this requirement at new
facilities and would not pose an unacceptable impact. See the TDD for
more information.
3. Land Availability Could Be A Factor on a Localized Basis
    While EPA's record indicated that the majority of facilities have
adequate available land for placement of cooling towers,\53\ some
facilities do have feasibility constraints. Based on site visits, EPA
has found that several facilities have been able to engineer solutions
when faced with limited available land. EPA attempted to determine a
threshold of land (for example, one option explored a threshold of
approximately 160 acres per GW) below which a facility could not
feasibly install cooling towers. While EPA originally estimated as many
as 23 percent of facilities would not have enough space,\54\ EPA found
some facilities with a small parcel of land were still able to install
closed-cycle cooling by engineering creative solutions. On the other
hand, EPA found that some facilities with large acreage still could not
feasibly install cooling towers due to local zoning or other local
concerns. In conjunction with setback distances to mitigate noise and
plume abatement (based on GPS mapping of residential areas), EPA
estimates as many as 25 percent of facilities may have one or more
constraints on available space that would limit retrofit of cooling
towers for the entire facility or would result in increased compliance
costs. At this time, EPA lacks adequate data to better analyze how land
constraints can be accommodated at existing facilities.
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    \53\ In the case of fossil fuel plants, scrubber controls may
also be newly required to comply with air rules and standards.
    \54\ EPRI reported at least 6 percent of sites evaluated were
deemed ``infeasible'' on the basis that no space was available on
which to locate a cooling tower. (DCN 10-6951) While EPA does not
have access to the facility level data, and is therefore unable to
confirm the infeasibility analysis, EPRI's report supports EPA's
assertion that there is significant uncertainty around space
constraints for facilities to install closed-cycle cooling.
---------------------------------------------------------------------------

    In contrast, for new units, because the amount of space dedicated
to closed-cycle would be limited to the new unit rather than the entire
facility, space constraints would be much less of an issue. New units
also pose the opportunity to properly design an optimized closed-cycle
cooling system for the new unit. Retrofitting an existing facility
would require a facility to identify (or possibly obtain) enough acres
to accommodate the cooling towers and their tie-in. By not uniformly
requiring facilities to retrofit to closed-cycle, EPA has determined
that more land is available for new unit construction, especially in
light of compact design and more efficient use of limited resources.
Furthermore, new units and their corresponding cooling system can be
built in stages rather than as a facility-wide retrofit.
    While EPA has concluded that space constraints would not foreclose
the installation of closed cycle cooling for new units at existing
facilities, EPA has concerns about whether, on a national basis,
physical geography would constrain the full retrofit of closed-cycle
cooling to existing facilities. Under the

circumstances, EPA decided not to propose uniform entrainment standards
for all existing facilities based on closed-cycle cooling. Instead, EPA
has determined that it should establish a process for site-specific
determination of entrainment controls. Site-specific proceedings would
provide the opportunity to address these issues, along with the other
factors discussed in this preamble in determining which additional
entrainment mortality controls, if any, are appropriate.
4. Remaining Useful Plant Life Could Be a Factor on a Facility Basis
    Many facilities are nearing the end of their useful life.
Considering the long lead time to plan, design, and construct closed-
cycle cooling systems such as wet cooling towers, EPA proposes that the
permit authority should be given the latitude to consider the remaining
useful plant life in establishing entrainment mortality standards for
that facility. The remaining useful plant life along with other site-
specific information, would affect the evaluation of the benefits (non-
monetized and monetized) of closed-cycle at a particular facility. For
example, closed-cycle at a facility that is going to shut down in 3
years would not result in the benefits that a facility that would
continue to operate for 20 years. Because of this factor, EPA proposes
that requiring closed-cycle cooling should be evaluated on a facility-
specific basis, arguing against a uniform national entrainment
mortality standard.
    This is obviously not an issue for new units. A new unit has its
full useful life before it and thus would experience the maximum
possible entrainment mortality reductions throughout that useful life.
Considering this factor, EPA is proposing that new units be treated the
same as new facilities. EPA believes this factor, along with the other
factors discussed above, indicates that it is reasonable to require new
units to meet entrainment mortality requirements based on closed-cycle
cooling.

G. The Process for Establishing Site-Specific BTA Entrainment Controls

    EPA believes that the factors discussed above support establishment
of BTA entrainment requirements on a site-specific basis and counsels
against establishing a national rule based on a single BTA technology
for entrainment controls. In addition, there are other factors that
also support site-specific decision-making. Thus, as noted, for
example, a national weighing of cost and benefits tends to mask
important local differences and argues for site-specific evaluations.
    As a result, EPA proposes that closed-cycle cooling for all
existing units is not BTA on a national basis, except for new units at
existing facilities.
    EPA has decided to propose Option 1 as the basis for national
performance standards that represent the ``best technology available''
for cooling water intake structures at existing facilities. EPA
proposes that a uniform national impingement standard coupled with
entrainment controls determined on a site-specific basis represents the
best technology available for minimizing the adverse environmental
impacts associated with intake structures. EPA's proposed decision to
reject a single uniform national entrainment standard is based on
closed-cycle cooling not being the ``best technology available'' on a
national basis and not warranted under the circumstances. This proposed
decision flowed from EPA's consideration of the factors described above
and its conclusion that determination of BTA for entrainment through a
process that allowed full and site-specific assessment of these factors
with respect to candidate entrainment controls including closed-cycle
cooling represented the most appropriate course here.

H. Implementation

    EPA's proposal would require a site-specific determination of BTA.
In that process, the permit writer would have access to all the
information necessary for an informed decision about which additional
technology to reduce entrainment mortality, if any, is BTA, including a
full consideration of whether the benefits justify the costs.
    The adoption of the proposed Option 1 approach of site-specific BTA
entrainment decisions will result in one of two outcomes at any
facility: BTA is an entrainment mortality technology beyond what the
facility has already installed (this may include closed cycle cooling
or other technologies, see Section VI.B and C), or BTA requires no
additional controls for entrainment mortality. Thus, EPA expects that,
under the proposed approach, there will be additional entrainment
controls for some facilities and none for others.
    EPA notes that in a number of areas of the country (California,
Delaware, New York and New England; see, e.g., DCNs 10-6963 and 10-
6841, as well as EPA Region I's Brayton Point), permitting authorities
have already required or are considering requiring existing facilities
to install closed-cycle cooling operations. EPA supports those state
efforts and determinations and thinks that similar decisions would be
able to be made under this proposed rule.
    The proposal would require that the facility's permit application
must include the following information: The facility would submit an
engineering study of the technical feasibility and incremental costs of
candidate entrainment mortality control technologies. The facility
would also study, evaluate, and document: the technical feasibility of
technologies at a minimum including closed-cycle cooling and fine mesh
screens with a mesh size of 2 mm or smaller; engineering cost estimates
of all technologies considered; any outages, downtime, or other impacts
to revenue along with a discussion of all reasonable attempts to
mitigate these cost factors; and a detailed discussion of the magnitude
of water quality benefits, both monetized and non-monetized, of the
candidate entrainment mortality reduction technologies evaluated.
Finally, the study must include a detailed discussion of the changes in
non-water quality factors attributed to technologies and/or operational
measures considered, including but not limited to increases and
decreases in the following: energy consumption; thermal discharges; air
pollutant emissions including particulates and their health and
environmental impacts; noise; safety (e.g., visibility of cooling tower
plumes, icing); grid reliability, and facility reliability. See Section
IX for a thorough discussion of these study requirements.
    Certain facilities would submit an Entrainment Characterization
Study including an entrainment mortality data collection plan that
would indicate, at a minimum, the specific entrainment monitoring
methods, taxonomic identification, latent mortality identification,
documentation of all methods, and quality assurance/quality control
procedures for sampling and data analysis appropriate for a
quantitative survey. EPA would also require peer review of the
entrainment mortality data collection plan. Peer reviewers would be
selected in consultation with the Director who may consult with EPA and
Federal, State, and Tribal fish and wildlife management agencies with
responsibility for fish and wildlife potentially affected by the
cooling water intake structure(s). Further, facilities with greater
than 125 MGD AIF must complete an Entrainment Characterization Study
(ECS). The ECS could include information already collected to meet
current Sec.  122.21(r)(2)-(r)(4) requirements. With the

information in this study, the permit writer will know more about
potential entrainment mortality reductions. Data from the ECS would
also corroborate any through-plant entrainment survival study results
from Performance Studies conducted in 122.21(r)(7). Data collected as
part of the ECS would support the Benefits Valuation Study in
122.21(r)(11) by parsing entrainment mortality, for example, by
recreational/commercial species and those species that are strictly
forage species,\55\ by species most susceptible to thermal effects
(including thermal barriers), and by species of particular local or
regional concern and threatened and endangered species. EPA's benefits
estimate were based on an extrapolation of available I&E mortality
studies; the specific entrainment characterization study conducted by a
facility may lead to a different estimate of I&E mortality for that
facility than its portion of EPA's regional estimate in the analysis in
Section VIII.
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    \55\ Distinctions between predator and prey cannot be made on
the basis of species alone; the young of some recreational and
commercial species function as forage fish.
---------------------------------------------------------------------------

    The purpose of the ECS is to better understand, and thus help
minimize, the impact of entrainment on species of concern. More
specifically, the ECS should identify species of concern that may be
entrained, and estimate their baseline mortality rates given current
entrainment controls. Moreover, the ECS should include as much
information as practical about the aquatic ecosystem effects of
entrainment mortality of species of concern. An understanding of the
potential ecosystem consequences of entrainment mortality for species
of concern will help inform decisions about permit requirements for
additional technologies and management practices. EPA will endeavor to
identify high quality examples of ECSs as they are completed, and post
them to the web site for this rule as a resource for ECS preparation.
    Following the permit writer's review of this information, the
permit writer must determine what BTA entrainment standard to propose
and explain in writing the basis for the proposal. The written
explanation and the draft permit would then be available for comment
from the interested public under the Permitting Authority's normal
permitting process. Therefore, EPA's proposed BTA standard would
establish uniform requirements for impingement mortality and a process
in which BTA entrainment controls would be determined on a site-
specific basis.

I. EPA's Costing of the Preferred Option

    For the purposes of this proposal, EPA has prepared an economic
analysis according to Executive Order 12866. For the preferred option,
this analysis incorporates the full costs and partially monetized
benefits of impingement controls, including the costs of conducting the
entrainment characterization studies. There may be additional costs and
benefits associated with reductions in entrainment mortality that
result from the Director's BTA entrainment determinations. Because this
process will play out over the next 10 to 15 years as Directors
consider waterbody-specific data, local impacts, and public comment,
and weigh costs and benefits of further entrainment reductions, air
quality impacts, grid reliability, and land availability, estimates of
the costs of these site-specific determinations would be highly
speculative.
    For illustrative purposes, EPA analyzed two hypothetical outcomes
for site-specific BTA determinations under Option 1. EPA analyzed the
cost of closed-cycle at the 76 largest fossil fuel plants withdrawing
from tidal waters and arrived at an annual compliance cost for these
facilities of $762 million. EPA also analyzed a variant on the above
scenario. EPA estimates this second scenario would involve 46
facilities at an annual compliance cost of $480 million, assuming only
baseload and load following facilities would retrofit to closed-cycle
cooling.
    These hypothetical scenarios illustrate the site-specific costs if
a significant number of facilities install and operate a closed-cycle
cooling system. These scenarios assume facilities would install only
closed-cycle cooling and operate it year-round. This may represent an
upper-bound cost for those facilities. EPA also assumed that cooling
towers will be installed at fossil fuel plants within 10 years. EPA is
aware that there are other possible scenarios for projecting which
facilities might be required to install closed-cycle cooling or other
entrainment mortality technologies as a result of individual BTA
determinations. Some of these would show lower or higher costs than
those presented here. EPA requests comment on other scenarios that
might better capture the range of costs that result from the structured
analysis of entrainment mortality BTA required by today's proposed
rule.

J. Consideration of Cost/Benefit on a Site-Specific Basis

    In establishing performance standards for entrainment controls, as
the Supreme Court in Entergy made clear, one factor that EPA may
consider is the costs and benefits associated with various control
options. That is, in setting standards, EPA may consider the benefits
derived from reductions in the adverse environmental impacts associated
with cooling water intake structures and the costs of achieving the
reductions. As previously explained, EPA has determined that the
benefits of the proposed rule justify its costs. In addition, EPA has
explained why consideration of costs and benefits is also appropriate
in the site-specific permit setting when establishing entrainment
controls.
    In the site-specific proceeding, the permit writer would be
required to consider, among other factors, quantified and qualitative
social benefits and social costs of available entrainment controls,
including ecological benefits and benefits to any threatened or
endangered species. The permit writer would be able to reject otherwise
available entrainment controls if the costs of the controls are not
justified by their associated benefits (taking into account both
quantified and non-quantified benefits) as well as the other factors
discussed in the proposed rule.
    In making the site-specific entrainment BTA determination, the
proposal would require that the Director consider the information
required under Sec.  122.21(r) to be submitted with the section 316(b)
permit application. Further, in the case of the larger cooling water
intake structures (125 MGD AIF or greater), the proposed rule would
require submission of additional information including, among other
things, studies on entrainment at the facility, the costs and
feasibility of control options, and information on the monetized and
non-monetized benefits of entrainment controls. In evaluating benefits,
the Director should not ignore benefits that cannot be monetized and
consider only the I&E reductions that can be counted. The assessment of
benefits must take into account all benefits, including categories such
as recreational, commercial and other use benefits, benefits associated
with reduced thermal discharges, reduced losses to threatened and
endangered species, altered food webs, nutrient cycling effects, and
other nonuse benefits. Merely because there is no price tag on those
benefits does not mean that they are not valuable.
    Under the proposal, the Director must explain the basis for
rejecting an available technology not selected for entrainment control
in light of the submissions, with a consideration of the

same four factors that argued against a uniform requirement for closed-
cycle cooling. EPA expects that the Director's decision about BTA
controls will also reflect consideration of the costs and benefits
(monetized and non-monetized) of the various control technologies
considered for the facilities.
    As noted, the permit writer may reject an otherwise available
entrainment technology as BTA (or not require any BTA controls) if the
costs of the controls are not justified by the benefits. EPA decided to
adopt this approach in determining site-specific entrainment controls
because it is permissible under Entergy and consistent with the more
than 30-year history of section 316(b) permitting decisions as well as
E.O. 13563.
    This history illustrates the role that cost/benefit considerations
have played. As early as 1977, EPA issued a permitting decision and a
General Counsel opinion that explained that, while Section 316(b) does
not require a formal cost-benefit analysis, the relationship of costs
and benefits may be considered in 316(b) decision-making. In re Pub.
Serv. Co. of N.H. (Seabrook Station, Units 1 and 2), No. 76-7, 1977 WL
22370 (June 10, 1977), remanded on other grounds, 572 F.2d 872 (1st
Cir. 1978); accord In re Central Hudson Gas & Elec. Corp., Op. EPA Gen.
Counsel, NPDES No. 63, 1977 WL 28250, at *8 (July 29, 1977). In the
more than 30 years since then, EPA and state permitting authorities
have considered the relationship between costs and benefits to some
extent in making individual permitting decisions. See, e.g., In re Pub.
Serv. Co. of N.H. (Seabrook Station, Units 1 and 2), No. 76-7, 1978 WL
21140 (E.P.A. Aug. 4, 1978), aff'd, Seacoast Anti-Pollution League v.
Costle, 597 F.3d 306, 311 (1st Cir. 1979).
    Because E.O. 13563 directs agencies to propose and adopt rules only
upon a reasoned determination that the benefits justify the costs, EPA
is proposing to apply this same standard in BTA entrainment
determinations. This approach is consistent with the framework EPA has
traditionally followed and would allow for a full assessment in permit
decisions of both qualitative and quantitative benefits and costs. As
designed, EPA's proposed requirement for the establishment of site-
specific BTA entrainment requirements strikes an appropriate balance
between environmental improvements and costs, allowing the permitting
authority to consider all of the relevant factors on a site-specific
basis and determine BTA on the basis of those factors.
    After considering all of the factors relevant to a particular site,
the Director must establish appropriate entrainment controls at those
facilities. The Director must review available control technology and
may reject otherwise available entrainment controls as BTA if the
social costs of the controls are not justified by their social benefits
(taking into account both quantified and non-quantified benefits) or if
there are other adverse factors that cannot be mitigated that the
Director deems unacceptable. As designed, EPA's proposed requirement
for the establishment of site-specific BTA entrainment requirements
strikes an appropriate balance between environmental improvements and
costs by electively requiring closed-cycle cooling or other entrainment
technologies at some facilities, without requiring the same
technologies at all facilities.

VII. Economic Impact of the Proposed Rule

    This section summarizes EPA's analysis of the social cost and
economic impact for the following regulatory options: Option 1:
Impingement mortality (IM) limitations based on modified traveling
screens for all facilities with flow greater than 2 million gallons per
day (MGD), closed cycle cooling or its equivalent for new units, and a
site-specific determination of entrainment BTA for all other
facilities: Option 2: Intake flow commensurate with closed-cycle
cooling for facilities that have a design intake flow of greater than
125 MGD and IM limitations based on modified traveling screens for all
facilities with flow greater than 2 MGD; Option 3: Intake flow
commensurate with closed-cycle cooling for all facilities and IM
limitations based on modified traveling screens, for all facilities
with flow greater than 2 MGD; and Option 4: Impingement mortality (IM)
limitations based on modified traveling screens for all facilities with
flow greater than 50 million gallons per day (MGD), closed cycle
cooling or its equivalent for new units, and a site-specific
determination of entrainment BTA for all other facilities and of
impingements mortality controls for facilities with flow less than or
equal to 50 MGD. These options are described more fully in Section
VI.C.
    The first part of this section provides an overall summary of the
costs of the regulatory options to complying facilities and federal and
state governments. This discussion is followed by a review of the
method for developing compliance cost estimates. The third part
provides an estimate of the total social costs of the regulatory
options. The final part reviews the economic impact of the regulatory
options.

A. Overview of Costs to Complying Facilities and Federal and State
Governments

    For estimating the total cost and economic impact of the regulatory
options presented in this preamble, EPA estimated costs associated with
the following cost components: Initial fixed and capital costs, annual
operating and maintenance costs, downtime costs, recordkeeping,
monitoring, studies, and reporting costs. The cost estimates reflect
the incremental costs attributed only to today's proposal. For example,
facilities with closed-cycle recirculating systems would likely already
meet all of the proposed performance standards, and therefore most
facilities with closed-cycle cooling would not incur costs to retrofit
new technologies (though such facilities would still incur some
components of permitting costs). EPA assumes, based on its technical
survey data that most closed-cycle cooling systems operate with an
intake velocity of less than 0.5 fps, and so would comply with the
impingement BTA requirements. However, EPA recognizes a facility with
closed-cycle cooling may incur additional costs to meet the proposed
performance standards; some facilities with closed-cycle cooling were
assumed to incur costs of modified screens with a fish handling and
return system. Because EPA assumes the fish handling and return system
would meet the requirements to eliminate entrapment, EPA has not
included further costs for entrapment.
    For the economic analyses, EPA distinguished between the two
industry groups covered by the standards for existing facilities as
follows:

    Manufacturing and Other Industries (``Manufacturers'')--
facilities in the paper, aluminum, steel, chemicals, petroleum, food
and kindred products, 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 nonutilities, whose primary business
is electric power generation or related electric power services.

    Costs to complying Electric Generators and Manufacturers include
technology costs, cost of installation downtime, and costs of
administrative activities; in addition, electric generating facilities
are expected to incur certain energy penalty costs (see

Chapter 3 of the EBA report for a discussion of costs to complying
facilities and of implementation costs to federal, State, and local
governments). Manufacturing facilities may also need additional
electricity to run certain technologies, but if they do not produce
this electricity themselves, these additional energy requirements are
included in operating costs, rather than accounted for separately as an
energy penalty. Electric Generators incurring these costs include
facilities owned by private firms, governments, and electric co-
operatives. Manufacturers incurring these costs include facilities
owned by private firms only. The administrative costs to federal,
State, and local governments include the costs of rule implementation--
e.g., permits, monitoring, and working with in-scope facilities to
achieve compliance. Costs are initially developed on a pre-tax, as
incurred, basis. These costs underlie the analysis of the social costs
of the regulatory options and are also used in assessing the impact of
compliance requirements on in-scope facilities and the affected
industrial categories. In the analysis of facility impacts, costs are
accounted for on an after-tax basis.

B. Development of Compliance Costs

    This section describes the data and methods used to estimate
compliance costs of the options considered and the costs of today's
proposed rule. Costs were developed for technology controls to address
impingement mortality separately from controls for entrainment
mortality, as the requirements of the various rule options considered
would lead to different technologies being used by each facility to
comply. Some of the options considered would impose different
compliance timelines for impingement mortality and entrainment
mortality technologies. As a result, different methodologies were used
and each is briefly described below. More detailed information on these
methodologies, as well as costs of other technologies and regulatory
approaches, are available in the TDD.
1. Combined Facility-Specific and Model-Facility Approach
    EPA develops national level costs estimates for facilities within
scope of the various regulatory options. In general, facility-specific
data can be used to determine what requirements apply to a given
facility or whether that facility would already meet the requirements
set forth in the proposed rule. This approach requires facility-
specific technical data for all of the approximately 1,200 existing
facilities in scope. An alternative approach is to develop a series of
model facilities that exhibit the typical characteristics of the
affected facilities and calculate costs for each model facility; EPA
would then determine how many of each model facility would be needed to
accurately represent the full universe of affected facilities.
    EPA has estimated costs for potentially regulated facilities using
a combination of the facility-specific and model facility approaches.
The facility-specific approach used in this effort involved calculating
compliance costs for 891 individual facilities for which EPA had
detailed technical data from its various industry questionnaires
regarding the intake design and technology. Specifically, these are the
in-scope facilities that completed the detailed technical
questionnaire. Where facilities reported data for separate cooling
water intake structures (CWISs), compliance costs may have been derived
for each intake and these intake costs were summed together to obtain
total costs for each facility. These facilities became model facilities
and each facility's costs were then multiplied by a weighting factor
(derived from a statistical analysis of the industry questionnaire)
specific to each facility to obtain industry-wide costs for the
national economic impacts analyses. The weighting factors are similar
to ones derived during the development of the 2004 Phase II Rule for
extrapolating the impacts of DQ facilities to all in-scope facilities.
2. Updates to the Survey Data
    In the 2004 Phase II rule, EPA developed facility-specific cost
estimates for all facilities and published those costs in Appendix A
(69 FR 41669). Since the initial implementation of the 2004 Phase II
rule, EPA identified several concerns with using only the facility-
specific costing approach, as well as the use of those costs in
Appendix A. Since 2004, EPA has collected data from industry and other
groups as described in section III. These data generally reflect
changes to actual intake flow, design intake flow, intake velocity,
technology in place, and operational status. EPA developed a new master
database including this new data to supplement the data from the
detailed technical questionnaire. Although it has been approximately 10
years since the detailed technical questionnaire was initially
collected, EPA has conducted over 50 site visits, reviewed current
permits, and conducted literature reviews including comparisons to data
collected by EPRI, EIA, and EEI. Based on that review EPA has concluded
the master database is representative and appropriate for most
facilities.\56\ The following section describes how EPA used this new
database to estimate compliance costs.
---------------------------------------------------------------------------

    \56\ EPA notes that, while it has not collected updated
technical information for every facility, it has updated financial
data, as discussed later in this section.
---------------------------------------------------------------------------

3. Tools for Developing Compliance Costs
    During the 2004 Phase II rule, EPA began developing a spreadsheet
based tool that would provide facilities and permit authorities with a
simple and transparent method for calculating facility-specific
compliance costs. EPA refined the tool in developing the Phase III
regulations. EPA has since made further refinements to the cost tool,
which was used to calculate the compliance costs for impingement
mortality for today's proposed rule. The cost tool employs a decision
tree (see the TDD for a graphical presentation of the decision tree) to
determine a compliance response for each model facility and assigns a
technology ``module'' that represents a retrofit to a given technology.
Cost estimates are derived through a series of computations that apply
facility-specific data (such as DIF, width of intake screens, etc.) to
the selected technology module. Cost tool outputs include capital
costs, incremental operation and maintenance (O&M) costs, and
installation downtime (in weeks).
    To calculate the compliance costs of retrofitting to closed-cycle
cooling for controlling entrainment mortality, EPA utilized a second
tool based on a cost-estimating spreadsheet developed by the Electric
Power Research Institute (EPRI). EPRI's first draft methodology
presented three different levels of capital cost (Easy, Average,
Difficult) based on the relative difficulty of the retrofit project.
For electric generators, EPA used costs for the Average level of
difficulty, as it was developed across a broad spectrum of facilities
and is the most appropriate for estimating national level costs.\57\
For manufacturers, EPA used the Difficult level of retrofit costs. This
reflects the more complex water systems and generally more frequent
technical challenges to retrofitting closed-cycle cooling at a
manufacturing facility. While some manufacturers only withdraw cooling
water for power or steam generation, many manufacturers have multiple
units or processes that utilize cooling water. In site visits, EPA
found the largest manufacturing facilities would require multiple
retrofits, and accordingly believes the

Difficult level of retrofit costs is more representative for purposes
of estimating national level costs. Additionally, EPA's tool includes
additional modifications to EPRI's methodology, such as increased
compliance costs for approximately 25 percent of facilities to reflect
the additional expense of noise control or plume \58\ abatement, and
using only the cooling water flow rate for non-contact cooling water
flow \59\ for purposes of estimating costs for closed-cycle cooling.
EPA has included the spreadsheet tools in the docket for the proposed
rule to assist both facilities and permit authorities in estimating
compliance costs. (See DCNs 10-6655 and DCN 10-6930).
---------------------------------------------------------------------------

    \57\ For purposes of energy reliability estimates, EPA used the
Difficult level for electric generators.
    \58\ The EPRI tool includes drift abatement technologies in its
cost assumptions, so no additional costs were included for drift
eliminators.
    \59\ As described in the TDD, EPA only used non-contact cooling
water flows in determining the proper size for wet cooling towers,
the technology that forms the technical basis for entrainment
mortality. Cooling towers are not widely used for contact cooling or
process water, so these flows were excluded. For electric
generators, the vast majority of flow is non-contact cooling, but
manufacturers are more varied in their water usage.
---------------------------------------------------------------------------

4. Which technologies form the basis for compliance cost estimates?
    EPA identified two broad classes of control technologies that may
be used singularly or in combination to comply with the proposed rule.
These classes of control technologies are: (1) Technologies that
address impingement mortality (IM) and (2) technologies that address
entrainment mortality (EM). See Section VI for further details. Under
the various options considered, a facility may be subject to one or
both requirements, depending on their configuration, technologies in
use, or other site-specific factors.
    For the impingement mortality requirements, EPA analyzed data from
a wide variety of technologies and facilities and concluded that
modified Ristroph (or equivalent) coarse mesh traveling screens are the
most appropriate basis for determining the compliance costs.\60\ As
discussed in Section VI of the preamble, a facility may also comply
with impingement mortality requirements by meeting a maximum intake
velocity limit. Based on facility-specific data, EPA made a preliminary
assessment of which model facilities would not currently meet
impingement mortality requirements through either approach, and
assigned technology costs based on the installation of modified
traveling screens with a fish handling and return system. This assigned
technology is assumed to meet the BTA standard (see Sec.  125.94(b)).
However, some facilities might still incur costs for restructuring
their intakes to avoid entrapment.\61\ EPA solicits comment and data on
the costs of this requirement.
---------------------------------------------------------------------------

    \60\ Note that this does not preclude the use of other
technologies; EPA simply used the available performance data in
deriving the performance requirements and excluded technologies that
were either inconsistent performers or did not offer sufficient data
for analysis in a national categorical regulation. EPA's research
has shown that other technologies may also be capable of meeting the
proposed requirements, but EPA did not opt to identify these
technologies as the technology basis for today's proposal.
    \61\ Facilities incurring costs for impingement mortality are
assumed to meet the requirement for entrapment. Because EPA does not
know how many facilities that already comply with impingement
mortality requirements would incur additional costs to avoid
entrapment, EPA conducted a sensitivity analysis of the additional
costs; see Chapter 12 of the TDD.
---------------------------------------------------------------------------

    For facilities subject to entrainment mortality requirements, EPA
selected wet cooling towers as the technology basis for determining the
compliance costs. In some cases, costs reflect installation of multiple
technologies, as impingement mortality and entrainment mortality
requirements were applied separately to each facility. EPA also
evaluated other technologies for reducing entrainment mortality, such
as seasonal operation of cooling towers, partial towers, variable speed
pumps, and fine mesh screens. The performance of these technologies is
further described in section VI; a detailed discussion of how the costs
were developed may be found in the TDD.
5. How is facility downtime assessed?
    Downtime is the amount of time that a facility may need to shut
down due to the installation of a compliance technology. Downtime
estimates primarily assume that the facility would need to completely
shut down operations to retrofit an intake, such as relocating an
intake, connecting wet cooling towers into the facility, or reinforcing
condenser housings. Downtime estimates are provided as incremental
outages, taking into account the periodic outages all facilities
already incur as part of preventative maintenance or routinely
scheduled outages. For example, nuclear facilities have refueling
outages approximately every 18 months lasting approximately 40
days.\62\ The entrainment control implementation periods, 10 years for
fossil fuel plants and 15 years for nuclear plants, in Options 2 and 3
would provide facilities with an opportunity to schedule the retrofit
when other major upgrades are being done, reducing downtime.
---------------------------------------------------------------------------

    \62\ Nuclear Energy Institute (NEI) reported average length of
outage from 2003 to 2009.
---------------------------------------------------------------------------

    For most facilities subject to impingement mortality, no downtime
was assigned. Facilities that are replacing or rehabilitating existing
traveling screens typically do so one intake bay at a time without
affecting the overall operations. EPA has also found that facilities
that need to scrub screens do so during other routinely scheduled
outages. For some compliance technologies such as relocating an intake,
or expanding an existing intake to lower the intake velocity, several
weeks of downtime are incurred, as these are more invasive tasks.
    For facilities subject to entrainment mortality controls, EPA
reviewed historical retrofit data and site visits conducted since 2004,
and has largely retained its assumptions for downtime from the Phase II
and Phase III rules. On average, EPA assumes the net construction
downtime for a cooling tower retrofit for non-nuclear electric
generators is 4 weeks. This total downtime allows for the tie-in of the
cooling tower to the existing cooling water system. The refueling
outage downtime, the safety-sensitive nature of nuclear facility
retrofits, and other data in EPA's record supports 28 weeks as the net
construction downtime for nuclear facilities. Downtime for
manufacturing facilities that use cooling water for power and steam
generation was converted into the incremental cost for purchase of
those utilities during the outage. For individual process units other
than power or steam generation units at a manufacturing facility (i.e.
cooling water use for purposes other than power production), on average
the downtime was assumed to be zero. In EPA's extensive experience with
manufacturers while developing effluent guidelines, EPA found
manufacturers are generally able to shut down individual intakes for
specific process lines, use inventory approaches such as temporary
increases of intermediate products, and develop other workarounds
without interrupting the production of the entire facility. EPA
requests comment from those manufacturing facilities that have made
modifications to their cooling water systems on their experiences with
facility downtime. See below for further discussion of how installation
downtime in weeks is included in the estimated national costs.
6. How is the energy penalty assessed?
    The term ``energy penalty'' in relation to a conversion to closed-
cycle cooling has two components: One is the extra

power required to operate fans at a mechanical draft cooling tower, as
well as additional pumping requirements (often referred to as the
parasitic energy penalty), and the other is the lost power output due
to the reduction in steam turbine efficiency because of an increase in
cooling water temperature (often referred to as the turbine efficiency
penalty or turbine backpressure penalty). Energy penalty costs only
apply to facilities retrofitting a cooling tower; facilities installing
a new impingement mortality technology will generally see little or no
measureable change in energy usage. EPA's national level costs include
the costs for both components. The parasitic energy penalty was
included as a separate component in the O&M costs and was assessed for
all facilities. The turbine efficiency penalty was typically expressed
as a percentage of power output; EPA estimates the turbine efficiency
energy penalty for nuclear and non-nuclear power generation would be
2.5% and 1.5%, respectively (see the TDD). For most manufacturers, the
energy penalty for turbine efficiency loss for non-nuclear power plants
(i.e., 1.5%) was assumed. This may overstate costs where cooling water
is used by a manufacturing facility for purposes other than power
production.
7. How did EPA assess facility-level costs for the national economic
impacts and energy reliability analyses?
    To assess the national economic impacts, EPA conducted a modeling
analysis using IPM (Integrated Planning Model). This model is widely
used by EPA for analysis of rules and policies affecting electric
generating facilities. This analysis is used to assess economic
impacts, increases in household electricity bills, and changes in
electricity reliability. In contrast to the model facility costing
approach, the IPM model requires a facility-level cost for each
facility. Model facility costs were converted to a per MGD DIF basis,
and then averaged to derive cost equations using DIF as the independent
variable. This cost equation thus provides average costs that can be
applied to any facility by simply scaling to that facility's DIF. EPA
also used a conservative compliance scenario in order to develop a
bounding ``worst case'' impact analysis by assuming all facilities
would be subject to Entrainment Mortality reductions based on closed-
cycle cooling towers. In the worst case scenario EPA conducted the IPM
analysis using the Difficult level cost for all facilities, thereby
generating an upper bound of total costs and conservative predictions
of the economic impacts. See the EBA for more information. In
conducting its analysis, EPA found the equations used to derive the
cost module estimates produced substantially higher costs per MGD rates
at lower flow levels. To reflect the higher per unit costs of retrofits
at lower DIF (i.e. smaller) facilities, EPA derived separate model
facility cost equations for facilities with DIF <10 MGD and those with
DIF >= 10 MGD. (See the TDD).
8. How did EPA assess costs for new units?
    This section describes the data and methods used to estimate
compliance costs for new units at existing electric generators and
manufacturers. Compliance costs for new units at existing electric
generators are calculated using a similar methodology to the compliance
cost estimates for existing facilities. EPA is not able to predict
which facilities will construct new units, however the national
projections of increased capacity (i.e. additional megawatts capacity
to be constructed each year) can be converted to a number of new units
of a specified size; EPA then applied the cost equations to these
projected new units. Based on site visits, EPA has found that industry
trends towards water conservation and reuse in addition to the
operational flexibility at existing manufacturers would result in no
additional compliance costs for achieving flow commensurate with
closed-cycle cooling at new units. EPA solicits comment on this
assumption.
a. New Units at Existing Electric Generators
    Power generation units that meet the definition of a ``new unit''
will be required to meet entrainment reduction based on closed-cycle
cooling or an equivalent reduction in entrainment mortality for the
cooling water component of the intake flow based on the average intake
flow (AIF). Estimates for compliance costs for new units are based on
the net difference in costs between what cooling system technologies
would have been built under the current regulatory structure and what
will be built given the change in requirements imposed by the proposed
regulation. Compliance costs are derived using estimates of the new
generating capacity that will be subject to these requirements.
    Generally speaking, EPA has identified a number of differences in
costs between a closed-cycle cooling retrofit at an existing facility
compared to installing closed-cycle cooling at a new unit:
     New units can incorporate closed-cycle cooling in a more
cost effective manner.
     The duration of new unit construction is sufficiently long
enough that there would be, in nearly all circumstances, no net
increase in ``construction downtime.''
     For power generation systems, the design of boilers, steam
turbines and condensers ``from scratch'' allows for the optimization of
the system design and cooling water flow volume to minimize the heat
rate penalty. Flow is reduced over a comparable once-through cooling
system, which reduces closed-cycle cooling system costs.
     Because major components of the once-through intake and
cooling system must be constructed from scratch, the capital costs of
closed-cycle cooling for new units are lower than the capital costs of
once-through cooling.\63\
---------------------------------------------------------------------------

    \63\ See DCN 10-6650 and DCN 10-6651.
---------------------------------------------------------------------------

     There will be an increase in the parasitic energy
requirements associated with fan operation in the closed-cycle cooling
towers.
     While parasitic energy requirements for pumping head will
increase as well, it may be offset, at least in part, by reductions in
pumping flow associated with optimization. Any capacity losses due to
parasitic energy penalty can be accounted for in the new unit design.
     New construction allows the use of an optimized cooling
system design that can minimize any system efficiency losses associated
with conversion to closed-cycle.
Estimation of New Capacity Subject to the Rule
    New generating units will be constructed at either ``greenfield''
facilities subject to the Phase I regulation or at existing facilities
where they may be subject to the new unit requirements for entrainment
reduction.\64\ New generating capacity at existing facilities can occur
in three ways: (1) From new units added to an existing facility; (2)
repowering, replacement and major upgrades of existing units; and (3)
minor increases in system efficiency and output. Repowered, replaced,
and upgraded units are not considered new units under today's proposed
rule and would not be subject to requirements for entrainment
reduction. While a small portion of this new capacity may result from
minor increases in plant efficiency and output, this analysis assumes
all

new capacity will occur be associated with new units.
---------------------------------------------------------------------------

    \64\ This discussion will focus only on new units at existing
facilities; for a discussion of the Phase I rule, see 66 FR 65256.
---------------------------------------------------------------------------

    New power generation capacity estimates by fuel/plant type were
derived from IPM modeling. For the new unit costs analysis EPA focused
on coal and combined cycle, since these comprised the majority of
increased capacity that utilize a steam cycle and are most likely to be
constructed at existing generation facilities. In the Phase I rule
analysis, EPA determined that 76% of new coal and 88% of new combined
cycle capacity would be constructed at new ``greenfield'' facilities
and would be subject to Phase I requirements while the remainder (24%
of coal and 12% of combined cycle) would occur at existing facilities
and be subject to existing facility regulations. EPA has selected a
conservative value of 30% reflecting both coal and combined cycle to
serve as an estimate for the portion of new capacity that would be
constructed at existing facilities.
    At existing nuclear facilities, only new capacity associated the
construction of new generating units would be subject to the new unit
requirements. Considering their size and heat discharge as well as
recent trends in industry, it is assumed that any new nuclear units
will utilize closed-cycle cooling \65\ and so the capacity for these
nuclear facilities is not included in the costs of requirements for new
units. Exhibit VII-1 presents a summary of new capacity estimates for
all fuel types.
---------------------------------------------------------------------------

    \65\ Less than half of the current U.S. nuclear plants still use
once through cooling.

                                      Exhibit VII-1--Estimated New Capacity
----------------------------------------------------------------------------------------------------------------
                                                      New capacity  (MW) \a\       New capacity incurring costs
                                                 --------------------------------         under this rule
                    Fuel type                                                    -------------------------------
                                                      Annual       24 Year total      Annual
                                                      average                         average      24 Year total
----------------------------------------------------------------------------------------------------------------
Coal............................................           3,573          85,744           1,072          25,723
Combined Cycle..................................           1,491          35,795             447          10,739
----------------------------------------------------------------------------------------------------------------
\a\ Includes capacity subject to both Phase I and existing facility requirements.

Baseline Compliance
    Baseline compliance reflects the scenario whereby new units will
use once-through cooling or closed-cycle cooling. About 32% of existing
facility steam generating capacity already employs closed-cycle and
another 11% employ combination cooling systems. EPA assumes that at
existing plants where closed-cycle cooling is already employed for at
least part of the generating capacity that closed-cycle would be used
for any new capacity, regardless of the requirements of today's
proposed rule. Therefore at least 43% of new capacity is projected to
be compliant in the baseline (i.e., they will already meet the
entrainment mortality requirements of the proposed rule for new units).
For example, a number of regulatory authorities have adopted or pursued
closed-cycle cooling requirements for some or all existing facilities
(e.g., New York, California, Delaware). EPA expects this to be
particularly true where the new unit would result in a substantial
increase in the volume of once-through cooling water withdrawn above
what is currently permitted. Thus, approximately 50% of new fossil
units at existing facilities in the baseline scenario would already be
compliant with the proposed rule. EPA requests comment on this
assumption.
Repowering Versus New Units
    The increased capacity at existing fossil fuel facilities is
divided into two types of projects. The first is new unit(s) added
adjacent to the existing generating units which would require a new
intake or the existing intake to be substantially modified in order to
supply the needed additional volume of cooling water. The second is a
repowered unit which replaces an existing generating unit(s) and is
assumed to be sized such that the existing once-through cooling water
intake volume will provide sufficient flow to meet heat discharge
requirements. Based on 2007 IPM projections (since more recent
projections do not include this distinction) approximately 85% of
projected total new combined cycle capacity was estimated to be
repowered oil and gas units. The estimate for repowered coal capacity
was very small (less than 1%). However, since there are significant
economic advantages to repowering, EPA believes this to be an
underestimate and selected a more conservative value of 10%. Exhibit
VII-2 presents the capacity values assumed to be compliant in the
baseline or that require costs associated with closed-cycle cooling for
new added units versus repowering.

                  Exhibit VII-2--New Capacity Subject to New Unit Requirement by Cost Category
----------------------------------------------------------------------------------------------------------------
                                                                        Capacity subject to new unit compliance
                                                                                costs (MW)
                Fuel type                                            -------------------------------------------
                                                                         Annual average         24 Year total
----------------------------------------------------------------------------------------------------------------
Coal....................................  Baseline is Compliant.....                   536                12,862
                                          New Added Unit............                   482                11,575
Combined Cycle..........................  Baseline is Compliant.....                   224                 5,369
                                          New Added Unit............                    34                   805
----------------------------------------------------------------------------------------------------------------

Compliance Cost Estimation
    Compliance costs reflect compliance with the proposed requirements
for closed-cycle for the new unit; these costs do not represent costs
to retrofit the entire facility to closed-cycle. Compliance costs for
new units are derived from EPA's estimates for retrofitting a closed-
cycle cooling system at existing facilities where the costs are
expressed on a per MGD basis. For new units, the cost equations are
converted to a cost per MW capacity. The cooling water flow estimates
are based on plant fuel efficiency values of 42% for coal (the average
of values for super-critical and ultra-critical steam), 57% for
combined cycle, and 33.5% for nuclear. [DCN 10-2827]. Cost components
were broken out as follows.
Capital Costs
    EPA has found that for new units, the total estimated capital costs
for a closed-cycle cooling system is slightly less than the capital
costs of a once-through cooling system (when including costs for a new
intake structure). Therefore, a conservative estimate of the
incremental compliance capital costs are $0 for new units.
O&M Costs
    Fixed and variable O&M costs are adjusted by deducting the O&M
costs for traveling screens assumed in the baseline once-through
system. Energy costs are also adjusted downward to account for reduced
pumping volume passing through the intake structure and adjusted up to
account for the increase in pumping head through the cooling tower.
Downtime
    Each of the new units will involve extensive construction
activities that would result in a prolonged construction downtime
regardless of the cooling system requirements. Thus, no downtime costs
are assessed for new unit compliance.
Energy Penalty
    The energy penalty consists of parasitic load and heat rate
penalties. Both types of installation--new and retrofit--face parasitic
load associated with fans and pumps, but only retrofits would face a
heat rate penalty, which is the largest portion of a retrofit energy
penalty. Energy penalty costs associated with net changes in parasitic
energy requirements between once-through and closed-cycle cooling are
included in the O&M cost estimates.
b. New Units at Existing Manufacturers
    Similar to new units at existing electric generators, manufacturing
``units'' that meet the definition of a ``new unit'' will be required
to meet entrainment reduction requirements. These requirements will
require closed-cycle cooling or an equivalent reduction in entrainment
for the cooling water component of the intake flow based on the average
intake flow (AIF). Estimates for compliance costs for new units are
based on the net difference in costs between what would have been built
under the current regulatory structure (baseline) and what will be
built given the change in requirements imposed by the proposed
regulation. Thus, baseline manufacturing unit process design and
cooling water technology would be based on the response to the
permitting authorities application of existing requirements including
316(b), applicable industrial water use and discharge standards (e.g.,
categorical standards), and BPJ.
    As discussed in section IV of the preamble, it has become standard
practice for industries to adopt water use reduction and reuse
practices wherever practical. A new unit provides the opportunity to
employ such measures to the fullest extent. Thus, the baseline cooling
AIF for ``new units'' at manufacturers should, in most cases, be much
smaller than the AIF for a comparable existing unit. This is especially
true for new units that perform a similar function or produce a similar
product to existing units since economic factors such as the need to
increase process efficiencies are often driving factors in the decision
to construct a new unit. EPA recognizes that while this appears to be a
general trend, it may not always be true on a site-specific basis.
    For manufacturing process units that are newly constructed, many of
the same cost-related factors listed above for power generators apply
but additional factors may include:
     A much greater proportion of intake flow is used for
process water and other non-cooling purposes which greatly increases
the opportunity to design and incorporate cooling water reuse
strategies within the unit.
     Where the new unit comprises only a portion of the plant,
cooling water reduction may be accomplished through reuse elsewhere
within the plant. The proposed rule provides credit for such flow
reductions.
     The modular nature of closed-cycle cooling allows for the
limited application of closed-cycle cooling only to the portion of
cooling flow necessary to meet any additional reductions not accounted
for by any other reuse or reduction strategies employed. Additionally,
new units can utilize cooling system designs specifically tailored to
process requirements. The modular nature of closed-cycle cooling and
the flexibility inherent in the process system allows for more optimal
placement of cooling tower units, thus minimizing piping costs.
     Flow reductions associated with the use of variable speed
pumps can result in benefits associated with both reduced flow and
pumping energy costs.
    For power generation facilities and generating units that use once-
through cooling, the majority of the intake flow is used for non-
contact cooling purposes. Process water typically constitutes a few
percent or less of the total. A review of the responses to the detailed
technical survey showed that the median and average values for the
percent of design intake flow used for cooling purposes reported for
each separate cooling water intake at power generation facilities were
100% and 85% respectively. In contrast, most industrial manufacturing
operations utilize a substantial portion of intake water for non-
cooling purpose and the same median and average values for
manufacturing facilities were 50% and 52%, respectively. In addition,
this cooling flow component data includes contact cooling water, as
discussed in section IV.A (i.e., flow reduction is only required for
non-contact cooling water flows), thus decreasing the proportion.
Therefore, a ``typical'' manufacturing unit may use less than 50% of
AIF for cooling purposes of the type that may be subject to the ``new
unit'' requirements. In many cases, this ``typical'' facility may be
able to reuse 100% of the cooling water in place of the process
component. Thus, the ``typical'' manufacturing facility may be capable
of designing a ``new'' process that could meet the ``new unit''
requirements through water reuse alone. EPA has observed significant
innovation and water reuse during site visits to manufacturing
facilities, and notes extensive industry trends towards internal water
and energy audits.
    Since this 50% value is the median of all reported manufacturing
cooling water intake systems, at least half of manufacturing cooling
water systems may have the potential to meet the ``new unit''
requirements simply by reusing non-contact water as process water. For
the remainder, modifications to the process that reduce cooling water
use such as use of variable speed pumps may provide additional
reduction. For some, there may be a need to install

cooling towers for the cooling flow component that cannot be reused.
EPA assumes, however, that this, however, will in most instances be a
small portion of the total intake flow. Also, if the new unit comprises
only a portion of the entire manufacturing facility, there may be other
process units and plant operations nearby that could reuse the cooling
water (or supply reusable water) in order to meet the flow reduction
requirements. The proposed rule encourages facilities to incorporate
flexible water use arrangements, including a provision where cooling
water that is reused elsewhere in the facility is not considered
cooling water; as a result, facilities will have an incentive to reuse
water and avoid being subject to 316(b) requirements.
    For new units that would require an increase in intake flow, EPA
has found that the capital costs of the new intake and screen
technology which requires deeper pump and intake wells to accommodate
source water depth variations will be comparable to the capital costs
for closed-cycle technology. In these cases, closed-cycle may have
slightly higher O&M costs for pump and fan energy but these costs may
be offset by other cost savings such as reductions in water treatment
costs.
    The definition of new manufacturing units limits the applicability
of closed-cycle requirements to new units. As such, it is assumed that
the construction activities would involve substantial downtime periods
that would be of similar or more likely greater duration than required
for construction and tie-in activities associated with the closed-cycle
cooling technology. EPA concludes that only a small portion of new
units will need to meet new unit flow reduction requirements through
the use of closed-cycle cooling and the associated net costs will be
minimal. EPA requests comment on these costing assumptions.

C. Social Cost of the Regulatory Options

    EPA calculated the social cost of the four regulatory options for
existing Manufacturers and Electric Generators using two social
discount rate values: 3 percent and 7 percent. For the analysis of
social costs, EPA discounted all costs to the beginning of 2012, the
date at which this proposal would become effective under the regulation
development schedule. EPA assumed that all facilities subject to the
regulation would achieve compliance between 2013 and 2027, inclusive,
depending on the compliance schedules associated with the four
regulatory options considered in the proposed rule for specific
categories of facilities. EPA performed the social cost analysis over a
50-year period to reflect: The last year in which individual facilities
are expected to achieve compliance (2027) under any of the regulatory
options considered for this analysis, the technology life of the
longest-lived compliance technology installed at any facility (30
years), and a period of 5 years after the last year of compliance
technology operation during which benefits continue to accrue. Under
this framework, the last year for which costs were tallied in the
analysis is 2056, with benefits continuing on a diminishing basis
through 2061. Because the analysis period extends beyond the useful
life of compliance equipment assumed to be installed at facilities that
achieve compliance before 2017, the social cost analysis accounts for
re-installation of IM compliance technologies after the end of their
initial useful life periods; however, EPA does not expect in-scope
facilities to completely re-build cooling towers (components such as
piping and the concrete basin can be reused) and EPA expects other
technology replacement costs (such as pumps and fill material) are
accounted for as part of the ongoing O&M expenses for cooling towers.
Costs incurred by governments for administering the regulation were
analyzed over the same time frame. This analysis accounts for
technology costs associated with new units starting in the first year
after promulgation, i.e., 2013 (for more information on new units see
Chapter 3: Development of Costs for Regulatory Options of the EBA
report).
    At a 3 percent discount rate, EPA estimates annualized costs of
compliance of $384 million under Option 1, $4,463 million under Option
2, $4,631 million under Option 3, and $327 million under Option 4. At a
7 percent discount rate, these costs are $459 million, $4,699 million,
$4,862 million, and $383 million, respectively. 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, one-time costs of installation downtime,
annual fixed and variable operating and maintenance (O&M) costs, the
value of electricity requirements for operating compliance technology,
and permitting costs (initial permit costs, annual monitoring costs,
and permit reissuance costs). In addition, all Electric Generators are
expected to become subject to I&E mortality requirements at the 125 MGD
threshold under Option 2. Social cost also includes implementation
costs incurred by Federal and State governments. EPA's social cost
estimates exclude the cost to facilities estimated to be baseline
closures. As further described in the EBA document, in the case of
Electric Generators, the baseline closure generating units were
identified in Energy Information Administration reports or in the
baseline IPM analyses, as having closed or projected to close
independent of the requirements of the existing facilities rule. For
Manufacturers, EPA's analyses indicated that these facilities are in
sufficiently weak financial condition before outlays for this
regulation, that the facilities are likely to close, again, independent
of the requirements of the existing facilities rule. Because these
facilities are not expected to comply with the existing facilities
rule, EPA did not include the costs that would otherwise be assigned to
these facilities in the analysis of social cost. Consistent with this
treatment of costs, EPA also did not include benefits from these
facilities in the tally of benefits to society for the analysis of
social costs and benefits of the existing facilities rule.
    Exhibit VII-3 presents the social cost of the proposed options, by
type of cost, using 3 percent and 7 percent discount rates.

                                      Exhibit VII-3--Annualized Social Cost
                                            [In millions, 2009 $] \a\
----------------------------------------------------------------------------------------------------------------
                                              Option 1          Option 2          Option 3          Option 4
----------------------------------------------------------------------------------------------------------------
3% Discount Rate:
Direct Compliance Cost:
    Manufacturers.......................            $61.31           $141.69           $172.92            $33.99
    Electric Generators.................            318.77          4,319.59          4,457.79            289.77
                                         -----------------------------------------------------------------------
    Total Direct Compliance Cost........            380.08          4,461.28          4,630.71            323.77

State and Federal Administrative Cost...              3.71              1.62              0.92              2.79
                                         -----------------------------------------------------------------------
    Total Social Cost...................            383.80          4,462.90          4,631.62            326.55
7% Discount Rate:
Direct Compliance Cost:
    Manufacturers.......................             68.90            133.60            157.49             39.04
    Electric Generators.................            385.68          4,564.02          4,703.65            340.80
                                         -----------------------------------------------------------------------
    Total Direct Compliance Cost........            454.58          4,697.62          4,861.14            379.84
State and Federal Administrative Cost...              4.23              1.72              0.91              3.26
                                         -----------------------------------------------------------------------
    Total Social Cost...................            458.81          4,699.35          4,862.05            383.10
----------------------------------------------------------------------------------------------------------------
\a\ These social cost estimates do not include costs associated with installation of cooling tower technology at
  new generating units subject to today's rule. They also do not include costs associated with complying with
  site-specific BTA determinations under Options 1, 2, and 4. Section VI.I discusses costs for complying with
  site-specific BTA determinations.

    As shown in Exhibit VII-3, compliance cost in the Electric
Generators segment accounts for the majority of total social cost and
direct compliance cost under all four options. On a per regulated
facility basis and at a 3 percent discount rate, annualized pre-tax
costs in the Electric Generators segment amount to $0.57 million under
Option 1, $7.73 million under Option 2, $7.97 million under Option 3,
and $0.52 million under Option 4.\66\ For Manufacturers, the average
cost per regulated facility at a 3 percent discount rate is $0.12
million under Option 1, $0.27 million under Option 2, $0.33 million
under Option 3, and $0.07 million under Option 4.\67\ EPA's analysis
found a similar profile of per facility costs by industry segment for
the 7 percent discount rate case (see EBA Chapter 11 for additional
detail). While all four options require some form of control technology
at all facilities with design intake flows of two MGD or greater,
Option 2 and Option 3 require more costly technologies, which raises
the per-facility cost of compliance in these options.
---------------------------------------------------------------------------

    \66\ Calculated using the total of 559 in-scope Electric
Generators based on technical facility weights.
    \67\ Calculated using the total of 518 in-scope Manufacturers
based on technical facility weights.
---------------------------------------------------------------------------

    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 under 3 and 7 percent discount
rates, respectively, of approximately $3.71 million and $4.23 million
(Option 1), $1.62 million and $1.72 million (Option 2), $0.92 million
and $0.91 million (Option 3), and $2.79 million and $3.26 million
(Option 4).
    EPA also estimated the costs for installation of closed cycle
cooling system technology at New Generating Units, as required by
today's rule. These costs are based on the estimates of occurrence of
new unit construction that would be subject to the New Units
requirement, and the incurrence of costs as described above in the
section titled ``How Did EPA Assess Costs for New Units?''
    The social costs of adding closed cycle cooling system capability
at newly constructed units at existing facilities are not included in
the total social cost tallies presented above. EPA did not include
these costs in the tallies presented above because EPA did not estimate
benefits from installation of closed cycle cooling systems at these
units (their location is unknown). As a result, comparisons of social
cost, which would include these costs, with benefits, which would not
include the I&E mortality reductions from installing those closed cycle
cooling systems, would be inconsistent. The costs for adding closed
cycle cooling system capability at newly constructed units are the same
across all four of the regulatory options presented in today's proposed
rule, because the technology performance requirements for existing
units at existing facilities, which vary by regulatory option, do not
apply to these newly constructed generating units. On an annualized
cost base, these amount to $14.7 million at a 3 percent discount rate,
and $10.9 million at a 7 percent discount rate.

D. Economic Impact

    EPA assessed the economic impact of the regulatory options in
different ways depending on the affected segment, Manufacturers or
Electric Generators:
    For Manufacturers, EPA assessed the impact of compliance costs on
business viability at the level of the affected facility (facility-
level analysis), including assessment of the potential for facility
closures and of the potential for affected facilities to incur
financial stress short of closure. For manufacturers, EPA also assessed
the impact of compliance requirements on the entities that own in-scope
facilities (firm-level analysis), based on the level of compliance
costs incurred by the total of in-scope facilities owned by a firm in
relation to the revenue of the firm.
    For Electric Generators, EPA assessed economic impact in three
ways: (1) An assessment of the impact of compliance costs on first,
complying facilities and second, the entities that own those
facilities, based on comparison of compliance costs to facility and
firm revenue, (2) an assessment of potential electricity price effects
on residential and other electricity consumers, and (3) an assessment
of the impact of the proposed regulatory options within the context of
the electricity markets in which affected facilities operate.
    These analyses are based on the facilities included in EPA's
previous 316(b) surveys of electric generators and those manufacturing
industries whose operations are most reliant on cooling water and that
are expected to be most affected by this proposal. For each regulatory
option, only those facilities that would be subject to national
standards, based on their DIF, are included in the analyses.
    The following sections summarize the methods and findings for
manufacturers and electric power generators for these analyses.
a. Manufacturers
    This section presents EPA's estimated economic impacts on
Manufacturers for the three regulatory options. The

economic impact analyses for Manufacturers assess how facilities, and
the firms that own them, are expected to be affected financially by the
regulatory options. The facility impact analysis starts with compliance
cost estimates from the EPA engineering analysis (see section VII.B)
and then calculates how these compliance costs would affect the
financial performance and condition of the sample facilities and owning
firms.
    Measures of economic impact include facility closures and
associated losses in revenue and employment, financial stress short of
closure (``moderate impacts''), and firm-level impacts.\68\
---------------------------------------------------------------------------

    \68\ For the analysis of three regulatory options presented in
this document, neither employment loss nor output loss were in fact
relevant because none of these options resulted in regulatory
closures.
---------------------------------------------------------------------------

    In conducting the facility impact analysis, EPA first eliminated
from the analysis those facilities that the Agency estimated to be at
substantial risk of financial failure regardless of any additional
financial burden that might result from the regulatory options under
consideration (baseline closure facilities). Second, for the remaining
facilities, EPA evaluated how compliance costs would likely affect
facility financial performance and condition. 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--
including an allowance for ongoing capital expenditures required by the
business. 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. Use of the 7
percent discount rate is consistent with guidance from the Office of
Management and Budget on the opportunity cost of capital to society.
    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--and used this value to
determine whether a given facility is a baseline closure (for details
see Chapter 4 of the EBA report). 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 and other economic analyses.
    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. Based on an
assessment of cost pass-through potential in the affected industries
(see Chapter 5 and Appendix 4.A of the EBA), EPA assumed that none of
the facility's compliance costs could be passed on to its customers as
price and revenue increases--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 rule. EPA established thresholds for two measures of financial
performance and condition--interest coverage ratio and pre-tax return
on assets--and compared the facilities' performance before and after
compliance under each regulatory option with these thresholds. 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 VII-4 presents projected baseline closures for the
estimated facilities in the Primary Manufacturing Industries and
additional known facilities in Other Industries.\69\ From the analysis
as outlined above, EPA determined that 73 facilities (or 13 percent) of
the estimated 569 regulated facilities in the six Primary Manufacturing
Industries are baseline closures. The highest percentages of baseline
closures occur in the Steel industry sector (32 percent). An additional
three facilities (or 30 percent) of the 10 known facilities in Other
Industries are projected to be baseline closures. These facilities were
excluded from the post-compliance analysis of regulatory impacts,
leaving 504 facilities for the assessment of compliance impacts.
---------------------------------------------------------------------------

    \69\ The estimated number of Manufacturers facilities considered
in the impact analysis (579) differs from the number reported in the
broader analyses (592). 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 revised weights are referred to as the economic analysis
weights). 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, which due to
rounding error results in a difference of 13 between the facilities
in the impact analysis and those in the other analyses.

                          Exhibit VII-4--Summary of Baseline Closures for Manufacturers
----------------------------------------------------------------------------------------------------------------
                                                                Number of       Percentage of
                 Sector                    Total number of      baseline          baseline        Operating in
                                           facilities \a\       closures          closures          baseline
----------------------------------------------------------------------------------------------------------------
Paper...................................               230                32                14               198
Chemicals...............................               171                 4                 3               167
Petroleum...............................                36                 5                15                30
Steel...................................                68                22                32                46
Aluminum................................                27                 3                12                24
Food and Kindred Products...............                37                 6                17                31
Total Facilities in Primary                            569                73                13               497
 Manufacturing Industries...............

Additional known facilities in Other                    10                 3                30                 7
 Industries.............................
                                         -----------------------------------------------------------------------
    Total Manufacturers Facilities......               579                76                13               504
----------------------------------------------------------------------------------------------------------------
\a\ Economic Analysis Weights were used to determine facility counts. See preceding footnote.

ii. Number of Facilities Subject to National Standards
    EPA estimates that all of these 504 Manufacturers facilities--497
facilities in the Primary Manufacturing Industries and 7 facilities in
the Other Industries--are subject to the requirements under the four
regulatory options, although the technology response anticipated at
individual facilities differs under each option. Under Option 1, all
504 facilities passing the baseline closure test would be required to
meet IM standards and EPA estimates that 370 will need to install new
technology in order to do so. Under Option 2, 57 facilities with DIF
exceeding 125 MGD would be required to meet I&E mortality standards,
and EPA estimates that all of these facilities would need to retrofit
closed-cycle cooling. The remaining 448 facilities would be subject
only to IM standards, and EPA estimates that 366 would need to install
new technology to meet these requirements. Under Option 3, all 504
facilities would be required to meet I&E mortality standards, and in
this case EPA estimates that 426 facilities would need to install a
cooling tower to meet these requirements. In addition, EPA estimates
that 181 facilities would need to install additional IM technology to
meet Option 3's regulatory requirements. Under Option 4, 156 facilities
would be required to meet IM standards; in this case, EPA estimates
that 139 facilities would need to install new technology to meet this
requirement.
iii. Post-Compliance Facility Impact Analysis; Summary of Impacts
    Of the 504 Manufacturers facilities potentially subject to
regulation after excluding baseline closures, EPA estimated that no
facilities would close or incur employment losses as a result of the
Options. EPA also found that no facilities would incur moderate impacts
under Options 1, 2, and 4, but 17 facilities would incur moderate
impacts under Option 3.
    Exhibit VII-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
exclude compliance costs for baseline closures. The total annualized,
after-tax compliance cost reported in Exhibit VII-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 from the calculation of compliance costs as included in the
calculation of the total social costs of the regulation (see Section
VII.C) where costs are accounted for on a pre-tax basis.

                     Exhibit VII-5--Facility Impacts and Compliance Costs for Manufacturers
----------------------------------------------------------------------------------------------------------------
                                              Option 1          Option 2          Option 3          Option 4
----------------------------------------------------------------------------------------------------------------
                                        Primary Manufacturing Industries
----------------------------------------------------------------------------------------------------------------
Number of Facilities Operating in                      497               497               497               497
 Baseline...............................
Number of Closures (Severe Impacts).....                 0                 0                 0                 0
Percentage of Facilities Closing........                0%                0%                0%                0%
Number of Facilities with Moderate                       0                 0                17                 0
 Impacts................................
Percentage of Facilities with Moderate                  0%                0%             3.40%             0.00%
 Impacts................................
Annualized Compliance Costs (after tax,             $40.78           $108.71           $147.87            $23.38
 million 2009 $)........................
----------------------------------------------------------------------------------------------------------------
                                 Additional Known Facilities in Other Industries
----------------------------------------------------------------------------------------------------------------
Number of Facilities Operating in                        7                 7                 7                 7
 Baseline...............................
Number of Closures (Severe Impacts).....                 0                 0                 0                 0
Percentage of Facilities Closing........                0%                0%                0%                0%
Number of Facilities with Moderate                       0                 0                 0                 0
 Impacts................................
Percentage of Facilities with Moderate                  0%                0%                0%                0%
 Impacts................................
Annualized Compliance Costs (after tax,              $1.13             $1.52             $1.99             $0.60
 million 2009 $)........................
----------------------------------------------------------------------------------------------------------------

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. 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. 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 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 EBA Chapter 4 for
information on the analysis of firm-level impacts).
    2. 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 inverted the
prior assumption and 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.
    Exhibit VII-6 summarizes the results of the firm-level analysis for
these two analytic cases.

                                 Exhibit VII-6--Firm-Level After-Tax Annual Compliance Costs as a Percentage of Revenue
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Not analyzed due to   Number and percentage with after tax annual compliance costs/
                                                                       lack of revenue                          annual revenue of:
                                                                       information \b\   ---------------------------------------------------------------
            Number of firms in the analysis              Pot. reg. ----------------------    Less than 1%             1-3%               At least 3%
                                                                                ---------------------------------------------------------------
                                                                      Number       %       Number      %        Number       %        Number       %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Primary Manufacturing Industries
--------------------------------------------------------------------------------------------------------------------------------------------------------

Case 1: 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 \a\........................................................................................................................
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Option 1...............................................        117          3          3      113         96          0          0          1          1
Option 2...............................................        117          3          3      113         96          0          0          1          1
Option 3...............................................        117          3          3      113         96          0          0          1          1
Option 4...............................................        117          0          0      117        100          0          0          0          0
--------------------------------------------------------------------------------------------------------------------------------------------------------

Case 2: 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............................................................................................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Option 1...............................................        359          9          3      349         97          0          0          1          0
Option 2...............................................        359          9          3      349         97          0          0          1          0
Option 3...............................................        359          9          3      349         97          0          0          1          0
Option 4...............................................        359          0          0      359        100          0          0          0          0
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Other Industries
--------------------------------------------------------------------------------------------------------------------------------------------------------
Option 1...............................................          9          0          0        9        100          0          0          0          0
Option 2...............................................          9          0          0        9        100          0          0          0          0
Option 3...............................................          9          0          0        9        100          0          0          0          0
Option 4...............................................          9          0          0        9        100          0          0          0          0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The alternative analysis case concepts are not applicable to the Other Industries firms and facilities, because these facilities do not receive
  sample weights.
\b\ For Options 1, 2, and 3, all facilities and parent firms are assigned costs; however three firms are not analyzed because no revenue data is
  available. In Option 4, these three firms are assigned no costs, and so by definition have cost to revenue ratios less than 1% and are categorized as
  such.

    As presented in Exhibit VII-6, EPA estimated that the number of
firms owning regulated facilities in the Primary Manufacturing
Industries range from 117 (Case 1 estimate) to 359 (Case 2 estimate),
depending on the assumed ownership cases outlined above. An additional
9 firms are known to own facilities in Other Industries.\70\
---------------------------------------------------------------------------

    \70\ The alternative analysis case approaches are not applicable
to the Other Industries firms and facilities, because these
facilities do not receive sample weights.
---------------------------------------------------------------------------

    EPA's analyses indicate that the number of firms falling in the
reported cost-to-revenue impact ranges is the

same across Options 1, 2, and 3, by analysis case. No firms fall in the
reported impact ranges under Option 4 for either analysis case. Under
Case 1, Lower Bound Estimate of Number of Firms Owning Facilities/Upper
Bound Estimate of Costs Incurred by these Firms, zero of the estimated
117 firms owning Manufacturers facilities incur costs between 1 and 3
percent of revenue for all Options, and one firm incurs costs exceeding
3 percent of revenue under Options 1, 2, and 3. No firms incur costs
exceeding 3 percent of revenue under Option 4. The remaining 113
(Options 1, 2, and 3), and 117 (Option 4) firms incur costs below 1
percent of revenue or no costs.
    Under Case 2, Upper Bound Estimate of Number of Firms Owning
Facilities/Lower Bound Estimate of Costs Incurred by these Firms, zero
firms in the Primary manufacturing industries are estimated to incur
costs between 1 and 3 percent of revenue under all Options. Like Case
1, one firm incurs costs exceeding 3 percent of revenue under Options
1, 2, and 3, and no firms incur costs exceeding 3 percent of revenue
under Option 4. The remaining 349, and 359 firms, respectively, incur
costs below 1 percent of revenue or no costs.
    For the firms owning Other Industries facilities, EPA's analysis
indicates that across all Options, no firms incur costs exceeding 1
percent of revenue.
    Regardless of the analysis case or regulatory option, the number
and percentage of firms incurring costs between one and three percent
of revenue, or exceeding three percent of revenue, are small.
b. Electric Generators
    For Electric Generators, EPA assessed the economic impact of the
regulatory options in three major ways: (1) Entity level impacts (at
both the facility and parent company levels), (2) potential electricity
price effects on residential and other electricity consumers, and (3)
broader electricity market impacts (taking into account the
interconnectedness of regional and national electricity markets, using
five metrics, for the full industry, for in-scope facilities only, and
as the distribution of impacts at the facility level).