Economic Analysis for the LT2ESWTR Proposal June 2003 7 1 7. Economic Impact Analysis 7.1 Introduction As part of the rulemaking process, EPA is required to address the direct and indirect burdens that the LT2ESWTR may place on certain types of governments, businesses, and populations. This chapter presents the analyses performed by EPA in accordance with the following 12 Federal mandates.

1. The Regulatory Flexibility Act ( RFA) of 1980, as amended by the Small Business Regulatory Enforcement Fairness Act ( SBREFA) of 1996. 2. Analysis of small system affordability to determine variance technologies in accordance with Section 1415( e)( 1) of the 1996 Safe Drinking Water Act ( SDWA) Amendments. 3. Feasible technologies available to all systems as required by Section 1412( b)( 4)( E) of the 1996 SDWA Amendments. 4. Technical, financial, and managerial capacity assessment as required by Section 1420( d)( 3) of the 1996 Amendments to SDWA. 5. Paperwork Reduction Act ( a separate Information Collection Request document contains the complete analysis). 6. Unfunded Mandates Reform Act ( UMRA) of 1995. 7. Executive Order 13175 ( Consultation and Coordination with Indian Tribal Governments). 8. Impacts on sensitive subpopulations as required by Section 1412( b)( 3)( c)( i) of the 1996 SDWA Amendments. 9. Executive Order 13045 ( Protection of Children from Environmental Health Risks and Safety Risks). 10. Executive Order 12898 ( Federal Actions to Address Environmental Justice in Minority Populations and Low Income Populations). 11. Executive Order 13132 ( Federalism). 12. Executive Order 13211 ( Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use).

Many of the requirements and executive orders listed above call for an explanation of why the rule is necessary, the statutory authority for the rule, and the primary objectives that the rule is intended to achieve ( refer to Chapter 2 for more information regarding the objectives of the rule). More specifically, they are designed to assess the financial and health effects of the rule on sensitive, low income, and Tribal populations as well as on small systems. The chapter also examines how much additional capacity systems will need to meet LT2ESWTR requirements and whether there are existing, feasible technologies and treatment techniques available to meet rule requirements.

7.2 Regulatory Flexibility Act and Small Business Regulatory Enforcement Fairness Act The RFA generally requires an agency to prepare a regulatory flexibility analysis for any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or other statute, unless the Agency certifies that the rule will not have a significant economic impact on a substantial number of small entities ( 5 USC 603( a)). EPA must analyze the impacts of a regulation on all 1 Revenue information was used whenever available. When it was not available, different measures, such as sales or annual operating expenditures, were used.

Economic Analysis for the LT2ESWTR Proposal June 2003 7 2 entities and individually for each type of entity, including PWSs run by small businesses, small governments, and small organizations.

The RFA provides default definitions for each type of small entity, discussed in more detail in Appendix W. The RFA also authorizes an agency to use alternative definitions for each category of small entity, " which are appropriate to the activities of the agency" after proposing the alternative definition( s) in the Federal Register and taking comment ( 5 USC secs. 601( 3)  ( 5)). In assessing the impacts of the LT2ESWTR on small entities, EPA considered small entities to be PWSs serving 10,000 or fewer persons, which is the cut off level specified by Congress in the 1996 Amendments to SDWA for small system flexibility provisions.

EPA conducted a screening analysis to determine if the LT2ESWTR would have a significant economic impact on a substantial number of small entities ( see Appendix W). In this analysis, EPA evaluated the potential economic impact of the rule on small entity PWSs by comparing annualized compliance costs as a percentage of annual revenues1 for different small entity classifications. Chapter 4 of this EA provides data on small entity PWSs potentially subject to the LT2ESWTR, and Chapter 6 discusses actions systems would need to take to comply with the rule and their associated costs. Using information from these two chapters, along with additional information from the Safe Drinking Water Information System ( SDWIS), the Community Water System Survey ( CWSS), and the U. S. Census, EPA conducted a quantitative analysis of small system impacts resulting from the rule.

Based on the information presented in Appendix W, EPA certifies that the LT2ESWTR will not have a significant economic impact on a substantial number of small entities. EPA has determined that 274 small entity PWSs, which are 2.3 percent of all small entity PWSs affected by the LT2ESWTR, will experience an impact of 1 percent or greater of average annual revenues. Thus, relative to the economic impact condition of 1 percent or greater of annual revenues, the LT2ESWTR is well below the criteria of 1,000 systems or 20 percent of systems for presuming that the rule will not have a significant economic impact on a substantial number of small entities. Further, the Agency has determined that 31 small entity PWSs, which are 0.3 percent of all small entity PWSs subject to the LT2ESWTR, will experience an impact of 3 percent or greater of average annual revenues. Thus, relative to the economic impact condition of 3 percent or greater of annual revenues, the LT2ESWTR is well below the criteria of 100 systems or 20 percent of systems for presuming that the rule will not have a significant economic impact on a substantial number of small entities.

Because EPA has certified that the LT2ESWTR will not have a significant economic impact on a substantial number of small entities, the Agency has not conducted an Initial Regulatory Flexibility Analysis ( IRFA) or a Final Regulatory Flexibility Analysis ( FRFA). Despite this certification, the Agency conducted extensive evaluations on how to minimize the impact of the rule on small entity PWSs, in accordance with Section 603 of the RFA.

Summary of the SBREFA Process The RFA, as amended by SBREFA, and Section 203 of UMRA require EPA to provide small governments with an opportunity for timely and meaningful participation in the regulatory development Economic Analysis for the LT2ESWTR Proposal June 2003 7 3 process. EPA provided stakeholders, including small governments, with several opportunities to provide input on the LT2ESWTR. For example, EPA conducted three outreach conference calls to solicit feedback and information from the Small Entity Representatives ( SERs) on issues regarding LT2ESWTR impacts on small systems. SERs included small system operators, local government officials, and small nonprofit organizations.

During the first call, held on January 28, 2000, EPA presented an overview of the SDWA, as amended in 1996 and SBREFA. Issues and schedules for the LT2ESWTR rules were also discussed. The second call was held on February 25, 2000. EPA presented the stakeholders with an overview of the EPA regulatory development process and background on the development of the Stage 2 Microbial Disinfectants/ Disinfection Byproduct ( M DBP) Rules, particularly regarding health risks, issues/ options identified by the Federal Advisory Committees Act ( FACA) Committee, and Disinfection Byproduct ( DBP) and microbial occurrence in small systems. The third meeting was held on April 7, 2000. EPA presented SERs with a cost estimate and an impact analysis for selected regulatory options. In addition, EPA presented SERs with schedules for the FACA and SBREFA processes.

These three outreach calls generated a wide range of information, issues, and technical input from SERs. To provide SERs with a foundation for commenting on these rules, EPA provided them with extensive background information. In general, the SERs were concerned about the impact of these proposed rules on small water systems ( because of their small staff and limited budgets), small systems' ability to acquire the technical and financial capability to implement requirements, maintaining the flexibility to tailor requirements to their needs, and limitations of small systems. The Agency used the feedback received during these meetings in developing the LT2ESWTR. EPA also mailed a draft version of the preamble to the attendees of these meetings.

The Agency convened a Small Business Advocacy Review ( SBAR) Panel, in accordance with the RFA as amended by SBREFA, to address small entity concerns, including those of small local governments. EPA convened the SBAR Panel after completing the consultation meetings with SERs on the LT2ESWTR. Eight of the small entities represented small governments. SERs' concerns were provided to the SBAR Panel when the panel convened on April 25, 2000.

7.3 Small System Affordability Section 1415( e)( 1) of SDWA applies to most rules and allows States to grant variances to small water systems in lieu of complying with a maximum contaminant level ( MCL) if EPA determines that no nationally affordable compliance technologies exist for that system size/ water quality combination. The system must then install an EPA listed variance treatment technology ( Section 1412( b)( 15)) that makes progress toward the MCL, if not necessarily reaching it. Section 1415( e)( 6)( B) of SDWA, however, applies to the LT2ESWTR and states that a variance shall not be available under the above noted subsection for a " national primary drinking water regulation for a microbial contaminant ( including a bacterium, virus, or other organism) or an indicator or treatment technique for a microbial contaminant." This EA does not identify affordable compliance technologies or variance treatment technologies because the LT2ESWTR is a regulation to control a microbial contaminant. Economic Analysis for the LT2ESWTR Proposal June 2003 7 4 7.4 Feasible Treatment Technologies for All Systems In accordance with Section 1412( b)( 4)( E) of the 1996 SDWA Amendments, EPA examined whether there were existing, feasible technologies and treatment techniques available that would allow systems to meet the LT2ESWTR requirements. EPA determined that filtered systems of all sizes could meet the LT2ESWTR requirements using ultraviolet light ( UV). Small systems could potentially meet the requirements using cartridge filtration, while medium and large systems could use ozone. According to the toolbox of treatment techniques ( described in Chapter 6), UV can achieve 3 log reduction of Cryptosporidium, cartridge filtration may achieve up to a 2 log reduction, and ozone can achieve 2 log reduction at reasonable doses. In fact, many small systems are predicted to choose cartridge filtration or UV as treatment techniques.

The LT2ESWTR requires unfiltered systems to use two disinfectants. Considering studies that show UV can achieve greater reduction of Cryptosporidium at higher doses, it is feasible for unfiltered systems to achieve 3 log reduction using two different technologies.

All uncovered finished water reservoirs can meet the LT2ESWTR requirements by covering their reservoirs or treating the effluent.

7.5 Effect of Compliance with the Proposed LT2ESWTR on the Technical, Managerial, and Financial Capacity of Public Water Systems Section 1420( d)( 3) of SDWA, as amended, requires that, in promulgating a National Primary Drinking Water Regulation ( NPDWR), the Administrator shall include an analysis of the likely effect of compliance with the regulation on the technical, managerial, and financial ( TMF) capacity of PWSs. The following analysis fulfills this statutory obligation by identifying the incremental impact that the LT2ESWTR will have on the TMF of regulated water systems. Analyses presented in this document only reflect the impact of new or revised requirements, as established by the LT2ESWTR; the impacts of previously established requirements on system capacity are not considered.

Overall water system capacity is defined in Guidance on Implementing the Capacity Development Provisions of the Safe Drinking Water Act Amendments of 1996 ( USEPA 1998c) as the ability to plan for, achieve, and maintain compliance with applicable drinking water standards. Capacity encompasses three components: technical, managerial, and financial. Technical capacity is the operational ability of a water system to meet SDWA requirements. Key issues of technical capacity include:

° Source water adequacy   Does the system have a reliable source of water with adequate quantity? Is the source generally of good quality and adequately protected?

° Infrastructure adequacy   Can the system provide water that meets SDWA standards? What is the condition of its infrastructure, including wells or source water intakes, treatment and storage facilities, and distribution systems? What is the infrastructure's life expectancy? Does the system have a capital improvement plan?

° Technical knowledge and implementation   Are the system's operators certified? Do the operators have sufficient knowledge of applicable standards? Can the operators effectively Economic Analysis for the LT2ESWTR Proposal June 2003 7 5 implement this technical knowledge? Do the operators understand the system's technical and operational characteristics? Does the system have an effective O& M program?

Managerial capacity is the ability of a water system's managers to make financial, operating, and staffing decisions that enable the system to achieve and maintain compliance with SDWA requirements. Key issues include:

° Ownership accountability   Are the owners clearly identified? Can they be held accountable for the system?

° Staffing and organization   Are the operators and managers clearly identified? Is the system properly organized and staffed? Do personnel understand the management aspects of regulatory requirements and system operations? Do they have adequate expertise to manage water system operations ( i. e., to conduct implementation, IDSE, additional routine monitoring, and significant excursion evaluation activities to meet the LT2ESWTR requirements)? Do personnel have the necessary licenses and certifications?

° Effective external linkages   Does the system interact well with customers, regulators, and other entities? Is the system aware of available external resources, such as technical and financial assistance?

Financial capacity is a water system's ability to acquire and manage sufficient financial resources to allow the system to achieve and maintain compliance with SDWA requirements. Key issues include:

° Revenue sufficiency   Do revenues cover costs?

° Creditworthiness   Is the system financially healthy? Does it have access to capital through public or private sources?

° Fiscal management and controls   Are adequate books and records maintained? Are appropriate budgeting, accounting, and financial planning methods used? Does the system manage its revenues effectively?

7.5.1 Requirements of the Preferred Proposed Regulatory Alternative This capacity analysis is presented only for the Preferred Alternative, although EPA took similar considerations into account in the selection of the Preferred Alternative over the other alternatives. This consideration led to the incorporation of less expensive rule features for systems with fewer capabilities. For example, there is a possibility that a better, less burdensome indicator test for Cryptosporidium can be developed based on the results of the source water monitoring conducted by large systems. If that is the case, the burden on small systems will be less than that estimated here. Further, the schedule for small systems to begin monitoring is 2 years after large systems. This time extension may increase familiarity with these tests and perhaps lower the costs of laboratory analysis. Beyond the design of the rule, the options available for small systems to comply were factored into the decision tree of available technologies. The decision tree is discussed in detail in Chapter 6 and Appendix F.

This capacity analysis is based on the ICR data set. Analysis of the ICR data set predicts the highest level of occurrence and, therefore, the greatest challenges that water systems may face. Economic Analysis for the LT2ESWTR Proposal June 2003 7 6 Although two other data sets are available ( ICR Supplemental Survey data for medium systems ( ICRSSM) and ICR Supplemental Survey data for large systems ( ICRSSL)), these project that fewer plants will need additional treatment and project fewer technical, financial, and managerial challenges. EPA used the ICR data set to develop the most conservative capacity impact analysis.

The LT2ESWTR establishes five new requirements that may affect the TMF capacity of affected PWSs:

1. Monitoring for E. coli ( first or second round)

2. Monitoring for Cryptosporidium ( first or second round)

3. Installation of treatment ( filtered systems)

4. Installation of treatment ( unfiltered systems)

5. Cover or disinfect reservoir discharge In addition, personnel from systems regulated under the LT2ESWTR will need to familiarize themselves with the rule and its requirements.

7.5.2 Systems Subject to the LT2ESWTR The LT2ESWTR will apply to all PWSs that treat surface water or GWUDI. However, because systems purchasing surface water or GWUDI may incur costs through rate increases, EPA estimates that the LT2ESWTR may affect 11,403 CWSs, 821 NTNCWSs and 1,912 TNCWSs   14,136 systems in all ( see Exhibit 4.3). While most will not, some systems may require increased TMF capacity to comply with the new requirements, or will need to tailor their compliance approaches to match their capacities. Refer to section 7.5.4 for a detailed discussion of the changes in TMF capacity for small and large systems.

7.5.3 Impact of the LT2ESWTR on System Capacity The estimates presented in Exhibit 7.1 reflect the anticipated impact of the LT2ESWTR on system capacity based on the expected measures that systems will be required to adopt. The extent of the expected impact of a particular requirement on system capacity is estimated using a scale of 0 5, where 0 represents a requirement that is not expected to have any impact, 1 represents a requirement that is expected to have a minimal impact, and 5 represents a requirement that is expected to have a very significant impact on system capacity. Criteria used to develop the scores and associated impacts are discussed further in section 7.5.4.

These impacts are assessed separately for small systems ( Exhibit 7.1a) and for large systems ( Exhibit 7.1b). This distinction is necessary because most large systems will face fewer challenges in implementing the rule than most small systems. For both large and small systems, EPA evaluated the capacity impact of each requirement on those systems affected by that particular requirement. For example, EPA only evaluated the impact of the Cryptosporidium monitoring requirement on small Economic Analysis for the LT2ESWTR Proposal June 2003 7 7 systems that are required to monitor for Cryptosporidium as a consequence of the results of their E. coli monitoring. In many cases, the requirements only affect a small percentage of systems/ plants. The exhibits, therefore, also display the number of systems and percent of systems/ plants ( of the subset of small or large systems/ plants) estimated to be affected by each specific requirement.

7.5.4 Derivation of Proposed LT2ESWTR Scores EPA developed a 5 point scoring system to analyze the impact compliance with all new regulations will have on the technical, managerial, and financial capacity of PWSs. For each regulation, it is necessary to complete the following steps:

1. Determine the type and number of PWSs to which the regulation applies 2. List all of the requirements of the regulation 3. Determine the type and number of PWSs to which each requirement applies 4. Evaluate the impact of each requirement on the capacity of affected PWSs The determination of the universe of affected systems and the evaluation of the capacity impact of individual requirements requires the use of the cost and technical information contained in SDWIS, EAs developed for other rules, information collection requests, and other supporting documentation for the rule. These data sources are also used to develop a qualitative description of the expected response of affected systems to each requirement.

The overall evaluation of the impact of a requirement on the affected systems, presented in Exhibits 7.1a and 7.1b, is based on the impact each requirement has on nine sub categories of capacity   three sub categories under each of the broader divisions of technical, managerial, and financial capacity. Within these sub categories, scores are assigned based on the additional capacity affected systems will need to develop to comply with a requirement.

To ensure the ability to make cross rule comparisons, to standardize the assignment of numerical scores, and to minimize the subjectivity of the scoring system, the requirements made on systems by the regulation in question are compared to the requirements of those regulations for which capacity impact analyses have already been conducted ( e. g., Arsenic Rule, Radon Rule, Filter Backwash Recycling Rule, and LT1ESWTR). Similar requirements will be assigned similar impact scores. Once initial scores have been assigned, they are reviewed by the EPA Small System Coordinator and other EPA staff to ensure that the scores are representative of the extent of the impact of each requirement on the universe of affected systems.

A system regulated under a single very challenging requirement ( rated a 5 in Exhibit 7.1), and a system that must meet two or more somewhat less challenging requirements ( for example, one rated a 4 and another a 3 in Exhibit 7.1) may need to raise their rates to consumers, introduce new fees, train new workers, or buy, install, and operate new capital equipment to meet rule requirements. Systems that must only read the rule to determine if they will need to comply, or systems that must meet requirements with impact scores of 1 or in some cases 2, will not have to make major changes to the way in which they conduct business to comply with the LT2ESWTR. Economic Analysis for the LT2ESWTR Proposal June 2003 7 8 Exhibit 7.1a Estimated Impacts of the Proposed LT2ESWTR on Small Systems' Technical, Managerial, and Financial Capacity ( 0 = no impact, 1 = minimal impact, and 5 = very significant impact)

Requirement Number and Percent of Small Plants Technical Capacity Managerial Capacity Financial Capacity Source Water Adequacy Infrastructure Adequacy Technical Knowledge & Implementation Ownership Accountability Staffing & Organization Effective External Linkages Revenue Sufficiency Credit Worthiness Fiscal Mgmt. &

Controls Familiarization with requirements of the rule 5,682 ( 100%) 1 0 0 1 0 1 0 0 0 0 Monitoring for E. coli ( first and second round) 5,792 ( 97.2%) 2 0 0 0 1 0 0 1 0 0 Monitoring for Cryptosporidium ( first and second round) 2,016 ( 33.8%) 2 0 0 2 1 0 1 3 0 1 Installation of treatment ( filtered systems) ( Bins 2 and 3) 2,070 ( 32.5%) 0 2 3 2 2 2 4 3 2 Installation of treatment ( filtered systems) ( Bin 4) 128 ( 2.0%) 0 4 5 2 4 3 5 4 3 Installation of treatment ( unfiltered systems) 54 ( 0.8%) 2 4 4 2 3 3 5 4 5 Cover or disinfect reservoir discharge 32 ( 0.5%) 0 3 3 2 2 3 5 3 3 1Number and percent of small systems. 2This cell contains only the number and percentage of systems expected to be affected by first round monitoring requirements. The number of systems participating in the second round of monitoring is expected to be smaller. However, the capacity rankings for monitoring consider the actual number of systems conducting the first and second rounds. Note: To enable the quantification of the impact of these requirements on system capacity, the requirements believed to have the most and least impact on affected systems ( i. e., the installation of treatment by systems placed into Action Bin 4, and familiarization with the requirements of the rule, respectively), were analyzed first, as described in section 7.5.4. These initial analyses were then used as the basis against which the relative impacts of the remaining requirements were assessed. The impact estimates developed for each requirement were also compared to those developed for the Arsenic Rule and the Stage 2 DBPR to ensure cross rule consistency and enable cross rule comparisons. The scores presented above represent the worst case scenario; the requirements of this rule are expected to have less impact on the capacity of most systems affected by each requirement. Analysis is based on data modeled from the ICR data set, because that data set predicts the highest level of occurrence and, therefore, the greatest challenges systems will face. Source: Number and percent of plants/ systems impacted by each requirement are derived from systems serving # 10,000 ( Exhibit 6.2). Number of small plants making treatment changes from Appendix G, Exhibits G. 37   G. 39. Estimates by bins derived from LT2ESWTR Cost Model ( Appendix U). Impact on capacity described in section 7.5.4. Economic Analysis for the LT2ESWTR Proposal June 2003 7 9 Exhibit 7.1b Estimated Impacts of the Proposed LT2ESWTR on Large Systems' Technical, Managerial, and Financial Capacity ( 0 = no impact, 1 = minimal impact, and 5 = very significant impact)

Requirement Number and Percent of Large Plants Technical Capacity Managerial Capacity Financial Capacity Source Water Adequacy Infrastructure Adequacy Technical Knowledge & Implementation Ownership Accountability Staffing & Organization Effective External Linkages Revenue Sufficiency Credit Worthiness Fiscal Mgmt. &

Controls Familiarization with requirements of the rule1 1,384 ( 100%) 0 0 1 0 1 0 0 0 0 Monitoring for E. coli ( first and second round) 1,774 ( 99.6%) 2 0 0 0 1 0 0 0 0 0 Monitoring for Cryptosporidium ( first and second round) 1,774 ( 99.6%) 2 0 0 2 1 0 1 1 0 1 Installation of treatment ( filtered plants) ( Bins 2, 3, 4) 695 ( 33.6%) 0 3 3 2 3 2 2 2 2 Installation of treatment ( unfiltered plants) 37 ( 1.8%) 2 2 4 2 3 3 2 2 3 Cover or disinfect reservoir discharge 106 ( 5.1%) 0 2 2 2 1 2 4 2 2 1Number and percent of large systems. 2This cell contains only the number and percentage of systems expected to be affected by first round monitoring requirements. The number of systems participating in the second round of monitoring is expected to be smaller. The rankings for capacity for monitoring include both the first and second rounds. Note: To quantify the impact of these requirements on system capacity, the requirements believed to have the most and the least impact on affected systems ( i. e., the installation of treatment by systems placed into Action Bin 4, and familiarization with the requirements of the rule, respectively), were analyzed first, as described in section 7.5.4. These initial analyses were then used as the basis against which the relative impact of the remaining requirements was assessed. The impact estimates developed for each requirement were also compared to those developed for the Arsenic Rule and the Stage 2 DBPR to ensure cross rule consistency and to enable cross rule comparisons. The scores presented above represent the worst case scenario; analysis is based on data modeled from the ICR data set, because that data set predicts the highest level of occurrence and, therefore, the greatest challenges systems will face. Source: Number and percent of plants/ systems impacted by each requirement derived from surface water and GWUDI CWSs, NTNCWSs, and TNCWSs serving > 10,000 people subject to the LT2ESWTR ( Exhibit 6.2). Number and percent of large filtered plants making treatment changes from Appendix G, Exhibits G. 37   G. 39 ( sum of CWSs, NTNCWSs, and TNCWSs serving more than 10,000 people) and unfiltered systems are derived from Exhibit 4.5. Number of systems required to cover or disinfect reservoir discharge are derived from Exhibit 4.22. Impact on capacity is determined relative to previous regulations based on the cost and number of systems/ plants that require additional capacity to comply with each requirement, as described in section 7.5.4. Economic Analysis for the LT2ESWTR Proposal June 2003 7 10 Small Water Systems ( Those Serving 10,000 or Fewer People)

Although most small systems will likely face only a minimal challenge to their technical and managerial capacity as a result of efforts to familiarize themselves with LT2ESWTR and comply with the requirements for monitoring of E. coli ( Exhibit 7.1a), systems monitoring Cryptosporidium will require additional assistance. In addition, systems with source waters that trigger them to monitor for Cryptosporidium will need to pay for higher sampling costs since these systems have not previously performed the strict sampling protocols that are part of EPA's approved analytical method. To meet these challenges, it is likely that systems will need to develop or enhance linkages with technical and financial assistance providers ( including State extension agents).

Exhibit 7.1a indicates that installation of some new treatment technologies will pose significant challenges to small systems' technical, managerial, and financial capacity; the less the current level of treatment, the greater the impact will be. As with Cryptosporidium monitoring, the development and enhancement of external linkages will be very important to systems that must install new equipment. Technical and financial assistance providers can help systems analyze their needs as well as the tradeoffs between cost and health protection. In addition, they may be able to assist systems in finding the funding necessary to install and operate new equipment.

The requirement to obtain additional log removal credits will likely challenge, to a significant degree, the financial capacity of some of the small systems affected, especially since those systems may not have included the costs associated with complying with the LT2ESWTR in their long term financial plans. Incurring these costs will tend to reduce a system's credit rating since it will be forced to direct more of its revenue to new equipment, and systems ( or entities owning the systems) may be required to issue bonds or obtain loans. It is also evident from Exhibit 7.1a that the impacts of the LT2ESWTR on the capacity of systems assigned to Bins 2, 3, and 4 will be similar.

The scores presented in Exhibit 7.1 apply to those systems most heavily affected, although there are relatively few. For example, for the very small systems ( serving 500 or fewer people) that are required to add treatment technologies to comply with the requirements of Bins 2 and 3, 10 percent or fewer are predicted to install UV ( see Appendix F). Of those very small systems that are predicted to require an additional 2.5 log treatment ( as required by Action Bin 4), all must install UV. UV requires little involvement for the operator since UV can be monitored on line. Only systems with the capability to handle this technology are expected to use it. The rest will be able to rely on low cost, uncomplicated bag and cartridge filters.

Small plants serving between 500 and 10,000 people may install microfiltration or ultrafiltration ( MF/ UF) to comply; however, fewer than one third of 1 percent of those requiring treatment are expected to choose MF/ UF. MF/ UF requires a daily integrity test that stops finished water production, so only those few systems that have the capability would make such a choice. For those in Action Bin 4, only 1 percent are projected to use MF/ UF, with 90 percent using UV and the rest using combinations of technologies.

Those few systems that do not now filter their water will be required to provide an additional 2 or 3 log disinfection under LT2ESWTR. In many cases, the financial capacity of these systems will be affected since they may need to revise their budgeting process to account for new capital and O& M expenses. Economic Analysis for the LT2ESWTR Proposal June 2003 7 11 Systems that rely entirely on purchased water will experience negligible technical and managerial impacts, if any. The responsibility of implementing the necessary changes inherent in LT2ESWTR will fall upon those systems selling water, not those purchasing it. The latter will not be responsible for implementing any technical changes and will only experience economic effects associated with their supplier's compliance with LT2ESWTR. There may be some revenue sufficiency issues involved; however, any additional costs that result will eventually be applied to consumers, resulting in little effect on small purchased systems.

Finally, the capacity of small systems required to install a cover or to provide post reservoir disinfection will be affected to approximately the same degree as the capacity of those filtered systems that must install additional treatment based on their Action Bin. In both cases, system staff will need to learn to operate and maintain new equipment. System management will need to ensure the presence of adequately trained staff and will need to explain the need for the additional equipment to customers and rate boards. The systems also will face significant new costs, potentially requiring adjustments to the rate structure, billing practices, and capital planning practices.

The overall impacts on small systems' technical, managerial, and financial capacity vary. Monitoring and familiarization with new rules will have no significant effects on small systems, with the exception of moderate revenue constraints on those systems that need to implement monitoring for Cryptosporidium. It should be noted that all second round monitoring will impose reduced impacts. The largest impacts will occur as a result of attaining 2.5 log treatment levels, covering uncovered reservoirs, or disinfecting reservoir discharge.

Large Water Systems ( Those Serving at Least 10,000 People)

Large regulated systems will likely not face more than a minimal challenge to their technical and managerial capacity as a result of efforts to familiarize themselves with the LT2ESWTR and monitor for E. coli ( Exhibit 7.1b). The three monitoring requirements established under the LT2ESWTR, however, vary substantially in their impact on system capacity. While measuring turbidity levels and monitoring coliforms will have a minimal effect, monitoring for Cryptosporidium may require increased system management, technical assistance, and cost of sampling. However, even the largest monitoring impacts will not be very significant. Those systems serving more than 100,000 people have already upgraded to meet Cryptosporidium monitoring needs ( and collected such samples under the ICR); therefore, systems serving between 10,000 and 100,000 people will experience the majority of monitoring impacts.

Exhibit 7.1b shows that the installation of new treatment technology will pose moderate challenges to large systems' technical, managerial, and financial capacity. As with Cryptosporidium monitoring, the development and enhancement of external linkages will be very important to systems that must install new equipment.

The requirement to obtain additional log removal credits will likely challenge only the financial capacity of systems to a small degree. Incurring costs might reduce a system's credit rating since it will be forced to direct more of its revenue to new equipment, and may be required to issue bonds or obtain loans. The LT2ESWTR will have essentially similar impacts on the capacity of large systems assigned to different Action Bins because similar technologies are expected to be installed in spite of varying requirements.

Large systems that rely on purchased water will only experience minimal impacts since the responsibility of meeting the requirements of LT2ESWTR will fall primarily on systems selling water. Economic Analysis for the LT2ESWTR Proposal June 2003 7 12 Systems purchasing water will only experience economic effects associated with their supplier's compliance with LT2ESWTR and any additional costs will ultimately be applied to consumers. Therefore, the LT2ESWTR will have little effect on large systems purchasing water.

The capacity of systems required to install a cover or to provide post reservoir disinfection will be affected to a greater degree than the capacity of those filtered systems that must install additional treatment. In both cases, system staff will need to learn how to operate and maintain new equipment. System management will need to ensure the presence of adequately trained staff and will need to explain the need for the additional equipment to customers and rate boards. Additionally, the systems will face significant new costs that could require adjustments to rate structures, billing practices, and capital planning methods.

Overall, EPA assumed that large systems will have the technical, financial, and managerial capacity to implement LT2ESWTR requirements based on the scale and complexity of their operations. The nature of their operations generally assures that they have access to the technical and managerial expertise to carry out all activities required by the LT2ESWTR. It is also generally easier for large systems to fund capital improvements than small systems, since costs can be spread over a larger customer base, making them smaller on a per household basis.

7.6 Paperwork Reduction Act The information collection requirements for the LT2ESWTR have been submitted for approval to the Office of Management and Budget ( OMB) under the Paperwork Reduction Act, 44 USC 3501 et seq. The information collected as a result of this rule will allow the States/ Primacy Agencies and EPA to determine appropriate requirements for specific systems and evaluate compliance with the rule.

The Paperwork Reduction Act requires EPA to estimate the burden on PWSs and States/ Primacy Agencies of complying with the rule. Burden means the total time, effort, and financial resources required to generate, maintain, retain, disclose, or provide information to or for a Federal agency. This burden includes the time needed to conduct these activities:

° Review instructions ° Develop, acquire, install, and employ technology and systems for the purposes of collecting, validating, verifying, processing, maintaining, and disclosing information ° Adjust the existing ways to comply with any previously applicable instructions and requirements ° Train personnel to respond to information collected ° Search data sources ° Complete and review the collection of information ° Transmit or otherwise disclose the information Economic Analysis for the LT2ESWTR Proposal June 2003 7 13 Burden Hours Labor Cost Capital Cost Non Labor Cost Average Annual Cost Water Systems Implementation 18,980 519,306 $  $  $ 519,306 $ E. coli monitoring 18,643 245,153 $  $ 1,665,430 $ 1,910,583 $ Cryptosporidium monitoring 7,686 191,845 $  $ 8,139,590 $ 8,331,435 $ Reporting 6,685 187,367 $  $  $ 187,367 $ States and Territories Implementation 77,064 2,226,379 $  $  $ 2,226,379 $ Reporting 16,796 485,236 $  $  $ 485,236 $ Total 145,854 3,855,287 $  $ 9,805,020 $ 13,660,306 $ For the first 3 years after publication of the final LT2ESWTR in the Federal Register, the major information requirements pertain to implementation activities for States/ Primacy Agencies and PWSs, covering uncovered finished water reservoirs, monitoring activities for large systems, and preparation for monitoring activities by small systems. The information collection requirements are mandatory under Part 141 of the NPDWRs. The calculation of LT2ESWTR information collection burden and costs can be found in the Information Collection Request for the Long Term 2 Enhanced Surface Water Treatment Rule ( USEPA 2003b).

The total burden associated with LT2ESWTR requirements over the 3 years covered by the Information Collection Request is 437,563 hours, an average of 145,854 hours per year. The total cost over the 3 year clearance period is $ 41.0 million, an average of $ 13.7 million per year ( simple average over 3 years). ( These estimates are based on modeled results of the ICR Cryptosporidium occurrence data set.) EPA assumes that the systems affected by the LT2ESWTR have already purchased the basic equipment required for monitoring and reporting. Therefore, there are no capital start   up costs associated with information collection under this rule. The average burden per response ( i. e., the amount of time needed for each activity that requires a collection of information) is 1.47 hours; the average cost per response is $ 138.12. Exhibit 7.2 provides a summary of the results of the Information Collection Request calculations.

Exhibit 7.2 Average Annual Burden Hours and Costs for the LT2ESWTR Information Collection Request 3 Year Approval Period Note: Data represent burden and cost for only the 3 year ICR approval period. Data are based on nominal ( or undiscounted) values. Detail may not add due to independent rounding.

Source: Information Collection Request for the Long Term 2 Enhanced Surface Water Treatment Rule ( USEPA 2003b).

7.7 Unfunded Mandates Reform Act Title II of UMRA of 1995, P. L. 104 4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, Local, and Tribal governments, and the private sector. Under UMRA Section 202, EPA generally must prepare a written statement, including a benefit cost analysis, for proposed and final rules with " Federal mandates" that may result in expenditures by State, Local, and Tribal governments, in the aggregate, or by the private sector, of $ 100 million or more in any given year. Before promulgating an EPA rule for which a written statement is needed under Section 202, Economic Analysis for the LT2ESWTR Proposal June 2003 7 14 Publicly Owned PWS Costs $ 45.7  69.0 $ 50.2  75.2 62.2%  62.4% State Costs $ 0.9  1.0 $ 1.2  1.2 1.3%  0.9% Tribal Costs $ 0.1  0.2 $ 0.1  $ 0.2 0.1%  0.1% Total Public Costs $ 46.7  70.1 $ 51.5  76.6 63.6%  63.4% Total Private Costs $ 26.8  40.4 $ 29.4  44.1 36.4%  36.6% Total Costs $ 73.5  110.5 $ 80.9  120.7 100.0%  100.0% Percent of Total Cost Range of Annualized Costs ( Million$, 2000$)

3% Discount Rate 7% Discount Rate Section 205 of UMRA requires EPA to identify and consider a reasonable number of regulatory alternatives and to adopt the least costly, most cost effective, or least burdensome alternative that achieves the objectives of the rule. The provisions of Section 205 do not apply when they are inconsistent with applicable law. Moreover, Section 205 allows EPA to adopt an alternative other than the least costly, most cost effective, or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted.

Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including Tribal governments, EPA must have developed a small government agency plan under Section 203 of UMRA. The plan must provide for notifying potentially affected small governments; allowing officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates; and informing, educating, and advising small governments on compliance with the regulatory requirements.

EPA has determined that this rule contains a Federal mandate that may result in expenditures of $ 100 million or more for State, Local, and Tribal governments, in the aggregate or the private sector in any one year, as shown in Exhibit 7.3.

Exhibit 7.3 Annualized Value of Public and Private Costs for the LT2ESWTR ( Annualized at 3 and 7 Percent)

Note: The ranges reflect the difference between the ICRSSL ( lowest) and ICR ( highest) modeled Cryptosporidium occurrence distributions. The percentages of total cost in the last column were calculated only for the 3 percent discount rate. Detail may not add due to independent rounding.

Source: " Publicly owned PWS costs" are from the total system cost in Exhibit 6.4, multiplied by the proportion of PWSs that are publicly owned according to SDWIS. " State costs" are from Exhibit 6.4. " Tribal costs" are from Exhibit 7.9 for the high end of each range in this exhibit and are assumed to represent the same proportion of total costs in the low end of the range. " Total private costs" include costs for all privately owned PWSs and are calculated by subtracting total public costs from total costs.

Thus, the LT2ESWTR is subject to the requirements of Sections 202 and 205 of UMRA, and EPA is obligated to prepare a written statement addressing the following items:

° The authorizing legislation Economic Analysis for the LT2ESWTR Proposal June 2003 7 15 ° Benefit cost analysis, including an analysis of the extent to which the costs of State, Local and Tribal governments will be paid for by the Federal government ° Estimates of future compliance costs and disproportionate budgetary effects ° Macroeconomic effects ° A summary of EPA's consultation with State, Local, and Tribal governments and their concerns, including a summary of the Agency's evaluation of those comments and concerns ° Identification and consideration of regulatory alternatives and the selection of the least costly, most cost effective, or least burdensome alternative that achieves the objectives of the rule The legislative authority for the LT2ESWTR is discussed in Chapter 2. The remaining items are discussed below, but are also addressed in other chapters of this EA, such as Chapters 3 and 6.

7.7.1 Social Benefits and Costs The social benefits are those that accrue primarily to the public through increased protection from illness and potential death caused by exposure to microbial pathogens in drinking water. To assign a monetary value to the reductions in illness, EPA used a cost of illness measure. This is considered to be a lower bound estimate of actual benefits because it does not include the pain and discomfort associated with the illness. Mortalities were valued using a value of statistical life estimate consistent with EPA policy. Chapter 5 presents the benefits analysis, which includes both qualitative and monetized benefits of improvements to health and safety. The potential nonquantifiable benefits may include reduced risks to sensitive subpopulations, reduced outbreak risks and response costs, reduced averting behavior ( e. g., boiling tap water or purchasing bottled water), reduced risk from co occurring pathogens, increased source water monitoring, increased regulation of unfiltered systems, and covering or treating finished water reservoirs. In addition, certain nonhealth related benefits may exist, such as enhanced aesthetic water quality. The estimated annualized quantified benefit for the traditional cost of illness ( COI) for the Preferred Alternative of the LT2ESWTR using a 3 percent discount rate ranges from $ 253 to $ 967 million ( or $ 216 to $ 826 million using a 7 percent discount rate) ( Exhibit 7.4). Similarly, the estimated annualized quantified benefit using the enhanced COI ranges from $ 374 to $ 1,445 million ( or $ 318 to $ 1,230 million using a 7 percent discount rate).

Measuring the social costs of the rule requires identifying affected entities by ownership ( public or private), considering regulatory alternatives, calculating regulatory compliance costs, and estimating any disproportionate impacts. Chapter 6 of this document details the cost analysis performed for the LT2ESWTR. Under the Preferred Alternative, the likely compliance scenario is expected to result in total annualized costs of approximately $ 73 to $ 111 million using a 3 percent discount rate ( or $ 81 to $ 121 million using a 7 percent discount rate). Exhibit 7.4 summarizes the range of annualized costs and benefits for each regulatory alternative. Economic Analysis for the LT2ESWTR Proposal June 2003 7 16 Regulatory Alternative Enhanced COI Range of Annualized Benefits ( 3%) Traditional COI Range of Annualized Benefits ( 3%) Enhanced COI Range of Annualized Benefits ( 7%) Traditional COI Range of Annualized Benefits ( 7%) Range of Annualized Costs ( 3%) Range of Annualized Costs ( 7%) Alternative A1 $ 457  $ 1,482 $ 305  $ 989 $ 389  $ 1,260 $ 260  $ 845 $ 361 $ 388 Alternative A2 $ 397  $ 1,461 $ 268  $ 977 $ 338  $ 1,243 $ 229  $ 834 $ 100  $ 134 $ 108  $ 145 Alternative A3 ( Preferred Alternative) $ 374  $ 1,445 $ 253  $ 967 $ 318  $ 1,230 $ 216  $ 826 $ 73  $ 111 $ 81  $ 121 Alternative A4 $ 328  $ 1,349 $ 225  $ 907 $ 279  $ 1,148 $ 192  $ 775 $ 37  $ 59 $ 41  $ 65 Exhibit 7.4 Total Annualized Benefits and Costs of Regulatory Alternatives ($ Millions, 2000$)

Source: Benefits from Exhibits 5.28a b. 3 % Costs from Exhibit O. 3d, Column K + Exhibit O. 4d, Column M. 7% Costs from Exhibit O. 3e, Column K + Exhibit O. 4e, Column M.

Various Federal programs exist to provide financial assistance to State, Local, and Tribal governments in complying with this rule. The Federal government provides funding to States that have primary enforcement responsibility for their drinking water programs through the Public Water Systems Supervision ( PWSS) Grants Program. States may use these funds to develop primacy programs or to contract with other State agencies to assist in the development or implementation of their primacy programs. However, they may not use these funds to contract with regulated entities ( i. e., water systems). States may use PWSS Grants to set up and administer a State program that includes such activities as public education, testing, training, technical assistance, development and administration of a remediation grant and loan or incentive program ( excluding the actual grant or loan funds), or other regulatory or nonregulatory measures.

Additional funding is available from other programs administered by EPA or other Federal agencies. These include EPA's Drinking Water State Revolving Fund ( DWSRF), the U. S. Department of Agriculture's Rural Utilities' Loan and Grant Program, and the Department of Housing and Urban Development's Community Development Block Grant ( CDBG) Program.

SDWA authorizes the EPA Administrator to award capitalization grants to States, which in turn can provide low cost loans and other types of assistance to eligible PWSs. The DWSRF assists PWSs with financing the costs of infrastructure needed to achieve or maintain compliance with SDWA requirements. Each State has considerable flexibility to determine the design of its DWSRF Program and to direct funding toward its most pressing compliance and public health protection needs. States may also, on a matching basis, use up to 10 percent of their DWSRF allotments for each fiscal year to assist in running the State drinking water program. In addition, States have the flexibility to transfer a portion of funds from their Clean Water State Revolving Fund accounts to their DWSRF accounts.

A State can use the financial resources of the DWSRF to assist small systems. In fact, a minimum of 15 percent of a State's DWSRF grant must be used to provide infrastructure loans to systems serving 10,000 or fewer people. Two percent of the State's grant is set aside funding that can only be used to provide technical assistance to small systems. In addition, up to 14 percent of the State's grant may be used to provide technical, managerial, and financial assistance to all system sizes. For small systems that are disadvantaged, up to 30 percent of a State's DWSRF may be used for increased loan subsidies. Tribes have separate set aside funding that they can use under the DWSRF. 2 "...[ T] he agency shall prepare a written statement containing. . . ( 3) estimates by the agency, if and to the extent that the agency determines that accurate estimates are reasonably feasible, of. . . ( B) any disproportionate budgetary effects of the Federal mandate upon any particular regions of the nation or particular State, Local, or Tribal government, urban or rural or other types of communities, or particular segments of the private sector..." Economic Analysis for the LT2ESWTR Proposal June 2003 7 17 In addition to the DWSRF, money is available from the Department of Agriculture's Rural Utility Service ( RUS) and Housing and Urban Development's CDBG Program. RUS provides loans, guaranteed loans, and grants to improve, repair, or construct water supply and distribution systems in rural areas and towns with a population of up to 10,000 people. In fiscal year 2002, RUS had over $ 1.5 billion of available funds for water and environmental programs. Also, three sources of funding exist under the CDBG program to finance building and improvements of public facilities such as water systems. These include: 1) direct grants to communities with populations over 200,000; 2) direct grants to States, which in turn are awarded to smaller communities, rural areas, and coloñas in Arizona, California, New Mexico, and Texas; and 3) direct grants to U. S. territories and trusts. The CDBG budget for fiscal year 2002 totaled over $ 4.3 billion.

7.7.2 Disproportionate Budgetary Effects UMRA is intended to reduce the burden of Federal mandates that are not accompanied by adequate Federal funding on State, Local, and Tribal governments. Section 202 of UMRA requires an analysis of possible disproportionate budgetary effects of certain classes of rules, in which LT2ESWTR falls. 2 This analysis is required if EPA determines that accurate estimates are reasonably feasible. The specific concern is disproportionate budgetary effects of the LT2ESWTR upon certain areas or industries:

° Any particular regions of the United States ° Any particular State, Local, or Tribal government ° Urban or rural or other types of communities ° Any segment of the private sector This EA has considered how best to interpret and comply with these requirements. The remainder of this section describes ways to consider these requirements, whether meaningful data can be provided, and whether accurate estimates are possible. The general conclusion for this section, however, is that there is little basis and insufficient data to make accurate estimates of budgetary impacts that differ among groups, regions, governments, types of communities, or segments of the private sector. Further, from all of the Agency's analysis and consultations, the Agency believes the rule will treat similarly situated systems ( in terms of size, water quality, available data, installed technology, and presence of uncovered finished reservoirs) in similar ( proportionate) ways, without regard to geographic location, type of community, or segment of industry. The LT2ESWTR is a rule where requirements are proportional to risk. In this analysis, the estimates of occurrence are different only for filtered and unfiltered systems, reflecting the judgment that differentiation along these other specific characteristics ( regions, type of government, and so forth) is not possible with the available data. Although some groups may have differing budgetary effects as a result of the LT2ESWTR, those costs are proportional to the need for additional monitoring and risk posed ( degree of treatment required). Economic Analysis for the LT2ESWTR Proposal June 2003 7 18 Most of the following analyses begin with national data and then break out those data, when possible, using other measures. Because the data and estimates are national in scope, breakouts by region or other parameters tend to be merely proportional extensions based on a characteristic, not " bottom up" estimates of actual differences among types of systems, communities, or economic sectors. Thus, the analyses may not reveal true differences attributable to the impacts of the rule alternatives on various regions. The local conditions at each regulated entity drive the actual cost impacts of the rule ( e. g., the level of Cryptosporidium in the source water) and these data are not available. In fact, the LT2ESWTR requires most systems to test their water to determine the impact of the rule on their system, a process that, in time, could generate that information.

When considering disproportionate impacts, it is necessary to consider whom the LT2ESWTR affects. The rule, by definition, covers some communities and a segment of the private sector. Most of those communities and PWSs that use surface water or GWUDI and those having uncovered finished water reservoirs will incur some costs. Communities and PWSs that use only ground water or have no uncovered finished water reservoirs will avoid these costs, although they may have to comply with other rules to which surface water systems may not be subject. In an economic sense, these differences between communities and utilities do not disadvantage one group over the other because the systems are not in a national market that allows for direct competition for customers. In general, those systems are better considered local natural monopolies.

Regions There are no specific data available that suggest that the compliance costs and other effects of LT2ESWTR will cause disproportionate budgetary effects by region. LT2ESWTR is a national mandate and applies uniformly to all States. These effects will be felt at the system level, with most systems primarily facing monitoring, rather than treatment, costs. Some contaminants in drinking water are distributed unevenly across regions. The data available on the occurrence of Cryptosporidium, however, indicate that it is prevalent nationwide. More data on Cryptosporidium occurrence will become available after the monitoring required by the rule is completed.

Although Cryptosporidium levels do not show strong regional patterns, it is still possible that budgetary effects could differ between regions. There is no direct measure of potential budgetary impacts by regions, but proxy measures are considered. One possible proxy for potential regional impacts is the projection that smaller systems will be subject to greater impacts on their financial capacity ( including revenue sufficiency) ( Exhibit 7.1a) and that small systems will face greater budgetary pressures, particularly if installing treatment, because of economies of scale ( this effect is seen in higher average household costs for those served by small PWSs). Regions have varying proportions of small, medium, and large systems that supply public water. To the extent that some regions are more dependent on small systems, the regions as a whole could be considered more likely to face greater impacts on budgets of many small entities, even if there is no " regional budget."

To show what proxy measures based on dependency on small systems might reveal, two measures are used. The first is the percent of the population of a State that is served by small, rather than large, systems. Exhibit 7.5 indicates that the States that have more dependence on small water systems tend to be lower population States such as Vermont, West Virginia, and Alaska. Most relevant to this analysis, no regional patterns are apparent. Economic Analysis for the LT2ESWTR Proposal June 2003 7 19 The second proxy measure used is the absolute number of small systems. Not surprisingly, this tends to correlate with high total population, with New York, California, and Texas among the largest. Again, no regional patterns are evident.

This analysis concludes that accurate estimates are not reasonably feasible, but significant regional impacts are not expected. Further, tests with proxy measures support the conclusion of no regional disproportionate budgetary impacts.

State, Local, or Tribal Governments There is no expectation that there will be disproportionate budgetary effects upon State, Local, or Tribal governments. Costs are expected to be proportional to the risk posed, even if unevenly distributed among systems and perhaps types of systems. Furthermore, there are no accurate estimates to address the differing budgetary effects of LT2ESWTR on State, Local or Tribal governments.

There are few data available that bear on this issue. Exhibit 7.3 breaks out national level costs for public PWSs, Tribal costs, and State costs, but only allocates costs to these categories rather than revealing any disproportionate impacts on the budgets of these groups. Exhibits 7.5 and 7.6 show expected larger impacts in particular States based only on their dependence on small systems. Even using dependence on small systems as a measure, an accurate distribution of potential impacts will not be available until after the monitoring phase is complete.

Urban and Rural There are no data that distinguish between the budgetary effects of LT2ESWTR on urban versus rural areas, and there is no expectation that one kind of area will pay disproportionately higher costs than the other.

The only data available that may be relevant are the cost differences that are expected to exist between small and larger systems. The analyses in this EA, based on the Technology and Cost Document ( USEPA 2003a), estimate that there are economies of scale: as the population served increases, average costs of service decrease. If it is assumed that rural systems are smaller than urban systems, the latter may face smaller per household costs than rural systems. However, this variation does not imply an effect that is disproportionate to risk. The variations in costs will not predominantly fall along the lines of population served ( although population served can be used as a proxy), but will specifically depend on which treatment bin a water system is assigned to   depending on the level of treatment that systems' water needs. Further, many large systems are suburban systems, and many systems sell water to other, sometimes rural, systems. Again, there is no expectation of disproportionate budgetary impact, based on the design of the rule and known patterns of occurrence, and accurate estimates are not now feasible.

Segments of the Private Sector Only one segment of the private economy is directly affected by this rule   drinking water providers. Section 7.5 discusses the budgetary impacts on this sector. An indirect indicator of the reasonableness of the cost of the LT2ESWTR is the agreement achieved by the Stage 2 M DBP FACA Committee on major rule elements. Based on this agreement, the budgetary impact could not disproportionately affect drinking water providers since it is explicitly proportionate to risk. Economic Analysis for the LT2ESWTR Proposal June 2003 7 20 24%

45%

40% 9%

11%

34% 4% 15%

12% 9%

11%

28% 20% 11%

23% 1% 8% 34% 20% 16%

28%

4% 6%

17%

12%

35%

8% 6% 18% 9% 16%

6% 25% 17% 9% 4% 11%

10% 8% 8%

36% 20%

3% 3%

< 1% 3% 5% 7%

24%

Small Community Surface Water and GWUDI Systems over the United States > 20% ( 9)

11 20% ( 8)

0 10% ( 40) D. C. 0%

American Samoa Guam N. Mariana Islands Puerto Rico 100%

2%

0%

5%

Virgin Islands 32% 4%

Palau 100% Exhibit 7.5 Percent of Population of CWSs Served by Small Surface and GWUDI Systems by State Source: Appendix M. Economic Analysis for the LT2ESWTR Proposal June 2003 7 21 45 97 117 159 173 13 520 33 85 789 683 414 588 308 220 28 34 53 71 56 55 117 12 21 125 210 241 46 5 178 132 126 39 348 464 266 17 191 83 219 360 322 42 52 30 1 56 39 12 256 Number of Small CWSs 201 to 400 ( 10) 101 to 200 ( 11)

0 to 100 ( 30) D. C. 0 American Samoa Guam N. Mariana Islands Puerto Rico 10 1 0 172 Virgin Islands 133 401 or more ( 6)

Palau 14 Exhibit 7.6 Number of Small Surface and GWUDI Systems by State Source: Appendix M.

7.7.3 Macroeconomic Effects Under UMRA Section 202, EPA is required to estimate the potential macroeconomic effects of the regulation. These include effects on productivity, economic growth, full employment, and creation of Gross Domestic Product ( GDP) ( USEPA 2000e). In 2000, real GDP was $ 9,224 billion; thus, a rule would have to cost at least $ 23 billion annually to have a measurable effect. A regulation with a smaller aggregate effect is unlikely to have any measurable impact, unless it is highly focused on a particular geographic region or economic sector. The LT2ESWTR should not have a measurable effect on the national economy; the total annualized costs for the Preferred Regulatory Alternative range from $ 73 to $ 111 million to $ 81 to $ 121 million using a 3 and 7 percent discount rate, respectively. Using these annualized figures as a measure, the annual cost of the LT2ESWTR is an insignificant fraction of a $ 23 billion annual cost that would be considered a measurable macroeconomic impact. Thus, annualized LT2ESWTR costs measured as a percentage of the national GDP will only decline over time as GDP grows.

7.7.4 Consultation with Small Governments Before the Agency establishes any regulatory requirements that may significantly or uniquely affect small governments, including Tribal governments, it must have developed, under Section 203 of UMRA, a small government agency plan. The plan must provide for the notification of potentially affected small governments, enabling officials of affected small governments to have meaningful and Economic Analysis for the LT2ESWTR Proposal June 2003 7 22 timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates and informing, educating, and advising small governments on compliance with the regulatory requirements. EPA consulted with small governments to address impacts of regulatory requirements in the LT2ESWTR that might significantly or uniquely affect small governments. A variety of stakeholders, including small governments, were provided with several opportunities to participate early in the regulatory development process, as described in section 7.2.

7.7.5 Consultation with State, Local, and Tribal Governments Section 204 of UMRA requires the Agency to develop an effective process to permit elected officers of State, Local, and Tribal governments ( or their designated authorized employees) to provide meaningful and timely input in the development of regulatory proposals that contain significant Federal intergovernmental mandates. Consistent with these provisions, EPA held consultations with affected governmental entities prior to proposal of the rule, as described in sections 7.2 and 7.8. EPA conducted four outreach conference calls, discussed in section 7.2, and contacted each of the 12 Native American Drinking Water State Revolving Fund Advisors to invite them, and representatives of their organizations, to participate in the meetings. In addition to the conference calls, EPA presented the LT2ESWTR at several health, environmental, and Native American conferences.

Representatives from State, Local, and Tribal governments were also involved with the development of the Agreement in Principle, which was developed early in the regulatory process. EPA provided the Association of State Drinking Water Administrators ( ASDWA) with an opportunity to comment before officially proposing the LT2ESWTR. EPA accepted comments from ASDWA and other Federal Advisory Committee Act ( FACA) members, such as the National League of Cities ( NLC), on a draft of the LT2ESWTR posted on its web site and, to the extent possible, comments were incorporated into the rule.

In addition to these efforts, EPA will educate, inform, and advise small systems, including those run by small governments, about the LT2ESWTR requirements. The Agency is developing plain English guidance that will explain what actions a small entity must take to comply with the rule. Also, the Agency has developed fact sheets that concisely describe various aspects and requirements of the LT2ESWTR. Additional details on Tribal involvement in the rulemaking process can be found in section 7.8.

7.7.6 Regulatory Alternatives Considered As required under Section 205 of UMRA, EPA considered several regulatory alternatives and numerous methods to identify systems most at risk to microbial contamination. Chapter 3 provides a detailed discussion of these alternatives. EPA chose the Preferred Regulatory Alternative because it provided substantial benefits at an acceptable level of costs. In addition, the FACA Committee recommended the Preferred Regulatory Alternative in the Stage 2 M DBP Agreement in Principle.

7.7.7 Impacts on Small Governments EPA has determined that this rule contains no regulatory requirements that might significantly or uniquely affect small governments. As described in section 7.2, EPA has certified that this proposed rule Economic Analysis for the LT2ESWTR Proposal June 2003 7 23 will not have a significant economic impact on a substantial number of small entities. Estimated annual expenditures by small systems for the LT2ESWTR range from $ 7.9 to $ 13 million at a 3 percent discount rate. While the treatment requirements of the LT2ESWTR apply uniformly to both small and large PWSs, large systems bear a majority of the total costs of compliance with the rule. This is due to the fact that large systems treat a majority of the drinking water that originates from surface water sources.

7.8 Indian Tribal Governments Executive Order 13175, entitled " Consultation and Coordination with Indian Tribal Governments" ( 65 FR 67249; November 9, 2000), requires EPA to develop " an accountable process to ensure meaningful and timely input by Tribal officials in the development of regulatory policies that have Tribal implications." The Executive Order defines " policies that have Tribal implications" to include regulations that have " substantial direct effects on one or more Indian Tribes, on the relationship between the Federal government and the Indian Tribes, or on the distribution of power and responsibilities between the Federal government and Indian Tribes."

Under Executive Order 13175, EPA may not issue a regulation that has Tribal implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by Tribal governments, or EPA consults with Tribal officials early in the process of developing the proposed regulation and develops a Tribal summary impact statement.

EPA has concluded that this proposed rule may have Tribal implications, because it may impose substantial direct compliance costs on Tribal governments. There are 67 Tribal water systems serving a population of 78,956 ( see Exhibit 7.7). As presented in Exhibit 7.9a, they will bear an annualized cost of $ 135,974, at a 3 percent discount rate, to implement this proposed rule ($ 138,910 at a 7 percent discount rate). Accordingly, EPA provides the following Tribal summary impact statement as required by Section 5( b) of Executive Order 13175. The Federal government will not specifically provide the funds necessary to pay costs for Tribal systems associated with the LT2ESWTR because EPA consulted with Tribal officials early in the process of developing the proposed regulation.

EPA consulted with Tribal officials in a variety of ways to permit them to have meaningful and timely input into development of the LT2ESWTR. The most extensive participation of Tribes was on the Federal Advisory Committee through a representative of the All Indian Pueblo Council ( AIPC), which is associated with approximately 20 Tribes. This Tribal FACA participant may have represented a wider group of Tribes than the AIPC. In February 1999, at the Las Vegas EPA/ Inter Tribal Council of Arizona, a number of Tribal representatives requested the AIPC representative to be the FACA representative for Federal Tribes, given his knowledge of drinking water systems.

In addition to obtaining FACA Tribal input, EPA presented the LT2ESWTR at the 16th Annual Consumer Conference of the National Indian Health Board, the Environmental Council's Annual Conference, and the EPA/ Inter Tribal Council of Arizona, Inc. Tribal consultation meeting. Over 900 attendees representing Tribes from across the country attended the National Indian Health Board's Consumer Conference and over 100 Tribes were represented at the annual conference of the National Tribal Environmental Council. Representatives from 15 Tribes participated at the EPA/ Inter Tribal Council of Arizona meeting. At the first two conferences, an EPA representative conducted two Economic Analysis for the LT2ESWTR Proposal June 2003 7 24 workshops on EPA's drinking water program and upcoming regulations, including the LT2ESWTR. EPA sent the presentation materials and meeting summary to over 500 Tribes and Tribal organizations.

Fact sheets describing the requirements of the proposed rule and requesting Tribal input were distributed at an annual EPA Tribal meeting in San Francisco, and at a Native American Water Works Association meeting in Scottsdale, Arizona. EPA also worked through its Regional Indian Coordinators and the National Tribal Operations Committee to raise awareness of the development of the proposed rule. In addition, EPA mailed all Federal Tribes LT2ESWTR fact sheets in November 2000.

A few Tribes responded by requesting more information and expressing concern about having to implement too many regulations. Members of the Tribal Caucus of the National Tribal Operations Committee provided comment. Those who provided comment noted that the rule would certainly have a benefit. They also expressed a concern about infrastructure costs and that no funding was attached to the rule. In response to Tribal input, EPA explained the health protection benefit expected to be gained by this proposed rule to one Tribal representative who responded. EPA directed those who asked for more information to the Agreement in Principle on the EPA website.

EPA sent a detailed fact sheet to all Tribes and invited them to participate in a conference call on January 24, 2002. The fact sheet explained the need for the LT2ESWTR and its impact on Tribal water systems. During the meeting, Tribes continued to express concern about implementing new regulations without additional funding sources. EPA explained that capital projects related to the rule would rank high on lists of current funding sources due to the health risks associated with Cryptosporidium.

Tribal Summary Impact Statement EPA performed an analysis to estimate the impact of the LT2ESWTR on Tribal systems. EPA has identified 67 Indian Tribal systems that might be subject to the LT2ESWTR. As seen in Exhibit 7.7, all but one Tribal system is classified as small ( serving 10,000 or fewer people).

EPA has estimated the costs for Indian Tribal systems to comply with the LT2ESWTR, based on the assumption that the percentages of systems expected to incur costs for each size category will be the same for Tribal systems as for systems nationwide. The costs for Tribal systems are calculated in two steps. First, the number of Indian Tribal systems in each size category is multiplied by the percentage of systems nationally in each size category expected to incur costs for various rule activities ( e. g., E. coli monitoring, Cryptosporidium monitoring, additional treatment). Second, the average cost of each rule requirement is multiplied by the number of Tribal systems expected to incur costs.

Exhibit 7.8 shows the percentage of systems expected to incur costs in various categories based on the ICR Cryptosporidium occurrence data set. For example, EPA projects that among systems serving 10,000 or fewer people, 33.8 percent would be triggered into monitoring for Cryptosporidium and 88.1 percent would conduct future E. coli monitoring. Among systems serving more than 10,000 people, 99.6 percent of plants would monitor for Cryptosporidium and 71.9 percent would conduct future E. coli monitoring.

Exhibits 7.9a and b show annualized costs per system for various compliance activities including implementation, monitoring, and treatment based on the ICR occurrence data set. Each cost has been annualized at 3 percent over 25 years. Costs for individual systems would vary around these averages, depending on the circumstances of the particular system. For example, E. coli monitoring costs would be Economic Analysis for the LT2ESWTR Proposal June 2003 7 25 lower for those systems that could do the analysis onsite, as opposed to shipping samples to a commercial laboratory, and only a fraction of small systems would be required to monitor for Cryptosporidium. Many systems would incur no additional treatment costs, while a fraction would be required to provide additional treatment as a result of their bin assignment.

Exhibit 7.7 Numbers of Indian Tribal Public Water Systems Using Surface Water Sources System Size ( Population Served) Number of Systems Community Water Systems < 100 14 101  500 20 501  1000 7 1,001  3,300 14 3,301  10,000 4 10,001  50,000 1 Transient Noncommunity Water Systems < 100 5 101  500 1 Nontransient Noncommunity Water Systems 3,301  10,000 1 Source: EPA SDWIS Database, September 2000.

EPA estimates that annualized monitoring costs per system would range from $ 322 to $ 906 ( the cost differential arises because only a fraction of small systems monitor for Cryptosporidium). The mean annualized treatment cost per system would range from $ 263 to $ 22,557 and the total mean annualized costs per system are projected to range from $ 792 to $ 23,979. These costs result in an estimated total annualized cost to Indian Tribes, including Primacy Agency costs, of $ 153,428 for the LT2ESWTR, as shown in Exhibit 7.9a. ( All costs in this paragraph are based on a 3 percent discount rate.) Economic Analysis for the LT2ESWTR Proposal June 2003 7 26 Exhibit 7.8 Number of Tribal Systems and Percent of Systems Nationally That Will Incur Costs Due to the LT2ESWTR Percent of Plants [ Systems] Nationally Incurring Cost System Size ( Population Served) Number of Tribal System s Implementation [ Systems] Initial E. coli Monitoring1 Initial Crypto Monitoring2 Future E. coli Monitoring3 Future Crypto Monitoring Adding Treatment4 < 10,000 66 100.0% 96.4% 33.8% 84.0% 29.2% 23.0  35.4%

> 10,000 1 100.0% 99.6% 99.6% 71.5% 71.5% 23.2  35.4%

1All systems would be required to conduct E. coli monitoring, unless a system currently provides at least 5.5 log Cryptosporidium treatment. 2Small systems are required to monitor for Cryptosporidium only if source water E. coli concentration exceeds the trigger value. Based on the ICR occurrence data set, EPA estimates a maximum of 35 percent of systems that monitor for E. coli will be triggered into Cryptosporidium monitoring. 3Systems would be required to conduct another round of monitoring 6 years after the initial bin assignment. This monitoring would not be required for those systems that provide at least 5.5 log Cryptosporidium treatment. 4EPA estimates that 13.5 to 38.5 percent of all plants ( including plants that purchase water) would incur costs for additional treatment as a result of being assigned to Bins 2 4. Note: Percentages for systems serving more than 10,000 people represent the probability that one system/ plant will incur costs from each requirement.

Sources: Percentages derived from Exhibits 6.2 and 4.11. Percentages are assumed to be the same for Tribal plants/ systems as for those nationwide. Economic Analysis for the LT2ESWTR Proposal June 2003 7 27 A B C D E F = B+ C+ D+ E G = A* F 60 $ 125,228 14 $ 11 $ 322 $ 197 $ 263 $ 792 $ 11,095 20 $ 11 $ 354 $ 240 $ 526 $ 1,131 $ 22,626 7 $ 13 $ 322 $ 208 $ 1,160 $ 1,703 $ 11,921 14 $ 13 $ 322 $ 219 $ 1,824 $ 2,378 $ 33,288 4 $ 13 $ 386 $ 263 $ 4,918 $ 5,580 $ 22,319 1 $ 13 $ 906 $ 504 $ 22,557 $ 23,979 $ 23,979 6 $ 7,850 5 $ 11 $ 334 $ 243 $ 544 $ 1,131 $ 5,655 1 $ 13 $ 334 $ 232 $ 1,617 $ 2,196 $ 2,196 Total NTNCWS 1 $ 2,896 1 $ 13 $ 322 $ 219 $ 2,342 $ 2,896 $ 2,896 Total Annualized Costs for All System Types $ 135,974 Annualized Costs for One Primacy Agency [ 1] $ 17,454 Total Annualized Tribal Costs $ 153,428 1,001 3,300 3,301 10,000 [ 1] 10,001 50,000 1,001 3,300 Total TNCWS £ 100 501 1,000 £ 100 101 500 System Size ( Population Served)

501 1,000 Mean Cost per System  Treatment Mean Cost per System  Total Estimated Total Tribal Costs Total CWS Number of Tribal Systems Implementation Cost per System Monitoring Cost per System Future Monitoring Cost per System A B C D E F = B+ C+ D+ E G = A* F 60 $ 128,090 14 $ 15 $ 412 $ 178 $ 239 $ 844 $ 11,823 20 $ 15 $ 453 $ 218 $ 482 $ 1,167 $ 23,349 7 $ 17 $ 412 $ 189 $ 1,072 $ 1,690 $ 11,831 14 $ 17 $ 412 $ 199 $ 1,714 $ 2,342 $ 32,790 4 $ 17 $ 494 $ 239 $ 4,775 $ 5,525 $ 22,102 1 $ 20 $ 1,279 $ 514 $ 24,381 $ 26,194 $ 26,194 6 $ 7,946 5 $ 15 $ 427 $ 220 $ 497 $ 1,159 $ 5,795 1 $ 17 $ 427 $ 211 $ 1,496 $ 2,152 $ 2,152 Total NTNCWS 1 $ 2,874 1 $ 17 $ 412 $ 199 $ 2,246 $ 2,874 $ 2,874 Total Annualized Costs for All System Types $ 138,910 Annualized Costs for One Primacy Agency [ 1] $ 21,079 Total Annualized Tribal Costs $ 159,989 £ 100 501 1,000 1,001 3,300 1,001 3,300 3,301 10,000 [ 1] 10,001 50,000 Total TNCWS Total CWS £ 100 101 500 501 1,000 Future Monitoring Cost per System Mean Cost per System  Treatment Mean Cost per System  Total Estimated Total Tribal Costs System Size ( Population Served) Number of Tribal Systems Implementation Cost per System Monitoring Cost per System Exhibit 7.9a Estimates of the Total Annualized Costs Incurred by Indian Tribal Public Water Systems Due to the LT2ESWTR ( Annualized at 3 Percent)

Exhibit 7.9b Estimates of the Total Annualized Costs Incurred by Indian Tribal Public Water Systems Due to the LT2ESWTR ( Annualized at 7 Percent)

1 The Primacy Agency cost for the one Tribe that has primacy is based on the average costs for State primacy ( sum of all costs listed in Exhibit O. 5d e divided by total number of primacy agencies ( 57)). Note: Detail may not add to total due to independent rounding. Sources: [ A] Number and categories of Tribal systems taken from SDWIS Database, September 2000. [ B] Implementation costs taken from Appendix D, Exhibit D. 10, annualized, then divided by the total number of systems to calculate costs per system. [ C] Monitoring costs taken from Appendix D, Exhibits D. 12, D. 14, and D. 16, annualized, then divided by the total number of systems to calculate costs per system. [ D] Future monitoring costs taken from Appendix D, Exhibits D. 32, D. 35, and D. 38, annualized, then divided by the total number of systems to calculate costs per system. [ E] System costs taken from Appendix H, Exhibit H. 1, annualized, then divided by the total number of systems to calculate costs per system. Economic Analysis for the LT2ESWTR Proposal June 2003 7 28 7.9 Impacts on Sensitive Subpopulations EPA's Office of Water has historically considered risks to sensitive subpopulations, including children) in establishing drinking water assessments, advisories or other guidance, and standards. Maximizing health protection for sensitive subpopulations requires balancing risks to achieve the recognized benefits of controlling waterborne pathogens while minimizing risk of potential DBP toxicity. A primary purpose of LT2ESWTR is to improve control of microbial pathogens, specifically the protozoan Cryptosporidium. The health effect of cryptosporidiosis on sensitive subpopulations is much more severe and debilitating than on the general population. These sensitive subpopulations include the young, the elderly ( especially those weakened by other conditions), the malnourished and disease impaired ( especially those with diabetes), and a broad category of those with compromised immune systems, such as Acquired Immune Deficiency Syndrome ( AIDS) patients, people with lupus or cystic fibrosis, transplant recipients, and individuals undergoing chemotherapy ( Rose 1997). The Agency has evaluated several regulatory alternatives and selected the alternative that balances cost with providing significant benefits. It should be noted that the Stage 2 DBPR, which is being promulgated concurrently with this rule, reduces DBP concentrations in drinking water and achieves the goal of increasing the protection of children.

Research outlining the potential health benefits of the LT2ESWTR to both sensitive subpopulations and the general public is discussed in greater detail in the Occurrence and Exposure Assessment for the Long Term 2 Enhanced Surface Water Treatment Rule ( USEPA 2003c) as well as in Chapter 5 of this EA.

7.9.1 Impacts on the Immunocompromised As stated in Chapter 5, mortality as a result of cryptosporidiosis is a much greater risk for sensitive subpopulations, particularly for immunocompromised individuals, than it is for the general population. The duration and severity of the disease are significant: whereas the disease may hospitalize 1 percent of the immunocompetent population with very little risk of mortality (< 0.001), Cryptospor idium infections are associated with a high rate of mortality in the immunocompromised ( 50 percent) ( Rose 1997).

The duration of cryptosporidiosis in those with compromised immune systems is considerably longer than in those with competent immune systems, with more severe symptoms often requiring lengthy hospital stays. For subpopulations that are immunocompromised, the cost of illness ( COI) from cryptosporidiosis would be much greater than that for the general population. During a 1993 outbreak in Milwaukee, 33 AIDS patients with cryptosporidiosis accounted for 400 hospital days at a cost of nearly $ 760,000 ( Rose 1997). COI due to these hospital days alone is estimated at $ 23,000 per patient ($ 760,000/ 33 patients). In addition, of the 54 deaths in the Milwaukee outbreak, 46 were AIDS patients.

Based on of the severity of illness and the high costs of treatment experienced by the immunocompromised as a result of Cryptosporidium infection, the Agency expects LT2ESWTR to have a disproportionately positive impact on all sensitive subpopulations mentioned earlier. Economic Analysis for the LT2ESWTR Proposal June 2003 7 29 7.9.2 Protection of Children from Environmental Health Risks and Safety Risks Executive Order 13045 ( 62 FR 19885; April 23, 1997) applies to any rule initiated after April 21, 1998, that ( 1) is determined to be " economically significant" as defined under Executive Order 12866; and ( 2) concerns an environmental, health, or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, EPA must evaluate the environmental, health, or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

Not only is this final rule subject to the Executive Order because it is economically significant as defined in Executive Order 12866, but EPA has reason to believe that the environmental health or safety risk addressed by this action may have a disproportionate effect on children. As a matter of policy, EPA therefore has examined the environmental health effects of Cryptosporidium on children. The risk of illness and death due to cryptosporidiosis depends on several factors including age, nutrition, exposure, genetic variability, disease, and the immune status of the individual.

Young children are of particular concern since they are more susceptible than adults to cryptosporidiosis, and the risk of mortality resulting from diarrhea is greatest in the very young and elderly ( Rose 1997; Gerba et al. 1996; Fayer and Ungar 1986). Based on data presented in the Occurrence and Exposure Assessment for the Long Term 2 Enhanced Surface Water Treatment Rule ( USEPA 2003c), children under 5 years of age make up approximately 6.9 percent of the total population served by surface water and GWUDI sources. An infected child can also spread the disease to other children or family members, and evidence of such secondary transmission of cryptosporidiosis has been found in a number of outbreak investigations ( Casemore 1990; Cordell et al. 1997; Frost et al. 1997).

During the 1993 Milwaukee drinking water outbreak, associated mortalities in children were reported. Also, children with laboratory confirmed cryptosporidiosis were more likely to have an underlying disease that altered their immune status ( Cicirello et al., 1997). In that study, the observed association between increasing age of children and increased numbers of laboratory confirmed cryptosporidiosis suggested to the authors that the data are consistent with increased tap water consumption of older children. However, due to data limitations, this observation could not be adequately analyzed.

Chapell et al. ( 1999) found that prior exposure to Cryptosporidium through the ingestion of a low oocyst dose provides limited protection from infection and illness. It is not known, however, whether this immunity is life long or temporary. Data also indicate that either mothers confer short term immunity to their children or that babies have reduced exposure to Cryptosporidium, resulting in a decreased incidence of infection during the first year of life. For example, in a survey of over 30,000 stool sample analyses from different patients in the United Kingdom, the 1 5 year age group suffered a much higher infection rate than individuals less than 1 year of age. For children under 1 year of age, those older than 6 months showed a higher rate of infection than individuals aged fewer than 6 months ( Casemore 1990). Children may be in contact with environmentally contaminated surfaces and may not have established immunity against the disease ( DuPont et al. 1995). Although children consume less water than adults and would, therefore, be expected to have less exposure to Cryptosporidium oocycsts, studies show that cryptosporidiosis occurrence is greater in children ( Casemore 1990). Economic Analysis for the LT2ESWTR Proposal June 2003 7 30 EPA has not been able to quantify the health effects for children as a result of Cryptosporidiumcontaminated drinking water. However, the result of the LT2ESWTR will be a reduction in the risk of illness for the entire population, including children. Because available evidence indicates that children may be more vulnerable to cryptosporidiosis than the rest of the population, the LT2ESWTR would, therefore, result in greater risk reduction for children than for the general population.

7.10 Environmental Justice Executive Order 12898 ( 59 FR 7629) establishes a Federal policy for incorporating environmental justice into Federal agency missions by directing agencies to identify and address disproportionately high adverse human health or environmental effects of its programs, policies, and activities on minority and low income populations. The Agency has considered environmental justice related issues concerning the potential impacts of this action and consulted with minority and low income stakeholders.

Two aspects of the LT2ESWTR comply with the order that requires the Agency to consider environmental justice issues in the rulemaking and to consult with stakeholders representing a variety of economic and ethnic backgrounds. These are: ( 1) the overall nature of the rule, and ( 2) the convening of a stakeholder meeting specifically to address environmental justice issues.

The Agency built on the efforts conducted during the development of the Interim Enhanced Surface Water Treatment Rule ( IESWTR) to comply with Executive Order 12898. On March 12, 1998, the Agency held a stakeholder meeting to address various components of pending drinking water regulations and how they might impact sensitive subpopulations, minority populations, and low income populations. This meeting was a continuation of stakeholder meetings that started in 1995 to obtain input on the Agency's Drinking Water Programs. Topics discussed included treatment techniques, costs and benefits, data quality, health effects, and the regulatory process. Participants were national, State, Tribal, municipal, and individual stakeholders. EPA conducted the meeting by video conference call among 11 cities. The major objectives for the March 12, 1998, meeting were the following:

° To solicit ideas from stakeholders on known issues concerning current drinking water regulatory efforts.

° To identify key areas of concern to stakeholders.

° To receive suggestions from stakeholders concerning ways to increase representation of communities in OGWDW regulatory efforts.

In addition, EPA developed a plain English guide for this meeting to assist stakeholders in understanding the multiple and sometimes complex issues surrounding drinking water regulations.

The LT2ESWTR and other drinking water regulations promulgated or under development are expected to have a positive effect on human health regardless of the social or economic status of a specific population. The LT2ESWTR serves to provide a similar level of drinking water protection to all groups. Where water systems have high Cryptosporidium levels, they must treat their water to achieve a given level of protection. Further, to the extent that levels of Cryptosporidium in drinking water might be disproportionately high now among minority or low income populations ( which is unknown), the Economic Analysis for the LT2ESWTR Proposal June 2003 7 31 LT2ESWTR will work to remove those differences. Thus, the LT2ESWTR meets the intent of Federal policy requiring incorporation of environmental justice into Federal agency missions.

The LT2ESWTR applies uniformly to CWSs, NTNCWSs, and TNCWSs that use surface water or GWUDI as their source. Consequently, this rule provides health protection from pathogen exposure equally to all income and minority groups served by surface water and GWUDI systems.

7.11 Federalism Executive Order 13132, " Federalism" ( 64 FR 43255; August 10, 1999), requires EPA to develop an accountable process to ensure " meaningful and timely input by State and Local officials in the development of regulatory policies that have Federalism implications." " Policies that have Federalism implications" are defined in the executive order to include regulations that have " substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government."

Under Section 6( b) Executive Order 13132, EPA may not issue a regulation that has Federalism implications, imposes substantial direct compliance costs, and is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and Local governments, or consults with State and Local officials early in the process of developing the proposed regulation.

EPA has concluded that the LT2ESWTR may have Federalism implications because it will impose substantial direct compliance costs on State or Local governments. It contains a significant intergovernmental mandate under UMRA Section 202, i. e., it is likely to result in expenditure by State, Local, and Tribal governments in the aggregate of $ 100 million or more in any one year. The aggregate cost to these entities ranges from $ 74 to $ 111 million on average annually at a 3 percent discount rate. Accordingly, EPA provides the following Federalism summary impact statement, as required by Section 6( b) of Executive Order 13132.

EPA consulted with State and Local officials early in the process of developing the LT2ESWTR to permit them to have meaningful and timely input into its development. On February 20, 2001, EPA held a dialogue with representatives of State and Local governmental organizations including those that represent elected officials. Representatives from the following organizations attended the consultation meeting: ASDWA, the National League of Cities ( NLC), the National Governors' Association ( NGA), the National Conference of State Legislatures ( NCSL), the International City/ County Management Association ( ICMA), NLC, the County Executives of America, and health departments. Attendees posed questions ranging from a basic inquiry into how Cryptosporidium gets into water to more detailed queries about anticipated implementation guidance, procedures, and schedules. Some of the State and Local organizations that attended this meeting were also participants in the Stage 2 M DBP Federal Advisory Committee and signed the Agreement in Principle. In addition, EPA consulted with a mayor in the SBREFA consultation. EPA considered all input from these consultations in the development of the LT2ESWTR. Economic Analysis for the LT2ESWTR Proposal June 2003 7 32 7.12 Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use Executive Order 13211, " Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use" ( 66 FR 28355; May 22, 2001), provides that agencies shall prepare and submit to the Administrator of the Office of Information and Regulatory Affairs, OMB, a statement of Energy Effects for certain actions identified as " significant energy actions." Section 4( b) of Executive Order 13211 defines " significant energy actions" as " any action by an agency ( normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking: ( 1)( i) that is a significant regulatory action under Executive Order 12866 or any successor order, and ( ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy; or ( 2) that is designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action."

The LT2ESWTR has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. This determination is based on the analysis presented below.

Energy Supply The first consideration is whether the LT2ESWTR would adversely affect the supply of energy. The LT2ESWTR does not regulate power generation, either directly or indirectly, and the public and private PWSs that the LT2ESWTR regulates do not, as a rule, generate power. Further, the cost increases borne by customers of PWSs as a result of the LT2ESWTR are a low percentage of the total cost of water, except for a very few small systems that will need to spread the cost of installing advanced technologies over a narrow customer base. Therefore, the customers that are power generation utilities are unlikely to face any significant effects as a result of the LT2ESWTR. In summary, the LT2ESWTR does not regulate the supply of energy, does not generally regulate the utilities that supply energy, and is unlikely significantly to affect the customer base of energy suppliers. Thus, the LT2ESWTR would not would not adversely affect the supply of energy.

In response to the LT2ESWTR, some water utilities are expected to increase their energy use, and those impacts are discussed later in this section.

Energy Distribution The second consideration is whether the LT2ESWTR would adversely affect the distribution of energy. The LT2ESWTR does not regulate any aspect of energy distribution. PWSs that are regulated by the LT2ESWTR already have electrical service. The proposed rule is projected to increase peak electricity demand at PWSs by only 0.02 percent ( see below). Therefore, EPA assumes that the existing connections are adequate and that the LT2ESWTR has no discernable adverse effect on energy distribution. Economic Analysis for the LT2ESWTR Proposal June 2003 7 33 Energy Use The third consideration is whether the LT2ESWTR would adversely affect the use of energy. Because some PWSs are expected to add treatment technologies that use electrical power, this potential impact of the LT2ESWTR on the use of energy requires further evaluation. The analyses that underlay the estimation of costs in Chapter 6 are national in scope and do not identify specific plants or systems that may install treatment in response to the LT2ESWTR. As a result, no analysis of the effect on specific energy suppliers is possible with the available data. The approach used to estimate the impact of energy use, therefore, also focuses on national level impacts. It estimates the additional energy use due to the LT2ESWTR and compares that to the national levels of power generation in terms of average and peak loads.

The first step is to estimate the energy used by the technologies expected to be installed as a result of the LT2ESWTR. Energy use is not directly estimated in Technologies and Costs Document ( USEPA 2003a), but the annual cost of energy for each technology addition or upgrade necessitated by the LT2ESWTR is provided. An estimate of plant level energy use is derived by dividing the total energy cost per plant for a range of flows by an average national cost of electricity of $ 0.076 per kilowatt hour per year ( kWh/ y) ( U. S. DOE EIA 2002). The energy use per plant for each flow range and technology is then multiplied by the number of plants predicted to install each technology in a given flow range. The energy requirements for each flow range are then added to produce a national total. No electricity use is subtracted to account for the technologies that may be replaced by new technologies, resulting in a conservative estimate of the increase in energy use. Results of the analysis are shown in Exhibit 7.10 for the ICR, ICRSSL, and ICRSSM Cryptosporidium occurrence data sets. The results range from an incremental national annual energy usage of 126,876 megawatt hours ( mWh) for the ICR occurrence data sets to 74,784 mWh for the ICRSSL occurrence data sets.

Exhibit 7.11 provides a sample calculation for chlorine dioxide showing the increase in energy usage as a result of the LT2ESWTR.

To determine if the additional energy required for systems to comply with the rule would have a significant adverse effect on the use of energy, the numbers in Exhibit 7.10 are compared to the national production figures for electricity. According to the U. S. Department of Energy's Information Administration, electricity producers generated 3,800 million mWh of electricity in 2001 ( USDOE EIA 2002). Therefore, even using the highest assumed energy use for the LT2ESWTR ( 123,575,472 kWh/ y), the rule would result in only a 0.003 percent increase in annual average energy use when fully implemented. This calculation is shown below:

1. 126,875,687 kWh/ y * ( mWh/ 1,000 kWh) = 126,876 mWh/ y 2. 126,876 mWh/ y ÷ 3,800,000,000 mWh/ y * 100 = 0.003% Economic Analysis for the LT2ESWTR Proposal June 2003 7 34 Technology Plants Selecting Technology Total Annual Energy Required ( kWh/ yr) Plants Selecting Technology Total Annual Energy Required ( kWh/ yr) Plants Selecting Technology Total Annual Energy Required ( kWh/ yr) A B C D E F ClO2 77 343,297 61 268,861 70 312,036 UV 998 86,827,218 490 52,212,046 632 64,515,863 O3 ( 0.5 log) 26 12,524,670 19 10,328,359 21 11,467,703 O3 ( 1.0 log) 24 12,456,132 12 6,119,824 21 10,759,696 O3 ( 2.0 log) 9 7,324,561 0 35,259 2 1,787,144 MF/ UF 10 5,691,144 8 4,507,577 5 2,790,401 Bag Filters 1,545 1,631,873 1,236 1,306,067 1,441 1,522,243 Cartridge Filters 190 76,793 17 6,254 52 19,686 Total 2,878 126,875,687 1,844 74,784,249 2,244 93,174,772 ICR ICRSSL ICRSSM Exhibit 7.10 Total Increased Annual National Energy Usage Attributable to the LT2ESWTR Sources: [ A], [ C], and [ E] Plants selecting technology taken from Appendix G. [ B], [ D], and [ F] Total annual energy required calculated from energy costs given in the Technologies and Costs Document ( USEPA 2003a) assuming $ 0.076/ kWh.

In addition to average energy use, the impact at times of peak power demand is important. To examine whether increased energy usage might significantly affect the capacity margins of energy suppliers, their peak season generating capacity reserve was compared to an estimate of peak incremental power demand by water utilities. Both energy use and water use peak in the summer months, so the most significant effects on supply would be seen then. In the summer of 2001, U. S. generation capacity exceeded consumption by 15 percent, or approximately 120,000 mW ( USDOE EIA 2002). Assuming around the clock operation of water treatment plants, the total energy requirement can be divided by 8,760 hours per year to obtain an average power demand of 14 mW for the modeled ICR occurrence distribution. Assuming that power demand is proportional to water flow through the plant and that peak flow can be as high as twice the average daily flow during the summer months, about 29 mW could be needed for treatment technologies installed to comply with the LT2ESWTR. This is only 0.024 percent of the capacity margin available at peak use. This calculation is presented below:

1. 126,875,687 kWh/ y * ( y/ 8,760 hr) * ( mW/ 1,000 kW)* 2 = 29 mW 2. 29 mW ÷ 120,000 mW * 100 = 0.024% Economic Analysis for the LT2ESWTR Proposal June 2003 7 35 Average Daily Flow Total No. Number of Annual Energy Annual Energy Total Energy Usage Flow per Plant of Plants Cost per Plant Requirement for Plants Selecting ( MGD) Plants Selecting ($/ plant/ yr) ( kWhr/ plant/ yr) ( kWhr/ year)

A B C D E = D/$ 0.076 per kWhr F= C* E CWSs < 100 0.01 397 0 N/ A N/ A  101  500 0.03 796 0 261 3,437 0 501  1,000 0.09 414 0 261 3,437 945 1,001  3,300 0.25 1009 1 261 3,437 2,310 3,301  10,000 0.63 1205 1 262 3,451 2,749 10,001  50,000 2.76 1188 40 275 3,624 144,209 50,001  100,000 5.08 435 15 282 3,708 54,127 100,001  1 Million 23.67 402 18 426 5,607 100,394 > 1 Million 109.71 61 2 1,117 14,697 34,718 NTNCWSs < 100 0.01 242 0 N/ A N/ A  101  500 0.03 269 0 261 3,437 0 501  1,000 0.09 97 0 261 3,437 226 1,001  3,300 0.21 67 0 261 3,437 156 3,301  10,000 0.67 22 0 262 3,453 51 10,001  50,000 3.48 8 0 279 3,666 979 50,001  100,000 12.43 1 0 329 4,326 144 100,001  1 Million 22.94 1 0 420 5,524 245 > 1 Million  0 0 0 0 0 TNCWSs < 100 0.00 1234 0 N/ A N/ A  101  500 0.03 486 0 261 3,437 0 501  1,000 0.09 81 0 261 3,437 188 1,001  3,300 0.29 67 0 261 3,437 156 3,301  10,000 0.72 31 0 263 3,455 72 10,001  50,000 2.63 10 0 274 3,607 1,226 50,001  100,000 7.90 3 0 298 3,924 400 100,001  1 Million  0 0 0 0 0 > 1 Million  0 0 0 0 0 TOTALS 8,526 77 89,976 343,297 System Size ( population served) Exhibit 7.11 Sample Calculation for Determining Increase in Energy Usage: Chlorine Dioxide ( ClO2 Dose = 1.25 mg/ L)

Notes: Detail may not add due to independent rounding.

Sources: [ A] The flows are taken from Exhibit 4.4a. [ B] The baseline number of filtered plants, taken from Exhibit 4.11, and added to the number of unfiltered plants, taken from Exhibit 4.5. [ C] Number of plants selecting chlorine dioxide are taken from Appendix G ( Exhibits G. 37   G. 39). [ D] The electricity cost per plant is taken from the Technologies and Costs Document ( USEPA 2003a). [ E] Electricity cost is $ 0.076/ KWh, as presented in the Technologies and Costs Document ( USEPA 2003a).

Although EPA recognizes that not all regions have a 15 percent capacity margin and that this margin varies across regions and through time, this analysis reflects the effect of the rule on national energy supply, distribution, and use. While certain areas, notably California, have experienced shortfalls in generating capacity in the recent past, a peak incremental power requirement of 29 mW nationwide is not likely to significantly change the energy supply, distribution, or use in any given area.

Conclusion The LT2ESWTR is not a " significant energy action" as defined in Executive Order 13211, " Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use" ( 66 FR 28355 May 22, 2001) because it is not likely to have a significant adverse effect on the supply, distribution, Economic Analysis for the LT2ESWTR Proposal June 2003 7 36 or use of energy ( based on annual average use and conditions of peak power demand). Therefore, a statement of Energy Effects for the LT2ESWTR has not been prepared.

The total increase in energy usage by water systems as a result of the LT2ESWTR is predicted to be approximately 127 million kWh/ y, which is less than four thousandths of 1 percent of the total energy produced in 2001. While the rule may have some adverse energy effects, EPA does not believe that this constitutes a significant adverse effect on the energy supply. 8 1 Economic Analysis for the LT2ESWTR Proposal June 2003 8. Comparison of Benefits and Costs of the LT2ESWTR 8.1 Introduction This chapter presents several comparisons of the benefits and costs of the LT2ESWTR. Section 8.2 focuses on the benefits and cost comparisons of the Preferred Regulatory Alternative. Section 8.3 presents several analyses comparing the benefits and costs of all four regulatory alternatives. The effect of uncertainties on these estimates is discussed in section 8.4. Finally, section 8.5 presents a summary of the conclusions from these analyses.

For comparison purposes, this chapter uses best estimates of both benefits and costs. These estimates are discussed in Chapters 5 and 6, respectively. To avoid repetition, this chapter assumes the reader is familiar with those chapters, the data sets used, and the analyses performed. The remaining sections of this chapter are organized as follows.

8.2 Summary of National Benefits, Costs, and Net Benefits of the Preferred Regulatory Alternative 8.2.1 National Benefits Summary 8.2.2 National Cost Summary 8.2.3 National Net Benefits 8.3 Comparison of Regulatory Alternatives 8.3.1 Comparison of Benefits and Costs 8.3.2 Cost Effectiveness Measures 8.4 Effect of Uncertainties on the Benefit Cost Comparisons 8.5 Summary of Benefit and Cost Comparisons 8.2 Summary of National Benefits, Costs, and Net Benefits of the Preferred Regulatory Alternative This section summarizes national benefits, costs, and net benefits of the Preferred Regulatory Alternative for the LT2ESWTR.

The rule will be implemented over time, not instantly, and therefore, the treatment costs incurred and benefits realized by the affected systems and population they serve will differ by year. Exhibits 8.1a and 8.1b summarize the nominal ( undiscounted) benefit and cost estimates incurred by systems, according to the implementation schedule ( presented in Appendix O, Exhibit O. 2), over the 25 year period of this EA. Exhibit 8.1a shows benefits calculated using the Enhanced cost of illness ( COI) and 8.1b shows benefits calculated using the Traditional COI ( section 5.3 explains the two COI values).

It is assumed that implementation of this rule will begin in 2003. In the first several years, before systems have installed treatment, no benefits are realized, but costs are incurred for rule implementation and monitoring. Once systems begin to install treatment, illnesses and deaths are projected to be avoided in the year following installation of treatment and for each year thereafter. By 2013, all treatment is projected to have been installed; therefore, starting in 2014, the level of illnesses and deaths avoided annually is estimated to be constant for the rest of the period of analysis ( through 2027). 8 2 Economic Analysis for the LT2ESWTR Proposal June 2003 Year Benefits Cost Benefits Cost Benefits Cost A B C D E= A+ C F= B+ D 2003  $  $  $ 0.33 $  $ 0.33 $ 2004  $ 0.014 $  $ 26 $  $ 26 $ 2005  $ 1.2 $  $ 27 $  $ 28 $ 2006  $ 11 $  $ 14 $  $ 25 $ 2007  $ 14 $  $ 161 $  $ 176 $ 2008  $ 14 $ 182 $ 313 $ 182 $ 327 $ 2009  $ 12 $ 370 $ 455 $ 370 $ 468 $ 2010 11 $ 25 $ 1,127 $ 320 $ 1,137 $ 346 $ 2011 21 $ 39 $ 1,525 $ 328 $ 1,547 $ 368 $ 2012 65 $ 30 $ 1,936 $ 47 $ 2,001 $ 77 $ 2013 88 $ 32 $ 1,965 $ 52 $ 2,054 $ 84 $ 2014 112 $ 9 $ 1,996 $ 47 $ 2,108 $ 57 $ 2015 114 $ 18 $ 2,026 $ 42 $ 2,140 $ 61 $ 2016 116 $ 22 $ 2,058 $ 42 $ 2,173 $ 64 $ 2017 117 $ 22 $ 2,090 $ 42 $ 2,207 $ 64 $ 2018 119 $ 9 $ 2,122 $ 42 $ 2,242 $ 52 $ 2019 121 $ 9 $ 2,156 $ 42 $ 2,277 $ 52 $ 2020 123 $ 9 $ 2,190 $ 42 $ 2,313 $ 52 $ 2021 125 $ 9 $ 2,224 $ 42 $ 2,350 $ 52 $ 2022 127 $ 9 $ 2,260 $ 42 $ 2,387 $ 52 $ 2023 129 $ 9 $ 2,295 $ 42 $ 2,425 $ 52 $ 2024 131 $ 9 $ 2,332 $ 42 $ 2,463 $ 52 $ 2025 134 $ 9 $ 2,369 $ 42 $ 2,503 $ 52 $ 2026 136 $ 9 $ 2,407 $ 42 $ 2,543 $ 52 $ 2027 138 $ 9 $ 2,446 $ 42 $ 2,584 $ 52 $ Total 1,928 $ 343 $ 38,076 $ 2,344 $ 40,004 $ 2,687 $ Systems < 10,000 Systems > 10,000 All systems Exhibit 8.1a Summary of Nominal Benefit and Cost Estimates by Year Incurred, Preferred Alternative, ICR Data Set, Enhanced COI[ 1]

( Millions$, 2000$)

Note: [ 1] The Traditional COI only includes valuation for medical costs and lost work time ( including some portion of unpaid household production). The Enhanced COI also factors in valuations for lost personal time ( non work time) such as child care and homemaking ( to the extent not covered by the traditional COI), time with family, and recreation, and lost productivity at work on days when workers are ill but go to work anyway. Source: Appendix O, Exhibit O. 7a, O. 7b, and O. 7d. [ A] Exhibit O. 7d, Columns A+ C. [ B] Sum of Columns A F, Exhibit O. 7a, and Columns A F, Exhibit O. 7b. [ C] Exhibit O. 7d, Columns B+ D. [ D] Sum of Columns G J, Exhibit O. 7a and Columns G L, Exhibit O. 7b. 8 3 Economic Analysis for the LT2ESWTR Proposal June 2003 Year Benefits Cost Benefits Cost Benefits Cost A B C D E= A+ C F= B+ D 2003  $  $  $ 0.33 $  $ 0.33 $ 2004  $ 0.014 $  $ 26 $  $ 26 $ 2005  $ 1.2 $  $ 27 $  $ 28 $ 2006  $ 11 $  $ 14 $  $ 25 $ 2007  $ 14 $  $ 161 $  $ 176 $ 2008  $ 14 $ 126 $ 313 $ 126 $ 327 $ 2009  $ 12 $ 256 $ 455 $ 256 $ 468 $ 2010 7 $ 25 $ 777 $ 320 $ 784 $ 346 $ 2011 14 $ 39 $ 1,049 $ 328 $ 1,063 $ 368 $ 2012 42 $ 30 $ 1,326 $ 47 $ 1,369 $ 77 $ 2013 57 $ 32 $ 1,342 $ 52 $ 1,399 $ 84 $ 2014 72 $ 9 $ 1,358 $ 47 $ 1,431 $ 57 $ 2015 73 $ 19 $ 1,375 $ 42 $ 1,448 $ 61 $ 2016 74 $ 22 $ 1,391 $ 42 $ 1,465 $ 64 $ 2017 75 $ 22 $ 1,408 $ 42 $ 1,483 $ 64 $ 2018 76 $ 9 $ 1,425 $ 42 $ 1,501 $ 52 $ 2019 77 $ 9 $ 1,443 $ 42 $ 1,519 $ 52 $ 2020 78 $ 9 $ 1,460 $ 42 $ 1,538 $ 52 $ 2021 79 $ 9 $ 1,478 $ 42 $ 1,557 $ 52 $ 2022 80 $ 9 $ 1,496 $ 42 $ 1,576 $ 52 $ 2023 80 $ 9 $ 1,514 $ 42 $ 1,595 $ 52 $ 2024 81 $ 9 $ 1,533 $ 42 $ 1,615 $ 52 $ 2025 83 $ 9 $ 1,552 $ 42 $ 1,634 $ 52 $ 2026 84 $ 9 $ 1,571 $ 42 $ 1,654 $ 52 $ 2027 85 $ 9 $ 1,590 $ 42 $ 1,675 $ 52 $ Total 1,214 $ 343 $ 25,472 $ 2,344 $ 26,687 $ 2,688 $ Systems < 10,000 Systems > 10,000 All systems Exhibit 8.1b Summary of Nominal Benefit and Cost Estimates by Year Incurred, Preferred Alternative, ICR Data Set, Traditional COI[ 1]

( Millions$, 2000$)

Note: [ 1] The Traditional COI only includes valuation for medical costs and lost work time ( including some portion of unpaid household production). The Enhanced COI also factors in valuations for lost personal time ( non work time) such as child care and homemaking ( to the extent not covered by the traditional COI), time with family, and recreation, and lost productivity at work on days when workers are ill but go to work anyway. Source: Appendix O, Exhibit O. 7a, O. 7b, and O. 7e. [ A] Exhibit O. 7e, Columns A+ C. [ B] Sum of Columns A F, Exhibit O. 7a, and Columns A F, Exhibit O. 7b. [ C] Exhibit O. 7e, Columns B+ D. [ D] Sum of Columns G J, Exhibit O. 7a and Columns G L, Exhibit O. 7b. 8 4 Economic Analysis for the LT2ESWTR Proposal June 2003 8.2.1 National Benefits Summary The quantified benefits of the LT2ESWTR derive from the reduction in the incidence of adverse health effects, specifically the endemic morbidity and mortality from cryptosporidiosis, attributable to consumption of drinking water from the PWSs affected by the rule. However, the value of other additional benefits that can not be quantified ( and therefore can not be reflected explicitly in quantitative benefit cost comparisons) are likely to be substantial. Exhibit 8.2 summarizes the nonquantified benefits and Chapter 5 ( section 5.4.6) describes them in more detail. In every comparison of benefits and costs, these real, but nonquantified, benefits must be considered in addition to those that are quantified.

Exhibit 8.2 Summary of Nonquantified Benefits and Groups Affected Type of Benefit Nonquantified Benefits Group( s) Affected Health related Reduction in risk to sensitive subpopulations ( mortality for those with AIDS and other sensitive subpopulations has been included) Immunocompromised individuals served by systems that make changes to or add treatment.

Reduction in health risk during outbreaks ( and response costs) All individuals served by systems that make changes to or add treatment, including those now served by uncovered finished water reservoirs, ( between 34 and 55 million people). Reduction in co occurring/ emerging pathogen risk Reduction in endemic morbidity and mortality risk associated with uncovered finished water reservoirs All individuals receiving water from uncovered finished water reservoirs.

Nonhealth related Improved aesthetic water quality All individuals served by systems that make changes to or add treatment that is likely to reduce taste and odor problems ( e. g., ozone).

Costs of averting behaviors Potentially all households served by systems covered by the rule, either because monitoring confirms low levels of risk or because the addition of treatment assures low levels of risk.

Before presenting the detailed review of benefits, some reminders are necessary to understand the graphs and tables that follow in this chapter. First, quantified benefits have been calculated separately for each of the three occurrence data sets, two COI values, and two discount rates. Second, the underlying results are in the form of distributions of numbers. These values are obtained from a twodimensional Monte Carlo simulation, the dimensions being variability and uncertainty. To give a sense of the extent of the distributions, data are summarized using central tendency estimates and usually some bounding information. For example, in many exhibits, data are expressed using mean values and the approximate 90 percent confidence interval. The mean value represents the best estimate of benefits, and 8 5 Economic Analysis for the LT2ESWTR Proposal June 2003 Lower ( 5th % ile) Upper ( 95th % ile) Lower ( 5th % ile) Upper ( 95th % ile)

ICR 1,018,915 169,358 2,331,467 141 25 308 ICRSSL 256,173 45,292 560,648 37 7 78 ICRSSM 498,363 84,724 1,177,415 70 13 157 ICR 720,668 119,694 1,647,796 100 18 218 ICRSSL 181,387 32,179 396,845 26 5 55 ICRSSM 352,611 59,942 833,290 50 9 111 Annual Average over 25 years Annual Total after Full Implementation Data Set Annual Illnesses Avoided Annual Deaths Avoided Mean 90 % Confidence Bound Mean 90% Confidence Bound the upper and lower bounds capture the 90 percent confidence interval reflecting uncertainty in that best estimate.

Exhibit 8.3 shows two kinds of estimates. One is the average number of cases avoided annually once the rule is fully implemented ( i. e., when all systems realize benefits) and the second is the annual average over the 25 year period. The second estimates are lower because the rule is implemented over time, not instantly. This figure is the simple average of the illnesses and deaths avoided over the first 25 years, including years in which no treatment is yet installed, years in which varying percentages of treatment have been installed, and years at full implementation.

Exhibit 8.3 Summary of Annual Avoided Illnesses and Deaths, Preferred Alternative Source: Appendix C, Exhibit C. 4 and C. 5, Columns A F, Rows ICR A3, ICRSSL A3, and ICRSSM A3. Annual Average derived from Exhibits C. 4 ( and C. 5) and Exhibit O. 2.

Exhibits 8.4a and 8.4b monetize these estimates and present their annualized values using 3 and 7 percent discount rates and Enhanced and Traditional Cost of Illness ( COI) values. The calculation also includes factors for income elasticity and income growth that vary by year. The COI values are applied to cases of illness avoided, and a distribution of estimates for Value of a Statistical Life ( VSL) ( to represent uncertainty in the estimate) is applied to deaths avoided. The initial value for COI is a constant, but its value of lost time in any year is adjusted to reflect growth in real income as described in Chapter 5. The data in Exhibit 8.4 represent the monetized values from each year, discounted to Year 2000 dollars ( to obtain present values) and then annualized over the 25 year period. These annualized figures represent the estimated annual number of illnesses and deaths avoided according to the rule schedule. ( They are the annualized values of the benefit data presented in Exhibit 8.1.) 8 6 Economic Analysis for the LT2ESWTR Proposal June 2003 Lower ( 5th % ile) Upper ( 95th % ile)

ICR 1,445 $ 198 $ 3,666 $ ICRSSL 374 $ 52 $ 959 $ ICRSSM 715 $ 96 $ 1,849 $

ICR 1,230 $ 168 $ 3,120 $ ICRSSL 318 $ 44 $ 816 $ ICRSSM 609 $ 81 $ 1,577 $ Data Set Value of Benefits Enhanced COI[ 1]

($ Millions, 2000$)

Mean 90% Confidence Bound Annualized Value ( at 3%, 25 Years)

Annualized Value ( at 7%, 25 Years)

Lower ( 5th % ile) Upper ( 95th % ile)

ICR 967 $ 105 $ 2,713 $ ICRSSL 253 $ 27 $ 713 $ ICRSSM 481 $ 50 $ 1,372 $

ICR 826 $ 89 $ 2,315 $ ICRSSL 216 $ 23 $ 610 $ ICRSSM 411 $ 43 $ 1,172 $ Data Set Value of Benefits Traditional COI[ 1]

($ Millions, 2000$)

Mean 90% Confidence Bound Annualized Value ( at 3%, 25 Years)

Annualized Value ( at 7%, 25 Years) Exhibit 8.4a Summary of Quantified Benefits, Preferred Alternative   Enhanced Cost of Illness[ 1]

Exhibit 8.4b Summary of Quantified Benefits, Preferred Alternative   Traditional Cost of Illness[ 1]

Notes: [ 1] The traditional COI only includes valuation for medical costs and lost work time ( including some portion of unpaid household production). The enhanced COI also factors in valuations for lost personal time ( non work time) such as child care and homemaking ( to the extent not covered by the traditional COI), time with family, and recreation, and lost productivity at work on days when workers are ill but go to work anyway. Source: Exhibit C. 4 ( 3%) and C. 5 ( 7%), Columns M O, Rows ICR A3, ICRSSL A3, and ICRSSM A3. 8 7 Economic Analysis for the LT2ESWTR Proposal June 2003 8.2.2 National Cost Summary Exhibit 8.5 presents a national cost summary that reflects all costs estimated for promulgating the proposed LT2ESWTR. The costs shown are based on detailed information presented in Chapter 6 for the Preferred Regulatory Alternative. The total national costs of the LT2ESWTR include those associated with implementation, monitoring for bin classification, covering reservoirs, and additional treatment. Each cost estimate is based on a single mean distribution from estimates made for each data set and the binning assignments derived from that distribution. The single mean distribution represents the central tendencies of the entire range of the 1,000 projected occurrence distributions generated independently for each of the three occurrence data sets. ( See Appendix O for further explanation of the distribution of mean cost estimates.)

As with the benefit estimates, the estimates of the national annualized costs of the LT2ESWTR are not point estimates, but are best characterized as distributions. For national costs, the distribution reflects the uncertainty in the estimate of capital and operation and maintenance ( O& M) costs, but not in other one time costs ( e. g., implementation, source water monitoring). Also, uncertainty in the national occurrence distributions within the three data sets is not considered in the cost analysis ( though it is considered in the benefits analysis).

Exhibit 8.5 summarizes cost information in four ways. The first block of estimates is the total nominal capital and one time costs in 2000$. The second block is for total annual O& M costs once all treatment has been installed ( again in 2000$). Because both capital/ one time costs and O& M costs occur over time, these figures are also discounted to present values ( Year 2000$), and then annualized over 25 years. The annualized costs ( at both 3 and 7 percent discount rates) are shown in the last two blocks of information. 8 8 Economic Analysis for the LT2ESWTR Proposal June 2003 Lower ( 5th % ile) Upper ( 95th % ile) Lower ( 5th % ile) Upper ( 95th % ile) Lower ( 5th % ile) Upper ( 95th % ile) Lower ( 5th % ile) Upper ( 95th % ile)

ICR ( mean distribution) 1,795 $ 1,549 $ 2,042 $ 52 $ 49 $ 54 $ 111 $ 98 $ 123 $ 121 $ 107 $ 135 $

ICRSSL ( mean distribution) 1,208 $ 1,041 $ 1,379 $ 32 $ 31 $ 34 $ 73 $ 65 $ 82 $ 81 $ 71 $ 91 $

ICRSSM ( mean distribution) 1,412 $ 1,218 $ 1,612 $ 39 $ 36 $ 41 $ 86 $ 76 $ 96 $ 94 $ 83 $ 106 $ 3 percent, 25 Years Annualized Cost 7 Percent, 25 Years Mean Mean 90 Percent Confidence Bound 90 Percent Confidence Bound Mean Data Set Mean 90 Percent Confidence Bound Total Capital and One Time Costs ( At Full Implementation) Annual Operations and Maintenance Costs ( At Full Implementation)

90 Percent Confidence Bound Exhibit 8.5 Summary of the Costs for the LT2ESWTR Preferred Regulatory Alternative ($ Millions, 2000$)

Sources: Appendix O, Exhibits O. 3 and O. 4. Total Capital and One Time Costs: Sum of Column K, Exhibit O. 3a and Columns A, C, E, G, I, K, Exhibit O. 4a; Rows ICR A3, ICRSSL A3, and ICRSSM A3. Annual Operations and Maintenance Cost: Sum of Columns B, D, F, H, J, and L, Exhibit O. 4a; Rows ICR A3, ICRSSL A3, and ICRSSM A3. Annualized Cost at 3 Percent: Column K, Exhibit O. 3d + Column M Exhibit O. 4d; Rows ICR A3, ICRSSL A3, and ICRSSM A3. Annualized Cost at 7 Percent: Column K, Exhibit O. 3e + Column M Exhibit O. 4e; Rows ICR A3, ICRSSL A3, and ICRSSM A3. 8 9 Economic Analysis for the LT2ESWTR Proposal June 2003 Data Set Mean Benefits Mean Costs Mean Net Benefits ICR $ 1,445 $ 111 1,335 $ ICRSSL $ 374 $ 73 300 $ ICRSSM $ 715 $ 86 629 $

ICR $ 1,230 $ 121 1,109 $ ICRSSL $ 318 $ 81 237 $ ICRSSM $ 609 $ 94 514 $ 3 Percent, 25 Years 7 Percent, 25 Years 8.2.3 National Net Benefits Net benefits are the difference between the estimated value of human health benefits from the LT2ESWTR and the estimated costs of complying with the rule. The net benefit calculations use the estimate of quantified benefits only and do not include nonquantified benefits. All of the comparisons that follow, therefore, should be considered in the light of the additional benefits that are likely attributable to this rule but were not quantified.