United States Office of Water EPA-821-R-01-035
Environmental Protection (4303) November 2001
Agency
&EPA Economic Analysis of the
Final Regulations
Addressing Cooling Water
Intake Structures for New
Facilities
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Economic Analysis of the Final Regulations Addressing
Cooling Water Intake Structures for New Facilities
U.S. Environmental Protection Agency
Office of Science and Technology
Engineering and Analysis Division
Washington, DC 20460
November 9, 2001
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ACKNOWLEDGMENTS AND DISCLAIMER
This document was prepared by the Office of Water staff. The following contractors provided assistance and support in
performing the underlying analysis supporting the conclusions detailed in this document.
Abt Associates Inc.
Science Applications International Corporation
Stratus Consulting Inc.
Tetra Tech
The Office of Water has reviewed and approved this document for publication. The Office of Science and Technology
directed, managed, and reviewed the work of the contractors in preparing this document. Neither the United States
Government nor any of its employees, contractors, subcontractors, or their employees makes any warranty, expressed or
implied, or assumes any legal liability or responsibility for any third party's use of or the results of such use of any
information, apparatus, product, or process discussed in this document, or represents that its use by such party would not
infringe on privately owned rights.
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Section 316(b) EA for New Facilities Table of Contents
Table of Contents
Chapter 1: Introduction and Overview
1.1 Scope of the Final Rule 1-1
1.2 Definitions of Key Concepts 1-2
1.3 Summary of the Final Rule 1-2
1.3.1 Location 1-3
1.3.2 BTA Standards forthe Final Rule 1-3
1.4 Organization of the EA Report 1-4
References 1-6
Chapter 2: The Section 316(b) Industries and the Need for Regulation
2.1 Overview of Facilities Subjectto Section 316(b) Regulation 2-1
2.1.1 Section 316(b) Sectors 2-2
2.1.2 New Facilities 2-3
2.2 The Need for Section 316(b) Regulation 2-5
2.2.1 The Need to Reduce Adverse Environmental Impacts 2-5
2.2.2 The Need to Address Market Imperfections 2-6
References 2-8
Chapter 3: Profile of the Electric Power Industry
3.1 Industry Overview 3-2
3.1.1 Industry Sectors 3-2
3.1.2 Prime Movers 3-2
3.1.3 Ownership 3-4
3.2 Domestic Production 3-5
3.2.1 Generating Capacity 3-6
3.2.2 Electricity Generation 3-7
3.2.3 Geographic Distribution 3-8
3.3 Existing Plants with CWIS and NPDES
Permits 3-12
3.3.1 Existing Section 316(b) Utility Plants 3-14
3.3.2 Existing Section 316(b) Nonutility Plants 3-20
3.4 Industry Outlook 3-27
3.4.1 Current Status of Industry Deregulation 3-27
3.4.2 Energy Market Model Forecasts 3-29
Glossary 3-30
References 3-32
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Section 316(b) EA for New Facilities Table of Contents
Chapter 4: Profile of Manufacturers
4A Paper and Allied Products (SIC 26) 4A-1
4A. 1 Domestic Production 4A-2
4A.2 Structure and Competitiveness 4A-11
4A.3 Financial Condition and Performance 4A-20
4A.4 Facilities Operating Cooling Water Intake Structures 4A-22
References 4A-26
4B Chemicals and Allied Products (SIC 28) 4B-1
4B. 1 Domestic Production 4B-3
4B.2 Structure and Competitiveness 4B-14
4B.3 Financial Condition and Performance 4B-23
4B.4 Facilities Operating Cooling Water Intake Structures 4B-25
References 4A-29
4C Petroleum and Coal Products (SIC 29) 4C-1
4C. 1 Domestic Production 4C-1
4C.2 Structure and Competitiveness 4C-13
4C.3 Financial Condition and Performance 4C-19
4C.4 Facilities Operating Cooling Water Intake Structures 4C-22
References 4C-25
4D Steel (SIC 331) 4D-1
4D. 1 Domestic Production 4D-2
4D.2 Structure and Competitiveness 4D-12
4D.3 Financial Condition and Performance 4D-20
4D.4 Facilities Operating Cooling Water Intake Structures 4D-21
References 4D-25
4E Aluminum (SIC 333/5) 4E-1
4E. 1 Domestic Production 4E-1
4E.2 Structure and Competitiveness 4E-12
4E.3 Financial Condition and Performance 4E-18
4E.4 Facilities Operating Cooling Water Intake Structures 4E-20
References 4E-23
Glossary 4Glos-l
Chapter 5: Baseline Projections of New Facilities
5.1 New Electric Generators 5-1
5.1.1 Projected Number of New Facilities 5-2
5.1.2 Development of Model Facilities 5-9
5.1.3 Summary of Forecasts for New Electric Generators 5-11
5.1.4 Uncertainties and Limitations 5-11
5.2 New Manufacturing Facilities 5-13
5.2.1 Methodology 5-13
5.2.2 Projected Number of New Manufacturing Facilities 5-16
5.2.3 Summary of Forecasts for New Manufacturing Facilities 5-33
5.2.4 Uncertainties and Limitations 5-34
5.3 Summary of Baseline Projections 5-35
References 5-36
Appendix to Chapter 5 5-37
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Section 316(b) EA for New Facilities Table of Contents
Chapter 6: Facility Compliance Costs
6.1 Unit Costs 6-1
6.1.1 Section 316(b) Technology Costs 6-2
6.1.2 Administrative Costs 6-5
6.2 Facility-Level Costs 6-8
6.2.1 New Electric Generators 6-9
6.2.2 New Manufacturing Facilities 6-11
6.3 Total Facility Compliance Costs 6-14
6.3.1 Distribution of New In-Scope Facilities by Year 6-14
6.3.2 Present Value and Annualized Costs 6-16
6.4 Additional Facility Analyses 6-17
6.5 Limitations and Uncertainties 6-18
References 6-19
Appendix to Chapter 6 6-20
Chapter 7: Economic Impact Analysis
7.1 New Steam Electric Generators 7-2
7.1.1 Annualized Compliance Cost to Revenue Measure 7-3
7.1.2 Initial Compliance Cost to Plant Construction Cost Measure 7-6
7.2 New Manufacturing Facilities 7-7
7.2.1 Annualized Compliance Cost to Revenue Measure 7-8
7.3 Summary of Facility-Level Impacts 7-10
7.4 Potential for Firm- and Industry-Level Impacts 7-11
7.5 Additional Facility Analyses 7-11
7.5.1 Annualized Compliance Cost to Revenue Measure 7-12
7.5.2 Initial Compliance Cost to Plant Construction Cost Measure 7-13
References 7-15
Chapter 8: Regulatory Flexibility Analysis/SBREFA
8.1 Numberof New In-Scope Facilities Owned by Small Entities 8-2
8.1.1 Combined-Cycle Facilities 8-2
8.1.2 Coal Facilities 8-5
8.1.3 Manufacturing Facilities 8-9
8.2 Sales Test for Facilities Owned by Small Entities 8-11
8.3 Summary of Results 8-13
References 8-14
Chapter 9: UMRA and Other Economic Analyses
9.1 The Unfunded Mandates Reform Act
of 1995 9-1
9.1.1 Compliance Costs for Governments 9-2
9.1.2 Compliance Costs forthe Private Sector 9-10
9.1.3 Summary of the UMRA Analysis 9-10
9.2 Executive Order 13132 9-10
9.3 Executive Order 13211 9-11
9.4 The Paperwork Reduction Act of 1995 9-13
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Section 316(b) EA for New Facilities Table of Contents
9.5 Social Costs of the Final Rule 9-14
References 9-16
Chapter 10: Alternative Regulatory Options
10.1 Water Body Type Option 10-2
10.2 Dry Cooling Option 10-3
10.3 Industry Two-Track Option 10-4
10.4 Summary of Alternative Regulatory Options 10-5
References 10-7
Chapter 11: CWIS Impacts and Potential Benefits
11.1 CWIS Characteristics that Influence the Magnitude of I&E 11-2
11.1.1 Intake Location 11-2
11.1.2 Intake Design 11-2
11.1.3 Intake Capacity 11-3
11.2 Methods for Estimating Potential I&E Losses 11-4
11.2.1 Development of a Database of I&E Rates 11-4
11.2.2 Data Uncertainties and Potential Biases 11-5
11.3 CWIS Impingement and Entrainment Impacts in Rivers 11-5
11.4 CWIS Impingement and Entrainment Impacts in Lakes and Reservoirs 11-7
11.5 CWIS Impingement and Entrainment Impacts in the Great Lakes 11-9
11.6 CWIS Impingement and Entrainment Impacts in Estuaries 11-11
11.7 CWIS Impingement and Entrainment Impacts in Oceans 11-13
11.8 Summary of Impingement and Entrainment Data 11-15
11.9 Potential Benefits of Section 316(b) Regulation 11-15
11.9.1 Benefits Concepts, Categories, and Causal Links 11-15
11.9.2 Applicable Economic Benefit Categories 11-15
11.9.3 Benefit Category Taxonomies 11-15
11.9.4 Direct Use Benefits 11-17
11.9.5 Indirect Use Benefits 11-18
11.9.6 Nonuse Benefits 11-18
11.9.7 Summary of Benefits Categories 11-19
11.9.8 Causality: Linking the Section 316(b) Rule to Beneficial Outcomes 11-20
11.10 Empirical Indications of Potential Benefits 11-22
References 11-24
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Section 316(b) EA Chapter 1 for New Facilities Introduction and Overview
Chapter 1: Introduction and
o
verview
1.1 Scope of the Final Rule 1-1
1.2 Definitions of Key Concepts 1-2
1.3 Summary of the Final Rule 1-2
1.3.1 Location 1-3
1.3.2 BTA Standards for the Final Rule ... 1-3
1.4 Organization of the EA Report 1-4
References 1-6
INTRODUCTION
EPA is promulgating regulations implementing section
316(b) of the Clean Water Act (CWA) for new facilities (33
U.S.C. 1326(b)). The final rule establishes national
technology-based performance requirements applicable to the
location, design, construction, and capacity of cooling water
intake structures (CWIS) at new facilities. The final national
requirements establish the best technology available (BTA)
to minimize the adverse environmental impact (AEI)
associated with the use of these structures. Means by which
CWIS cause AEI include impingement (where fish and other aquatic life are trapped on equipment at the entrance to CWIS)
and entrainment (where aquatic organisms, eggs, and larvae are taken into the cooling system, passed through the heat
exchanger, and then discharged back into the source water body).
The final rule applies to new greenfield and stand-alone facilities that use CWIS to withdraw water from waters of the U.S.
and that have or require a National Pollutant Discharge Elimination System (NPDES) permit.
Not covered under this final regulation are existing facilities operating CWIS, including existing facilities proposing
substantial additions or modifications to their operations. These facilities will be addressed by a separate rule.
1.1 SCOPE OF THE FINAL RULE
The Economic Analysis of the Final Regulations Addressing Cooling Water Intake Structures for New Facilities (EA)
assesses the economic impacts of the final section 316(b) New Facility Rule. Facilities covered under this regulation include
any facility that meets the "new facility" criteria established for this regulation, is considered a point source under Sections
301 or 306 of the CWA, and proposes to operate a CWIS that will withdraw water for cooling purposes from a water of the
United States.
For this final regulation, EPA divided new facilities into two groups:
*• Electric generators: new facilities engaged in the generation of electricity using a steam electric prime mover; and
> Manufacturing facilities: new facilities engaged in a primary economic activity other than electricity generation.
EPA estimates that 83 new electric generators and 38 new manufacturing facilities will be subject to the final section 316(b)
New Facility Rule over the next 20 years.
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Section 316(b) EA Chapter 1 for New Facilities Introduction and Overview
1.2 DEFINITIONS OF KEY CONCEPTS
This EA presents EPA's analyses of costs, benefits, and potential economic impacts as a result of the final section 316(b) rule.
In addition to important economic concepts, which will be presented in the following chapters, understanding this document
requires familiarity with a few key concepts applicable to CWA section 316(b) and this regulation. This section defines these
key concepts.
*• Cooling Water Intake Structure (CWIS): The total physical structure and any associated constructed waterways
used to withdraw cooling water from waters of the U.S. The CWIS extends from the point at which water is
withdrawn from the water source up to, and including, the intake pumps.
> Entrainment: The incorporation of all life stages of fish and shellfish with intake water flow entering and passing
through a CWIS and into a cooling water system.
*• Impingement: The entrapment of all life stages of fish and shellfish on the outer part of an intake structure or against
screening devices during periods of intake water withdrawal.
> Manufacturing Facility: An establishment engaged in the mechanical or chemical transformation of materials or
substances into new products. Manufacturing facilities are classified under Standard Industrial Classification (SIC)
Codes 20 to 39 (U.S. DOL, 2001).
*• New Facility: Any building, structure, facility, or installation that meets the definition of a "new source" or "new
discharger" in 40 CFR 122.2 and 122.29(b)(l), (2), and (4); commences construction after the effective date of this
rule; and has a new or modified CWIS.
*• Steam Electric Generator: A facility employing one or more generating units in which the prime mover is a steam
turbine. The turbines convert thermal energy (steam or hot water) produced by generators or boilers to mechanical
energy or shaft torque. This mechanical energy is used to power electric generators, which convert the mechanical
energy to electricity, including combined-cycle electric generating units. Electric generators are classified under SIC
Major Group 49 (Electric, Gas, and Sanitary Services).
1.3 SUMMARY OF THE FINAL RULE
The final section 316(b) New Facility Rule establishes national requirements for BTA, based on a two-track approach, for
minimizing AEI at CWIS at new facilities. Facilities are subject to the rule only if they meet the following criteria:
*• they use a CWIS to withdraw from a water of the U.S.;
*• they have or require a National Pollutant Discharge Elimination System (NPDES) permit issued under section 402 of
the Clean Water Act (CWA);
>• they have a design intake flow of equal to or greater than two million gallons per day (MOD); and
*• they use at least twenty-five percent of the water withdrawn for cooling purposes.
Based on size, Track I establishes uniform requirements. Track II allows for a site-specific study to demonstrate that
alternatives to the Track I requirements will reduce impingement mortality and entrainment for all life stages offish and
shellfish to a level of reduction comparable to the level the facility would achieve at the CWIS if Track I requirements were
met.
The following subsections discuss the role of location in the final section 316(b) New Facility Rule and present the specific
BTA standards required under the rule.
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Section 316(b) EA Chapter 1 for New Facilities Introduction and Overview
1.3.1 Location
For costing purposes, EPA distinguishes between two types of water body: freshwater bodies and marine water bodies.
Freshwater bodies include freshwater rivers or streams, and lakes or reservoirs. Marine water bodies include tidal rivers or
estuaries, and oceans. For the purposes of this rule, these water body types are defined as follows:
*• Freshwater river or stream means a lotic (free-flowing) system that does not receive significant inflows of water
from oceans or bays due to tidal action.
> Lake or reservoir means any inland body of open water with some minimum surface area free of rooted vegetation
and with an average hydraulic retention time of more than seven days. Lakes or reservoirs might be natural water
bodies or impounded streams, usually fresh, surrounded by land or by land and a man-made retainer (e.g., a dam).
Lakes or reservoirs might be fed by rivers, streams, springs, and/or local precipitation. Flow-through reservoirs with
an average hydraulic retention time of seven days or less should be considered a freshwater river or stream.
* Tidal river means the most seaward reach of a river or stream where the salinity is less than or equal to 0.5 parts per
thousand (by mass) at a time of annual low flow and whose surface elevation responds to the effects of coastal lunar
tides. Estuary means all or part of the mouth of a river or stream or other body of water having an unimpaired
natural connection with open seas and within which the sea water is measurably diluted with fresh water derived
from land drainage. The salinity of an estuary exceeds 0.5 parts per thousand (by mass), but is less than 30 parts per
thousand (by mass).
* Ocean means marine open coastal waters with a salinity greater than or equal to 30 parts per thousand (by mass).
1.3.2 BTA Standards for the Final Rule
The final section 316(b) New Facility Rule establishes technology-based performance requirements, based on a two-track
approach, that reflect BTA for minimizing AEI of a CWIS.
*• Track I, the "fast track," establishes national intake capacity (based on size) and velocity requirements, as well as
location- and capacity-based requirements to reduce intake flow below certain proportions of certain water bodies
(referred to as "proportional-flow requirements"). It also requires the permit applicant to select and implement
design and construction technologies to minimize impingement mortality and entrainment of all life stages of fish
and shellfish.'
*• Track II, the "demonstration track," allows permit applicants to conduct site-specific studies to demonstrate that
alternatives to the Track I requirements will achieve a level of impingement mortality and entrainment reduction for
all stages of fish and shellfish at the CWIS comparable to the level of reduction that would be achieved under Track
I. Track II also requires the applicant to meet the same proportional flow requirements that apply in Track I.
The main requirements of the final rule relate to (1) design intake flow, (2) design intake velocity, (3) other design and
construction technologies, and (4) additional requirements defined by the Director. The following subsections discuss these
four requirements.
a. Design intake flow
Intake flow refers to the volume of water that is withdrawn through the intake structure. The intake flow of a CWIS is a
primary factor affecting the entrainment of organisms. Organisms entrained include small fish and immature life stages (eggs
and larvae) of many species that lack sufficient mobility to move away from the intake structure. Limiting the volume of the
water withdrawn from a water body can limit the potential for these organisms to be entrained.
1 These design and construction technologies may be modified by the permit director in subsequent permits if the original design and
construction technologies do not meet the environmental goals of today' s rule, or if such modifications are necessary because of the effects
of multiple intakes on the same water body, seasonal variations in the aquatic environment, or the presence of regional important,
threatened, or endangered species.
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Section 316(b) EA Chapter 1 for New Facilities Introduction and Overview
Design intake flow standards restrict the maximum flow a facility may withdraw from a water body. The final rule includes
two restrictions on intake flows. First, it sets maximum flow rates relative to the flow of the source water body. These flow
rates are expressed as a percentage of the water bodies' mean annual flow or volume. Second, the final rule requires that
facilities with intake flows equal to or greater than 10 MOD reduce their flow to a level commensurate with that achievable
with a closed-cycle recirculating cooling system (Track I).
b. Design intake velocity
Velocity refers to the speed with which water is drawn into a CWIS. Intake velocity is a key factor that affects the
impingement of fish and other aquatic biota. The final rule requires that the design through-screen velocity must be less than
or equal to 0.5 ft/sec (Track I). Through-screen or through-technology velocity is the velocity that is measured through the
screen face or just as the organisms are entering the technology.
c. Other design and construction technologies
In addition to design flow and velocity requirements, the final section 316(b) New Facility Rule requires implementation of
additional technologies that help reduce the impact on the aquatic environment. Such other design and construction
technologies include operational measures that minimize I&E offish, eggs, and larvae.
Examples of technologies that minimize I&E include technologies such as fine mesh screens, intake traveling screens, and
Gunderbooms that exclude smaller organisms from entering the CWIS; passive intake systems such as wedge wire screens,
perforated pipes, porous dikes, and artificial filter beds; and diversion and/or avoidance systems. Examples of technologies
that maximize survival of organisms after they have been impinged include fish handling systems such as bypass systems,
fish buckets, fish baskets, fish troughs, fish elevators, fish pumps, spray wash systems, and fish sills. A facility with an intake
equal to or greater than 10 MOD must select design and construction technologies if certain conditions exist at the location of
the CWIS. A facility with an intake flow equal to 2 MOD and less than 10 MOD must select technologies to minimize
entrainment but only has to install technologies to reduce impingement if certain conditions exist.
1.4 ORSANIZATION OF THE EA REPORT
The remaining chapters of this EA are organized as follows:
*• Chapter 2: The Section 316(b) Industries and the Need for Regulation provides a brief discussion of the industries
affected by this regulation, discusses the environmental impacts from operating CWIS, and explains the need for this
regulatory effort.
*• Chapter 3: Profile of the Electric Power Industry presents a profile of the market in which affected electric
generators will operate.
> Chapter 4: Profile of Manufacturers presents profiles of the market in which affected manufacturing facilities will
operate.
*• Chapter 5: Baseline Projections of New Facilities describes EPA's methodology and data sources for estimating the
number of new electric generators and manufacturing facilities subject to this regulation.
> Chapter 6: Facility Compliance Costs summarizes the technology costs detailed in the Technical Development
Document (U.S. EPA, 2001) of this regulation and estimates the costs of compliance for each facility in scope of the
final rule. The chapter also presents facility compliance costs aggregated to the national level and provides
compliance cost estimates for six additional facility analyses.
* Chapter 7: Economic Impact Analysis presents the methodology used to estimate the economic impacts of the
regulation and presents the impact analysis results.
*• Chapter 8: Regulatory Flexibility Analysis presents EPA's estimates of small business impacts from the final
section 316(b) New Facility Rule.
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Section 316(b) EA Chapter 1 for New Facilities Introduction and Overview
> Chapter 9: Other Economic Analyses outlines the requirements for analysis under the Unfunded Mandates Reform
Act and presents the results of the analysis for this regulation. This chapter also addresses EPA's compliance with
Executive Order 13132 on "Federalism," Executive Order 13211 on "Actions Concerning Regulations that
Significantly Affect Energy Supply, Distribution, or Use," and the Paperwork Reduction Act of 1995, and presents
the total social cost of the rule.
* Chapter 10: Alternative Regulatory Options describes three alternative regulatory options considered by EPA and
their costs.
*• Chapter 11: CWIS Impingement and Entrainment (I&E) Impacts and Potential Benefits presents a discussion of
environmental impacts resulting from the operation of CWIS and provides a qualitative assessment of potential
benefits from the final rule.
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Section 316(b) EA Chapter 1 for New Facilities Introduction and Overview
REFERENCES
U.S. Department of Labor (U.S. DOL). 2001. Occupational Safety and Health Administration (OSHA). SIC Division
Structure at http://www.osha.gov/cgi-bin/sic/sicser5 (as of October 2001).
U.S. Environmental Protection Agency (U.S. EPA). 2001a. Technical Development Document for the Final Regulations
Addressing Cooling Water Intake Structures for New Facilities. EPA-821-R-01-036. November 2001.
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Section 316(b) EA Chapter 2 for New Facilities
The Section 316(b) Industries and the Need for Regulation
Chapter 2: The Section 316(t>)
Industries and the Need for
Regulation
INTRODUCTION
Section 316(b) of the Clean Water Act (CWA) directs EPA to
assure that the location, design, construction, and capacity of
cooling water intake structures reflect the best technology
available (BTA) for minimizing adverse environmental
impact (AEI). Based on this statutory language, section
316(b) is already in effect and should be implemented with
each NPDES permit issued to a directly discharging facility.
However, in the absence of regulations that establish
standards for BTA, section 316(b) has been applied
inconsistently, using a case-by-case approach for some
industries and it has not been rigorously applied to many
other industries.
CHAPTER CONTENTS
2.1 Overview of Facilities Subject to Section 316(b)
Regulation 2-1
2.1.1 Section 316(b) Sectors 2-2
2.1.2 New Facilities 2-3
2.2 The Need for Section 316(b) Regulation 2-5
2.2.1 The Need to Reduce Adverse
Environmental Impacts 2-5
2.2.2 The Need to Address Market
Imperfections 2-6
References 2-8
The final section 316(b) New Facility Rule addresses section 316(b) by regulating new facilities that operate cooling water
intake structures (CWIS), are required to have a National Pollution Discharge Elimination System (NPDES) permit, and meet
certain criteria with respect to their intake flow.1 While all new CWIS that meet these criteria are subject to the regulation,
this economic analysis focuses on facilities in two major sectors: (1) steam electric generators; and (2) four manufacturing
industry sectors with substantial cooling water use.
This chapter provides a brief overview of the analyzed sectors, their use of cooling water, and the need for this regulation.
2.1 OVERVIEW OF FACILITIES SUBJECT TO SECTION 316(B) REGULATION
The final section 316(b) New Facility Rule applies to new greenfield and stand-alone facilities proposing to operate CWIS
that directly withdraw water from a water of the United States. Existing facilities operating CWIS, including facilities
proposing substantial additions or modifications to their operations, are not covered under this regulation. These existing
facilities will be addressed by a separate rule.
The following two subsections describe the section 316(b) sectors analyzed for this regulatory effort and the new facilities
expected to be built within these sectors over the next 20 years. More detail on the two sectors and their facilities, firms, and
market characteristics is provided in Chapter 3: Profile of the Electric Power Industry and Chapter 4: Profile of
1 Only facilities that have a design intake flow of equal to or greater than two million gallons per day and that use at least twenty-five
percent of their intake flow for cooling purposes are regulated under the final section 316(b) New Facility Rule.
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Section 316(b) EA Chapter 2 for New Facilities
The Section 316(b) Industries and the Need for Regulation
Manufacturers. An in-depth discussion of how EPA identified and estimated new facilities potentially subject to this
regulation is provided in Chapter 5: Baseline Projection of New Facilities.
2.1.1 Section 316(b) Sectors
EPA identified two major sectors for analysis in support of this regulation: (1) steam electric generators; and (2)
manufacturing industries with substantial cooling water use. Through past section 316(b) regulatory efforts and EPA's
effluent guidelines program, the Agency identified steam electric generators as the largest industrial users of cooling water.
The condensers that support the steam turbines in these facilities require substantial amounts of cooling water. EPA estimates
that traditional steam electric utilities (SIC Codes 4911 and 493) and steam electric nonutility power producers (SIC Major
Group 49) account for approximately 92.5 percent of total cooling water intake in the United States (see Table 2-1).
Beyond steam electric generators, other industrial facilities use cooling water in their production processes (e.g., to cool
equipment, for heat quenching, etc.). EPA used information from the 1982 Census of Manufactures to identify four major
manufacturing sectors showing substantial cooling water use: (1) Paper and Allied Products (SIC Major Group 26); (2)
Chemicals and Allied Products (SIC Major Group 28); (3) Petroleum and Coal Products (SIC Major Group 29); and (4)
Primary Metals Industries (SIC Major Group 33). As illustrated in Table 2-1, steam electric utilities, steam electric nonutility
power producers, and the four major manufacturing sectors together account for approximately 99 percent of the total cooling
water intake in the United States.
Table 2-1: Cooling Water Intake by Sector
Sector3 (SIC Code)
Steam Electric Utility Power Producers (49)
Steam Electric Nonutility Power Producers (49)
Chemicals and Allied Products (28)
Primary Metals Industries (33)
Petroleum and Coal Products (29)
Paper and Allied Products (26)
Additional 14 Categories0
Cooling Water Intake Flow"
Billion GaL/Yr.
70,000
1,172
2,797
1,312
590
534
607
Percent of Total
90.9%
1.5%
3.6%
1.7%
0.8%
0.7%
0.8%
Cumulative Percent
90.9%
92.4%
96.0%
97.8%
98.5%
99.2%
100.0%
a The table is based on reported primary SIC codes.
b Data on cooling water use are from the 1982 Census of Manufactures, except for traditional steam electric utilities, which
are from the Form EIA-767 database, and the steam electric nonutility power producers, which are from the Form EIA-867
database. 1982 was the last year in which the Census of Manufactures reported cooling water use.
c 14 additional major industrial categories (major SIC codes) with effluent guidelines.
Source: U.S. DOC, 1982; U.S. DOE, 1995; U.S. DOE, 1996.
The six sectors identified for analysis comprise a substantial portion of all U.S. industries. As shown in Table 2-2, the six
sectors combined account for almost 50,000 facilities, 3 million employees, and more than $1.5 trillion in sales and $150
billion in payroll. The four manufacturing sectors alone account for approximately 25 percent of total U.S. manufacturing
sales and 13 percent of manufacturing employment. While existing facilities are not subject to the final section 316(b) New
Facility Rule, construction of new facilities subject to the rule is most likely to occur in the same sectors. The economic
characteristics of these sectors are therefore relevant to assessing potential economic impacts on facilities subject to the final
rule.
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Section 316(b) EA Chapter 2 for New Facilities
The Section 316(b) Industries and the Need for Regulation
Table 2-2: Summary 1997 Economic Data for Major Industry Sectors Subject to Section 316(b) Regulation:
Facilities, Employment, Estimated Revenue, and Payroll (in Millions of 2000 Dollars")
Sector (SIC)
Utilities and Nonutilities (49)
Paper and Allied Products (26)
Chemicals and Allied Products (28)
Petroleum and Coal Products (29)
Primary Metals (33)
All Section 316(b) Sectors
Total U.S. Manufacturing
Section 316(b) Manufacturing Sectors as a
Percent of Total U.S. Manufacturing11
Number of
Facilities
22,306
6,509
12,401
2,136
6,559
49,911
377,673
7.3%
Employment
844,766
623,799
843,469
106,863
692,943
3,111,840
17,633,977
12.9%
Sales, Receipts, or
Shipments
(S millions)
570,244
174,692
430,792
228,518
185,344
1,589,590
4,151,367
24.6%
Payroll
(S millions)
56,593
25,952
40,874
7,176
25,836
156,431
624,226
16.0%
a Dollar values adjusted from 1997 to 2000 using Producer Price Indexes (BLS, 2000).
b Only the four section 316(b) manufacturing sectors (26, 28,29, and 33) are included in the percentage. SIC 49 is not part of total
U.S. manufacturing.
Source: U.S. DOC, 1997.
2.1.2 New Facilities
This section summarizes EPA's methodology for estimating the number of new steam electric generators and manufacturing
facilities that may be subject to section 316(b) requirements and presents the results of the analysis.
a. New steam electric generators
EPA determined the number of new steam electric generators subject to the final section 316(b) New Facility Rule using the
following approach:
*• EPA determined total steam electric capacity additions for the 2001 to 2020 analysis period using forecasts from the
Energy Information Administration's (EIA) Annual Energy Outlook 2001 (U.S. DOE, 2000).
>• EPA estimated the share of total combined-cycle and coal capacity additions that will be built at new greenfield and
stand-alone facilities (as opposed to existing facilities) using the February 2001 version of the NEWGen database
(RDI, 2001).
*• EPA estimated the total number of new facilities (in scope and out of scope of this rule) using average facility sizes
from the NEWGen database and EIA's electric generator databases (U.S. DOE, 1998a and 1998b).
>• EPA determined the number of new facilities subject to the final section 316(b) New Facility Rule using information
on the in-scope rate from state permitting authorities (for combined-cycle facilities) and the section 316(b) Industry
Survey (for coal facilities) (U.S. EPA, 2000).
This approach resulted in an estimate of 83 new steam electric generators over the next 20 years that meet the new facility
criteria specified by this rule.
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Section 316(b) EA Chapter 2 for New Facilities
The Section 316(b) Industries and the Need for Regulation
b. New manufacturing facilities
The Agency estimated the number of new manufacturing facilities subject to the final section 316(b) New Facility Rule using
a two-step approach:
*• EPA first estimated the total number of new facilities in each manufacturing sector known to be a significant user of
cooling water.2 This determination was made using industry-specific growth rates and assumptions about the share
of growth that would be met by new facilities (as opposed to expansions at existing facilities).
>• EPA then used results from the section 316(b) Industry Survey to determine how many of the new facilities in each
industry sector would be subject to the final section 316(b) New Facility Rule.
Based on this approach, EPA estimated that a total of 38 new manufacturing facilities in scope of the final section 316(b)
New Facility Rule will begin operation during the next 20 years. Of the 38 facilities, 22 are chemical facilities, ten are steel
facilities, two are petroleum refineries, two are paper mills, and two are aluminum facilities.
Table 2-3 presents the estimated number of new in-scope facilities by major sector and SIC code.
Table 2-3: Projected Number of In-Scope Facilities
SIC Code SIC Description
Projected Number of New Facilities Over
20 Years
Total In-Scope
Electric Generators
SIC 49 ! Electric Generators ! 276 ! 83
Manufacturing Facilities
SIC 26
SIC 28
SIC 29
SIC 33
SIC 331
SIC 333
SIC 335
Paper and Allied Products
Chemicals and Allied Products
Petroleum Refining and Related Industries
Primary Metals Industries
Blast Furnaces and Basic Steel Products
Primary Aluminum, Aluminum Rolling, and
Drawing and Other Nonferrous Metals
Total Manufacturing
Total
2
282
2
78
16
380
656
2
22
2
10
2
38
121
Source: U.S. EPA analysis, 2001.
EPA also consulted with industry associations and experts. Information obtained from these sources was generally consistent
with the calculated estimates.
2 EPA identified significant users of cooling water at the 4-digit Standard Industrial Classification (SIC) code level, based on
information from the section 316(b) Industry Survey.
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Section 316(b) EA Chapter 2 for New Facilities The Section 316(b) Industries and the Need for Regulation
2.2 THE NEED FOR SECTION 316(B) RESULATTON
Section 316(b) provides that any standard established to address impacts from CWIS "shall require that the location, design,
construction, and capacity of cooling water intake structures reflect the best technology available (BTA) for minimizing
adverse environmental impact." To date, no national standard for BTA that will minimize adverse environmental impact
(AEI) from CWIS has been established. As a result, many CWIS have been constructed on sensitive aquatic systems with
capacities and designs that cause damage to the water bodies from which they withdraw water.
Several factors drive the need for this final section 316(b) rule. Each of these factors is discussed in the following
subsections.
2.2.1 The Need to Reduce Adverse Environmental Impacts
Adverse environmental impacts occur when facilities impinge aquatic organisms on their CWIS' intake screens, entrain them
within their cooling system, or otherwise negatively affect habitats that support aquatic species. Exposure of aquatic
organisms to impingement and entrainment (I&E) depends on the location, design, construction, capacity, and operation of a
facility's CWIS (U.S. EPA, 1976; SAIC, 1994; SAIC, 1996). The regulatory goals of section 316(b) include the following:
*• ensure that the location, design, construction, and capacity of a facility's CWIS reflect best technology available for
minimizing adverse environmental impact;
>• protect individuals, populations, and communities of aquatic organisms from harm (reduced viability or increased
mortality) due to the physical and chemical stresses of I&E; and
>• protect aquatic organisms and habitat that are indirectly affected by CWIS because of trophic interactions with
species that are impinged or entrained.
a. Impingement
Impingement occurs when fish are trapped against CWIS' intake screens by the velocity of the intake flow. Fish may die or
be injured as a result of (1) starvation and exhaustion; (2) asphyxiation when velocity forces prevent proper gill movement;
(3) abrasion by screen wash spray; and (4) asphyxiation due to removal from water for prolonged periods.
b. Entrainment
Small organisms, such as eggs and larvae, are entrained when they pass through a plant's condenser cooling system. Damage
can result from (1) physical impacts from pump and condenser tubing; (2) pressure changes caused by diversion of cooling
water; (3) thermal shock experienced in condenser and discharge tunnels; and (4) chemical toxemia induced by the addition
of anti-fouling agents such as chlorine. Mortality of entrained organisms is usually high.
c. Minimizing AEI
Review of the available literature and section 316(b) demonstration studies obtained from NPDES permit files has identified
numerous documented cases of impacts associated with I&E and the effects of I&E on individual organisms and on
populations of aquatic organisms. For example, specific losses attributed to individual steam electric generating plants
include annual losses of 3 to 4 billion larvae, equivalent to 23 million adult fish and shellfish,3 23 tons offish and shellfish of
recreational, commercial, or forage value lost each year,4 and 1 million fish lost during a three-week study period.5 The
yearly loss of billions of individuals is not the only problem. Often, there are impacts to populations as well. For example,
studies of Hudson River fish populations predicted year-class reductions of up to 20 percent for striped bass, 25 percent for
3 Brunswick Nuclear Steam Electric Generating Plant (U.S. EPA, Region IV, 1979).
4 Crystal River Power Plant (U.S. EPA, Region IV, 1986).
5 B.C. Cook Nuclear Power Plant (Thurber, 1985)
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Section 316(b) EA Chapter 2 for New Facilities The Section 316(b) Industries and the Need for Regulation
bay anchovy, and 43 percent for Atlantic torn cod, even without assuming 100 percent mortality of entrained organisms.6 A
modeling effort looking at the impact of entrainment mortality on the population of a selected species in the Cape Fear
estuarine system predicted a 15 to 35 percent reduction in the population.7
The following are other documented impacts occurring as a result of CWIS:
<* Brayton Point
PG&E Generating's Brayton Point plant (formerly owned by New England Power Company) is located in Mt. Hope Bay, in
the northeastern reach of Narragansett Bay, Rhode Island. In order to increase electric generating capacity, Unit 4 was
switched from closed-cycle to once-through cooling in 1985. The modification of Unit 4 resulted in an increase in cooling
water intake flow of 45 percent. Studies of the CWIS's impacts on fish abundance trends found that Mt. Hope Bay
experienced a decline in finfish species of recreational, commercial, and ecological importance.8 The rate of population
decline increased substantially with the full implementation of the once-through cooling mode for Unit 4. The modification
of Unit 4 is estimated to have resulted in an 87 percent reduction in finfish abundance based on a time series-intervention
model. These impacts were associated with both I&E and the thermal discharges. Entrainment data indicated that 4.9 billion
tautog eggs, 0.86 billion windowpane eggs, and 0.89 billion winter flounder larvae were entrained in 1994 alone. Using adult
equivalent analyses, the entrainment and impingement of fish eggs and larvae in 1994 translated to a loss of 30,885 pounds of
adult tautog, 20,146 pounds of adult windowpane, and 96,507 pounds of adult winter flounder. In contrast, species
abundance trends were relatively stable in coastal areas and portions of Narragansett Bay that are not influenced by the
Brayton Point CWIS.
»** San Onofre Nuclear Generating Station
The San Onofre Nuclear Generating Station (SONGS) is on the coastline of the Southern California Bight, approximately 2.5
miles southeast of San Clemente, California. The marine portions of Units 2 and 3, which are once-through, open-cycle
cooling systems, began commercial operation in August of 1993 and 1994, respectively. Since then, many studies have been
completed to evaluate the impact of the SONGS facility on the marine environment.9
Estimates of lost midwater fish species due to direct entrainment by CWIS at SONGS are between 16.5 to 45 tons per year.
This loss represents a 41 percent mortality rate for fish (primarily northern anchovy, queenfish, and white croaker) entrained
by intake water at SONGS. In a normal year, approximately 350,000 juvenile white croaker are estimated to be killed
through entrainment at SONGS. This number represents 33,000 adult individuals or 3.5 tons of adult fish. Changes in
densities of fish populations within the vicinity of the plant, relative to control populations, were observed in species of queen
fish and white croaker. The density of queenfish and white croaker within three kilometers of SONGS decreased by 34 to 63
percent in shallow water samples and 50 to 70 percent in deep water samples.
The main purpose of this regulation is to minimize losses such as those described above.
2.2.2 The Need to Address Market Imperfections
The conceptual basis of environmental legislation in general, and the Clean Water Act and the section 316(b) regulation in
particular, is the need to correct imperfections in the markets that arise from uncompensated environmental externalities.
Facilities withdraw cooling water from a water of the U.S. to support electricity generation, steam generation, manufacturing,
and other business activities, thereby impinging and entraining organisms without accounting for the consequences of these
actions on the ecosystem or other parties who do not directly participate in the business transactions. In effect, the actions of
these section 316(b) facilities impose environmental harm or costs on the environment and on other parties (sometimes
referred to as third parties). These costs, however, are not recognized by the responsible entities in the conventional market-
based accounting framework. Because the responsible entities do not account for these costs to the ecosystem and society,
6 Bowline Point, Indian Point 2 & 3, and Roseton Steam Electric Generating Stations (ConEd, 2000).
7 Brunswick Nuclear Steam Electric Generating Plant (U.S. EPA, Region IV, 1979).
8 Brayton Point Station (Gibson, 1996).
9 San Onofre Nuclear Generating Station (SAIC, 1993).
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Section 316(b) EA Chapter 2 for New Facilities The Section 316(b) Industries and the Need for Regulation
they are external to the market framework and the consequent production and pricing decisions of the responsible entities. In
addition, because no party is compensated for the adverse consequences of I&E, the externality is uncompensated.
Business decisions will yield a less than optimal allocation of economic resources to production activities, and, as a result, a
less than optimal mix and quantity of goods and services, when external costs are not accounted for in the production and
pricing decisions of the section 316(b) industries. In particular, the quantity of AEI caused by the business activities of the
responsible business entities will exceed optimal levels and society will not maximize total possible welfare. Adverse
distributional effects may be an additional effect of the uncompensated environmental externalities. If the distribution of I&E
and ensuing AEI is not random among the U.S. population but instead is concentrated among certain population subgroups
based on socio-economic or other demographic characteristics, then the uncompensated environmental externalities may
produce undesirable transfers of economic welfare among subgroups of the population.
The goal of environmental legislation and subsequent implementing actions, such as the section 316(b) regulation that is the
subject of this analysis, is to correct environmental externalities by requiring the responsible parties to reduce their actions
causing environmental damage. Congress, in enacting the authorizing legislation, and EPA, in promulgating the
implementing regulations, act on behalf of society to minimize environmental impacts (i.e., achieve a lower level of I&E and
associated environmental harm). These actions result in a supply of goods and services that more nearly approximates the
mix and level of goods and services that would occur if the industries impinging and entraining organisms fully accounted for
the costs of their AEI-generating activities.
Requiring facilities to minimize their environmental impacts by reducing levels of I&E (i.e., reducing environmental harm) is
one approach to addressing the problem of environmental externalities. This approach internalizes the external costs by
turning the societal cost of environmental harm into a direct business cost - the cost of achieving compliance with the
regulation - for the impinging and entraining entities. A facility causing AEI will either incur the costs of minimizing its
environmental impacts, or will determine that compliance is not in its best financial interest and will cease the AEI-generating
activities.
It is theoretically possible to correct the market imperfection by means other than direct regulation. Negotiation and/or
litigation, for example, could achieve an optimal allocation of economic resources and mix of production activities within the
economy. However, the transaction costs of assembling the affected parties and involving them in the negotiation/litigation
process as well as the public goods character of the improvement sought by negotiation or litigation will frequently render
this approach to addressing the market imperfection impractical. Although the environmental impacts associated with CWIS
have been documented since the first attempt at section 316(b) regulation in the late 1970s, implementation of section 316(b)
to date has failed to address the market imperfections associated with CWIS effectively.
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Section 316(b) EA Chapter 2 for New Facilities The Section 316(b) Industries and the Need for Regulation
REFERENCES
Bureau of Labor Statistics (BLS). 2000. Producer Price Index. Series: PCU26 #-Paper and Allied Products,
PCU28_#-Chemicals and Allied Products, PCU29_#-Petroleum Refining and Related Products, Refined, PCU33_#-
Primary Metal Industries, WPU054-Electric Power, PCUOMFG-Total Manufacturing Industries.
Consolidated Edison Company of New York(ConEd). 2000. Draft Environmental Impact Statement for the State Pollutant
Discharge Elimination System Permits for Bowline Point, Indian Point 2 & 3, andRoseton Steam Electric Generating
Stations.
Gibson, Mark. 1996. Comparison of Trends in the Finfish Assemblages ofMt. Hope Bay and Narragansett Bay in Relation
to Operations of the New England Power Brayton Point Station. Rhode Island Division Fish and Wildlife, Marine Fisheries
Office, June 1995 and revised August 1996.
Resource Data International (RDI). 2001. NEWGen Database. February 2001.
Science Applications International Corporation (SAIC). 1996. Background Paper Number 2: Cooling Water Use of Selected
U.S. Industries. Prepared for U.S. EPA Office of Wastewater Enforcement and Compliance, Permits Division by SAIC, Falls
Church, VA.
Science Applications International Corporation (SAIC). 1994. Background Paper Number 3: Cooling Water Intake
Technologies. Prepared for U.S. EPA Office of Wastewater Enforcement and Compliance, Permits Division by SAIC, Falls
Church, VA.
Science Applications International Corporation (SAIC). 1993. Review of Southern California Edison, San Onofre Nuclear
Generating Station (SONGS) 316(b) Demonstration. July, 20, 1993.
Thurber, Nancy J. and David J. Jude. 1985. Impingement Losses at the D.C. CookNuclear Power Plant during 1975-1982
with aDiscussion of Factors Responsible and Possible Impact on Local Populations, Special Report No. 115 of the Great
Lakes Research Division. Great Lakes and Marine Waters Center. The University of Michigan.
U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. Advance Comparative Statistics for the U.S.
(1987 SIC Basis).
U.S. Department of Commerce (U.S. DOC). 1982. Bureau of the Census. Census of Manufactures.
U.S. Department of Energy (U.S. DOE). 2000. Energy Information Administration. Annual Energy Outlook 2001 With
Projections to 2020. DOE/EIA-0383(2001). December 2000.
U.S. Department of Energy (U.S. DOE). 1998a. Form EIA-860A (1998). Annual Electric Generator Report-Utility.
U.S. Department of Energy (U.S. DOE). 1998b. Form EIA-860B (1998). Annual Electric Generator Report-Nonutility.
U.S. Department of Energy (U.S. DOE). 1996. Form EIA-867 (1996). Annual Nonutility Power Producer Report.
U.S. Department of Energy (U.S. DOE). 1995. Form EIA-767 (1995). Steam-Electric Plant Operation and Design Report.
U.S. Environmental Protection Agency (U.S. EPA) Region IV. 1986. Findings and Determination under 33 U.S.C. Section
1326, In the Matter of Florida Power Corporation Crystal River Power Plant Units 1, 2, and 3. NPDES Permit No.
FL0000159. December 2, 1986.
U.S. Environmental Protection Agency (U.S. EPA). 2000. Section 316(b) Industry Survey. Detailed Industry
Questionnaire: Phase II Cooling Water Intake Structures and Industry Short Technical Questionnaire: Phase II Cooling
Water Intake Structures, January, 2000 (OMB Control Number 2040-0213). Industry Screener Questionnaire: Phase I
Cooling Water Intake Structures, January, 1999 (OMB Control Number 2040-0203).
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U.S. Environmental Protection Agency (U.S. EPA) Region IV. 1979. Brunswick Nuclear Steam Electric Generating Plant of
Carolina Power and Light Company Located near Southport, North Carolina, Historical Summary and Review of Section
316(b) Issues. September 19, 1979.
U.S. Environmental Protection Agency (U.S. EPA). 1976. Development Document for Best Technology Available for the
Location, Design, Construction, and Capacity of Cooling Water Intake Structures for Minimizing Adverse Environmental
Impact. Office of Water and Hazardous Materials, Effluent Guidelines Division, U.S. EPA, Washington, DC.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
Chapter 3: Profile of the Electric
Power Industry
INTRODUCTION
This profile compiles and analyzes economic and financial
data for the electric power generating industry. It provides
information on the structure and overall performance of
the industry and explains important trends that may
influence the nature and magnitude of economic impacts
from the section 316(b) New Facility Rule. While this
profile does not specifically address new electric
generating facilities subject to the rule, the information
presented is nevertheless relevant to new facilities as it
describes the market into which new facilities must enter
and the existing facilities against which they will compete.
CHAPTER CONTENTS
3.1 Industry Overview
3.1.1 Industry Sectors
3.1.2 Prime Movers
3.1.3 Ownership
3.2 Domestic Production
3.2.1 Generating Capacity
3.2.2 Electricity Generation
3.2.3 Geographic Distribution
3.3 Existing Plants with CWIS and NPDES
Permits
3.3.1 Existing Section 316(b) Utility Plants . . .
3.3.2 Existing Section 316(b) Nonutility Plants
3.4 Industry Outlook
3.4.1 Current Status of Industry Deregulation .
3.4.2 Energy Market Model Forecasts
Glossary
References
. 3-2
. 3-2
. 3-2
. 3-4
. 3-5
. 3-6
. 3-7
. 3-8
3-12
3-14
3-20
3-27
3-27
3-29
3-30
3-32
The electric power industry is one of the most extensively
studied industries. The Energy Information
Administration (EIA), among others, publishes a multitude
of reports, documents, and studies on an annual basis.
This profile is not intended to duplicate those efforts.
Rather, this profile compiles, summarizes, and presents
those industry data that are important in the context of the
section 316(b) New Facility Rule. For more information on general concepts, trends, and developments in the electric power
industry, the last section of this profile, "References," presents a select list of other publications on the industry.
The remainder of this profile is organized as follows:
>• Section 3.1 provides a brief overview of the industry, including descriptions of major industry sectors, types of
generating facilities, and the entities that own generating facilities.
*• Section 3.2 provides data on industry production and capacity.
*• Section 3.3 focuses on existing section 316(b) facilities. The existing electric generation profile is important for a
number of reasons. First, existing facilities represent the economic and financial market into which new electric
generators will be entering. Second, characteristics of existing coal facilities, and proposed combined-cycle facilities
were used to develop the characteristics of the model coal and combined-cycle facilities for the final section 316(b)
New Facility Rule. The final rule regulates new facilities that require a National Pollutant Discharge Elimination
System (NPDES) permit, use a CWIS that withdraws cooling water from a water of the United States, and meet the
MOD and percentage of water thresholds established in the rule. This section provides information on the economic,
and financial, and cooling water use characteristics of existing facilities with a CWIS and an NPDES permit.' The
application of the new facility rule is described in section 125.81 of the rule.
1 Note that this profile section includes existing facilities that do not meet the MGD and percentage of water thresholds established in
the rule.
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
>• Section 3.4 provides a brief discussion of factors affecting the future of the electric power industry, including the
status of restructuring, and summarizes forecasts of market conditions through the year 2020.
3.1 INDUSTRY OVERVIEW
This section provides a brief overview of the industry, including descriptions of major industry sectors, types of generating
facilities, and the entities that own generating facilities.
3.1.1 Industry Sectors
The electricity business is made up of three major functional service components or sectors: generation, transmission, and
distribution. These terms are defined as follows (Beamon, 1998; Joskow, 1997):2
* The generation sector includes the power plants that produce, or "generate," electricity.3 Electric energy is
produced using a specific generating technology, e.g., internal combustion engines and turbines. Turbines can be
driven by wind, moving water (hydroelectric), or steam from fossil fuel-fired boilers or nuclear reactions. Other
methods of power generation include geothermal or photovoltaic (solar) technologies.
>• The transmission sector can be thought of as the interstate highway system of the business - the large,
high-voltage power lines that deliver electricity from power plants to local areas. Electricity transmission involves
the "transportation" of electricity from power plants to distribution centers using a complex system. Transmission
requires: interconnecting and integrating a number of generating facilities into a stable, synchronized, alternating
current (AC) network; scheduling and dispatching all connected plants to balance the demand and supply of
electricity in real time; and managing the system for equipment failures, network constraints, and interaction with
other transmission networks.
*• The distribution sector can be thought of as the local delivery system - the relatively low-voltage power lines that
bring power to homes and businesses. Electricity distribution relies on a system of wires and transformers along
streets and underground to provide electricity to residential, commercial, and industrial consumers. The distribution
system involves both the provision of the hardware (e.g., lines, poles, transformers) and a set of retailing functions,
such as metering, billing, and various demand management services.
Of the three industry sectors, only electricity generation uses cooling water and is subject to section 316(b). The remainder
of this profile will focus on the generation sector of the industry.
3.1.2 Prime Movers
Electric power plants use a variety of prime movers to generate electricity. The type of prime mover used at a given plant
is determined based on the type of load the plant is designed to serve, the availability of fuels, and energy requirements. Most
prime movers use fossil fuels (coal, petroleum, and natural gas) as an energy source and employ some type of turbine to
produce electricity. The six most common prime movers are (U.S. DOE, 2000a):
*• Steam Turbine: Steam turbine, or "steam electric" units require a fuel source to boil water and produce steam that
drives the turbine. Either the burning of fossil fuels or a nuclear reaction can be used to produce the heat and steam
necessary to generate electricity. These units are generally baseloadunits that are run continuously to serve the
minimum load required by the system. Steam electric units generate the majority of electricity produced at power
plants in the U.S.
*• Gas Combustion Turbine: Gas turbine units burn a combination of natural gas and distillate oil in a high
pressure chamber to produce hot gases that are passed directly through the turbine. Units with this prime mover are
generally less than 100 megawatts in size, less efficient than steam turbines, and used for peakload operation
2 Terms highlighted in bold and italic font are defined in the glossary at the end of this chapter.
3 The terms "plant" and "facility" are used interchangeably throughout this profile.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
serving the highest daily, weekly, or seasonal loads. Gas turbine units have quick startup times and can be installed
at a variety of site locations, making them ideal for peak, emergency, and reserve-power requirements.
> Combined-Cycle Turbine: Combined-cycle units utilize both steam and gas turbine prime mover technologies to
increase the efficiency of the gas turbine system. After combusting natural gas in gas turbine units, the hot gases
from the turbines are transported to a waste-heat recovery steam boiler where water is heated to produce steam for a
second steam turbine. The steam may be produced solely by recovery of gas turbine exhaust or with additional fuel
input to the steam boiler. Combined-cycle generating units are generally used for intermediate loads.
*• Internal Combustion Engines: Internal combustion engines contain one or more cylinders in which fuel is
combusted to drive a generator. These units are generally about 5 megawatts in size, can be installed on short notice,
and can begin producing electricity almost instantaneously. Like gas turbines, internal combustion units are
generally used only for peak loads.
*• Water Turbine: Units with water turbines, or "hydroelectric units," use either falling water or the force of a natural
river current to spin turbines and produce electricity. These units are used for all types of loads.
> Other Prime Movers: Other methods of power generation include geothermal, solar, wind, and biomass prime
movers. The contribution of these prime movers is small relative to total power production in the U.S., but the role
of these prime movers may expand in the future because recent legislation includes incentives for their use.
Table 3-1 provides data on the number of existing utility and nonutility power plants by prime mover. This table includes all
plants that have at least one non-retired unit and that submitted Forms EIA-860A (Annual Electric Generator Report -
Utilities) or EIA-860B (Annual Electric Generator Report - Nonutilities) in 1998. For the purpose of this analysis, plants
were classified as "steam turbine" or "combined-cycle" if they have at least one generating unit of that type. Plants that do
not have any steam electric units, were classified under the prime mover type that accounts for the largest share of the plant's
total electricity generation.
Table 3-1: Number of Existing Utility and Nonutility Plants by Prime Mover, 1998
Prime Mover
Steam Turbine
Combined-Cycle
Gas Turbine
Internal Combustion
Hydroelectric
Other
Total
Utility3
Number of Plants
823
48
315
616
1,201
39
3,042
Nonutility3
Number of Plants
768
200
256
338
356
75
1,993
a See definition of utility and nonutility in Section 3.1.3.
Source: U.S. DOE, 1998a; U.S. DOE, 1998b.
Only prime movers with a steam electric generating cycle use substantial amounts of cooling water. These generators include
steam turbines and combined-cycle technologies. As a result, the analysis in support of the section 316(b) New Facility Rule
focuses on generating plants with a steam electric prime mover. This profile will, therefore, differentiate between steam
electric and other prime movers.
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
3.1.3 Ownership
The U.S. electric power industry consists of two broad categories of firms that own and operate electric generating plants:
utilities and nonutilities. Generally, they can be defined as follows (U.S. DOE, 2000a):
*• Utility: A regulated entity providing electric power, traditionally vertically integrated. Utilities may or may not
generate electricity. "Transmission utility" refers to the regulated owner/operator of the transmission system only.
"Distribution utility" refers to the regulated owner/operator of the distribution system serving retail customers.
*• Nonutility: Entities that generate power for their own use and/or for sale to utilities and others. Nonutility power
producers include cogenerators, small power producers, and independent power producers. Nonutilities do not have
a designated franchised service area and do not transmit or distribute electricity.
Utilities can be further divided into three major ownership categories: investor-owned utilities, publicly-owned utilities, and
rural electric cooperatives. Each category is discussed below.
a. Investor-owned utilities
Investor-owned utilities (lOUs) are for-profit businesses that can take two basic organizational forms: the individual
corporation and the holding company. An individual corporation is a single utility company with its own investors; a holding
company is a business entity that owns one or more utility companies and may have other diversified holdings as well. Like
all businesses, the objective of an IOU is to produce a return for its investors. lOUs are entities with designated franchise
areas. They are required to charge reasonable and comparable prices to similar classifications of consumers and give
consumers access to services under similar conditions. Most lOUs engage in all three activities: generation, transmission, and
distribution. In 1998, lOUs operated 1,607 facilities, which accounted for approximately 75 percent of all U.S. electric
generation capacity (U.S. DOE, 1998a).
b. Publicly-owned utilities
Publicly-owned electric utilities can be municipalities, public power districts, state authorities, irrigation projects, and other
state agencies established to serve their local municipalities or nearby communities. Excess funds or "profits" from the
operation of these utilities are put toward community programs and local government budgets, increasing facility efficiency
and capacity, and reducing rates. This profile also includes federally-owned facilities in this category. Most municipal
utilities are nongenerators engaging solely in the purchase of wholesale electricity for resale and distribution. The larger
municipal utilities, as well as state and federal utilities, usually generate, transmit, and distribute electricity. In general,
publicly-owned utilities have access to tax-free financing and do not pay certain taxes or dividends, giving them some cost
advantages over lOUs. In 1998, publicly-owned utilities operated 1,236 facilities and accounted for approximately 21 percent
of all U.S. electric generation capacity (U.S. DOE, 1998a).
c. Rural electric cooperatives
Cooperative electric utilities ("coops") are member-owned entities created to provide electricity to those members. Rural
electric cooperatives operated 199 generating facilities in 1998. These utilities, established under the Rural Electrification
Act of 1936, provide electricity to small rural and farming communities (usually fewer than 1,500 consumers). Fewer than
ten percent of coops generate electricity; most are primarily engaged in distribution. Cooperatives operate in 46 states and are
incorporated under state laws. The National Rural Utilities Cooperative Finance Corporation, the Federal Financing Bank,
and the Bank of Cooperatives are important sources of financing for these utilities (U.S. DOE, 1998a).
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Section 316(b) EA Chapter 3 for New Facilities
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Figure 3-1 presents the number of generating facilities and their capacity in 1998 by type of ownership. The horizontal axis
also presents the percentage of the U.S. total that each type represents. This figure is based on data for all plants that have at
least one non-retired unit and that submitted Forms EIA-860A or EIA-860B in 1998. The graphic shows that nonutilities
account for the largest percentage of facilities (1,993, or about 40 percent), but only represent 12 percent of total U.S.
generating capacity. Investor-owned utilities operate the second largest number of facilities, 1,607, and generate 66 percent
of total U.S. capacity.
Figure 3-1: Distribution of Facilities and Capacity ° by Ownership Type, 1998
Nonutilities
Cooperative
Utilities
Publicly Owned
Investor Owned
Capacity
(GW)
Number of
Facilities
0% 10% 20% 30% 40% 50% 60% 70%
a Capacity is a measure of a generating unit's ability to produce electricity. Capacity is defined as the
designed full-load continuous output rating for an electric generating unit.
Source: U.S. DOE, 1998a; U.S. DOE, 1998b; U.S. DOE, 1998c.
Plants owned and operated by utilities and nonutilities may be affected differently by the section 316(b) New Facility Rule
due to differing competitive roles in the market. Much of the following discussion therefore differentiates between these two
groups.
3.2 DOMESTIC PRODUCTION
This section presents an overview of U.S. generating capacity and electricity generation. Subsection 3.2.1 provides data on
capacity, and Subsection 3.2.2 provides data on generation. Subsection 3.2.3 presents an overview of the geographic
distribution of generation plants and capacity.
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Section 316(b) EA Chapter 3 for New Facilities
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3.2.1 Generating Capacity4
Utilities own and operate the majority of the
generating capacity in the United States (87 percent).
Nonutilities owned only 13 percent of the total
capacity in 1998 and produced less than 12 percent of
the electricity in the country (U.S. DOE, 1999b).
Nonutility capacity and generation have increased
substantially in the past few years, however, since
passage of legislation aimed at increasing
competition in the industry. Nonutility capacity has
increased by 103 percent between 1991 and 1998,
compared with the decrease in utility capacity of one
percent over the same time period.5
Figure 3-2 shows the growth in utility and nonutility
capacity from 1991 to 1998. The growth in nonutility
capacity, combined with a slight decrease in utility
capacity, has resulted in a modest growth in total
generating capacity.
CAPACITY/CAPABILITY
The rating of a generating unit is a measure of its ability to produce
electricity. Generator ratings are expressed in megawatts (MW).
Capacity and capability are the two common measures:
Nameplate capacity is the full-load continuous output rating of the
generating unit under specified conditions, as designated by the
manufacturer.
Net capability is the steady hourly output that the generating unit is
expected to supply to the system load, as demonstrated by test
procedures. The capability of the generating unit in the summer is
generally less than in the winter due to high ambient-air and
cooling-water temperatures, which cause generating units to be less
efficient. The nameplate capacity of a generating unit is generally
greater than its net capability.
U.S. DOE,2000a
Figure 3-2: Generating Capability, 1991 to 1998
800 -i
700
600
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
3.2.2 Electricity Generation
Total net electricity generation in the U.S. for 1998
was 3,618 billion kWh. Utility-owned plants
accounted for 89 percent of this amount. Total net
generation has increased by 18 percent over the
eight-year period from 1991 to 1998. During this
period, nonutilities increased their electricity
generation by 71 percent. In comparison, generation
by utilities increased by only 14 percent (U.S. DOE,
1999b). This trend is expected to continue with
deregulation in the coming years, as more facilities
are purchased and built by nonutility power
producers.
Table 3-2 shows the change in net generation
between 1991 and 1998 by fuel source for utilities
and nonutilities.
MEASURES OF GENERATION
The production of electricity is referred to as generation and is measured
in kilowatthours (kWh). Generation can be measured as:
Gross generation: The total amount of power produced by an electric
power plant.
Net generation: Power available to the transmission system beyond
that needed to operate plant equipment. For example, around 7% of
electricity generated by steam electric units is used to operate equipment.
Electricity available to consumers: Power available for sale to
customers. Approximately 8 to 9 percent of net generation is lost during
the transmission and distribution process.
U.S. DOE,2000a
Table 3-2: Net Generation by Energy Source and Ownership Type, 1991 to 1998 (6Wh)
Energy
Source
Coal
Hydropower
Nuclear
Petroleum
Gas
Renewablesb
Total
Utilities
1991
1,551
280
613
111
264
10
2,830
1998
1,807
304
674
110
309
7
3,212
% Change
17%
9%
10%
-1%
17%
-29%
14%
Nonutilities3
1991
39
6
0
8
127
57
238
1998
68
14
0
17
240
66
406
% Change
73%
134%
0%
124%
89%
15%
71%
Total
1991
1,590
286
613
119
391
67
3,067
1998
1,876
319
674
127
550
73
3,618
% Change
18%
11%
10%
7%
40%
8%
18%
a Nonutility generation was converted from gross to net generation based on prime mover-specific conversion factors (U.S. DOE,
1996b). As a result of this conversion, the total net generation estimates differ slightly from EIA published totals by fuel type.
b Renewables include solar, wind, wood, biomass, and geothermal energy sources.
Source: U.S. DOE, 1999a; U.S. DOE, 1999b; U.S. DOE,1996a; U.S. DOE,1996b.
As shown in Table 3-2, coal and natural gas generation grew the fastest among the utility fuel source categories, each
increasing by 17 percent between 1991 and 1998. Nuclear generation increased by 10 percent, while hydroelectric generation
increased by 9 percent. Utility generation from renewable energy sources decreased significantly (29 percent) between 1991
and 1998. Nonutility generation has grown at a much higher rate between 1991 and 1998 with the passage of legislation
aimed at increasing competition in the industry. Nonutility hydroelectric generation grew the fastest among the energy source
categories, increasing 134 percent between 1991 and 1998. Generation from petroleum-fired facilities also increased
substantially, with a 124 percent increase in generation between 1991 and 1998.
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Figure 3-3 shows total net generation for the U.S. by primary fuel source for utilities and nonutilities. Electricity generation
from coal-fired plants accounts for 52 percent of total 1998 generation. Electric utilities generate 96 percent (1,807 billion
kWh) of the 1,876 billion kWh of electricity generated by coal-fired plants. This represents approximately 56 percent of total
utility generation, and 50% of total generation. The remaining 2 percent (68 billion kWh) of coal-fired generation is provided
by nonutilities, accounting for 17 percent of total nonutility generation. The second largest source of electricity generation is
nuclear power plants, accounting for 19 percent of total generation and approximately 21 percent of total utility generation.
Figure 3-3 shows that 100 percent of nuclear generation is owned and operated by utilities. Another significant source of
electricity generation is gas-fired power plants, which account for 59 percent of nonutility generation and 15 percent of total
generation.
Figure 3-3: Percent of Electricity Generation by Primary Fuel Source, 1998
60% n
0 50%-
40%-
30%-
o
•£ 20%-
ai
u
a! 10%-
0%
[t
a
0°"
X /
Primary Fuel Source
Source: U.S. DOE,1999a; U.S. DOE,1999b.
The section 316(b) New Facility Rule will affect facilities differently based on the fuel sources and prime movers used to
generate electricity. As mentioned in Section 3.1.2 above, only prime movers with a steam electric generating cycle use
substantial amounts of cooling water.
3.2.3 Geographic Distribution
Electricity is a commodity that cannot be stored or easily transported over long distances. As a result, the geographic
distribution of power plants is of primary importance to ensure a reliable supply of electricity to all customers. The U.S. bulk
power system is composed of three major networks, or power grids:
*• the Eastern Interconnected System, consisting of one third of the U.S., from the east coast to east of the Missouri
River;
> the Western Interconnected System, west of the Missouri River, including the Southwest and areas west of the Rocky
Mountains; and
*• the Texas Interconnected System, the smallest of the three, consisting of the majority of Texas.
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
The Texas system is not connected with the other two systems, while the other two have limited interconnection to each
other. The Eastern and Western systems are integrated or have links to the Canadian grid system. The Western and Texas
systems have links with Mexico.
These major networks contain extra-high voltage connections that allow for power transactions from one part of the network
to another. Wholesale transactions can take place within these networks to reduce power costs, increase supply options, and
ensure system reliability. Reliability refers to the ability of power systems to meet the demands of consumers at any given
time. Efforts to enhance reliability reduce the chances of power outages.
The North American Electric Reliability Council (NERC) is responsible for the overall reliability, planning, and coordination
of the power grids. This voluntary organization was formed in 1968 by electric utilities, following a 1965 blackout in the
Northeast. NERC is organized into nine regional councils that cover the 48 contiguous states, Hawaii, part of Alaska, and
portions of Canada and Mexico. These regional councils are responsible for the overall coordination of bulk power policies
that affect their regions' reliability and quality of service. Each NERC region deals with electricity reliability issues in its
region, based on available capacity and transmission constraints. The councils also aid in the exchange of information among
member utilities in each region and among regions. Service areas of the member utilities determine the boundaries of the
NERC regions. Though limited by the larger bulk power grids described in the previous section, NERC regions do not
necessarily follow any state boundaries. Figure 3-4 below provides a map of the NERC regions, which include:
>• ECAR - East Central Area Reliability Coordination Agreement
>• ERCOT - Electric Reliability Council of Texas
>• FRCC - Florida Reliability Coordinating Council
> MAAC - Mid-Atlantic Area Council
*• MAIN - Mid-America Interconnect Network
> MAPP - Mid-Continent Area Power Pool (U.S.)
> NPCC - Northeast Power Coordinating Council (U.S.)
*• SERC - Southeastern Electric Reliability Council
> SPP - Southwest Power Pool
> WSCC - Western Systems Coordinating Council (U.S.)
Alaska and Hawaii are not shown in Figure 3-4. Part of Alaska is covered by the Alaska Systems Coordinating Council
(ASCC), an affiliate NERC member. The state of Hawaii also has its own reliability authority (HI).
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Section 316(b) EA Chapter 3 for New Facilities
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Figure 3-4: North American Electric Reliability Council (NERC) Regions
MAAC
FRCC
Source: EIA, 1996.
The section 316(b) New Facility Rule may affect plants located in different NERC regions differently. Economic
characteristics of new facilities affected by the section 316(b) New Facility Rule are likely to vary across regions by fuel mix,
and the costs of fuel, transportation, labor, and construction. Baseline differences in economic characteristics across regions
may influence the impact of the section 316(b) New Facility Rule on profitability, electricity prices, and other impact
measures. However, as discussed in Chapter 9: Other Economic Analyses, the section 316(b) New Facility Rule will have
little or no impact on electricity prices in a particular region since relatively few new plants in any region incur costs under
the rule.
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Section 316(b) EA Chapter 3 for New Facilities
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Table 3-3 shows the distribution of all existing utilities, utility-owned plants, and capacity by NERC region. The table shows
that while the Mid-Continent Area Power Pool (MAPP) has the largest number of utilities, 24 percent, these utilities only
represent five percent of total capacity. Conversely, only five percent of the nation's utilities are located in the Southeastern
Electric Reliability Council (SERC), yet these utilities are generally larger and account for 23 percent of the industry's total
generating capacity.
Table 3-3: Distribution of Existing Generation Utilities, Utility Plants, and Capacity by NERC Region, 1998
NERC Region
ASCC
ECAR
ERCOT
FRCC
HI
MAAC
MAIN
MAPP
NPCC
SERC
SPP
WSCC
Total
Generation Utilities
Number % of Total
51 6%
96 11%
27 3%
18 2%
3 0%
21 2%
62 7%
211 24%
67 8%
42 5%
143 17%
125 14%
866 100%
Utility Plants
Number % of Total
166 5%
283 9%
106 3%
63 2%
16 1%
121 4%
196 6%
398 13%
372 12%
320 11%
259 9%
742 24%
3,042^^^100%
Capacity
Total MW % of Total
1,925 0%
110,039 15%
55,890 8%
38,667 5%
1,580 0%
56,824 8%
52,916 7%
35,737 5%
46,303 6%
164,745 23%
45,807 6%
118,349 16%
728J82^^ 100%
Source: U.S. DOE, 1998a.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
Table 3-4 shows the distribution of existing nonutility plants and capacity by NERC region. The table shows that the
Western Systems Coordinating Council (WSCC) has the largest number of nonutility plants, 592, and accounts for the largest
share of total nonutility capacity, 28 percent.
Table 3-4: Distribution of
NERC Region
ASCC
ECAR
ERCOT
FRCC
HI
MAAC
MAIN
MAPP
NPCC
SERC
SPP
WSCC
Unknown
Total
Nonutility Plants and Capacity by NERC
Nonutility Plants
Number
27
142
74
58
14
107
115
72
395
277
45
592
75
1,993
% of Total
1%
7%
4%
3%
1%
5%
6%
4%
20%
14%
2%
30%
4%
100%
Capacity
Total MW
398
5,386
9,543
3,239
769
6,126
2,734
1,611
18,855
14,615
1,848
27,809
5,418
98,352
Region, 1998
% of Total
0%
5%
10%
3%
1%
6%
3%
2%
19%
15%
2%
28%
6%
100%
Source: U.S. DOE, 1998a; U.S. DOE, 1998b.
3.3 EXISTINS PLANTS WITH CWIS AND NPDES PERMIT
Section 316(b) of the Clean Water Act applies to a point source facility uses or proposes to use a cooling water intake
structure water that directly withdraws cooling water from a water of the United States. Among power plants, only those
facilities employing a steam electric generating technology require cooling water and are therefore of interest to this analysis.
Steam electric generating technologies include units with steam electric turbines and combined-cycle units with a steam
component.
The following sections describe existing utility and nonutility power plants that would be subject to the section 316(b) New
Facility Rule if they were new facilities. These are existing facilities that hold a National Pollutant Discharge Elimination
System (NPDES) permit and operate a CWIS.6 The remainder of this chapter will refer to these facilities as "existing
section 316(b) plants."
6 The section 316(b) New Facility Rule applies in part to new facilities that have a design intake flow of at least 2 MOD and use 25
percent of their water for cooling water purposes. Some of the facilities discussed in this section may not meet both of these criteria.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
Utilities and nonutilities are discussed in separate subsections because the data sources, definitions, and potential factors
influencing the magnitude of impacts are different for the two sectors. Each subsection presents the following information:
*• Ownership type: This section discusses existing section 316(b) facilities with respect to the entity that owns them.
Utilities are classified into investor-owned utilities, rural electric cooperatives, municipalities, and other publicly-
owned utilities (see Section 3.1.3). This differentiation is important because EPA has separately considered impacts
on governments in its regulatory development (see Chapter 9: Other Economic Analyses for the analysis of
government impacts of the section 316(b) New Facility Rule). The utility ownership categories do not apply to
nonutilities. The ownership type discussion for nonutilities differentiates between two types of plants: (1) plants that
were originally built by nonutility power producers ("original nonutility plants") and (2) plants that used to be owned
by utilities but that were sold to nonutilities as a result of industry deregulation ("former utility plants").
Differentiation between these two types of nonutilities is important because of their different economic and
operational characteristics.
> Ownership size:
This section presents information on the Small Business
Administration (SB A) entity size of the owners of existing
section 316(b) facilities. EPA has considered economic
impacts on small entities when developing this regulation
(see Chapter 8: Regulatory Flexibility Analysis/SBREFA
for the small entity analysis of new facilities subject to the
section 316(b) New Facility Rule).
*• Plant size: This section discusses the existing
section 316(b) facilities by the size of their generation
capacity. The size of a plant is important because it
partly determines its need for cooling water.
> Geographic distribution: This section discusses plants
by NERC region. The geographic distribution of
facilities is important because a high concentration of
facilities with costs under a regulation could lead to
impacts on a regional level. Everything else being
equal, the higher the share of plants with costs, the
higher the likelihood that there may be economic
and/or system reliability impacts as a result of the
regulation.
WATER USE BY STEAM ELECTRIC
POWER PLANTS
Steam electric generating plants are the single largest
industrial users of water in the United States. In 1995:
>• steam electric plants withdrew an estimated 190 billion
gallons per day, accounting for 39 percent of freshwater
use and 47 percent of combined fresh and saline water
withdrawals for offstream uses (uses that temporarily or
permanently remove water from its source);
>• fossil-fuel steam plants accounted for 71 percent of the
total water use by the power industry;
>• nuclear steam plants and geothermal plants accounted
for 29 percent and less than 1 percent, respectively;
>• surface water was the source for more than 99 percent
of total power industry withdrawals;
>• approximately 69 percent of water intake by the power
industry was from freshwater sources, 31 percent was
from saline sources.
USGS, 1995
Water body and cooling system type: This section
presents information on the type of water body from which existing section 316(b) facilities draw their cooling water
and the type of cooling system they operate. Cooling systems can be either once-through or recirculating systems.7
Plants with once-through cooling water systems withdraw between 70 and 98 percent more water than those with
recirculating systems.
7 Once-through cooling systems withdraw water from the water body, run the water through condensers, and discharge the water after
a single use. Recirculating systems, on the other hand, reuse water withdrawn from the source. These systems take new water into the
system only to replenish losses from evaporation or other processes during the cooling process. Recirculating systems use cooling towers
or ponds to cool water before passing it through condensers again.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
3.3.1 Existing Section 316(b) Utility Plants
EPA identified steam electric prime movers that require cooling water using information from the EIA data collection U.S.
DOE, 1998a.8 These prime movers include:
*• Atmospheric Fluidized Bed Combustion (AB)
*• Combined-Cycle Steam Turbine with Supplementary Firing (CA)
*• Steam Turbine - Common Header (CH)
> Combined-Cycle - Single Shaft (CS)
> Combined-Cycle Steam Turbine - Waste Heat Boiler Only (CW)
>• Steam Turbine - Geothermal (GE)
>• Integrated Coal Gasification Combined-Cycle (IG)
*• Steam Turbine - Boiling Water Nuclear Reactor (NB)
*• Steam Turbine - Graphite Nuclear Reactor (NG)
*• Steam Turbine - High Temperature Gas-Cooled Nuclear Reactor (NH)
*• Steam Turbine - Pressurized Water Nuclear Reactor (NP)
> Steam Turbine - Solar (SS)
>• Steam Turbine - Boiler (ST)
Using this list of steam electric prime movers and U.S. DOE, 1998a information on the reported operating status of units,
EPA identified 871 facilities that have at least one generating unit with a steam electric prime mover. Additional information
from the section 316(b) Industry Surveys was used to determine that 618 of the 871 facilities operate a CWIS and hold an
NPDES permit. Table 3-5 provides information on the number of utilities, utility plants, and generating units, and the
generating capacity in 1998. The table provides information for the industry as a whole, for the steam electric part of the
industry, and for the part of the industry potentially affected by the section 316(b) New Facility Rule.
Table 3-5: Number of Existing Utilities, Utility Plants, Units, and Capacity, 1998
Utilities
Plants
Units
Nameplate Capacity (MW)
Total3
866
3,042
10,208
728,782
Steam Electric"
Number
312
871
2,231
562,117
% of Total
36%
29%
22%
77%
Steam Electric with CWIS
and NPDES Permit0
Number
202
618
1,669
498,331
% of Total
23%
20%
16%
68%
a Includes only generating capacity not permanently shut down or sold to nonutilities.
b Utilities and plants are listed as steam electric if they have at least one steam electric unit.
c The number of plants, units, and capacity was sample weighted to account for survey non-respondents.
Source: U.S. EPA, 2000; U.S. DOE, 1998a.
Table 3-5 shows that the 871 steam electric plants account for only 29 percent of all plants but for 77 percent of all capacity.
The 618 plants that withdraw cooling water from a water of the United States and hold an NPDES permit represent 20 percent
of all plants, are owned by 23 percent of all utilities, and account for approximately 68 percent of reported utility generation
capacity. The remainder of this section will focus on the 618 utility plants that withdraw from a water of the United States
and hold an NPDES permit.
8 U.S. DOE, 1998a (Annual Electric Generator Report) collects data used to create an annual inventory of utilities. The data
collected includes: type of prime mover; nameplate rating; energy source; year of initial commercial operation; operating status; cooling
water source, and NERC region.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
a. Ownership type
Table 3-6 shows the distribution of the 202 utilities that own the 618 existing section 316(b) plants, as well as the total
generating capacity of these entities, by type of ownership. The table also shows the total number of plants, utilities, and
capacity by type of ownership. Utilities can be divided into three major ownership categories: investor-owned utilities,
publicly-owned utilities (including municipalities, political subdivision, and federal and state-owned utilities), and rural
electric cooperatives. Table 3-6 shows that 30 percent of plants operated by investor-owned utilities have a CWIS and an
NPDES permit. These 480 facilities account for 78 percent of all existing plants with a CWIS and an NPDES permit.9 In
contrast, the percentage of all plants that have a CWIS and an NPDES permit is much lower for the other ownership types: 17
percent for rural electric cooperatives, eight percent for municipalities, and 10 percent for other publicly owned utilities.
Table 3-6: Existing Utilities, Plants, and Capacity by Ownership Type, 1998°
Ownership
Type
Investor-
Owned
Coop
Municipal
Other Public
Total
Utilities
Total
Number
of
Utilities
168
68
566
64
866
Utilities with Plants
with CWIS and
NPDES
Number
119
21
51
11
202
% of Total
71%
31%
9%
17%
23%
Plants
Total
Number
of
Plants
1,607
199
842
394
3,042
Plants with CWIS and
NPDES"
Number
480
33
65
39
618
% of Total
30%
17%
8%
10%
20%
Capacity (MW)
Total
Capacity
549,439
25,860
43,574
109,909
728,782
Capacity with CWIS
and NPDESb
MW
422,427
14,435
16,995
44,473
498,331
% of Total
77%
56%
39%
40%
68%
a Numbers may not add up to totals due to independent rounding.
b The number of plants and capacity was sample weighted to account for survey non-respondents.
Source: U.S. DOE, 1999c; U.S. DOE, 1998a; U.S. DOE, 1998c.
b. Ownership size
EPA used the Small Business Administration (SB A) small entity size standards for SIC code 4911 (electric output of four
million megawatt hours or less per year) to make the small entity determination.10 Table 3-7 provides information on the total
number of utilities and utility plants owned by small entities by type of ownership. The table shows that 66 of the 202
utilities with existing section 316(b) plants, or 33 percent, may be small. The size distribution varies considerably by
ownership type: only nine percent of all other public utilities and ten percent of all investor-owned utilities with existing
section 316(b) plants may be small, compared to 88 percent of all municipalities. The same is true on the plant level: only
three percent of the 480 existing section 316(b) plants operated by an investor-owned utility are owned by a small entity. The
9 Four-hundred and eighty Investor Owned Plants divided by 618 total plants equals about 78 percent.
10 SBA defines "small business" as a firm with an annual electricity output of four million MWh or less and "small governmental
jurisdictions" as governments of cities, counties, towns, school districts, or special districts with a population of less than 50,000 people.
Information on the population of all municipal utilities was not readily available for all municipalities. EPA therefore used the small
business standard for all utilities.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
corresponding percentages for municipalities, other publicly owned utilities, and electric cooperatives are 78 percent, three
percent, and 24 percent, respectively.11
Table 3-7 also shows the percentage of all small utilities and all plants owned by small utilities that comprise the
"section 316(b)" part of the industry. Sixty-six, or 10 percent, of all 679 small utilities operate existing section 316(b) plants.
At the plant level, between one percent (other public) and eight percent (investor-owned) of small utility plants have CWIS
and NPDES permits.
Table 3-7: Existing Small Utilities and Utility Plants by Ownership Type, 1998
Ownership
Type
Total
Total
Investor-Owned
Coop
Municipal
Other Public
Total
168
68
566
64
866
Investor-Owned
Coop
Municipal
Other Public
Total
1,607
199
842
394
3,042
Small
50
50
555
24
679
203
145
773
69
1,190
% Small
With CWIS and NPDES Permit ab
Total
Utilities
30%
74%
98%
38%
78%
119
21
51
11
202
Plants
13%
73%
92%
18%
39%
480
33
65
39
618
Small
12
45
1
66
16
51
1
76
% Small
Small with
CWIS and
NPDES/ Total
Small
10%
38%
88%
9%
33%
24%
16%
8%
4%
10%
3%
24%
78%
3%
11%
8%
6%
7%
1%
6%
a Numbers may not add up to totals due to independent rounding.
b The number of plants was sample weighted to account for survey non-respondents.
Source: U.S. SBA, 2000; U.S. DOE, 2000d; U.S. DOE, 1999c; U.S. DOE, 1998a; U.S. DOE, 1998c.
11 Note that for investor-owned utilities, the small business determination is generally made at the holding company level. Holding
company information was not available for all investor-owned utilities. The small business determination was therefore made at the utility
level. This approach will overstate the number of investor-owned utilities and their plants that are classified as small.
3-16
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
c. Plant size
EPA also analyzed the steam electric facilities with a CWIS and an NPDES permit with respect to their generating capacity.
Of the 618 plants, 282 (46 percent) have a total nameplate capacity of 500 megawatts or less, and 422 (68 percent) have a
total capacity of 1,000 megawatts or less. Figure 3-5 presents the distribution of existing utility plants with a CWIS and an
NPDES permit by plant size.
Figure 3-5: Number of Existing Utility Plants with CWIS and NPDES Permit by
Plant Size (in MW), 1998 «•"
300 -
250
200
150
100
50
282
,
-------
Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
d. Geographic distribution
Table 3-8 shows the distribution of existing section 316(b) utility plants by NERC region. The figure shows that there are
considerable differences between the regions in terms of both the number of existing utility plants with a CWIS and an
NPDES permit, and the percentage of all plants that they represent. Excluding Alaska, which only has one utility plant with a
CWIS and an NPDES permit, the percentage of existing section 316(b) facilities ranges from six percent in the Western
Systems Coordinating Council (WSCC) to 56 percent in the Electric Reliability Council of Texas (ERCOT). The East
Central Area Reliability Coordination Agreement (ECAR) has the highest absolute number of existing section 316(b)
facilities with 116, or 41 percent of all facilities, followed by the Southeastern Electric Reliability Council (SERC) with 111
facilities, or 35 percent of all facilities.
Table 3-8: Existing Utility Plants by NERC Region, 1998
NERC Region
ASCC
ECAR
ERCOT
FRCC
HI
MAAC
MAIN
MAPP
NPCC
SERC
SPP
WSCC
Total
Total Number of Plants
166
283
106
63
16
121
196
398
372
320
259
742
3,042
Plants with CWIS and NPDES Permit3"
Number
1
116
59
29
3
48
58
56
52
111
43
41
618
% of Total
1%
41%
56%
46%
19%
40%
30%
14%
14%
35%
17%
6%
20%
a Numbers may not add up to totals due to independent rounding.
b The number of plants was sample weighted to account for survey non-respondents.
Source: U.S. EPA, 2000; U.S. DOE, 1998a.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
e. Water body and cooling system type
Table 3-9 shows that most of the existing utility plants with a CWIS and an NPDES permit draw water from a freshwater
river (331, or 54 percent). The next most frequent water body types are lakes or reservoirs with 166 plants (27 percent) and
estuaries or tidal rivers with 97 plants (16 percent). The table also shows that most of these plants, 404 or 65 percent, employ
a once-through cooling system. Of the plants that withdraw from an estuary, the most sensitive type of water body, only six
percent use a recirculating system while 87 percent have a once-through system. In contrast, a combined 29 percent (147 out
of 504 plants) of plants located on freshwater rivers, lakes or reservoirs, and multiple freshwater bodies of water have a
recirculating system.
Table 3-9: Number of Existing Utility Plants by Water Body Type and Cooling System Type"
Water
Body Type
Estuary/
Tidal River
Ocean
Lake/
Reservoir
Freshwater
River
Multiple
Freshwater
Other/
Unknown
Total
Cooling System Type
Recirculating
No.
6
0
40
101
6
0
153
%of
Total
6%
0%
24%
31%
86%
0%
25%
Once-Through
No.
84
8
115
188
1
8
404
%of
Total
87%
100%
69%
57%
14%
100%
65%
Combination
No.
6
0
9
22
0
0
37
%of
Total
6%
0%
5%
7%
0%
0%
6%
Other
No.
1
0
2
18
0
0
21
%of
Total
1%
0%
1%
5%
0%
0%
3%
Unknown
No.
0
0
0
2
0
0
2
%of
Total
0%
0%
0%
1%
0%
0%
0%
Total b
97
8
166
331
7
8
618
a The number of plants was sample weighted to account for survey non-respondents.
b Numbers may not add up to totals due to independent rounding.
Source: U.S. EPA, 2000; U.S. DOE, 1998a.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
3.3.2 Existing Section 316(b) Nonutility Plants
EPA identified nonutility steam electric prime movers that require cooling water using information from the EIA data
collection Forms EIA-860B12 and EIA-867.13 These prime movers include:
*• Geothermal Binary (GB)
*• Steam Turbine - Fluidized Bed Combustion (SF)
> Solar - Photovoltaic (SO)
>• Steam Turbine (ST)
In addition, prime movers that are part of a combined-cycle unit were classified as steam electric.
U.S. DOE, 1998b includes two types of nonutilities: facilities whose primary business activity is the generation of electricity,
and manufacturing facilities that operate industrial boilers in addition to their primary manufacturing processes. The
discussion of existing section 316(b) nonutilities focuses on those nonutility facilities that generate electricity as their primary
line of business.14 Manufacturing facilities with industrial boilers are included in the industry profiles in Chapter 4: Profile of
Manufacturers.
Using the identified list of steam electric prime movers, and U.S. DOE, 1998b information on the reported operating status of
generating units, EPA identified 449 facilities that have at least one generating unit with a steam electric prime mover.
Additional information from the section 316(b) Industry Survey determined that 62 of the 449 facilities operate a CWIS and
hold an NPDES permit. Table 3-10 provides information on the number of parent entities, nonutility plants, and generating
units, and their generating capacity in 1998. The table provides information for the industry as a whole, for the steam electric
part of the industry, and for the "section 316(b)" part of the industry.
Table 3-10: Number of Nonutilities, Nonutility Plants, Units, and Capacity, 1998
Parent Entities
Nonutility Plants
Nonutility Units
Nameplate Capacity (MW)
Total
1,485
1,993
5,178
98,352
Total Steam Electric
Nonutilities a
385
449
699
40,042
Nonutilities with CWIS and NPDES Permit3"
Number
39
62
106
22,765
% of Steam Electric
10%
14%
15%
57%
a Includes only nonutility plants generating electricity as their primary line of business.
b The number of plants, units, and capacity was sample weighted to account for survey non-respondents.
Source: U.S. EPA, 2000; U.S. DOE, 1998b.
12 U.S. DOE, 1998b (Annual Nonutility Electric Generator Report) is the equivalent of U.S. DOE, 1998a for utilities. It is the annual
inventory of nonutility plants and collects data on the type of prime mover, nameplate rating, energy source, year of initial commercial
operation, and operating status.
13 Form EIA-867 (Annual Nonutility Power Producer Report) is the predecessor of U.S. DOE, 1998b. Form EIA-867 contained
similar, but more detailed, information to U.S. DOE, 1998b but was confidential. The EIA provided EPA with a list of nonutilities with
steam electric prime movers from the 1996 Form EIA-867, which formed the basis for the EPA's section 316(b) Industry Survey and this
analysis.
14 EPA identified manufacturing facilities operating steam electric industrial boilers using SIC code information from Form EIA-867.
Those facilities were removed from the analysis. The discussion of steam electric nonutilities and nonutilities with CWIS and NPDES
permit, therefore, only includes facilities with electricity generation as their main line of business. However, the same information was not
available for facilities with non-steam prime movers. Industry totals, therefore, include industrial boilers.
3-20
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
a. Ownership type
Nonutility power producers that generate electricity as their main line of business fall into two different categories: "original
nonutility plants" and "former utility plants."
»** Original nonutility plants
For the purposes of this analysis, original nonutility plants are those that were originally built by a nonutility. These plants
primarily include facilities qualifying under the Public Utility Regulatory Policies Act of 1978 (PURPA), cogeneration
facilities, independent power producers, and exempt wholesale generators under the Energy Policy Act of 1992 (EPACT).
EPA identified original nonutility plants with a CWIS and an NPDES permit through the section 316(b) Industry Survey.
This profile further differentiates original nonutility plants by their primary Standard Industrial Classification (SIC) code, as
reported in the section 316(b) Industry Survey. Reported SIC codes include:
*• 4911 - Electric Services
>• 4931 - Electric and Other Services Combined
> 4939 - Combination Utilities, Not Elsewhere Classified
>• 4953 - Refuse Systems
>• 4961 - Steam and Air-Conditioning Supply
»** Former utility plants
Former utility plants are those that used to be owned by a utility power producer but have been sold to a nonutility as a result
of industry deregulation. These were identified from U.S. DOE, 1998bby their plant code.15
15 Plants formerly owned by a regulated utility have an identification code number that is less than 10,000 whereas nonutilities have a
code number greater than 10,000. When utility plants are sold to nonutilities, they retain their original plant code.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
Table 3-11 shows that original nonutilities account for the vast majority of plants (1,944 out of 1,993, or 98 percent). Only
49 out of the 1,993 nonutility plants, or two percent, were formerly owned by utilities. However, these 49 facilities account
for almost 24 percent of all nonutility generating capacity (23,232 MW divided by 98,352 MW). Sixty-two of the 1,993
nonutility plants operate aCWIS and hold an NPDES permit. Most of these section 316(b) facilities (38, or 61 percent) are
original nonutility plants. Only 24 of the 62 section 316(b) nonutility plants are former utility plants, but they account for
almost 90 percent of all section 316(b) nonutility capacity (20,476 MW divided by 22,765 MW).
The table also shows that only one percent of all original nonutility plants have a CWIS and an NPDES permit,16 compared to
49 percent of all former utility plants.
Table 3-11: Existing Nonutility Firms, Plants, and Capacity by SIC Code, 1998°
SIC Code
Firms
Total
Number
of Firms
4911
4931
4939
4953
4961
Other SIC
l,463b
n/a
Total
22
1,485
Firms with Plants with
CWIS and NPDES"
Number
10
4
2
5
1
2
15
39
% of Total
Plants
Total
Number
of Plants
Original Nc
2%
1,944
Former Uti
68%
3%
49
1,993
Plants with CWIS
and NPDES"
Number
^utilities
11
7
2
7
1
10
ity Plants
24
62
%of
Total
Capacity (MW)
Total
Capacity
1%
75,120
49%
3%
23,232
98,352
Capacity with CWIS
and NPDESb
MW
1,203
521
83
259
8
215
20,476
22,765
%of
Total
3%
88%
23%
a Numbers may not add up to totals due to independent rounding.
b The number of plants and capacity was sample weighted to account for survey non-respondents.
Source: U.S. EPA, 2000; U.S. DOE, 1998b.
16 This percentage understates the true share of section 316(b) nonutility plants because the total number of plants includes industrial
boilers while the number of section 316(b) nonutilities does not.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
b. Ownership size
EPA used the Small Business Administration (SB A) small entity size standards to determine the number of existing
section 316(b) nonutility plants owned by small firms. Table 3-12 shows that of the 38 original nonutility plants with CWIS
and NPDES permits 32 percent are owned by a small entity. Another three percent are owned by a firm of unknown size
which may also qualify as a small entity.
Information on the business size for former utility plants was not readily available from the EIA databases. EPA research on
the new owners of these plants showed that all 24 former utility plants are now owned by a large business.
Table 3-12: Number of Nonutility Plants with CWIS and NPDES Permit by Firm Size, 1998°
SIC Code
Large
No.
4911
4931
4939
4953
4961
Other SIC
Total Original
Nonutilities
9
6
1
7
1
1
25
Former Utility Plants
Total
24
49
% of SIC
Small
No.
Original No
82%
86%
50%
100%
100%
10%
66%
1
1
1
0
0
9
12
Former Util
100%
79%
0
12
% of SIC
Unknown
No.
nutilities
9%
14%
50%
0%
0%
90%
32%
1
0
0
0
0
0
1
ty Plants
0%
19%
0
1
% of SIC
Total"
9%
0%
0%
0%
0%
0%
3%
11
7
2
7
1
10
38
0%
2%
24
62
a The number of plants was sample weighted to account for survey non-respondents.
b Numbers may not add up to totals due to independent rounding.
Source: U.S. EPA, 2000; D&B Database, 2000; U.S. SBA, 2000; U.S. DOE, 1998b.
3-23
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
c. Plant size
EPA also analyzed the steam electric nonutilities with a CWIS and an NPDES permit with respect to their generating
capacity. Figure 3-7 shows that the original nonutility plants are much smaller than the former utility plants. Of the 38
original utility plants, 21 (55 percent) have a total nameplate capacity of 50 MW or less and 32 (84 percent) have a capacity
of 100 MW or less. No original nonutility plant has a capacity of more than 500 MW. In contrast, only two (nine percent)
former utility plants are smaller than 250 MW while 16 (70 percent) are larger than 500 MW and nine (39 percent) are larger
than 1,000 MW.
Figure 3-6: Number of Existing Nonutility Plants with CWIS and NPDES
Permit by Generating Capacity (in MW), 1998°b
25/1
20-
15
10
5-
0
n Original Nonutilities
• Former Utilities
a Numbers may not add up to totals due to independent rounding.
b The number of plants was sample weighted to account for survey non-respondents.
Source: U.S. DOE, 1998b; U.S. EPA, 2000.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
d. Geographic distribution
Table 3-13 shows the distribution of existing section 316(b) nonutility plants by NERC region. The table shows that the
Northeast Power Coordinating Council (NPCC) has the highest absolute number of existing section 316(b) nonutility plants
with 18, or 29 percent of all 62 plants with a CWIS and an NPDES permit, followed by the Western System Coordinating
Council (WSCC) with 12 plants.
The Southwest Power Pool (SPP) has the largest percentage of plants with a CWIS and an NPDES permit compared to all
nonutility plants within the region (19 percent).17
Table 3-13: Nonutility Plants by NERC Region, 1998
NERC Region
ASCC
ECAR
ERCOT
FRCC
HI
MAAC
MAIN
MAPP
NPCC
SERC
SPP
WSCC
Not Available
Total
Total Number
of Plants
27
142
74
58
14
107
115
72
395
111
45
592
75
1,993
Plants with CWIS & NPDES Permit3"
Number
0
1
0
1
0
7
0
0
18
4
9
12
9
62
% of Total
0%
1%
0%
2%
0%
6%
0%
0%
5%
2%
19%
2%
13%
3%
a Numbers may not add up to totals due to independent rounding.
b The number of plants was sample weighted to account for survey non-respondents.
Source: U.S. EPA, 2000; U.S. DOE, 1998a; U.S. DOE, 1998b.
17 As explained earlier, the total number of plants includes industrial boilers while the number of plants with a CWIS and an NPDES
permit does not. Therefore, the percentages are likely higher than presented.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
e. Water body and cooling system type
Table 3-14 shows the distribution of existing section 316(b) nonutility plants by type of water body and cooling system. The
table shows that most of the original nonutility plants with a CWIS and an NPDES permit draw water from a freshwater river
(27, or 71 percent) while most of the former utility plants withdraw from an estuary or tidal river (7, or 29 percent).
The table also shows that most of the nonutilities employ a once-through system: 16, or 42 percent, for original nonutilities
and 20, or 83 percent, for former nonutility plants. Thirteen nonutilities withdraw from an estuary or tidal river (six original
nonutilities and seven former utility plants). All 13 estuarine nonutility plants operate a once-through system.
Table 3-14: Number of Nonutility Plants by Water Body Type and Cooling System Type"
Water Body
Type
Cooling System Type
Recirculating
No.
Estuary/
Tidal River
Ocean
Lake/
Reservoir
Freshwater
River
Other/
Unknown
Total
0
0
6
8
0
13
Estuary/
Tidal River
Ocean
Lake/
Reservoir
Freshwater
River
Other/
Unknown
Total
0
0
0
4
0
4
% of Total
Once-Through
No.
Original r-
0%
0%
100%
30%
0%
34%
6
0
0
10
0
16
Former U1
0%
0%
0%
67%
0%
17%
7
1
4
2
6
20
% of Total
Combination
No. j % of Total
Total b
Jonut fifties
100%
0%
0%
37%
0%
42%
0
0
0
9
0
9
ility Plants
100%
100%
100%
33%
100%
83%
0
0
0
0
0
0
0%
0%
0%
33%
0%
24%
0%
0%
0%
0%
0%
0%
6
0
6
27
0
38
7
1
4
6
6
24
a The number of plants was sample weighted to account for survey non-respondents.
b Numbers may not add up to totals due to independent rounding.
Source: U.S. EPA, 2000; U.S. DOE, 1998b.
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Section 316(b) EA Chapter 3 for New Facilities
Profile of the Electric Power Industry
3.4 INDUSTRY OUTLOOK
This section discusses industry trends that are currently affecting the structure of the electric power industry and may
therefore affect the magnitude of impacts from the section 316(b) New Facility Rule. The most important change in the
electric power industry is deregulation - the transition from a highly regulated monopolistic to a less regulated, more
competitive industry. Subsection 3.4.1 discusses the current status of deregulation. Subsection 3.4.2 presents a summary of
forecasts from the Annual Energy Outlook 2001.
3.4.1 Current Status of Industry Deregulation
The electric power industry is evolving from a highly regulated, monopolistic industry with traditionally-structured electric
utilities to a less regulated, more competitive industry.18 The industry has traditionally been regulated based on the premise
that the supply of electricity is a natural monopoly, where a single supplier could provide electric services at a lower total cost
than could be provided by several competing suppliers. Today, the relationship between electricity consumers and suppliers
is undergoing substantial change. Some states have implemented plans that will change the procurement and pricing of
electricity significantly, and many more plan to do so during the first few years of the 21st century (Beamon, 1998).
a. Key changes in the industry's structure
Industry deregulation already has changed and continues to
fundamentally change the structure of the electric power
industry. Some of the key changes include:
> Provision of services: Under the traditional regulatory
system, the generation, transmission, and distribution
of electric power were handled by vertically-integrated
utilities. Since the mid-1990s, federal and state
policies have led to increased competition in the
generation sector of the industry. Increased
competition has resulted in a separation of power
generation, transmission, and retail distribution
services. Utilities that provide transmission and
distribution services will continue to be regulated and
will be required to divest of their generation assets.
Entities that generate electricity will no longer be
subject to geographic or rate regulation.
> Relationship between electricity providers and
consumers: Under traditional regulation, utilities were
granted a geographic franchise area and provided
electric service to all customers in that area at a rate
approved by the regulatory commission. A consumer's
electric supply choice was limited to the utility
franchised to serve their area. Similarly, electricity
suppliers were not free to pursue customers outside
their designated service territories. Although most
consumers will continue to receive power through their
local distribution company (LDC), retail competition
will allow them to select the company that generates
the electricity they purchase.
DERESULATION UPDATE: 2000
The year 2000 was a transition year for the electric
industry as the nation moved state by state toward
restructuring. Consolidation through mergers and
acquisitions was prominent as was the divestiture of
generating assets, as some electric utilities exited the
generation business in order to concentrate on the
distribution of electricity. Others used the
opportunity to purchase divested assets to build
critical mass that many think will be necessary to
survive in what is expected to be a very competitive
industry.
In California, the transition from a highly regulated
industry into a competitive market proved
problematic. In April 1998, California became the
first state to restructure its electric industry. Yet, in
2000, rolling blackouts, sky-high electricity prices,
and utilities nearing bankruptcy were all linked to the
restructuring of California's electric industry. The
attention that was focused on the pitfalls of
restructuring in California affected restructuring
sentiment in other states. During the year, only two
additional states enacted restructuring legislation -
Michigan and West Virginia - bringing the year-end
total to 23 states and the District of Columbia.
U.S. DOE, 2000
18 Several key pieces of federal legislation have made the changes in the industry's structure possible. The Public Utility
Regulatory Policies Act (PURPA) of 1978 opened up competition in the generation market by creating a class of nonutility
electricity-generating companies referred to as "qualifying facilities." The Energy Policy Act (EPACT) of 1992 removed constraints
on ownership of electric generation facilities, and encouraged increased competition in the wholesale electric power business (Beamon,
1998).
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
> Electricity prices: Under the traditional system, state and federal authorities regulated all aspects of utilities'
business operations, including their prices. Electricity prices were determined administratively for each utility,
based on the average cost of producing and delivering power to customers and a reasonable rate of return. As a
result of deregulation, competitive market forces will set generation prices. Buyers and sellers of power will
negotiate through power pools or one-on-one to set the price of electricity. As in all competitive markets, prices will
reflect the interaction of supply and demand for electricity. During most time periods, the price of electricity will be
set by the generating unit with the highest operating costs needed to meet spot market generation demand (i.e., the
"marginal cost" of production) (Beamon, 1998).
b. New industry participants
The Energy Policy Act of 1992 (EPACT) provides for open access to transmission systems, to allow nonutility generators to
enter the wholesale market more easily. In response to these requirements, utilities are proposing to form Independent
System Operators (ISOs) to operate the transmission grid, regional transmission groups, and open access same-time
information systems (OASIS) to inform competitors of available capacity on their transmission systems. The advent of open
transmission access has fostered the development of power marketers and power brokers as new participants in the
electric power industry. Power marketers buy and sell wholesale electricity and fall under the jurisdiction of the Federal
Energy Regulatory Commission (FERC), since they take ownership of electricity and are engaged in interstate trade. Power
marketers generally do not own generation or transmission facilities or sell power to retail customers. A growing number of
power marketers have filed with the FERC and have had rates approved. Power brokers, on the other hand, arrange the sale
and purchase of electric energy, transmission, and other services between buyers and sellers, but do not take title to any of the
power sold.
c. State activities
Many states are taking steps to promote competition in their electricity markets. The status of these efforts varies across
states. Some states are just beginning to study what a competitive electricity market might mean; others are beginning pilot
programs; still others have designed restructured electricity markets and passed enabling legislation. As of September 2001,
the following states have already enacted restructuring legislation (U.S. DOE, 2000b):
> Arizona
>• Arkansas
>• California
>• Connecticut
*• Delaware
*• District of Columbia
*• Illinois
*• Maine
>• Maryland
>• Massachusetts
> Michigan
>• Montana
*• Nevada
*• New Hampshire
*• New Jersey
*• New Mexico
> Ohio
>• Oklahoma
>• Oregon
> Pennsylvania
*• Rhode Island
*• Texas
*• Virginia
*• West Virginia
Even in states where consumer choice is available, important aspects of implementation may still be undecided. Key aspects
of implementing restructuring include treatment of stranded costs, pricing of transmission and distribution services, and
the design market structures required to ensure that the benefits of competition flow to all consumers (Beamon, 1998).
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
3.4.2 Energy Market Model Forecasts
This section discusses forecasts of electric energy supply, demand, and prices based on data and modeling by the EIA and
presented in the Annual Energy Outlook 2001 (U.S. DOE, 2000c). The EIA models future market conditions through the year
2020, based on a range of assumptions regarding overall economic growth, global fuel prices, and legislation and regulations
affecting energy markets. The projections are based on the results from EIA's National Energy Modeling System (NEMS)
using assumptions reflecting economic conditions as of July 2000. Since that time, domestic economic growth has slowed
considerably, suggesting that projections based on current economic conditions might be significantly different. The
following discussion presents EIA's reference case results.
a. Electricity demand
The AEO2001 projects electricity demand to grow by approximately 1.8 percent annually between 2001 and 2020. This
growth is driven by an estimated 1.9 percent annual increase in the demand for electricity from both the residential and
commercial sector. Residential demand is expected to increase by 1.9 percent annually resulting from an increase in the
number of households, particularly in the south where most new homes use central air conditioning, while increased demand
from the commercial sector is associated with a steady growth in commercial floorspace. EIA expects electricity demand
from the industrial sector to increase by 1.4 percent annually over the same forecast period, largely in response to an increase
in industrial output.
b. Capacity Retirements
The AOE2001 projects total nuclear generation capacity to decline by an estimated 27 percent (or 26 gigawatts) between
1999 and 2020 due to nuclear power plant retirement. To produce this estimate, EIA compared the costs associated with
extending the life of aging nuclear generation facilities to the cost of building new capacity to meet the need for additional
electricity generation. EIA also expects total fossil fuel-fired generation capacity to decline due to retirements. EIA expects
that total fossil-steam capacity will decrease by an estimated 8 percent (or 43 gigawatts) over the same time period.
c. Capacity Additions
Additional generation capacity will be needed to meet the estimated growth in electricity demand and offset the retirement of
existing capacity. EIA expects utilities to employ other options, such as life extensions and repowering, to power imports
from Canada and Mexico, and purchases from cogenerators before building new capacity. The Agency forecasts that utilities
will choose technologies for new generation capacity that seek to minimize cost while meeting environmental and emission
constraints. Of the new capacity forecasted to come on-line between 2001 and 2020, 55 percent is projected to be combined-
cycle technology and 37 percent is projected to be combustion turbine technology. This additional capacity is expected to be
fueled by natural gas or both oil and natural gas, and to supply primarily peak and intermediate capacity. Another six percent
of additional capacity is expected to be provided by new coal-fired plants, while the remaining two percent is forecasted to
come from renewable technologies.
d. Electricity Generation
The AEO2001 projects increased electricity generation from both natural gas and coal-fired plants to meet growing demand
and to offset lost capacity due to plant retirements. The forecast projects that coal-fired plants will account for more than half
of the industry's total generation in 2001. Although coal-fired generation is predicted to increase steadily between 2001 and
2020, its share of total generation is expected to decrease from 52 percent to an estimated 44 percent. This decrease in the
share of coal generation is in favor of less capital-intensive and more efficient natural gas generation technologies. The share
of total generation associated with gas-fired technologies is projected to increase from approximately 16 percent in 2001 to an
estimated 36 percent in 2020, replacing nuclear power as the second largest source of electricity generation. Generation from
oil-fired plants is expected to decline over the forecast period as oil-fired steam generators are replaced by gas turbine
technologies.
z. Electricity Prices
EIA expects the average price of electricity, as well as the price paid by customers in each sector (residential, commercial,
and industrial), to decrease between 2001 and 2020 as a result of competition among electricity suppliers. Specific market
restructuring plans differ from state to state. Some states have begun deregulating their electricity markets; EIA expects most
states to phase in increased customer access to electricity suppliers. Increases in the cost of fuels like natural gas and oil are
not expected to increase electricity prices; these increases are expected to be offset by reductions in the price of other fuels
and shifts to more efficient generating technologies.
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
GLOSSARY
Baseload: A baseload generating unit is normally used to satisfy all or part of the minimum or base load of the system and,
as a consequence, produces electricity at an essentially constant rate and runs continuously. Baseload units are generally the
newest, largest, and most efficient of the three types of units.
(http://www.eia.doe.gov/cneaf/electricity/page/prim2/chapter2.html)
Combined-Cycle Turbine: An electric generating technology in which electricity is produced from otherwise lost waste
heat exiting from one or more gas (combustion) turbines. The exiting heat is routed to a conventional boiler or to heat
recovery steam generator for utilization by a steam turbine in the production of electricity. This process increases the
efficiency of the electric generating unit.
Distribution: The portion of an electric system that is dedicated to delivering electric energy to an end user.
Electricity Available to Consumers: Power available for sale to customers. Approximately 8 to 9 percent of net
generation is lost during the transmission and distribution process.
Energy Policy Act (EPACT): In 1992 the EPACT removed constraints on ownership of electric generation facilities and
encouraged increased competition on the wholesale electric power business.
Gas Combustion Turbine: A gas turbine typically consisting of an axial-flow air compressor and one or more combustion
chambers, where liquid or gaseous fuel is burned and the hot gases are passed to the turbine. The hot gases expand to drive
the generator and are then used to run the compressor.
Generation: The process of producing electric energy by transforming other forms of energy. Generation is also the amount
of electric energy produced, expressed in watthours (Wh).
Gross Generation: The total amount of electric energy produced by the generating units at a generating station or stations,
measured at the generator terminals.
Intermediate load: Intermediate-load generating units meet system requirements that are greater than baseload but less than
peakload. Intermediate-load units are used during the transition between baseload and peak load requirements.
(http://www.eia.doe.gov/cneaf/electricity/page/prim2/chapter2.html)
Internal Combustion Engine: An internal combustion engine has one or more cylinders in which the process of
combustion takes place, converting energy released from the rapid burning of a fuel-air mixture into mechanical energy.
Diesel or gas-fired engines are the principal fuel types used in these generators.
Kilowatthours (kWh): One thousand watthours (Wh).
Nameplate Capacity: The amount of electric power delivered or required for which a generator, turbine, transformer,
transmission circuit, station, or system is rated by the manufacturer.
Net Capacity: The amount of electric power delivered or required for which a generator, turbine, transformer, transmission
circuit, station, or system is rated by the manufacturer, exclusive of station use, and unspecified conditions for a given time
interval.
Net Generation: Gross generation minus plant use from all plants owned by the same utility.
Nonutility: A corporation, person, agency, authority, or other legal entity or instrumentality that owns electric generating
capacity and is not an electric utility. Nonutility power producers include qualifying cogenerators, qualifying small power
producers, and other nonutility generators (including independent power producers) without a designated franchised service
area that do not file forms listed in the Code of Federal Regulations, Title 18, Part 141.
(http://www.eia.doe.gov/emeu/iea/glossary.html)
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
Other Prime Movers: Methods of power generation other than steam turbine, combined-cycle, gas combustion
turbine, internal combustion engine, and water turbine. Other prime movers include: geothermal, solar, wind, and
biomass.
Peakload: A peakload generating unit, normally the least efficient of the three unit types, is used to meet requirements
during the periods of greatest, or peak, load on the system.
(http://www.eia.doe.gov/cneaf/electricity/page/prim2/chapter2.html)
Power Marketers: Business entities engaged in buying, selling, and marketing electricity. Power marketers do not usually
own generating or transmission facilities. Power marketers, as opposed to brokers, take ownership of the electricity and are
involved in interstate trade. These entities file with the Federal Energy Regulatory Commission for status as a power
marketer, (http://www.eia.doe.gov/cneaf/electricity/epavl/glossary.html)
Power Brokers: An entity that arranges the sale and purchase of electric energy, transmission, and other services between
buyers and sellers, but does not take title to any of the power sold.
(http://www.eia.doe.gov/cneaf/electricity/epavl/glossary.html)
Prime Movers: The engine, turbine, water wheel or similar machine that drives an electric generator. Also, for reporting
purposes, a device that directly converts energy to electricity, e.g., photovoltaic, solar, and fuel cell(s).
Public Utility Regulatory Policies Act (PURPA): In 1978 PURPA opened up competition in the electricity generation
market by creating a class of nonutility electricity-generating companies referred to as "qualifying facilities."
Reliability: Electric system reliability has two components: adequacy and security. Adequacy is the ability of the electric
system to supply customers at all times, taking into account scheduled and unscheduled outages of system facilities. Security
is the ability of the electric system to withstand sudden disturbances, such as electric short circuits or unanticipated loss of
system facilities, (http://www.eia.doe.gov/cneaf/electricity/epavl/glossary.html)
Steam Turbine: A generating unit in which the prime mover is a steam turbine. The turbines convert thermal energy (steam
or hot water) produced by generators or boilers to mechanical energy or shaft torque. This mechanical energy is used to
power electric generators, including combined-cycle electric generating units, that convert the mechanical energy to
electricity.
Stranded Costs: The difference between revenues under competition and costs of providing service, including the
inherited fixed costs from the previous regulated market, (http://www.eia.doe.gov/cneaf/electricity/epavl/glossary.html)
Transmission: The movement or transfer of electric energy over an interconnected group of lines and associated equipment
between points of supply and points at which it is transformed for delivery to consumers, or is delivered to other electric
systems. Transmission is considered to end when the energy is transformed for distribution to the consumer.
Utility: A corporation, person, agency, authority, or other legal entity or instrumentality that owns and/or operates facilities
within the United States, its territories, or Puerto Rico for the generation, transmission, distribution, or sale of electric energy
primarily for use by the public and files forms listed in the Code of Federal Regulations, Title 18, Part 141. Facilities that
qualify as cogenerators or small power producers under the Public Utility Regulatory Policies Act (PURPA) are not
considered electric utilities, (http://www.eia.doe.gov/emeu/iea/glossary.html)
Water Turbine: A unit in which the turbine generator is driven by falling water.
Watt: The electrical unit of power. The rate of energy transfer equivalent to 1 ampere flowing under the pressure of 1 volt at
unity power factor. (Does not appear in text)
Watthour (Wh): An electrical energy unit of measure equal to 1 watt of power supplied to, or take from, an electric circuit
steadily for 1 hour. (Does not appear in text)
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Section 316(b) EA Chapter 3 for New Facilities Profile of the Electric Power Industry
REFERENCES
Beamon, J. Alan. 1998. Competitive Electricity Prices: An Update.
At: http://www.eia.doe.gov/oiaf/archive/issues98/cep.htnil.
Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.
Joskow, Paul L. 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of
Economic Perspectives, Volume 11, Number 3 - Summer 1997 - Pages 119-138.
U.S. Department of Energy (U.S. DOE). 2000a. Energy Information Administration (EIA). Electric Power Industry
Overview. At: http://www.eia.doe.gov/cneaf/electricity/page/prim2/toc2.html.
U.S. Department of Energy (U.S. DOE). 2000b. Energy Information Administration (EIA). Status of State Electric Industry
Restructuring Activity as of September 2000. At: http://www.eia.doe.gov/cneaf/electricity/chg_str/regmap.html.
U.S. Department of Energy (U.S. DOE). 2000c. Energy Information Administration (EIA). Annual Energy Outlook 2001
With Projections to 2020. DOE/EIA-0383(2001). December 2000.
U.S. Department of Energy (U.S. DOE). 2000d. Form EIA-759 (2000). Monthly Power Plant Report.
U.S. Department of Energy (U. S. DOE). 1999a. Energy Information Administration (EIA). Electric Power Annual 1998
Volume I. DOE/EIA-0348(98)/1.
U.S. Department of Energy (U.S. DOE). 1999b. Energy Information Administration (EIA). Electric Power Annual 1998
Volume II. DOE/EIA-0348(98)/2.
U.S. Department of Energy (U.S. DOE). 1999c. Form EIA-861 (1999). Annual Electric Utility Data.
U.S. Department of Energy (U.S. DOE). 1998a. Form EIA-860A (1998). Annual Electric Generator Report - Utility.
U.S. Department of Energy (U.S. DOE). 1998b. Form EIA-860B (1998). Annual Electric Generator Report-Nonutility.
U.S. Department of Energy (U.S. DOE). 1998c. Form EIA-861 (1998). Annual Electric Utility Data.
U.S. Department of Energy (U.S. DOE). 1997. Form EIA-767 (1997). Steam-Electric Plant Operation and Design Report.
U.S. Department of Energy (U.S. DOE). 1996a. Energy Information Administration (EIA) Electric Power Annual 1995
Volume I. DOE/EIA-0348(95)/1.
U.S. Department of Energy (U.S. DOE). 1996b. Energy Information Administration (EIA). Electric Power Annual 1995
Volume II. DOE/EIA-0348(95)/2.
U.S. Department of Energy (U. S. DOE). 1996. Energy Information Administration (EIA). Impacts of Electric Power
Industry Restructuring on the Coal Industry. At: http://www.eia.doe.gov/cneaf/electricity/chg_str_fuel/html/chapterl.html.
U.S. Environmental Protection Agency (U.S. EPA). 2000. Section 316(b) Industry Survey. Detailed Industry
Questionnaire: Phase II Cooling Water Intake Structures and Industry Short Technical Questionnaire: Phase II Cooling
Water Intake Structures, January, 2000 (OMB Control Number 2040-0213). Industry Screener Questionnaire: Phase I
Cooling Water Intake Structures, January, 1999 (OMB Control Number 2040-0203).
U.S. Geological Survey (USGS). 1995. Estimated Use of Water in the United States in 1995.
At: http://water.usgs.gov/watuse/pdfl995/html/.
U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR section 121.201.
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Section 316(b) EA Chapter 4 for New Facilities Profile of Manufacturers
Chapter 4: Profile of Manufacturers
INTRODUCTION
Based on the 1982 Census of Manufactures and
information from effluent guideline development 4B Chemicals and Allied Products (SIC 28) 4B-1
materials, EPA identified four industrial categories other 4C Petroleum and Coal Products (SIC 29) 4C-1
than SIC Major Group 49 that are most likely to be
affected by the section 316(b) regulation. These
industries, referred to collectively here as "manufacturers,"
were selected because of their known use of cooling water.
They are Paper and Allied Products (SIC 26), Chemicals
and Allied Products (SIC 28), Petroleum and Coal
Products (SIC 29), and Primary Metal Industries (SIC 33).
4A Paper and Allied Products (SIC 26) 4A-1
4D Steel (SIC 331) 4D-1
4E Aluminum (SIC 333/5) 4E-1
Glossary 4Glos-l
While facilities in other industrial groups also use cooling water and may therefore be subject to section 316(b) regulations,
their total cooling water intake flow is believed to be small relative to that of the four selected industries. Therefore, this
Profile of Manufacturers focuses on the manufacturing groups listed above.
The remainder of this chapter is divided into five sections:1
> 4A: Paper and Allied Products (SIC 26)
> 4B: Chemicals and Allied Products (SIC 28)
> 4C: Petroleum and Coal Products (SIC 29)
•• 4D: Steel (SIC 3 31)
•• 4E: Aluminum (SIC 333/335)
Each industry section is further divided into the following four subsections: (1) domestic production, (2) structure and
competitiveness, (3) financial condition and performance, and (4) section 316(b) facilities. Each sector profile only presents
data for SIC codes that were identified in the section 316(b) Detailed Industry Questionnaire as important users of cooling
water directly withdrawn from a water of the United States.2
The Census of Manufactures provided much of the data used in this chapter to analyze trends in each industry. The 1997
Census used North American Industry Classification System (NAICS) codes for the first time, replacing the Standard
Industrial Classification (SIC) codes used earlier. This change introduced a discontinuity in the data for some industries for
which there is not a one-to-one map between the old SIC codes and the new NAICS codes. For purposes of these profiles,
EPA therefore made only limited use of the 1997 Census data, and instead relied where possible on data from other sources to
assess economic trends before and after 1997 on a consistent basis.
Demand for the output of all of the industries profiled in this chapter is strongly influenced by overall economic conditions.
At the time these profiles were prepared, there was substantial uncertainty about the state of the U.S. and world economies.
The U.S. economic expansion that began in 1992 was the longest on record, but a slowing of growth began to become evident
in the second half of 2000. It remains uncertain whether the economy will continue to grow, although at a reduced rate, or
slip into recession. While some of the data presented in this profile may not reflect the recent economic slowdown, the
discussion highlights the effects of current economic conditions on each industry. The forecasts used in Chapter 5 to predict
1 Steel and aluminum are the two dominant products in the U.S. industrial metals industry. These two markets, however, are
structured differently and are therefore discussed in two separate profile sections.
2 The electronic version of this report is comprised of six separate files, one for each of the five industries and one for the glossary of
terms.
4-i
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Section 316(b) EA Chapter 4 for New Facilities Profile of Manufacturers
the number of new facilities may not fully reflect the recent slowdown and may overstate growth in the near term. Given the
long-term focus of this analysis, EPA believes that it is appropriate to focus on average growth rates over the long-term,
despite the uncertainty about near term economic conditions. Post-war contractions in the U.S. economy have averaged 11
months before returning to positive growth.3 The most recent Congressional Budget forecasts, issued in August 2001, project
growth in real GDP of 1.7 percent for 2001 and 2.6 percent for 2002, with a long-term forecast of 3.2 percent per year growth
for the period 2003 through 2011.4
3 The National Bureau of Economic Research dates business cycles and provides historical records of expansions and contractions at
http://www.nber.org/cycles.
4 Congressional Budget Office. 2001. The Budget and Economic Outlook: An Update. August 28.
4-ii
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
4A PAPER AND ALLIED PRODUCTS (SIC 26)
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified five 4-digit SIC codes in the
Paper and Allied Products industry (SIC 26) with at least one existing facility that operates a CWIS, holds a NPDES permit,
and withdraws equal to or greater than two million gallons per day (MOD) from a water of the United States, and uses at least
25 percent of its intake flow for cooling purposes. (Facilities with these characteristics are hereafter referred to as "section
316(b) facilities"). For each of the five SIC codes, Table 4A-1 below provides a description of the industry sector, a list of
primary products manufactured, the total number of detailed questionnaire respondents (weighted to represent national
results), and the number and percent of section 316(b) facilities.
Table 4A-1: Section 316(b) Facilities in the Paper and Allied Products Industry (SIC 26)
SIC
2611
2621
2631
SIC Description
Pulp Mills
Paper Mills
Paperboard Mills
Total
Important Products Manufactured
Pulp from wood or from other materials, such as rags, linters,
wastepaper, and straw; integrated logging and pulp mill
operations if primarily shipping pulp.
Paper from wood pulp and other fiber pulp, converted paper
products; integrated operations of producing pulp and
manufacturing paper if primarily shipping paper or paper
products.
Paperboard, including paperboard coated on the paperboard
machine, from wood pulp and other fiber pulp; and
converted paperboard products; integrated operations of
producing pulp and manufacturing paperboard if primarily
shipping paperboard or paperboard products.
Number of Weighted Detailed
Questionnaire Survey
Respondents
Total
60
290
190
539
Section 316(b)
Facilities
No.a
26
74
43
142
%
43.6%
25.4%
22.4%
26.4%
Other Paper and Allied Products Sectors
Sanitary paper products from purchased paper, such as facial
2676 Sanitary Paper Products tissues and handkerchiefs, table napkins, toilet paper, towels, 4 2 50.0%
disposable diapers, and sanitary napkins and tampons.
Converted Paper and Laminated building paper, cigarette paper, confetti, pressed
.,_„ Paperboard Products, and molded pulp cups and dishes, paper doilies, egg cartons, .„ , 14707
Not Elsewhere egg case filler flats, papier-mache, filter paper, foil board,
Classified gift wrap paper, wallpaper, etc.
Total Other 23 4 50.0%
Total Paper and Allied Products (SIC 26)
Total SIC Code 26 ! ! 562 ! 147 ! 26.1%
a Individual numbers may not add up due to independent rounding.
Source: U.S. EPA, 2000; Executive Office of the President, 1987.
4A-1
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Paper and Allied Products
The responses to the Detailed Industry Questionnaire indicate that three main sectors account for the largest numbers of
section 316(b) facilities in the Paper and Allied Products industry: (1) Pulp Mills (SIC 2611), (2) Paper Mills (SIC 2621), and
(3) Paperboard Mills (SIC 2631). Fifty percent of the 147 section 316(b) facilities in the Paper and Allied Products industry
are paper mills. Paperboard mills and pulp mills account for 29 and 18 percent of facilities, respectively. The remainder of
the Paper and Allied Products profile therefore focuses on these three industries.
4A.1 Domestic Production
The Paper and Allied Products industry is one of the top ten U.S. manufacturing industries, and among the top five sectors in
sales of nondurable goods. Growth in the paper industry is closely tied to overall gross domestic product (GDP) growth
because nearly all of the industry's end-uses are consumer oriented. Although the domestic market consumes over 90 percent
of total U.S. paper and allied product output, exports have taken on an increasingly important role, and growth in a number of
key foreign paper and paperboard markets are a key factor in the health and expansion of the U.S. industry (McGraw-Hill,
2000). The industry is considered mature, with growth slower than that of the GDP, and U.S. producers have been actively
seeking growth opportunities in overseas markets. While exports still represent a small share of domestic shipments, they
exert an important marginal influence on capacity utilization. Prices and industry profits, which are very sensitive to capacity
utilization, have therefore also become very sensitive to trends in global markets. The industry has seen relatively stable
production and sales over the last decade, but has experienced seen more volatile capacity utilization, profitability, and prices
(Ince, 1999).
The U.S. Paper and Allied Products industry has a world-wide reputation as a high quality, high volume, and low-cost
producer. The industry benefits from many key operating advantages, including a large domestic market; the world's highest
per capita consumption; a modern manufacturing infrastructure; adequate raw material, water, and energy resources; a highly
skilled labor force; and an efficient transportation and distribution network (Stanley, 2000). U.S. producers face growing
competition from new facilities constructed overseas, however (McGraw-Hill, 2000).
The industry is one of the primary users of energy, second only to the chemicals and metals industries. However, 56 percent
of total energy used in 1998-99 was self-generated (McGraw-Hill, 2000).
a. Output
The U.S. Paper and Allied Products industry has experienced continued globalization and cyclical pattens in production and
earnings over the last two decades. Capital investments in the 1980s resulted in significant overcapacity. U.S. producers
experienced record sales in 1995. In 1996, lower domestic and foreign demand, declining prices, and inventory drawdowns
led to a decline in the industry's total shipments by 2.2 percent in real terms. More recently, three consecutive years of
increasing demand, and slowly increasing prices led to better industry performance. During these years, domestic producers
controlled operating rates, to allow drawdown of high inventories and higher capacity utilization. U.S. producers have also
placed a greater emphasis on foreign markets, both through export sales and investments in overseas facilities (McGraw-Hill,
2000). The paper products industry had improved sales and stronger earnings in 1999 and early 2000, but began to experience
declines in sales in the second half of 2000, reflecting reduced paper and packaging demand due to the slowdown in the U.S.
economy and a growth in imports (S&P, 2001). Most products were characterized by weak demand, reduced production and
price reductions in 2001, due to continuing reductions in domestic demand (Paperloop, 2001).
Figure 4A-1 shows the trend in value of shipments and value added for the three profiled sectors.1 Value of shipments
and value added are two of the most common measures of manufacturing output. They provide insight into the overall
economic health and outlook for an industry. Value of shipments is the sum of the receipts a manufacturer earns from the
sale of its outputs. It is an indicator of the overall size of a market or the size of a firm in relation to its market or competitors.
Value added is used to measure the value of production activity in a particular industry. It is the difference between the value
of shipments and the value of purchased inputs used to make the products sold.
1 Terms highlighted in bold and italic font are further explained in the glossary.
4A-2
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Figure 4A-1: Value of Shipments and Value Added for Profiled Paper and Allied Products Sectors
(in millions, constant $2000)
Value of Shipments
-Pulp Mills (SIC 2611)
-Paper Mills (SIC 2621)
-Paperboard Mills (SIC 2631)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Value Added
25 000
20 000
15 000 -
10 000
5 000
0 -
A * *— — * ^--X'^^^*^^
^~* A ± tf A
^*~-^-~-^^^~~-+--^^^--+
-— — — —- — ^— —•^__
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
-•—Pulp Mills (SIC 2611)
— A— PaperMills (SIC 2621)
—•—Paperboard Mills (SIC 2631)
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
Trends in industry output differ somewhat by stage of industry production. As Table 4A-2 shows, pulp production (SIC
2611) has experienced the slowest growth among the three profiled sectors over the period 1989 to 2000, but paper mill and
paperboard mill production growth has also been well below the growth in U. S. GDP. All three sectors show periods of
alternating growth and contraction in year-to-year production. Table 4A-2 shows sharp decreases in production in the first
half of 2001, compared to the comparable period in 2000, in all three sectors.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Table 4A-2: Pulp and Paper Industry Industrial Production Indexes
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Total Percent
Change 1989-2000
Average Annual
Growth Rate
Jan. -August 2000a
Jan. -August 200 la
Pulp Mills
"Pprrpnt
Index 1992=100 7-.T.
Change
94.9 n/a
96.9 2.1%
97.6 0.7%
100.0 2.5%
98.6 -1.4%
101.1 2.5%
103.0 1.9%
100.3 -2.6%
102.7 2.4%
100.5 -2.1%
98.6 -1.9%
98.7 0.1%
4%
0.4%
100.6 n/a
91.6 -8.9%
Paper Mills
Index Percent
1992=100 Change
95.3 n/a
97.8 2.6%
97.6 -0.2%
100.0 2.5%
104.0 4.0%
106.8 2.7%
108.3 1.4%
105.1 -3.0%
110.8 5.4%
111.5 0.6%
112.4 0.8%
112.5 0.1%
18%
1.5%
113.8 n/a
105.3 -7.5%
Paperboard Mills
Index Percent
1992=100 Change
92.1 n/a
94.2 2.3%
96.6 2.5%
100.0 3.5%
103.3 3.3%
109.3 5.8%
111.5 2.0%
114.1 2.3%
120.2 5.3%
119.0 -1.0%
122.0 2.5%
116.9 -4.2%
27%
2.2%
119.2 n/a
112.6 -5.5%
a Data is an average over the seven month period.
Source: Federal Reserve Board, 2001.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
b. Prices
Price levels in the U.S. paper industry closely reflect domestic and foreign demand and industry capacity and operating rates,
which determine supply (S&P, 2001). Prices tend to be volatile due to mismatches between short-term supply and demand.
The industry is very capital intensive, and it makes significant time to bring new capacity on-line. Prices therefore tend to
escalate when demand and capacity utilization rise, and drop sharply when demand softens or when new capacity comes on
line. Producers have in the past been reluctant to reduce production when demand declines, because fixed capital costs are a
substantial portion of total manufacturing costs, which can result in persistent oversupply. During the recent economic
slowdown, however, there is evidence that producers are more willing to incur downtime to prevent sharp reductions in prices
(Ince, 1999; S&P, 2001).
The paper industry suffered from low prices throughout the early 1990s. The depressed prices were the result of the paper
boom of the late 1980s wmid, 1999 and 2001). Production cutbacks in the face of substantial declines in demand in late 2000
and 2001 have prevented major price declines for paper products (S&P, 2001).
Figure 4 A-2 shows the producer price index (PPI) at the 4-digit SIC code for the profiled pulp, paper, and paperboard
sectors. The PPI is a family of indexes that measure price changes from the perspective of the seller. This profile uses the
PPI to express monetary values in constant dollars.
Figure 4A-2: Producer Price Indexes for Profiled Paper and Allied Products Sectors
-Pulp Mills (SIC2611)
-PaperMills (SIC2621)
-Paperboard Mills (SIC2631)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: BLS, 2000.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
c. Number of facilities and firms
The Statistics of U.S. Businesses reports that the number of facilities and firms in the Pulp Mills sector decreased by 11%
percent between 1989 and 1997. One of the reasons for this trend has been the dramatic increase in the number of mills that
produce deinked recycled market pulp. These are secondary fiber processing plants that use recovered paper and paperboard
as their sole source of raw material. Producers of deinked market pulp have experienced strong demand over the past several
years in both U.S. and foreign markets. As a result, the U.S. deinked recycled market pulp capacity more than doubled
between 1994 and 1998 (McGraw-Hill, 2000). Since 1994, the secondary fiber share of total papermaking fiber production
has increased steadily, reaching a record 37 percent in 1999 (McGraw-Hill, 2000).
There has also been a decline in the number of paper and paperboard mills. Overcapacity in the 1990s has limited the
construction of new facilities. In 1998 and 1999, 577,000 and 2.5 million tons of paper and paperboard capacity were
removed from the capacity base. Over the same period, more than one million tons of pulp capacity were removed (Pponline,
1999).
Tables 4A-3 and 4A-4 present the number of facilities and firms for the three profiled Paper and Allied Products sectors
between 1989 and 1997.
Table 4A-3: Number of Facilities for Profiled Paper and Allied Products Sectors
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change 1989-
1997
Average
Annual Growth
Rate
Pulp Mills (SIC 26 11)
Number of Percent
Facilities Change
46 n/a
46 0%
53 15%
44 -17%
46 5%
52 13%
53 2%
62 17%
41 -34%
-11%
-1%
Paper Mills (SIC 2621)
Number of Percent
Facilities Change
322 n/a
327 2%
349 7%
324 -7%
306 -6%
316 3%
317 0%
344 9%
259 -25%
-20%
-3%
Paperboard Mills (SIC 2631)
Number of Percent
Facilities Change
221 n/a
226 2%
228 1%
222 -3%
217 -2%
218 0%
219 0%
228 4%
214 -6%
-3%
0%
Source: U.S. SBA, 2000.
4A-6
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Table 4A-4: Number of Firms for Profiled Paper and Allied Products Sectors
Year
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change 1990-
1997
Average Annual
Growth Rate
Pulp Mills (SIC 2611)
Number of Percent
Firms Change
31 n/a
37 19%
29 -22%
32 10%
37 16%
32 -14%
43 34%
27 -37%
-13%
-2%
Paper Mills (SIC 2621)
Number of Percent
Firms Change
158 n/a
186 18%
161 -13%
153 -5%
163 7%
163 0%
186 14%
131 -30%
-77%
-3%
Paperboard Mills (SIC 2631)
Number of Percent
Firms Change
102 n/a
102 0%
95 -7%
99 4%
96 -3%
93 -3%
101 9%
85 -16%
-77%
-3%
Source: U.S. SBA, 2000.
4A-7
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
d. Employment and productivity
The U.S. Paper and Allied Products industry is among the most modern in the world. It has a highly skilled labor force and is
characterized by large capital expenditures which are largely aimed at production improvements.
Employment in the three profiled paper industry sectors has remained relatively constant or declined between 1987 and
1992. Figure 4A-3 below presents employment levels for the three profiled Paper and Allied Products sectors between 1987
and 1997.
Figure 4A-3: Employment for Profiled Paper and Allied Products Sectors
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
-Pulp Mills (SIC 2611)
- Paper Mills (SIC 2621)
-Paperboard Mills (SIC 2631)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Table 4 A-5 presents the change in value added per labor hour, a measure of labor productivity, for each of the profiled
industry sectors between 1987 and 1997. The table shows that labor productivity in the Pulp Mills sector has been relatively
volatile, posting several double-digit gains and losses between 1987 and 1997. These changes have been primarily driven by
fluctuations in value added. Overall, the sector's productivity increased by 3 percent during this period. The Paper Mills and
Paperboard Mills sectors have experienced overall labor productivity changes of 12 percent and -3 percent, respectively.
Table 4A-5: Productivity Trends for Profiled Paper and Allied Products Sectors (in millions, constant $2000)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total
Percent
Change
1987-
1997
Average
Annual
Growth
Rate
Pulp Mills (SIC 2611)
Value
Added
2,796
3,154
3,502
3,185
2,880
3,092
2,319
2,577
3,320
2,329
2,006
-28%
-3%
Prod.
Hrs.
(mill.)
24
24
25
28
28
26
23
22
25
24
17
-29%
-3%
Value
Added/Hour
No.
117
132
138
115
104
118
100
118
134
97
121
3%
0.3%
%
Change
n/a
13%
5%
-17%
-10%
13%
-15%
18%
14%
-28%
25%
Paper Mills (SIC 2621)
Value
Added
18,150
19,686
18,892
18,421
17,606
17,440
17,045
17,434
20,311
18,415
17,290
-5%
-0.5%
Prod.
Hrs.
(mill.)
213
215
214
211
212
215
212
206
200
197
183
-14%
-2%
Value
Added/Hour
No.
85
92
OO
00
87
83
81
80
85
102
93
95
12%
1%
%
Change
n/a
8%
-4%
-1%
-5%
-2%
-1%
6%
20%
-9%
2%
Paperboard Mills (SIC 2631)
Value
Added
10,541
11,928
11,293
10,705
9,924
11,057
10,470
10,945
12,174
10,939
10,659
1%
0.1%
Prod.
Hrs.
(mill.)
89
91
89
91
87
88
90
94
98
95
92
3%
0.3%
Value
Added/Hour
No.
119
131
127
118
115
125
116
117
125
115
116
-3%
-0.3%
%
Change
n/a
10%
-3%
-7%
-3%
9%
-7%
1%
7%
-8%
1%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4A-9
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
e. Capital expenditures
The Paper and Allied Products industry is a highly capital intensive industry. Capital-intensive industries are characterized
by large manufacturing facilities which reflect the economies of scale required to manufacture products efficiently. New
capital expenditures are needed to modernize, expand, and replace existing capacity. Consistent high levels of capital
expenditures have made the Paper and Allied Products industry one of the most modern industries in the world (Stanley,
2000). The total level of capital expenditures for the pulp, paper, and paperboard industries was $5.3 billion in 1997 (in
constant $2000). The Paper Mills and Paperboard Mills sectors accounted for approximately 91 percent of that spending (see
Table 4A-6). Most of the spending is for production improvements (through existing machine upgrades, retrofits, or new
installed equipment), environmental concerns, and increased recycling (McGraw Hill, 2000).
A fair amount of the industry's new capital expenditures has been spent on environmental equipment. The Department of
Commerce estimates that environmental spending has accounted for about 14 percent of all capital outlays made by the U.S.
paper industry since the 1980s, and the Cluster Rule promulgated in 1998 is expected to require increased environmental
expenditures (S&P, 2001).
Table 4A-6: C<
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change
1987- 1997
Average
Annual Growth
Rate
ipital Expenditures for Profiled
Pulp Mills (SIC 2611)
Capital _
„ ... Percent
Expenditures _,
($2000 millions) Change
283 n/a
313 10.6%
619 97.8%
982 58.6%
1167 18.8%
935 -19.9%
577 -38.3%
388 -32.8%
444 14.4%
739 66.4%
467 -36.8%
65%
5%
Paper and Allied Products Sect
Paper Mills (SIC 2621)
Capital _
„ ... Percent
Expenditures _,
($2000 millions) Change
3,562 n/a
3,851 8.1%
5785 50.2%
4747 -17.9%
4129 -13.0%
3420 -17.2%
3363 -1.7%
3716 10.5%
2,423 -34.8%
3070 26.7%
2878 -6.3%
-19%
-2%
ors (in millions, constant $2000)
Paperboard Mills (SIC 2631)
Capital _
„ ... Percent
Expenditures _,
($2000 millions) Change
1,178 n/a
2,062 75.0%
2122 2.9%
3923 84.9%
2943 -25.0%
2753 -6.5%
2286 -17.0%
2202 -3.7%
2,058 -6.5%
2,674 29.9%
1954 -26.9%
66%
5%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4A-10
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
f. Capacity utilization
Capacity utilization measures actual output as a percentage of total potential output given the available capacity. Capacity
utilization is an index used to identify potential excess or insufficient capacity in an industry and can help project whether
new investment is likely. According to the U.S. Industry and Trade Outlook, a utilization rate in the range of 92 to 96 percent
is necessary for the Pulp Mills sector to remain productive and profitable (McGraw-Hill, 2000).
The capacity utilization trends shown in Figure 4A-4 show sharp fluctuations in all three profiled sectors. Capacity utilization
rates increased between 1989 and 1994, and then plummeted in 1995. This sharp drop was the result of the inventory
drawdown cycle which had begun in 1995 in response to low demand and oversupply (McGraw-Hill, 2000). As inventories
were sold off and global economic activity started to pick up, capacity utilization rates began to increase again in 1996,
peaked in 1997, and again declined in 1998 due to reduced demand from the Asian market (S&P, 2001).
Figure 4A-4 presents the capacity utilization indexes from 1989 to 1998 for the three profiled sectors.
Figure 4A-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Paper and Allied Products Sectors
Pulp Mills (SIC 2611)
Paper Mills (SIC 2621)
Paperboard Mills (SIC 2631)
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Source: U.S. DOC, 1989-1998.
4A.2 Structure and Competitiveness
Paper and Allied Products companies range in size from giant corporations having billions of dollars of sales, to small
producers with revenue bases a fraction of the size. Because all Paper and Allied Products companies use the same base
materials in their production, most manufacture more than one product. To escape the extreme price volatility of commodity
markets, many smaller manufacturers have differentiated their products by offering value-added grades. The smaller markets
for value-added products make this avenue less available to the larger firms (S&P, 2001).
The paper industry has been consolidating through mergers and has been closing down older mills over the last few years, as
a way to improve profit growth in a mature industry. About six percent of North American containerboard capacity was shut
down (most on a permanent basis) in late 1998 and early 1999. Companies have been reluctant to invest in any major new
capacity that might result in excess capacity (S&P, 2001). New capacity additions in 1999 in the Paper and Allied Products
industry were at their lowest level in the past ten years and this limitation on new capacity is expected to continue
(Pponline.com, 2000). Major recent mergers include International Paper's acquisition of Champion International in 2000 and
Union Camp in 1999, Georgia-Pacific's takeover of Fort James Corp. (itself a 1997 combination of James River and Fort
Howard), and Wyerhaeuser's bid in late 2000 for Willamette Industries Inc. (S&P, 2001).
4A-11
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
a. Geographic distribution
The geographic distribution of pulp, paper, and paperboard mills varies with the different types of mills. Traditional pulp
mills tend to be located in regions where pulp trees are harvested from natural stands or tree farms. The Southeast (GA, AL,
NC, TN, FL, MS, KY), Northwest (WA, CA, AK), Northeast (ME) and Northern Central (WI, MI) regions account for the
major concentrations of pulp mills. Deinked market pulp plants, on the other hand, are typically located close to large
metropolitan areas, which can consistently provide large amounts of recovered paper and paperboard (McGraw-Hill, 2000).
Paper mills are more widely distributed, located in proximity to pulping operations and/or near converting sector markets.
Since the primary market for paperboard products is manufacturing, the distribution of paperboard mills is similar to that of
the manufacturing industry in general.
Figure 4A-5: Number of Facilities in Profiled Paper and Allied Products Sectors by State
Number of Facilities
0-2
3-10
11-18
19-32
33-47
Source: U.S. DOC, 1987, 1992, and 1997.
4A-12
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Paper and Allied Products
b. Facility size
Most of the facilities in the three profiled industry sectors fall in the middle employment size categories, with either 100 to
249, or 250 to 499 employees. However, the larger facilities (those with 500 or more employees) account for the majority of
the industries' value of shipments.
The number of independent pulp mills is smaller than the number of paper and paperboard mills, and pulp mills have
considerably lower value of shipments. The larger facilities dominate value of shipments in all three sectors, however.
>• Seventy-one percent of all Pulp Mills employ 100 employees or more. These facilities account for approximately 97
percent of the sector's value of shipments.
> Thirty-three percent of all Paper Mills have more than 500 employees. They account for 71 percent of the sector's
value of shipments.
*• Sixteen percent of all Paperboard Mi Us employ 500 people or more. These facilities account for 56 percent of the
sector's value of shipments.
4A-13
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
The distribution of the number of facilities and the industries' value of shipment are presented in Figure 4A-6 below.
Figure 4A-6: Number of Facilities and Value of Shipments by Employment Size Category
for Profiled Paper and Allied Products Sectors
Number of Facilities (1992)
• Pulp Mills (SIC 2611)
• Paper Mills (SIC 2621)
DPaperboard Mills (SIC2631)
1992 Value of Shipments (in millions)
• Pulp Mills (SIC 2611)
• Paper Mills (SIC 2621)
DPaperboard Mills (SIC 2631)
Source: U.S. DOC, 1987, 1992, and 1997.
4A-14
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
c. Firm size
The Small Business Administration (SB A) defines small firms in the Paper and Allied Products industries according to the
firm's number of employees. Firms in SIC codes 2611, 2621, and 2631 are defined as small if they have fewer than 750
employees.
The size categories reported in the Statistics of U.S. Businesses (SUSB) do not coincide with the SB A small firm standard of
750 employees. It is therefore not possible to apply the SBA size thresholds precisely. The SUSB data presented in Table
4A-6 below show the following size distribution in 1997:
> 12 of 21 firms in the Pulp Mills sector had less than 500 employees. Therefore, at least 44 percent of firms were
classified as small. These small firms owned 15 facilities, or 37 percent of all facilities in the sector.
*• 72 of 131 (55 percent) firms in the Paper Mi Us sector had less than 500 employees. These small firms owned 77, or
30 percent of all paper mills.
*• 41 of 85 firms in the Paperboard Mills sector had less than 500 employees. Therefore, at least 48 percent of
paperboard mills were classified as small. These firms owned 42, or 20 percent of all paperboard mills
An unknown number of the firms with more than 500 employees have less than 750 employees, and would therefore be
classified as small firms. Table 4A-7 below shows the distribution of firms, facilities, and receipts for each profiled sector by
employment size of the parent firm.
Table 4A-7: Number of Firms, Facilities, and Estimated Receipts by Firm Size Category
for Profiled Paper and Allied Products Sectors, 1997
Employment
Size
Category
0-19
20-99
100-499
500+
Total
Pulp Mills (SIC 2611)
No. of
Firms
2
5
5
15
27
No. of
Facilities
2
5
8
26
41
Estimated
Receipts
(in millions,
constant
$2000)
21
53
148
3,834
4,055
Paper Mills (SIC 2621)
No. of
Firms
5
23
44
59
131
No. of
Facilities
5
23
49
182
259
Estimated
Receipts
(in millions,
constant $2000)
49
224
3,048
33,926
37,246
Paperboard Mills SIC 2631
No. of
Firms
12
21
44
85
No. of
Facilities
8
12
22
172
214
Estimated
Receipts
(in millions,
constant
$2000)
68
103
731
18,900
19,802
Source: U.S. SBA, 2000.
4A-15
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Paper and Allied Products
d. Concentration and specialization ratios
Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is closely related
to entry barriers, with more concentrated industries generally having higher barriers.
The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common measures of
industry concentration. The CR4 indicates the market share of the four largest firms. For example, a CR4 of 72 percent
means that the four largest firms in the industry account for 72 percent of the industry's total value of shipments. The higher
the concentration ratio, the less competition there is in the industry, other things being equal.2 An industry with a CR4 of
more than 50 percent is generally considered concentrated. The HHI indicates concentration based on the largest 50 firms in
the industry. It is equal to the sum of the squares of the market shares for the largest 50 firms in the industry. For example, if
an industry consists of only three firms with market shares of 60, 30, and 10 percent, respectively, the HHI of this industry
would be equal to 4,600 (602 + 302 + 102). The higher the index, the fewer the number of firms supplying the industry and the
more concentrated the industry. An industry is considered concentrated if the HHI exceeds 1,000.
The concentration ratios for the three profiled industry sectors remained relatively stable between 1987 and 1992. None of
the profiled industries are considered concentrated based on the CR4 or the HHI. The Pulp Mills sector has the highest
concentration of the three sectors, with a CR4 of 48 percent and a HHI of 858 in 1992. Recent mergers and acquisitions have
led to an increase in concentration in the paper and paperboard sector. The top five U.S. firms are reported to now control 38
percent of production capacity, with higher concentrations in individual product lines due to targeted consolidation and
specialization (Ince, 1999).3 The paper and paperboard mills (SICs 2621 and 2631) also account for most of the production
of their primary products, as shown by their high coverage ratios. Pulp mills (SIC 2611) account for a lower percentage of all
pulp shipments, with pulp also commonly produced by integrated paper mills. Data from the 1997 Census of Manufacturers
reports that the coverage ratio for pulp mills declined to 59 percent in 1997, suggesting a trend away from mills specializing
in pulp production (U.S. DOC, 1987, 1992, and 1992).
The specialization ratio is the percentage of the industry's production accounted for by primary product shipments. The
coverage ratio is the percentage of the industry's product shipments coming from facilities from the same primary industry.
The coverage ratio provides an indication of how much of the production/product of interest is captured by the facilities
classified in an SIC code.
The specialization ratios presented in Table 4A-8 indicate a relatively high degree of specialization for each profiled Paper
and Allied Products industry sector.
2 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a high
concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with foreign producers
or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage containers). Concentration ratios are
therefore only one indicator of the extent of competition in an industry.
3 Reported capacity concentrations for the top five firms are 60% in newsprint, 58% in uncoated groundwood, 65% in coated
groundwood, 43% in containerboard, and 40% in paper grade market pulp (Ince, 1999, quoting the industry newsletter Pulp & Paper
Week).
4A-16
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Table 4A-8: Selected Ratios for Profiled Paper and Allied Products Sectors
SIC
Code
2611
2621
2631
Year
1987
1992
1987
1992
1987
1992
Total
Number
of Firms
26
29
122
127
91
89
Concentration Ratios
4 Firm
(CR4)
44%
48%
33%
29%
32%
31%
8 Firm
(CR8)
69%
75%
50%
49%
51%
52%
20 Firm
(CR20)
99%
98%
78%
77%
77%
80%
50 Firm
(CR50)
100%
100%
94%
94%
97%
97%
Herfindahl-
Hirschman
Index
743
858
432
392
431
438
Specialization
Ratio
87%
81%
91%
90%
91%
92%
Coverage
Ratio
69%
72%
96%
95%
90%
89%
Source: U.S. DOC, 1987, 1992, and 1997.
e. Foreign trade
The Paper and Allied Products industry has been in a period of globalization for more than a decade. Many U.S. Paper and
Allied Products companies are active exporters, but they also engage in foreign production, converting, and packaging
operations, and have joint ventures and direct foreign capital investments in partnerships and ownerships (Stanley, 2000).
Exports play an important role in the Paper and Allied Products industry. Sixty-five percent of the industry's shipment
growth between 1989 and 1998 was derived from export sales. Some of the domestic industry's key trade partners - long a
target for any excess U.S. paper production - have undertaken significant investments in their own world-class production
facilities (S&P, 2001). The strength of the U.S. dollar versus Asian currencies has also reduced the competitiveness of U.S.
pulp exports to that region (McGraw-Hill, 2000). Despite improved demand in portions of Europe and Latin America, the
Asian financial crisis, which began in 1997, still affects the global pulp industry (Stanley, 2000).
This profile uses two measures of foreign competitiveness: export dependence and import penetration. Export
dependence is the share of value of shipments that is exported. Import penetration is the share of domestic consumption met
by imports. Imports and exports play a much larger role in the Pulp Mills sector than for the other two sectors. Import
penetration and export dependence levels for the Pulp Mills sector were an estimated 62 and 63 percent, respectively, in 2000.
The Paper and Paperboard sectors, import penetration and export dependence were 17 and 11 percent in 2000, respectively.
Table 4A-9 presents trade statistics for each of the profiled Paper and Allied Products industry sectors. Figure 4A-7 shows
the rise in imports in all sectors in the last two years.
4A-17
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Table 4A-9: Trade Statistics for Profiled Paper and Allied Products Sectors
Year
1992
1993
1994
1995
1996
1997d
1998d
1999e
2000f
Total Percent
Change 1992-2000
Average Annual
Growth Rate
1992
1993
1994
1995
1996
1997d
1998d
1999e
2000f
Total Percent
Change 1992-2000
Average Annual
Growth Rate
Value of
Imports
(in millions,
constant
$2000)
2,546
2,532
2,813
2,944
2,753
2,815
2,742
2,974
3,302
30%
3.3%
8,500
9,258
8,901
9,453
9,658
10,194
10,831
11,228
11,198
32%
3.5%
Value of
Exports
(in millions,
constant
$2000)
Pu
3,916
3,364
3,636
3,693
3,554
3,561
3,180
3,288
3,556
-9%
-1.2%
Paper and Papc
5,402
5,394
5,838
5,966
6,715
7,407
6,877
6,726
6,698
24%
2.7%
Value of Shipments
(in millions, constant
$2000)
p Mills (SIC 2611)
6,615
5,804
5,942
5,907
5,829
6,330
6,009
6,123
5,622
-15%
-2.0%
srboard Mills (SIC 26
61,994
62,151
64,752
62,548
63,386
66,803
65,886
66,085
61,956
-0.1%
0.0%
Implied
Domestic
Consumption3
5,245
4,972
5,119
5,158
5,028
5,584
5,571
5,809
5,368
2.3%
0.3%
21, 2631)
65,092
66,015
67,815
66,035
66,329
69,590
69,840
70,587
66,456
2.1%
0.3%
Import
Penetrationb
49%
51%
55%
57%
55%
50%
49%
51%
62%
13%
14%
13%
14%
15%
15%
16%
16%
17%
Export
Dependence0
59%
58%
61%
63%
61%
56%
53%
54%
63%
9%
9%
9%
10%
11%
11%
10%
10%
11%
a Calculated by EPA as shipments + imports - exports.
b Calculated by EPA as imports divided by implied domestic consumption.
c Calculated by EPA as exports divided by shipments.
d Value of Shipments are estimated.
e Estimates.
f Forecasts.
Source: U.S. DOC, 2001.
4A-18
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Figure 4A-7: Value of Imports and Exports for Profiled Paper and Allied Products Sectors
(in millions, constant $2000)
Pulp Mills (SIC 2611)
4 500 -
A ooo
^ soo
^ ooo
2 000
i soo
i ooo
soo
0 -
•.
"•" ^ -C^"4
A • ^ — •"•
^^ ^ ^ A r^
1992 1993 1994 1995 1996 1997 1998 1999 2000
— A — Imports
— • — Exports
Paper and Paperboard Mills (SIC 2621 and 2631)
12,000
10,000
8,000
6,000
4,000
2,000
0
1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: U.S. DOC, 2001.
4A-19
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Paper and Allied Products
4A.3 Financial Condition and Performance
Financial performance in the Paper and Allied Products industry is closely linked to macroeconomic cycles, both in the
domestic market and those of key foreign trade partners, and the resulting levels of demand. Many pulp producers, for
example, have not been very profitable during most of the 1990s as chronic oversupply, cyclical demand, rapidly fluctuating
operating rates, sharp inventory swings, and uneven world demand has plagued the global pulp market for more than a decade
(Stanley, 2000).
Table 4A-10 presents trends in operating margins for the Pulp Mills, Paper Mills, and Paperboard Mills sectors between 1987
and 1997. The table shows substantial year-to-year fluctuations in margins in all three sectors, but especially in the Pulp
Mills sector. These fluctuation are a reflection of changes in product prices which have resulted from oversupply in the
industry. More recently, earnings have suffered from a combination of price declines and higher energy costs, which
Standard & Poor's estimates can account for as much as 20 percent of paper manufacturing costs in certain grades (S&P
2001). S&P also reports that consolidations in recent years have helped profit margins, by allowing companies to spread
administrative and research and development costs over a larger asset base and by eliminating redundant operations (S&P
2001).
4A-20
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Table 4A-10: Operating Margins for Profiled Paper and Allied Products Sectors (in millions, constant $2000)
Year
Value of Shipments
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
5,287
5,323
5,704
5,817
6,275
6,614
5,804
5,942
5,906
5,829
4,506
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
37,443
39,154
39,094
39,197
37,849
38,510
37,707
40,329
40,518
38,656
36,880
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
20,932
21,868
20,946
20,979
20,530
21,777
22,488
23,329
23,418
22,969
23,974
Cost of Materials
Pulp Mills (SIC 2
2,475
2,185
2,265
2,690
3,402
3,579
3,372
3,301
2,736
3,470
2,440
Paper Mills (SIC
19,241
19,588
20,417
20,930
20,413
21,109
20,810
22,615
20,936
20,122
19,502
Paperboard Mills (SI
10,428
9,974
9,708
10,285
10,640
10,812
12,043
12,272
11,393
12,015
13,339
Payroll (all employees)
611)
656
566
536
623
821
834
850
751
547
742
581
2621)
5,965
5,571
5,443
5,617
5,929
6,367
6,302
6,311
4,958
5,470
5,592
C 2631)
2,834
2,669
2,514
2,700
2,772
2,882
3,122
3,050
2,427
2,945
3,265
Operating Margin
41%
48%
51%
43%
33%
33%
27%
32%
44%
28%
33%
33%
36%
34%
32%
30%
29%
28%
28%
36%
34%
32%
37%
42%
42%
38%
35%
37%
33%
34%
41%
35%
31%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4A-21
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Paper and Allied Products
4A.4 Facilities Operating Cooling Water Intake Structures
In 1982, the Paper and Allied Products industry withdrew 534 billion gallons of cooling water, accounting for approximately
0.7 percent of total industrial cooling water intake in the United States. The industry ranked 5th in industrial cooling water
use, behind the electric power generation industry, and the chemical, primary metals, and petroleum industries (1982 Census
of Manufactures).
This section presents information from EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures on
existing facilities with the following characteristics:
* they withdraw from a water of the United States;
> they hold an NPDES permit;
* they have a design intake flow of equal to or greater than two MOD;
*• they use at least 25 percent of that flow for cooling purposes.
These facilities are not "new facilities" as defined by the proposed section 316(b) New Facility Rule and are therefore not
subject to this regulation. However, they meet the criteria of the proposed rule except that they are already in operation.
These existing facilities therefore provide a good indication of what new facilities in these sectors may look like. The
remainder of this section refers to existing facilities with the above characteristics as "section 316(b) facilities."
a. Cooling water uses and systems
Information collected in the Detailed Industry Questionnaire found that an estimated 26 out of 66 pulp mills (39 percent), 74
out of 286 paper mills (26 percent), and 43 out of 187 paperboard mills (23 percent) meet the characteristics of a section
316(b) facility. Most section 316(b) facilities in the profiled Paper and Allied Products sectors use cooling water for contact
and non-contact production line or process cooling, electricity generation, and air conditioning:
*• Eighty-seven percent of section 316(b) pulp mills use cooling water for production line (or process) contact or
noncontact cooling. The two other major uses of cooling water by pulp mills are air conditioning and electricity
generation, by approximately 94 and 54 percent of facilities, respectively.
* Eighty-five percent of section 316(b) paper mills use cooling water for production line (or process) contact or
noncontact cooling. Sixty-six percent also use cooling water for electricity generation and 57 percent for air
conditioning.
*• Eighty-eight percent of section 316(b) paperboard mills use cooling water for production line (or process) contact or
noncontact cooling. The two other major uses of cooling water by pulp mills are electricity generation by
approximately 70 percent and air conditioning by approximately 59 percent of facilities.
Table 4A-11 shows the distribution of existing section 316(b) facilities in the profiled Paper and Allied Products sectors by
type of water body and cooling system. The table shows that most of the existing section 316(b) facilities have either a once-
through system (61, or 43 percent) or employ a combination of a once-through and closed system (35, or 24 percent). Sixteen
facilities (11 percent) have a recirculating system, while the remaining thirty facilities (21 percent) employ some other type of
cooling system. The majority of existing facilities draw water exclusively from either a freshwater water stream or river (109,
or 76 percent), or a lake or reservoir (19, or 13 percent). Ninety-six percent (138) of all 316(b) facilities in the profiled Paper
and Allied Products sectors withdraw water from a combination of freshwater streams or rivers and lakes or reservoirs. The
remaining six facilities (4 percent) withdraw from an estuary or tidal river. All of the CWISs drawing from an estuary or tidal
river use a once-through cooling system.
4A-22
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
Table 4A-11: Number of Section 316(b) Facilities by Water Body Type and Cooling System
for Profiled Paper and Allied Products Sectors
Water Body Type
Recirculating
No.
Freshwater Stream or River
Freshwater Stream or River &
Lake or Reservoir
Lake or Reservoir
Total1
6
0
0
6
Estuary or Tidal River
Freshwater Stream or River
Freshwater Stream or River &
Lake or Reservoir
Lake or Reservoir
Lake or Reservoir &
Estuary or Tidal River
Total*
0
3
0
0
0
3
Estuary or Tidal River
Freshwater Stream or River
Freshwater Stream or River
& Lake or Reservoir
Lake or Reservoir
Total1
0
4
0
3
7
Total
Estuary or Tidal River
Freshwater Stream or River
Freshwater Stream or River
& Lake or Reservoir
Lake or Reservoir
Lake or Reservoir
& Estuary or Tidal River
Total3
0
13
0
3
0
16
%of
Total
Pi
32%
0%
0%
23%
Pq
0%
5%
0%
0%
0%
JO/
4/0
Paper
0%
13%
0%
60%
16%
Paper and
0%
12%
0%
16%
0%
11%
Combination
No.
Ip Mills (
6
1
0
7
>er Mills
0
12
0
1
0
13
Doard Mi
0
12
3
0
75
Allied Pn
0
30
4
1
0
35
%of
Total
SIC 2611)
32%
100%
0%
27%
(SIC 2621
0%
20%
0%
11%
0%
18%
Is (SIC 26
0%
40%
50%
0%
35%
>ducts Ind
0%
28%
44%
5%
0%
24%
Once-Through
No.
6
0
0
6
)
2
29
2
3
1
36
31)
3
14
0
2
19
jstry (SI
5
49
2
5
1
61
%of
Total
32%
0%
0%
23%
100%
48%
100%
33%
100%
49%
100%
47%
0%
40%
44%
C 26)
100%
45%
22%
26%
100%
43%
Other
No.
1
0
6
7
0
16
0
4
0
20
0
0
3
0
3
0
17
3
10
0
30
%of
Total
5%
0%
100%
27%
0%
27%
0%
44%
0%
27%
0%
0%
50%
0%
•707
I/O
0%
16%
33%
53%
0%
21%
Grand
Total
19
1
6
26
1
60
2
9
1
74
3
30
6
5
43
5
109
9
19
1
143
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2000.
4A-23
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
b. Facility size
Paper and Allied Product facilities have a design intake flow of more than two MOD, withdraw from a water of the U.S., hold
an NPDES permit, and use at least 25 percent of intake water for cooling purposes are generally larger than facilities that do
not meet these criteria:
*• Twenty-three percent of all facilities in the overall Paper Mills sector had fewer than 100 employees in 1992; none
of the section 316(b) facilities in that sector fall into that employment category.
*• Twenty-nine percent of all facilities in the Pulp Mills sector had fewer than 100 employees in 1992, compared with 7
percent of the section 316(b) facilities.
> Thirty-nine percent of all facilities in the Paperboard Mills sector had fewer than 100 employees, compared to none
of the section 316(b) facilities.
The majority of section 316(b) pulp mills, 22 or 85 percent, employ 500 employees or greater. The section 316(b) paper and
paperboard mills are more evenly distributed across employment categories. Twenty-seven paper mill facilities (36 percent)
employ 250-499 employees, and 44 facilities (59 percent) employ 500 employees or more. Nineteen, or 44 percent, of
paperboard facilities employ 250-499 employees, and 18 facilities (42 percent) employ more than 500 employees.
Figure 4A-8 shows the number of section 316(b) facilities in the profiled pulp and paper sectors by employment size
category.
Figure 4A-8: Number of Section 316(b) Facilities by Employment Size
for Profiled Paper and Allied Products Sectors
• Pulp Mills (SIC 2611)
• Paper Mills (SIC 2621)
n Paperboard Mills (SIC 2631)
<100 100-249 250-499 500-999 >=1000
Source: U.S. EPA, 2000.
4A-24
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Paper and Allied Products
c. Firm size
EPA used the Small Business Administration (SB A) small entity size standards to determine the number of existing sectin
316(b) facilities in the three profiled Paper and Allied Products sectors that are owned by small firms. Firms in this industry
are considered small if they employ fewer than 750 people.
Table 4A-12 shows that section 316(b) facilities in this industry are predominantly owned by large firms. All of the paper
and paperboard mills are owned by large firms, and ninety-two percent (68 facilities) of pulp mills are owned by large firms.
Small firms own four pulp mills. An additional two pulp mill facilities are owned by firms of unknown size, which may also
qualify as small firms.
Table 4A-12: Number of Section 316(b) Facilities in Profiled Paper and Allied Products Sectors by Firm Size
SIC
Code
2611
2621
2631
SIC
Description
Pulp Mills
Paper Mills
Paperboard
Mills
Total
Large
Number
26
68
43
137
% of SIC
100%
92%
100%
96%
Small
Number
0
4
0
4
% of SIC
0%
5%
0%
3%
Unknown
Number
0
2
0
2
% of SIC
0%
3%
0%
1%
Total
26
74
43
143
Source: U.S. EPA, 2000; D&B, 2001.
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Paper and Allied Products
REFERENCES
Bureau of Labor Statistics (BLS). 2000. Producer Price Index. Series: PCU26 #-Paper and Allied Products.
Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.
Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification Manual.
Federal Reserve Board. 2001. Industrial Production and Capacity Utilization. Statistical Release G. 17. October 16, 2001.
Ince, Peter J. 1999. "Global cycle changes the rules for U.S. pulp and paper." PIMA 's North American Papermaker.
December, v. 81, issue 12, p. 37.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000.
U.S. Industry & Trade Outlook '00.
Paperloop Inc. 2001. "Market Report: United States 3Q 2001."
Pponline.com. 2000. "U.S. pulp and paper industry poised for cyclical upswing." January 11, 2000.
Pponline.com. 1999. "U.S. pulp, paper, board capacity growth'ultra slow'." December 9, 1999.
Standard & Poor's (S&P). 2001. Industry Surveys - Paper & Forest Products. April 12, 2001.
Standard & Poor's (S&P). 1999. Industry Surveys - Paper & Forest Products. October 21, 1999.
Stanley, G.L. 2000. "Economic data for pulp and paper industry shows an encouraging future." TAPPIJournal 83(l):pp.
27-32.
U.S. Department of Commerce (U.S. DOC). 2001. Bureau of the Census. International Trade Administration.
U.S. Department of Commerce (U.S. DOC). 1992, 1997. Bureau of the Census. Census of Manufactures.
U.S. Department of Commerce (U.S. DOC). 1989-1998. Bureau of the Census. Current Industrial Reports. Survey of Plant
Capacity.
U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996. Bureau of the Census. Annual Survey of Manufactures.
U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling Water Intake
Structures.
U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR section 121.201.
4A-26
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
4B CHEMICALS AND ALLIED PRODUCTS (SIC 28)
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified fifteen 4-digit SIC codes in the
Chemical and Allied Products Industry (SIC 28) with at least one existing facility that operates a CWIS, holds a NPDES
permit, withdraws equal to or greater than two million gallons per day (MOD) from a water of the United States, and uses at
least 25 percent of its intake flow for cooling purposes (facilities with these characteristics are hereafter referred to as "section
316(b) facilities"). For each of the fifteen SIC codes, Table 4B-1 below provides a description of the industry sector, a list of
primary products manufactured, the total number of detailed questionnaire respondents (weighted ro represent national
results), and the number and percent of section 316(b) facilities.
Table 4B-1: Section 316(b) Facilities in the Chemicals and Allied Products Industry (SIC 28)
SIC
2812
2813
2816
2819
SIC Description
Alkalies and Chlorine
Industrial Gases
Inorganic Pigments
Industrial Inorganic Chemicals,
Not Elsewhere Classified
Total Inorganic Chemicals
2821
2865
2869
Plastics Material and Synthetic
Resins, and Nonvulcanizable
Elastomers
Cyclic Organic Crudes and
Intermediates, and Organic
Dyes and Pigments
Industrial Organic Chemicals,
Not Elsewhere Classified
Total Organic Chemicals
Important Products Manufactured
Inorganic Chemicals (SIC 281)b
Alkalies, caustic soda, chlorine, and soda ash
Industrial gases (including organic) for sale in
compressed, liquid, and solid forms
Black pigments, except carbon black, white
pigments, and color pigments
Miscellaneous other industrial inorganic chemicals
Plastics Material and Resins (SIC 282)
Cellulose plastics materials; phenolic and other tar
acid resins; urea and melamine resins; vinyl resins;
styrene resins; alkyd resins; acrylic resins;
polyethylene resins; polypropylene resins; rosin
modified resins; coumarone-indene and petroleum
polymer resins; miscellaneous resins
Organic Chemicals (SIC 286)c
Aromatic chemicals, such as benzene, toluene, mixed
xylenes naphthalene, synthetic organic dyes, and
synthetic organic pigments
Aliphatic and other acyclic organic chemicals;
solvents; polyhydric alcohols; synthetic perfume and
flavoring materials; rubber processing chemicals;
plasticizers; synthetic tanning agents; chemical
warfare gases; and esters, amines, etc.
Number of Weighted Detailed
Questionnaire Survey
Respondents
Total
28
110
26
271
435
305
59
364
423
Section 316(b)
Facilities
No.a
20
4
4
33
61
15
4
48
52
%
68.7%
3.9%
16.7%
12.2%
14.1%
4.8%
7.3%
13.1%
12. 3%
4B-1
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Table 4B-1: Section 316(b) Facilities in the Chemicals and Allied Products Industry (SIC 28)
SIC
2823
2824
2833
2834
2841
2873
2874
2899
SIC Description
Cellulosic Manmade Fibers
Manmade Organic Fibers,
Except Cellulosic
Medicinal Chemicals and
Botanical Products
Pharmaceutical Preparations
Soaps and Other Detergents,
Except Speciality Cleaners
Nitrogenous Fertilizers
Phosphatic Fertilizers
Chemicals and Chemical
Preparations, Not Elsewhere
Classified
Total Other
To
Total SIC Code 28
Important Products Manufactured
Other Chemical Sectors
Cellulose acetate and regenerated cellulose such as
rayon by the viscose or cuprammonium process
Regenerated proteins, and polymers or copolymers of
such components as vinyl chloride, vinylidene
chloride, linear esters, vinyl alcohols, acrylonitrile,
ethylenes, amides, and related polymeric materials
Agar-agar and similar products of natural origin,
endocrine products, manufacturing or isolating basic
vitamins, and isolating active medicinal principals
such as alkaloids from botanical drugs and herbs
Intended for final consumption, such as ampoules,
tablets, capsules, vials, ointments, medicinal
powders, solutions, and suspensions
Soap, synthetic organic detergents, inorganic alkaline
detergents
Ammonia fertilizer compounds and anhydrous
ammonia, nitric acid, ammonium nitrate, ammonium
sulfate and nitrogen solutions, urea, and natural
organic fertilizers (except compost) and mixtures
Phosphoric acid; normal, enriched, and concentrated
superphosphates; ammonium phosphates; nitro-
phosphates; and calcium meta-phosphates
Fatty acids; essential oils; gelatin (except vegetable);
sizes; bluing; laundry sours; writing and stamp pad
ink; industrial compounds; metal, oil, and water
treating compounds; waterproofing compounds; and
chemical supplies for foundries
tal Chemicals and Allied Products (SIC 28)
Number of Weighted Detailed
Questionnaire Survey
Respondents
Total
7
36
33
91
36
60
41
162
466
1,629
Section 316(b)
Facilities
No.a
1
9
3
4
4
9
1
4
36
163
%
14.9%
24.1%
9.9%
4.7%
12.0%
14.4%
2.9%
2.7%
7.6%
10.0%
a Individual numbers may not add up due to independent rounding.
b SIC code 281 is officially titled "Industrial Inorganic Chemicals." However, to avoid confusion with SIC code 2819, "Industrial
Inorganic Chemicals, Not Elsewhere Classified," this profile will refer to SIC code 281 as the "Inorganic Chemicals sector."
c SIC code 286 is officially titled "Industrial Organic Chemicals." However, to avoid confusion with SIC code 2869, "Industrial
Organic Chemicals, Not Elsewhere Classified," this profile will refer to SIC code 286 as the "Organic Chemicals sector."
Source: U.S. EPA, 2000; Executive Office of the President, 1987.
4B-2
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Chemicals and Allied Products
The responses to the Detailed Questionnaire indicate that three main chemical sectors account for 78 percent of the chemicals
industry section 316(b) facilities: (1) Inorganic Chemicals (including SIC codes 2812, 2813, 2816, and 2819); (2) Plastics
Material and Resins (SIC code 2821); and (3) Organic Chemicals (including SIC codes 2865 and 2869). Of the 163 section
316(b) facilities in the Chemical industry, 61 facilities, or 37 percent, belong to the Inorganic Chemicals sector, 52, or 32
percent, belong to the Organic Chemicals sector, and 15, or 9 percent, belong to the Plastics and Resins sector. This profile
therefore provides detailed information for these three industry groups.
4B.1 Domestic Production
The U.S. Chemical and Allied products industry includes a large number of companies that, in total, produce more than
70,000 different chemical products. These products range from commodity materials used in other industries to finished
consumer products such as soaps and detergents. The industry accounts for nearly 12 percent of U.S. manufacturing value
added, and produces approximately two percent of total national gross domestic product (McGraw-Hill, 2000).
Raw materials containing hydrocarbons such as oil, natural gas, and coal are primary feedstocks for the production of organic
chemicals. Inorganic chemicals are chemicals that do not contain carbon but are produced from other gases and minerals
(McGraw-Hill, 2000).
The Chemicals and Allied products industry is highly energy intensive, consuming about 7 percent of total annual U.S.
energy output (McGraw-Hill, 2000). It is one of the largest industrial users of electric energy and also consumes large
amounts of oil and natural gas. In total, the industry accounts for approximately seven percent of total U.S. energy
consumption, including 11 percent of all natural gas use. Just over 50 percent of the industry's energy consumption is used as
feedstock in the production of chemical products. The remaining energy consumption is for fuel and power for production
processes. Oil accounts for approximately 42 percent of total energy consumption by the industry. For some products, e.g.,
petrochemicals, energy costs account for up to 85 percent of total production costs. Overall, total energy costs represent
seven percent of the value of chemical industry shipments (S&P, 2001).
a. Output
Figure 4B-1 shows the trend in value of shipments and value added for the three profiled sectors between 1988 and
1997.' Value of shipments and value added are two of the most common measures of manufacturing output. They provide
insight into the overall economic health and outlook for an industry. Value of shipments is the sum of the receipts a
manufacturer earns from the sale of its outputs. It is an indicator of the overall size of a market or the size of a firm in relation
to its market or competitors. Value added is used to measure the value of production activity in a particular industry. It is the
difference between the value of shipments and the value of inputs used to make the products sold.
The Organic Chemicals sector (SIC 286) experienced a significant decrease in both value of shipments and value added
between 1994 and 1996, before rebounding in 1997. The decrease was a function of increased competition in the global
market for petrochemicals which comprise the majority of organic chemical products. The increased competition stems from
the considerable capacity expansions for these products seen in developing nations in recent years (McGraw-Hill, 2000).
The Plastics Material and Resin (SIC 2821) and Inorganic Chemicals (SIC 281) sectors have remained relatively stable over
the period between 1988 and 1997. The stability in these industry sectors reflects various trends in the markets for their
products which are heavily influenced by the overall health and stability of the U.S. economy. In the early 1990s, domestic
producers benefitted from the relatively weak dollar which made U.S. products more competitive in the global market. In
more recent years, the strength of the U.S. economy has bolstered domestic end-use markets, offsetting the reductions in
exports that have resulted from increased global competition and a strengthened dollar (McGraw-Hill, 2000).
Terms highlighted in bold and italic font are further explained in the glossary.
4B-3
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Figure 4B-1: Value of Shipments and Value Added for Profiled Chemical Sectors (in millions, constant $2000)
Value of Shipments
1 70 000 T
1 00 000
80 000
60 000
40,000 -
90 000 -
n
A — • ^ -A • ™ v^. -'•
m m B_ — •
» Inorganic Chemicals (SIC
2812,2813,2816,2819)
— • — Plastics Material and Resins
(SIC 2821)
— A — Organic Chemicals (SIC
2865,2869)
Value Added
45,000
40,000
•Inorganic Chemicals (SIC
2812,2813,2816,2819)
•Plastics Material and
Resins (SIC 2821)
•Organic Chemicals (SIC
2865,2869)
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
Table 4B-2 provides the Federal Reserve System's index of industrial production for the three profiled sectors, which shows
trends in production since 1997. This index reflects total output in physical terms, whereas value of shipments and value
added reflects the value of production. Table 4B-2 shows varying trends in the three sectors since 1997, but sharp declines in
production in all three sectors in the first half of 2001. These declines have been caused by the dramatic slowdown in the
U.S. economy, which has affected demand in major chemical-using sectors such as steel, apparel, textiles, forest products,
and the technology sectors (Chemical Marketing Reporter, 2001).
4B-4
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Table 4B-2: Chemicals Industry Industrial Production Indexes
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Total Percent
Change 1989-
1997
Average Annual
Growth Rate
Jan.-June 2000b
Jan.-June2001b
Basic Inorganic Chemicals3
Index 1992=100 ^^
Change
92.6 n/a
101.2 9.3%
97.7 -3.5%
100.0 2.4%
95.3 -4.7%
88.8 -6.8%
91.0 2.5%
92.6 1.8%
98.1 5.9%
95.2 -3.0%
98.9 3.9%
102.7 3.8%
11%
0.9%
101.9 n/a
95.5 -35.6%
Plastics Materials
Index 1992=100 P™1
Change
94.6 n/a
95.3 0.7%
90.4 -5.1%
100.0 10.6%
98.0 -2.0%
111.9 14.2%
113.0 1.0%
109.2 -3.4%
120.2 10.1%
131.0 9.0%
139.5 6.5%
137.7 -1.3%
46%
3.5%
142.6 n/a
132.9 -7%
Industrial Organic Chemicals
Index 1992=100 P™1
Change
103.5 n/a
104.9 1.4%
99.9 -4.8%
100.0 0.1%
98.7 -1.3%
104.9 6.3%
105.6 0.7%
106.3 0.7%
114.3 7.5%
108.8 -4.8%
114.6 5.3%
114.9 0.3%
11%
1.0%
117.5 n/a
98.1 -17%
a Includes alkalies and chlorine, inorganic pigments and inorganic chemicals.
b Average over the six month period.
Source: Federal Reserve Board, 2001.
4B-5
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
b. Prices
Selling prices for the products of the Organic and Inorganic Chemical sectors have increased from 1987 to 1989 and remained
stable through 1994. Between 1994 and 1995, prices increased sharply, followed by a period of stable prices through 1997.
Prices for plastics material and resins followed a trend similar to the other two chemical industry sectors but with larger
fluctuations (see Figure 4B-2).
The fluctuations in chemical and plastics prices are in part a function of energy prices. Basic petrochemicals, which comprise
the majority of organic chemical products, require energy input which can account for up to 85 percent of total production
costs. The prices of natural gas and oil therefore influence the production costs and the selling price for these products. High
basic petrochemical prices affect prices for chemical intermediates and final end products, including organic chemicals and
plastics.
Another factor influencing prices for commodity chemical products is the cyclical nature of market supply and demand
conditions. The Plastics, and Organic and Inorganic Chemical sectors are characterized by large capacity additions which can
lead to fluctuations in prices in response to imbalances in supply and demand.
Figure 4B-2 shows the producer price index (PPI) at the 4-digit SIC code for the profiled chemical sectors. The PPI is a
family of indexes that measure price changes from the perspective of the seller. This profile uses the PPI to express monetary
values in constant dollars.
Figure 4B-2: Producer Price Indexes for Profiled Chemical Sectors
45 000 T
40 000
•3 s nnn
30 000 -
7 S 000 -
70 000
15,000 -
10 000 -
5 000 -
0
, A A^ ^^^~*~~^ A
N^/^
ft — ft — • — • — i— -*^*=*=*=*
i • • ^ * — "^
— # — Inorganic Chemicals (SIC
2812,2813,2816,2819)
— • — Plastics Material and
Resins (SIC 2821)
— A — Organic Chemicals (SIC
2865,2869)
Source: BLS, 2000.
A recent sharp rise in prices for organic chemicals and plastics materials and resins is due in part to increases in the price of
natural gas. Natural gas liquids are the feedstock for 70 percent of U.S. ethylene production, and the high natural gas prices
are putting U.S. organic chemicals and, to a lesser extent, plastic resin producers at a disadvantage relative to foreign
producers who rely on naphta and gas oil as a feedstock. Natural gas prices have declined recently, however, which will ease
this pressure on U.S. producers (Chemical Market Reporter, 2001). Recent price increases for plastics and resins also reflect
a shift by U.S. producers away from commodity resins to emphasize speciality and higher-value-added products (McGraw-
Hill, 2000).
4B-6
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
c. Number of facilities and firms
According to the Statistics of U.S. Businesses, the number of facilities in the Organic and Inorganic Chemical sectors
remained relatively stable between 1989 and 1997. Table 4B-3 shows a downward trend in the number of facilities producing
inorganic chemical products following a peak in 1991. This decrease is likely the result of the recent trend towards
consolidation in the inorganic chemical sector. Consolidation is a means of paring costs with companies making acquisitions
and consolidating operations in an attempt to reduce costs and achieve economies of scale (S&P, 2001).
While the number of producers in the Organic and Inorganic Chemical sectors has remained stable, the Plastics Material and
Resins sector has experienced a significant increase in the number of facilities reported between 1993 and 1996, reflecting
growth in the demand for plastics in a number of end-uses (McGraw-Hill, 2000).
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change 1989-
1997
Average Annual
Growth Rate
Table 4B-3: Number of F
Inorganic Chemicals
(SIC 2812, 2813, 2816, 2819)
Number of Percent
Facilities Change
1,387 n/a
1,421 2%
1,508 6%
1,466 -3%
1,476 1%
1,460 -1%
1,425 -2%
1,396 -4%
1,414 1%
2%
0.2%
:Qcilities for Profiled Chemical S
Plastics Material and Resins
(SIC 2821)
Number of Percent
Facilities Change
504 n/a
517 3%
529 2%
460 -13%
502 9%
499 -1%
558 12%
630 26%
593 -6%
18%
2.1%
ectors"
Organic Chemicals
(SIC 2865, 2869)
Number of Percent
Facilities Change
844 n/a
837 -1%
851 2%
888 4%
908 2%
902 -1%
907 1%
868 -4%
945 9%
12%
1.4%
a The Statistics of U.S. Business is derived from Census County Business Patterns data, and reports somewhat different numbers of
firms and facilities than other Census data sources.
Source: U.S. SBA, 2000.
4B-7
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
The trend in the number of firms between 1989 and 1997 has been similar to the number of facilities. The number of firms
remained relatively stable for the Inorganic and Organic Chemical sectors. The Plastics Material and Resins sector
experienced a significant increase in the number of firms reported between 1993 and 1997 from 284 to 358 firms.
Table 4B-4 shows the number of firms in the three profiled chemical sectors between 1990 and 1997.
Year
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change 1990-
1997
Average Annual
Growth Rate
Table 4B-4: Number o
Inorganic Chemicals
(SIC 2812, 2813, 2816, 2819)
Number of Percent
Firms Change
640 n/a
678 6%
699 3%
683 -2%
677 -1%
657 -3%
625 -5%
611 -2%
-5%
-0.7%
' Firms for Profiled Chemical Se<
Plastics Material and Resins
(SIC 2821)
Number of Percent
Firms Change
301 n/a
319 6%
255 -20%
284 11%
295 4%
343 16%
403 17%
358 -11%
19%
2.5%
:tors"
Organic Chemicals
(SIC 2865, 2869)
Number of Percent
Firms Change
579 n/a
584 1%
611 5%
648 6%
644 -1%
644 0%
596 -7%
674 13%
16%
2.2%
a The Statistics of U.S. Business is derived from Census County Business Patterns data, and reports somewhat different numbers of
firms and facilities than other Census data sources.
Source: U.S. SBA, 2000.
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
d. Employment and productivity
Employment is a measure of the level and trend of activity in an industry. Figure 4B-3 below provides information on
employment from the Annual Survey of Manufactures. With the exception of minor short-lived fluctuations, employment in
the Organic Chemical and Plastics and Resins sectors remained stable between 1992 and 1996. The Inorganic Chemicals
sector, however, experienced a significant decrease in employment from 103,400 to 80,200 employees over the same time
period. This decrease reflects the industry's restructuring and downsizing efforts intended to reduce costs in response to
competitive challenges.
Figure 4B-3: Employment for Profiled Chemical Sectors
140 000
120,000 -
100,000 -
80 000
60,000 -
40 000
20 000 -
o
j. A A A A ^^^^ ^ A
"^•A *
^ ^ • *-^^
- • • • • •"" — „ •
• ^B
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
+ Inorganic Chemicals
(SIC 2812, 2813,
2816, 2819)
• — Plastics Material and
Resins (SIC 2821)
— * — Organic Chemicals (SIC
2865, 2869)
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
Table 4B-5 presents the change in value added per labor hour, a measure of labor productivity, for each of the profiled
industry sectors between 1988 and 1997. The trends in each sector, particularly Plastic Materials and Resins and Organic
Chemicals, show considerable volatility throughout the early and mid 1990s. The gains in productivity in the Inorganic
Chemicals sector reflect facilities' attempts to reduce costs by restructuring production and materials handling processes in
response to maturing domestic markets and increased global competition (S&P, 2001).
4B-9
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Table 4B-5: Productivity Trends for Profiled Chemical Sectors (in millions, constant $2000)
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total
Percent
Change
1988-
1997
Average
Annual
Percent
Change
Inorganic Chemicals
(SIC 2812, 2813, 2816, 2819)
Value
Added
16,514
16,785
18,424
17,900
19,219
18,339
17,183
17,026
16,246
17,367
5%
1%
Prod.
Hours
(mill.)
114
109
115
121
120
108
101
100
97
91
-20%
-2%
Value
Added/Hour
No.
145
154
161
148
160
170
170
170
168
191
32%
3%
%
Change
n/a
6%
4%
-8%
8%
6%
0%
0%
-1%
14%
Plastics Material and Resins
(SIC 2821)
Value
Added
15,057
14,491
14,363
13,120
15,576
14,845
18,260
18,193
16,815
17,931
19%
2%
Prod.
Hours
(mill.)
80
84
83
81
79
81
89
92
81
82
3%
0.3%
Value
Added/Hour
No.
189
173
174
162
198
183
204
199
209
219
16%
2%
%
Change
n/a
-8%
1%
-7%
22%
-8%
11%
-3%
5%
5%
Organic Chemicals
(SIC 2865, 2869)
Value
Added
39,697
40,649
40,509
36,170
36,332
37,945
41,052
37,741
30,666
39,391
-1%
-0.1%
Prod.
Hours
(mill.)
152
155
156
156
155
156
146
148
158
152
0%
0%
Value
Added/Hour
No.
262
263
260
232
234
243
282
256
194
260
-1%
-0.1%
%
Change
n/a
1%
-1%
-11%
1%
4%
16%
-9%
-24%
34%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4B-10
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
e. Capital expenditures
The chemicals industry is relatively capital-intensive, with aggregate capital spending of $33.6 billion in 1999 (S&P, 2001).
Capital-intensive industries are characterized by large, technologically complex manufacturing facilities which reflect the
economies of scale required to manufacture products efficiently. New capital expenditures are needed to extensively
modernize, expand, and replace existing capacity to meet growing demand. All three profiled chemical industry sectors have
experienced substantial increases in capital expenditures over the past eleven years. Table 4B-6 shows that capital
expenditures in the Inorganic Chemicals, the Plastics, and the Organic Chemicals sectors have increased by 98, 79, and 30
percent, respectively, over the past eleven years. Much of this growth in capital expenditures is driven by investment in
capacity expansions to meet the increase in global demand for chemical products. Domestically, the continued substitution of
synthetic materials for other basic materials and rising living standards has resulted in consistent growth in the demand for
chemical commodities (S&P, 2001).
Table 4B-6: Capital Expenditures for Profiled Chemical Sectors (in millions, constant $2000)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change 1987-1997
Average Annual
Growth Rate
Inorganic Chemicals
(SIC 2812, 2813, 2816, 2819)
Capital Percent
Expenditures Change
1,059 n/a
1,076 2%
1,558 45%
1,517 -3%
1,581 4%
1,794 13%
1,393 -22%
1,493 7%
1,787 20%
1,958 10%
2,095 7%
98%
7%
Plastics
(SIC 2821)
Capital Percent
Expenditures Change
1,742 n/a
1,832 5%
2,193 20%
2,870 31%
2,683 -7%
2,128 -21%
2,392 12%
3,026 27%
2,401 -21%
3,057 27%
3,118 2%
79%
6%
Organic Chemicals
(SIC 2865, 2869)
Capital Percent
Expenditures Change
n/a n/a
4,760 n/a
5,667 19%
7,179 27%
7,303 2%
6,714 -8%
5,748 -14%
4,915 -14%
5,445 11%
6,730 23%
6,170 -8%
30%
3%
Source: U.S. DOC, 1988-1991 and 1993-1996: U.S. DOC, 1987, 1992, and 1997.
3-11
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Chemicals and Allied Products
f. Capacity utilization
Capacity utilization measures actual output as a percentage of total potential output given the available capacity, and is
used as a key barometer of an industry's health. Capacity utilization is an index used to identify potential excess or
insufficient capacity in an industry which can help project whether new investment is likely. To take advantage of economies
of scale, chemical commodities are typically produced in large facilities. Capacity additions in this industry are often made
on a relatively large scale and can substantially affect the industry's capacity utilization rates. Figure 4B-4 presents the
capacity utilization index from 1989 to 1998 for specific 4-digit SIC codes within each of the profiled sectors in the chemicals
industry. Capacity utilization in the Organic Chemicals sector has remained stable throughout the 1990s with only moderate
fluctuations between 1989 and 1998. Plastics and Resins capacity utilization has shown a downward trend, as the production
of many commodity resins has shifted overseas. U.S. producers have responded by emphasizing the manufacture of
speciality and higher-value-added products and by rationalizing capacity to improve profitability (McGraw-Hill, 2000).
Overall, the Inorganic Chemicals sector has demonstrated the most volatility in capacity utilization between 1989 and 1998.
The chlor-alkali industry (SIC code 2812) has experienced an almost consistent decline in the capacity utilization index since
its high of 96 percent from 1992 through 1994. This decrease reflects the enactment of treaties and legislation designed to
reduce the emission of chlorinated compounds into the environment. These regulations decreased the demand for chlorine
which, together with caustic soda, accounts for more than 75 percent of production by this sector. The significant increase in
capacity utilization in the industrial gases sector (SIC code 2813) in the mid 1990s reflects the expansion of key end-use
markets such as the chemicals, primary metals, and electronics industries. In contrast, capacity utilization in the pigments and
other inorganic chemicals sectors (SIC codes 2816 and 2819) remained relatively stable between 1989 and 1998. The
stability in these sectors reflects the fact that these are essentially mature markets where the demand for products tend to track
growth in gross domestic product (GDP) (McGraw-Hill 2000).
4B-12
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Figure 4B-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Chemical Sectors
100
85 -
80 -
75 -
70
65 -
_^-* • «<. m
+^ N. ^>*-" ^\
^^^r^ ^•—-•'OjfL^^V
L^-~K /\ A
.^^ ^- Av__ ^
'• — =«f — ^ >i
\ z
Y
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Inorganic Chemicals
— »— Alkalies and Chlorine (SIC
2812)
—•—Industrial Gases (SIC 2813)
— 9— Inorganic Pigments (SIC
2816)
— A- Industrial Inorganic
Chemicals, NEC (SIC 2819)
QC
on
QC
Of)
75 -
7ft
/;c
A ^
\
^ *^^ ^A_ X\
^*- — ~~~~±—-^_^' \T
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Plastics Material and Resins
— A — Plastics Mate rial and
Resins (SIC 2821)
100 -
95 -
90 -
85 -
80 -
75 -
70 -
65 -
60 -
•^
.-r^y^*^_^
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Organic Chemicals
< Cyclic Organic Crudes and
Intermediates (SIC 2865)
— • — Industrial Organic
Chemicals, NEC (SIC 2869)
Source: U.S. DOC, 1989-1998.
3-13
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Chemicals and Allied Products
4B.2 Structure and Competitiveness
The chemicals industry continues to restructure and reduce costs in response to competitive challenges, including global
oversupply for commodities. In the early 1990s, the chemical industry's cost-cutting came largely from restructuring and
downsizing. The industry has taken steps to improve productivity, and consolidated to cut costs. In general, companies
seeking growth within maturing industry sectors are making acquisitions to achieve production or marketing efficiencies.
The Plastics Material and Resins sector (SIC code 282), for example, has recently experienced sizable consolidations (S&P,
2001).
a. Geographic distribution
Chemical manufacturing facilities are located in every state but almost two-thirds of U.S. chemical production is concentrated
in ten states. Given the low value of many commodity chemicals and the handling problems posed by products such as
industrial gases, nearly two-thirds of the tonnage shipped was transported less than 250 miles in 1998 (S&P, 2001).
Facilities producing cyclic crudes and intermediates (SIC 2865) and unclassified industrial organic chemicals, not elsewhere
classified (SIC 2869), are concentrated in Texas, New Jersey, Ohio, California, New York, and Illinois. Facility sites are
typically chosen for their access to raw materials such as petroleum and coal products and to transportation routes. In
addition, since much of the market for organic chemicals is the chemical industry, facilities tend to cluster near such end-
users (U.S. EPA, 1995a).
Inorganic Chemical facilities (SIC 281) are typically located near consumers and, to a lesser extent, raw materials. The
largest use of inorganic chemicals is in industrial processes for the manufacture of chemicals and nonchemical products.
Facilities are therefore concentrated in the heavy industrial regions along the Gulf Coast, both East and West coasts, and the
Great Lakes region. Since a large portion of the inorganic chemicals produced are used by the Organic Chemicals
manufacturing industry, the geographical distribution of inorganic facilities is very similar to that of organic chemicals
facilities (U.S. EPA, 1995b). Facilities in the Plastics Material and Resins sector (SIC 2821) are concentrated in the heavy
industrial regions, similar to both the organic and inorganic chemicals facilities.
4B-14
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Figure 4B-5: Number of Chemical Facilities by State for Profiled Chemical Sectors
Number of Facilities
0-14
15-50
51 -102
103-184
185 - 296
Source: U.S. DOC, 1987, 1992, and 1997.
b. Facility size
The three profiled chemicals industry sectors are characterized by a large number of small facilities, with more than 67
percent of facilities employing fewer than 50 employees and only eight percent employing 250 or more employees. However,
the larger facilities in the three sectors account for the majority of the industries' output. This fact is most pronounced in the
Inorganic Chemicals sector where facilities with fewer than 20 employees account for 63 percent of all facilities but for only
8 percent of the industry's value of shipments. In the Organic Chemicals sector, approximately 29 percent of all facilities
employ 100 employees or more. These facilities account for about 87 percent of the value of shipments for the industry.
Similarly, facilities in the Plastics Industry with more than 100 employees account for only 29 percent of all facilities but for
80 percent of the industry's value of shipments (see Figure 4B-6 below).
3-15
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Figure 4B-6: Number of Facilities and Value Added by Employment Size Category in 1992 for Profiled
Chemical Sectors
Number of Facilities (1992)
1 Inorganic Chemicals (SIC 2812
2813, 2816,2819)
1 Plastics (SIC 2821)
1 Organic Chemicals (SIC 2865,
2869)
50-99 100-249 250-499 500-999 1,000-2,499 2,500+
1992 Value of Shipments (in millions)
|Inorganic Chemicals (SIC
2812, 2813, 2816, 2819)
lPlastics(SIC 2821)
| Organic Chemicals (SIC
2865, 2869)
Source: U.S. DOC, 1987, 1992, and 1997.
4B-16
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
c. Firm size
The Small Business Administration (SBA) defines small firms in the chemical industries according to the firm's number of
employees. Firms in the Inorganic Chemicals sector (SIC codes 2812, 2813, 2816, 2819) and in Industrial Organic
Chemicals, NEC (SIC code 2869) are defined as small if they have 1,000 or fewer employees; firms in Plastics Material and
Resins (SIC 2821) and Cyclic Organic Crudes and Intermediates (SIC code 2865) are defined as small if they have 750 or
fewer employees.
The size categories reported in the Statistics of U.S. Businesses (SUSB) do not coincide with the SB A small firm standards of
750 and 1,000 employees. It is therefore not possible to apply the SBA size thresholds precisely. The SUSB data presented
in Table 4B-6 show that in 1997, 475 of 611 firms in the Inorganic Chemicals sector had less than 500 employees. Therefore,
at least 78 percent of firms in this sector were classified as small. These small firms owned 524 facilities, or 37 percent of all
facilities in the sector. In the Plastics and Resins Industry sector, 272 of 358 firms, or 76 percent, had less than 500
employees in 1997. These small firms owned 294 of 593 facilities (50 percent) in the sector. In the Organic Chemicals
Industry sector, 74 percent of facilities (496 of 674) had fewer than 500 employees, owning 57 percent of all facilities in that
sector.
Table 4B-7 below shows the distribution of firms, facilities, and receipts in the Inorganic Chemicals, Plastics Material and
Resins, and Organic Chemicals sectors by the employment size of the parent firm.
Table 4B-7: Number of Firms, Facilities and Estimated Receipts by Firm Size Category for Profiled Chemical
Sectors (1997)
Employment
Size
Category
0-19
20-99
100-499
500+
Total
Inorganic Chemicals
(SIC 2812, 2813, 2816, 2819)
No. of
Firms
294
122
59
136
611
Number of
Facilities
299
137
88
890
1,414
Estimated
Receipts
(in
millions,
$2000)
396
1,291
2,700
3,606
7^93
Plastics Material and Resins
(SIC 2821)
No. of
Firms
120
108
44
86
358
Number of
Facilities
120
111
63
299
593
Estimated
Receipts (in
millions,
constant
$2000)
477
1,399
3,141
5,548
10,565
Organic Chemicals
(SIC 2865, 2869)
No. of
Firms
255
148
93
178
674
Number of
Facilities
255
160
121
409
945
Estimated
Receipts (in
millions,
constant
$2000)
670
2,752
5,053
9,908
18,383
Source: U.S. SBA, 2000.
d. Concentration and specialization ratios
Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is closely related
to entry barriers with more concentrated industries generally having higher barriers.
The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common measures of
industry concentration. The CR4 indicates the market share of the four largest firms. For example, a CR4 of 72 percent
means that the four largest firms in the industry account for 72 percent of the industry's total value of shipments. The higher
3-17
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Chemicals and Allied Products
the concentration ratio, the less competition there is in the industry, other things being equal.2 An industry with a CR4 of
more than 50 percent is generally considered concentrated. The HHI indicates concentration based on the largest 50 firms in
the industry. It is equal to the sum of the squares of the market shares for the largest 50 firms in the industry. For example, if
an industry consists of only three firms with market shares of 60, 30, and 10 percent, respectively, the HHI of this industry
would be equal to 4,600 (602 + 302 + 102). The higher the index, the fewer the number of firms supplying the industry and the
more concentrated the industry. An industry is considered concentrated if the HHI exceeds 1,000.
Of the profiled Chemicals and Allied Products, only Alkalies and Chlorine (SIC 2812), Industrial Gases (SIC 2813), and
Inorganic Pigments (SIC 2816) would be considered highly concentrated based on their CR4 and HHI values. In contrast,
Industrial Inorganic Chemicals, NEC (SIC 2819), Plastics Material and Resins (SIC 2821), Cyclic Crudes and Intermediates
(SIC 2865), and Industrial Organic Chemicals, NEC (SIC 2869) would be considered competitive. The diversity of products
in some of the profiled sectors, however, make generalizations about concentration less reliable than in industries with a more
limited product slate. There could be significant variations in the numbers of producers of individual products within the
SICs with numerous products (e.g. SIC 2869, Industrial Organic Chemicals, not elsewhere classified).
The specialization ratio is the percentage of the industry's production accounted for by primary product shipments. The
coverage ratio is the percentage of the relevant product shipments that are produced as primary products by facilities in the
comparable SIC. The specialization ratios presented in Table 4B-8 indicate a relatively high degree of specialization for each
profiled chemical industry sector. The coverage ratios indicate that the facilities classified in the profiled SICs produce more
than 80 percent of the relevant products as primary products, except for SIC 2812 (Alkalies and Chlorine) and 2865 (Cyclic
Organic Crudes and Intermediates, and Organic Dyes and Pigments), where a larger portion of the relevant products produced
are produced by facilities classified in other SICs.
2 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a high
concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with foreign producers
or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage containers). Concentration ratios are
therefore only one indicator of the extent of competition in an industry.
4B-18
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Table 4B-8: Selected Ratios for Four-Digit SIC Codes for Profiled Chemical Sectors
SIC _,
_ , Year
Code
Concentration Ratios
. „. 0 „. ,,„ „. ,„ „. Herfindahl-
4 Firm 8 Firm 20 Firm 50 Firm
(CR4) (CR8) (CR20) (CR50) ^j™
Specialization
Ratio
Coverage
Ratio
Inorganic Chemicals
2812
2813
2816
2819
2821
87
92
87
92
87
92
87
92
72%
75%
77%
78%
64%
69%
38%
39%
87
92
20%
24%
93%
90%
88%
91%
76%
79%
49%
50%
P
33%
39%
99%
99%
95%
96%
94%
93%
68%
68%
astics Mate
61%
63%
100%
100%
98%
99%
99%
99%
84%
85%
rial and Res
89%
90%
2,328
1,994
1,538
1,629
1,550
1,910
468
677
86%
76%
98%
96%
94%
95%
91%
91%
65%
75%
94%
94%
89%
89%
80%
82%
ns
248
284
88%
86%
81%
80%
Organic Chemicals
2865
2869
87
92
87
92
34% 50% 77% 96% 542
31% 45% 72% 94% 428
31% 48% 68% 86% 376
29% 43% 67% 86% 336
80%
86%
75%
76%
61%
61%
84%
85%
Source: U.S. DOC, 1987, 1992, and 1997.
e. Foreign trade
The chemicals industry is the largest exporter in the United States. The industry generates more than 10 percent of the
nation's total exports, and overseas sales constitute a growing share of U.S. chemical company revenues. The major U.S.
producers still derive 50 percent or more of their revenue from domestic sales, however (S&P, 2001).
This profile uses two measures of foreign competitiveness: export dependence and import penetration. Export
dependence is the share of value of shipments that is exported. Import penetration is the share of domestic consumption met
by imports. Table 4B-9 presents trade statistics for each of the profiled chemical sectors. Both export dependence and import
penetration have experienced modest positive trends in each of these sectors between 1989 and 1996. Globalization of the
market has become a key factor influencing foreign competitiveness in the Inorganic Chemicals sector (SIC 281). In recent
years import penetration has been increasing at a slightly higher rate than export dependence in this sector due to a
strengthened U.S. dollar, weakness in the European and Japanese markets, and increased production in lower-cost developing
nations (McGraw-Hill, 2000). Increased globalization has also been a dominant trend affecting trade statistics in the Plastics
Material and Resins sector (SIC 2821). Imports and exports of plastics and resins have increased significantly over the past
eight years reflecting the continued growth in the global market. Import penetration has grown more quickly than export
dependence in this sector due to declining export opportunities and increased competition from imports driven by increased
foreign capacity. The U.S. remained a net exporter of plastics and resins, despite these trends. The market for organic
4B-19
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
chemicals, particularly petrochemicals, has become increasingly competitive. Significant capacity expansions for
petrochemicals worldwide have increased competition from imports and begun to limit export opportunities. Nevertheless,
exports in Organic Chemicals (SIC 2865, 2869) remained slightly higher than imports between 1989 and 1996.
Table 4B-9: Trade Statistics for Profiled Chemical Sectors
Year
(a)
Value of imports
(in millions,
constant $2000)
(b)
Inorgan
1989
1990
1991
1992
1993
1994
1995
1996
Total Percent
Change
1989-1996
Average
Annual
Growth Rate
5,107
5,185
5,145
5,150
4,973
5,410
5,650
5,972
16.9%
2.0%
1989
1990
1991
1992
1993
1994
1995
1996
Total Percent
Change
1989-1996
Average
Annual
Growth Rate
1,732
2,133
2,115
2,570
3,127
3,914
4,220
4,586
164.8%
15.0%
Value of
exports (in
millions,
constant
$2000)
(c)
ic Chemicals, Ex
5,798
5,590
5,993
6,341
5,938
5,994
6,226
6,089
5.0%
0.6%
Plastics Mat*
6,157
7,376
8,796
8,735
8,918
10,055
10,682
11,627
88.8%
10.0%
Value of shipments
(in millions,
constant $2000)
(d)
cept Pigments (SIC
26,306
28,442
28,164
30,560
30,214
31,591
30,623
28,612
8.8%
1.1%
;rials and Resins (S
37,095
36,895
35,226
39,023
39,176
44,511
44,980
44,037
18.7%
2.0%
Implied
Domestic
Consumption3
(e)
2812, 2813, 2
25,615
28,036
27,316
29,368
29,249
31,007
30,047
28,494
11.2%
1.3%
EC 2821)
32,670
31,651
28,544
32,859
33,385
38,370
38,518
36,996
13.2%
2.0%
Import
Penetration1"
(f)
819)
20%
18%
19%
18%
17%
17%
19%
21%
5%
7%
7%
8%
9%
10%
11%
12%
Export
Dependence0
(8)
22%
20%
21%
21%
20%
19%
20%
21%
17%
20%
25%
22%
23%
23%
24%
26%
4B-20
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Table 4B-9: Trade Statistics for Profiled Chemical Sectors
Year
(a)
Value of imports
(in millions,
constant $2000)
(b)
Orgai
1989
1990
1991
1992
1993
1994
1995
1996
Total Percent
Change
1989-1996
Average
Annual
Growth Rate
7,464
8,108
8,416
9,307
9,464
11,004
11,367
12,344
65.4%
7.5%
Value of
exports (in
millions,
constant
$2000)
(c)
lie Chemicals, EJ
12,710
12,654
12,943
12,954
13,492
15,747
16,801
15,190
19.5%
2.6%
Value of shipments
(in millions,
constant $2000)
(d)
ccept Gum & Wood
90,496
91,856
87,940
89,251
90,847
97,130
84,391
80,719
-10.8%
-1.6%
Implied
Domestic
Consumption3
(e)
(SIC 2865, 28<
85,249
87,309
83,413
85,605
86,819
92,387
78,956
77,872
-8.7%
-1.3%
Import
Penetration1"
(f)
>9)
9%
9%
10%
11%
11%
12%
14%
16%
Export
Dependence0
(8)
14%
14%
15%
15%
15%
16%
20%
19%
a Calculated by EPA as shipments + imports - exports.
b Calculated by EPA as imports divided by implied domestic consumption.
c Calculated by EPA as exports divided by shipments.
Source: U.S. DOC, 1997.
More recent export and import data shown in Figure 4B-7 show declines in the real value of both exports and imports of
inorganic chemicals and plastics and resins in 1999. Exports and imports of organic chemicals rose in 1999. The chemicals
industry experienced a decline in its trade balance in 2000, due to increased imports form Western Europe, encouraged by the
strong U.S. dollar relative to the Euro, and growth in the petrochemical industry in the Middle East. Recent declines in the
dollar relative to the Euro are expected to improve export performance, but declines in the global economy are resulting in
mixed trade performance in 2001 (Chemical Market Reporter, 2001).
3-21
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Figure 4B-7: Value of Imports and Exports for Profiled Chemical Sectors
(in millions, constant $2000)
Inorganic Chemicals, Except Pigments (SIC 2812, 2813, 2819)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-Imports ---*---Imports
-Exports ---A---Exports
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Plastics Materials and Resins (SIC 2821)
9 000 -
__-A_
.A-*
^s
^r^-—jr'
^^"^
s* •
^
^
_..-• — -»
^^^*"
___-»-— ~"
« *
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
• Imports ---*--- Imports
A Exports -- -A- -- Exports
Organic Chemicals, Except Gum & Wood (SIC 2865, 2869)
-Imports
-Exports
— Imports
Exports
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Source: U.S. DOC, 2000; U.S. DOC, 1997.
4B-22
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Chemicals and Allied Products
4B.3 Financial Condition and Performance
The chemical industry is generally characterized by large plant sizes and technologically complex production processes
reflecting the economies of scale required to manufacture chemicals efficiently. Because of the high fixed costs associated
with chemical manufacturing operations, larger production volumes are required to spread these costs over a greater number
of units in order to maintain profitability. Operating margins for chemical producers are generally volatile due to rapid
changes in selling prices, raw material costs, energy costs, and production levels. Other factors that affect margins for
chemical producers include costs associated with businesses recently acquired or divested, major new capacity additions, or
environmental costs (S&P, 2001).
Facing increased global competition, the U.S. chemical industry has restructured and reduced costs to maintain profitability
and operating margins. Cost-cutting efforts in the early 1990s came largely from restructuring and downsizing, particularly in
the Inorganic Chemicals sector. The industry has recently shifted toward consolidation as a means of paring costs by
achieving production or marketing efficiencies while maintaining growth in maturing markets (S&P, 2001). These
transactions are typically small scale involving individual product lines or facilities and are most common in the Organic
Chemical and Plastics and Resins Industry sectors.
Table 4B-10 presents operating margins for each of the profiled chemical sectors between 1987 and 1997.
3-23
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Table 4B-10: Operating Margins for Profiled Chemical Sectors (in millions, constant $2000)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Value of Shipments
Inorgani
26,306
28,442
28,164
30,560
30,214
31,591
30,623
28,612
27,913
27,223
28,593
Pic
36,668
36,637
37,095
36,895
35,226
39,023
39,176
44,511
44,902
44,037
47,587
C
88,009
90,496
91,856
87,940
89,251
90,847
97,130
84,607
80,719
90,811
Cost of Materials
: Chemicals (SIC 2812,
11,335
12,102
11,485
12,754
12,397
12,428
12,306
11,380
1,108
11,097
11,144
istics Material and Resi
21,530
22,059
22,635
22,838
22,153
23,485
24,217
26,363
27,109
27,269
29,794
Organic Chemicals (SIC
49,088
50,166
52,098
51,527
53,169
52,858
56,191
47,402
50,203
51,430
Payroll (all employees)
2813, 2816, 2819)
4,083
4,175
4,042
4,375
4,617
4,850
4,506
4,222
3,817
3,675
3,784
ns (SIC 2821)
2,802
2,476
2,658
2,928
2,955
3,330
3,476
3,741
3,422
3,146
3,346
2865, 2869)
6,777
6,649
7,219
7,382
7,564
7,847
7,722
6,497
7,199
1,975
Operating Margin
41.4%
42.8%
44.9%
43.9%
43.7%
45.3%
45.1%
45.5%
46.9%
45.7%
47.8%
33.6%
33.0%
31.8%
30.2%
28.7%
31.3%
29.3%
32.4%
32.0%
30.9%
30.4%
36.5%
37.2%
35.4%
33.0%
32.0%
33.2%
34.2%
36.3%
28.9%
35.7%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4B-24
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Chemicals and Allied Products
4B.4 Facilities Operating Cooling Water Intake Structures
In 1982, the Chemical and Allied Products industry withdrew 2,797 billion gallons of cooling water, accounting for
approximately 3.6 percent of total industrial cooling water intake in the United States. The industry ranked 2nd in industrial
cooling water use behind the electric power generation industry (1982 Census of Manufactures).
This section presents information from EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures on
existing facilities with the following characteristics:
* they withdraw from a water of the United States;
> they hold an NPDES permit;
* they have a design intake flow of equal to or greater than two MOD;
* they use at least 25 percent of that flow for cooling purposes.
These facilities are not "new facilities" as defined by the proposed section 316(b) New Facility Rule and are therefore not
subject to this regulation. However, they meet the criteria of the proposed rule except that they are already in operation.
These existing facilities therefore provide a good indication of what new facilities in these sectors may look like. The
remainder of this section refers to existing facilities with the above characteristics as "section 316(b) facilities."
a. Cooling water uses and systems
Information collected in the Detailed Questionnaire found that an estimated 61 out of 435 inorganic chemical facilities (14
percent), 15 out of 305 plastics facilities (5 percent), and 52 out of 427 organic chemical facilities (12 percent) meet the
characteristics of a section 316(b) facility. Most section 316(b) facilities in the profiled Chemical and Allied Products sectors
use cooling water for contact and non-contact production line or process cooling, electricity generation, and air conditioning:
*• Ninety-eight percent (60 facilities) of section 316(b) inorganic chemical facilities use cooling water for
production line (or process) contact or noncontact cooling. The two other major uses of cooling water are
electricity generation and air conditioning, at 28 and 23 percent of facilities, respectively.
* All section 316(b) plastics facilities use cooling water for production line (or process) contact or noncontact
cooling. Sixty-seven and 40 percent of facilities use cooling water for air conditioning and other uses,
respectively. None of the section 316(b) plastics facilities use cooling water for electricity generation.
*• All fifty-two section 316(b) organic chemicals facilities use cooling water for production line (or process)
contact or noncontact cooling. Twenty-three percent (12 facilities) use cooling water for air conditioning,
and 6 percent (3 facilities) use cooling water for electricity generation.
Table 4B-11 shows the distribution of existing section 316(b) facilities in the profiled chemical sectors by type of water body
and cooling system. The table shows that most of the existing section 316(b) facilities have either a once-through system (65,
or 51 percent) or employ a combination of a once through and a recirculating system (28, or 22 percent). The majority of
existing facilities draw water from a freshwater stream or river (99, or 77 percent). All 316(b) in the three profiled chemical
sectors that withdraw water from an ocean have a once though cooling system, while all facilities withdrawing from a lake or
reservoir employ a combination of a once-through and a recirculating system.
3-25
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
Table 4B-11: Number of Section 316(b) Facilities by Water Body and Cooling System Type
for Profiled Chemical Sectors
Water Body
Type
Cooling System
Recirculating
Number
Estuary or Tidal
River
Estuary or Tidal
River & Lake or
Reservoir
Freshwater
Stream or River
Lake or Reservoir
Ocean
Total*
0
0
9
0
0
9
Freshwater
Stream or River
Lake or Reservoir
Total*
0
0
0
Freshwater
Stream or River
Total*
9
9
Estuary or Tidal
River
Estuary or Tidal
River & Lake or
Reservoir
Freshwater
Stream or River
Lake or Reservoir
Ocean
Total3
0
0
18
0
0
18
%of
Total
Ino
0%
0%
26%
0%
0%
75%
0%
0%
0%
17%
7 7O/
J//0
-
0%
0%
18%
0%
0%
14%
Once-Through
Number
rganic Che
4
1
21
0
9
35
Plastics
0
0
0
Organ
30
30
fotal for F
4
1
51
0
9
65
%of
Total
micals (i
31%
100%
62%
0%
100%
57%
Materio
0%
0%
no/
(I/O
c Chemi
58%
5S%
rofiled (
31%
100%
52%
0%
100%
51%
Combination
Number
5IC 2812,
9
0
0
4
0
13
\ and Resi
9
2
11
cals (SIC
4
4
Chemical F
9
0
13
6
0
28
%of
Total
2813, 2
69%
0%
0%
100%
0%
27%
ns (SIC
69%
100%
73%
2865, 2
8%
So/
/o
acilities
69%
0%
13%
100%
0%
22%
None
Number
816, 281«
0
0
0
0
0
0
2821)
4
0
4
369)
0
0
(SIC 28)
0
0
4
0
0
4
%of
Total
?)
0%
0%
0%
0%
0%
0%
31%
0%
TJO/
Af/0
0%
0%
0%
0%
4%
0%
0%
3%
Other
Number
0
0
4
0
0
4
0
0
0
9
9
0
0
13
0
0
13
%of
Total
0%
0%
12%
0%
0%
7%
0%
0%
0%
17%
1 *70/
17/0
0%
0%
13%
0%
0%
10%
Total
13
1
34
4
9
61
13
2
75
52
52
13
1
99
6
9
128
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2000.
4B-26
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
b. Facility size
Chemical facilities that withdraw more than two MOD from a water of the U.S., hold an NPDES permit, and use at least 25
percent of intake water for cooling purposes are generally larger than facilities that do not meet these criteria:
*• Fifty-two percent of the section 316(b) facilities in the Inorganic Chemicals sector have greater than 500
employees, while 28 percent of these facilities employ less than 100 employees.
*• All of section 316(b) plastics facilities employ at least 500 employees, and 60 percent employ over 1,000
employees.
>• All section 316(b) organic chemical facilities employ more than 100 employees, and the largest number (30,
or 58 percent) of facilities are in the employment size category of 100 to 259 employees. Thirty-five
percent of the section 316(b) organic chemical facilities employ more than 500 employees.
Figure 4B-8 shows the number of section 316(b) facilities in the profiled chemical sectors by employment size category.
Figure 4B-8: Number of Section 316(b) Facilities by Employment Size Category for Profiled Chemical
Sectors
I Inorganic Chemicals (SIC 2812, 2813,
2816,2819)
| Plastics (SIC 2821)
| Organic Chemicals (SIC 2865, 2869)
<100 100-249 250-499 500-999 >=1000
Source: U.S. EPA, 2000.
3-27
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Chemicals and Allied Products
c. Firm size
EPA used the Small Business Administration (SB A) small entity size standards to determine the number of existing section
316(b) facilities in the three profiled chemical sectors that are owned by small firms. Firms in the Inorganic Chemicals sector
(SIC codes 2812, 2813, 2816, 2819) and in Industrial Organic Chemicals, NEC (SIC code 2869) are defined as small if they
have 1,000 or fewer employees; firms in Plastics Material and Resins (SIC 2821) and Cyclic Organic Crudes and
Intermediates (SIC code 2865) are defined as small if they have 750 or fewer employees.
Table 4B-12 shows that, of the 61 section 316(b) facilities in the Inorganic Chemicals sector, four, or? percent, are owned by
a small firm. All four of these firms are in SIC 2816. None of the 15 section 316(b) facilities in the Plastics sector are owned
by a small firm. Ninety-two percent of the section 316(b) facilities in the Organic Chemicals sector are classified as large.
SIC 2869 accounts for all of the facilities owned by small firms in the Organic Chemicals sector. Overall, the profiled
chemicals sector has 120 facilities (94 percent) owned by large firms, and 8 facilities (8 percent) owned by small firms.
Table 4B-12: Number of Section 316(b) Facilities by Firm Size for Profiled Chemical Sectors
SIC Code
Large
No.
Inorgan
2812
2813
2816
2819
Total
20
4
0
33
57
PI
2821
15
2865
2869
Total
4
44
48
Total
Total
120
% of SIC
c Chemicals (SIC 2812
100%
100%
0%
100%
93%
astics Material and Re
100%
Drganic Chemicals (SI(
100%
91%
92%
for Profiled Chemical
94%
Small
No.
, 2813,
0
0
4
0
4
sins (SIC
0
1 2865, 2
0
4
4
Facilities
% of SIC
2816, 2819)
0%
0%
100%
0%
7%
2821)
0%
869)
0%
9%
8%
(SIC 28)
6%
Total
20
4
4
33
61
15
4
48
52
128
Source: U.S. EPA, 2000; D&B, 2001.
4B-28
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Chemicals and Allied Products
REFERENCES
Bureau of Labor Statistics (BLS). 2000. Producer Price Index. Series: PCU28 it-Chemicals and Allied Products.
Business Weekly. 2001. "Materials: Plastics." p. 125. January 8,2001.
Chemical Marketing Reporter. 2001. "U.S. Chemical Industry Outlook: Trade and Domestic Demand". v260, issue 25, p.
33. June 18, 2001.
Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.
Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification Manual.
Federal Reserve Board. 2001. Industrial Production and Capacity Utilization. Statistical Release G. 17. October 16, 2001.
Kline & Company, Inc. 1999. Guide to the U.S. Chemical Industry, 6th edition.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000. U.S. Industry & Trade Outlook
'00.
Standard & Poor's. (S&P) 2001. Industry Surveys - Chemicals: Basic. July 5, 2001.
U.S. Department of Commerce (U.S. DOC). 1997. International Trade Administration. Outlook Trends Tables.
U.S. Department of Commerce (U.S. DOC). 2000. Bureau of the Census. Foreign Trade Data.
U.S. Department of Commerce (U.S. DOC). 1989-1998. Bureau of the Census. Current Industrial Reports. Survey of Plant
Capacity.
U.S. Department of Commerce (U.S. DOC). 1988-1991 and 1993-1996. Bureau of the Census. Annual Survey of
Manufactures.
U.S. Department of Commerce (U.S. DOC). 1987, 1992, and 1997. Bureau of the Census. Census of Manufactures.
U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling Water Intake
Structures.
U.S. Environmental Protection Agency (U.S. EPA). 1995a. Profile oj'the Organic Chemicals Industry. September, 1995.
U.S. Environmental Protection Agency (U.S. EPA). 1995b. Profile of the Inorganic Chemical Industry. September, 1995.
U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR section 121.201.
Value Line. 2001a. "Chemical (Basic) Industry." p. 1233. July 27, 2001.
Value Line. 200Ib. "Chemical / Diversified Industry." p. 1961. August 24, 2001.
Value Line. 2001c. "Chemical (Specialty)." p. 482. September 21, 2001.
3-29
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Chemicals and Allied Products
THIS PAGE INTENTIONALLY LEFT BLANK
4B-30
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
AC PETROLEUM AND COAL PRODUCTS (SIC 29)
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified one 4-digit SIC code in the
Petroleum and Coal Products Industry (SIC 29) with at least one existing facility that operates a CWIS, holds a NPDES
permit, withdraws equal to or greater than two million gallons per day (MOD) from a water of the United States, and uses at
least 25 percent of its intake flow for cooling purposes. (Facilities with these characteristics are hereafter referred to as
"section 316(b) facilities"). Table 4C-1 below provides a description of the industry sector, a list of primary products
manufactured, the total number of detailed questionnaire respondents (weighted to represent national results), and the number
and percent of section 316(b) facilities.
Table 4C-1: Section 316(b) Facilities in the Petroleum and Coal Products Industry (SIC 29)
SIC
SIC Description
Important Products Manufactured
Number of Weighted
Detailed Questionnaire
Survey Respondents
Total
Section 316(b)
Facilities
No.
2911
Petroleum Refining
Gasoline, kerosene, distillate fuel oils, residual fuel oils,
and lubricants, through fractionation or straight
distillation of crude oil, redistillation of unfinished
petroleum derivatives, cracking, or other processes;
aliphatic and aromatic chemicals as byproducts
163
31
19.2%
Source: U.S. EPA, 2000; Executive Office of the President, 1987.
4C.1 Domestic Production
The petroleum refining industry accounts for about 4 percent of the value of shipments of the U.S. entire manufacturing
sector and for 0.4 percent of the manufacturing sector's employment (U.S. DOE, 1999a). According to the Economic Census,
petroleum refineries had a real value of shipments of approximately $212 billion dollars ($2000) and employed 64,789 people
in 1997. Petroleum products contribute approximately 40 percent of the total energy used in the United States, including
virtually all of the energy consumed in transportation (U.S. DOE, 1999a).
U.S. DOE Energy Information Administration (EIA) data report that there were 155 operable petroleum refineries in the U.S.
as of January 2001, of which 150 were operating and five were idle (U.S. DOE, 2000a).' Some data reported in this profile
are taken from EIA publications. Readers should note that the Census data reported for SIC 2911 cover a somewhat broader
range of facilities than do the U.S. DOE/EIA data, and the two data sources are therefore not entirely comparable.2
The petroleum industry includes exploration and production of crude oil, refining, transportation, and marketing. Petroleum
refining is a capital-intensive production process that converts crude oil into a variety of refined products. Refineries range in
complexity, depending on the types of products produced. Nearly half of all U.S. refinery output is motor gasoline.
The number of U.S. refineries has declined by almost half since the early 1980s. The remaining refineries have improved
1 In addition, there are three idle refineries in Puerto Rico and one operating refinery in the Virgin Islands.
2 For comparison, preliminary 1997 Census data included 244 establishments forNAICS 3241/SIC 2911, whereas U.S. DOE/EIA
reported 164 operable refineries as of January 1997.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
their efficiency and flexibility to process heavier crude oils by adding "downstream" capacity.3 While the number of
refineries has declined, the average refinery capacity and utilization has increased, resulting in an increase in domestic
refinery production overall.
Q. Output
Table 4C-2 shows trends in production of petroleum refinery products from 1990 through 2000. In general, production of
refined products has grown over this period, reflecting growth in transportation demand and other end-uses. There was a
reduction in output due to the domestic economic recession in 1991.
Table 4C-2: Petroleum Refinery Product Production (million barrels per day)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Total Percent
Change 1990-2000
Average Annual
Growth Rate
Jan- July 2000b
Jan- July 200 lb
Percent change
Motor
Gasoline
6.96
6.98
7.06
7.30
7.18
7.48
7.56
7.74
7.89
7.93
7.95
14.2%
1.3%
8.17
8.27
1.2%
Distillate
Fuel Oil
2.92
2.96
2.97
3.13
3.20
3.16
3.32
3.39
3.42
3.40
3.58
22.6%
2.1%
3.50
3.65
4.3%
Jet Fuel
1.49
1.44
1.40
1.42
1.45
1.42
1.52
1.55
1.53
1.57
1.61
8.1%
0.8%
1.59
1.56
-1.9%
Residual
Fuel Oil
0.95
0.93
0.89
0.84
0.83
0.79
0.73
0.71
0.76
0.70
0.71
-25.3%
-2.9%
0.67
0.73
9.0%
Other
Products3
2.95
2.95
3.08
3.10
3.13
3.14
3.19
3.37
3.43
3.39
3.40
15.3%
1.4%
Total Output
15.27
15.26
15.40
15.79
15.79
15.99
16.32
16.76
17.03
16.99
17.25
13.0%
1.2%
Percent
change
n/a
-0.1%
0.9%
2.5%
0.0%
1.3%
2.1%
2.7%
1.6%
-0.2%
1.5%
a Includes asphalt and road oil, liquified petroleum gases, petroleum coke, still gas, kerosene, petrochemical feedstocks, lubricants,
wax, aviation gasoline, special napthas, and miscellaneous products.
b Monthly data for motor gasoline production include blending of fuel ethanol and an adjustment to correct for the imbalance of motor
gasoline blending components.
Source: U.S. DOE, 2000b; U.S. DOE, 2001.
3 The first step in refining is atmospheric distillation, which uses heat to separate various hydrocarbon components in crude oil.
Beyond this basic step are more complex operations (generally referred to as "downstream" from the initial distillation) that increase the
refinery's capacity to process a wide range of crude oils and increase the yield of lighter (low-boiling point) products such as gasoline.
These downstream operations include vacuum distillation, cracking units, reforming units, and other processes (U.S. DOE, 1999a).
4C-2
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Petroleum and Coal Products
Value of shipments and value added are the two most common measures of manufacturing output.4 These historical
trends provide insight into the overall economic health and outlook for an industry. Value of shipments is the sum of the
receipts a manufacturer earns from the sale of its outputs. It is an indicator of the overall size of a market or the size of a firm
in relation to its market or competitors. Value added is used to measure the value of production activity in a particular
industry. It is the difference between the value of shipments and the value of inputs used to make the products sold.
Nominal value of shipments and value added for petroleum refineries increased by 4 and 13 percent, respectively, from 1988
to 1997. Adjusted for changes in petroleum product prices (by the producer price index for SIC 2911), real value of
shipments was fairly constant over this period, despite a decline in the number of operating refineries (see Figure 4C-1). Real
value added for SIC 2911 declined from 1988 until 1990 and remained relatively stable through 1993. Between 1993 and
1997, there were significant gains with a decline in 1996.
Terms highlighted in bold and italic font are further explained in the glossary.
4C-3
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
Figure 4C-1: Value of Shipments and Value Added for Petroleum Refineries
(in millions, constant $2000)
Value of Shipments
co^n nnn
$200,000 -
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
b. Prices
Figure 4C-2 shows the producer price index (PPI) for the Petroleum Refinery sector. The PPI is a family of indexes that
measure price changes from the perspective of the seller. This profile uses the PPI to inflate nominal monetary values to
constant dollars.
The PPI for refined petroleum products showed substantial fluctuations in petroleum product prices between 1987 and 1998,
with a strong upward trend between 1998 and 2000, as shown in Figure 4C-2. Higher prices through 2000 reflect low
refinery product inventories and higher crude oil input prices (Value Line, 2001). Subsequent reductions in crude oil prices
and slackening demand due to a slowing economy are likely to result in some reduction in prices, however.
Figure 4C-2: Producer Price Index for Petroleum Refineries
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: BLS, 2000.
4C-5
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
c. Number of facilities and firms
Figure 4C-3 shows historical trends in the numbers of refineries and refinery capacity. This figure shows that the number of
operable refineries fell substantially between 1980 and 1999. This decrease resulted in part from the elimination of the Crude
Oil Entitlements Program in the early 1980s. The Entitlements Program encouraged smaller refineries to add capacity
throughout the 1970s. After the program was eliminated, surplus capacity and falling profit margins led to the closure of the
least efficient capacity (U.S. DOE, 1999a). The decrease in the number of refineries has continued, as the industry has
consolidated to improve margins. After peaking in the early 1980's, refining capacity decreased throughout the rest of the
decade. Refining capacity has remained relatively stable since the decrease in the 1980's, with a slight upward trend in the
past five years. This trend is expected to continue, with no new "greenfield" refineries likely to be built in the U.S., but
continuing capacity expansion at existing facilities (S&P 2001).
Figure 4C-3: Trends in Numbers of Refineries and Refining Capacity 1949-2000
zz
-- 350
-- 300
-- 250
400
-- 150
-- 100
-- 50
-U.S. Crude Oil Refining Capacity (OOO's)
No. of Operable Refineries
Source: U.S. DOE, 2000a.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
Data from the Statistics of U.S. Businesses for SIC 2911 (Table 4C-3) shows that the number of firms reporting petroleum
refining as their primary business has also declined since 1990.
Table 4C-3: Number of Firms
Year
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent Change
1990 - 1997
Average Annual Growth
Rate
and Facilities for Petroleum Refineries
Firms
Number
215
215
185
148
161
150
173
128
Percent Change
n/a
0%
-14%
-20%
9%
-7%
15%
-26%
-40.5%
-7.1%
(SIC 2911)
Facilities
Number
340
346
303
251
265
251
275
248
Percent Change
n/a
2%
-12%
-17%
6%
-5%
10%
-10%
-27.1%
-4.4%
Source: U.S. SBA, 2000.
4C-7
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
d. Employment and productivity
Employment levels in the petroleum refining industry declined by 13 percent between 1988 and 1997, from 73,200 to 64,789
employees, as shown in Figure 4C-4. After increasing in the early 1990s, employment at petroleum refineries has declined
since 1992, reflecting overall industry consolidation.
Figure 4C-4: Employment for Petroleum Refineries (SIC 2911)
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
Table 4C-4 shows substantial year-to-year changes in productivity, measured by real value added per production hour. These
fluctuations reflect volatility in real value added, which in turn reflect variations in the relationship between input prices
(primarily crude oil) and refinery product prices. Changes in production hours from year to year have been less volatile, but
how a net reduction over the period 1988 to 1997, resulting in a small growth in real value added per production hour over
that period.
Table 4C-4: Productivity Trends for Petroleum Refineries (SIC 2911)
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent Change
1988-1997
Annual Average
Growth Rate
Production
Hours
(millions)
103
105
106
107
109
107
110
107
103
100
-2.7%
-0.3%
Value Added
(in millions,
constant $2000)
$35,302
$32,722
$28,268
$27,308
$27,224
$27,767
$36,796
$39,320
$34,024
$39,869
12.9%
1.4%
Real Value
Added/Hour
( in millions,
constant $2000)
343
313
267
256
249
261
335
337
332
398
16.0%
1.7%
Growth Rates
Production
Hours
n/a
1.6%
1.1%
0.7%
2.6%
-2.6%
3.3%
-2.4%
-4.5%
-2.3%
Value Added
n/a
-7.3%
-13.6%
-3.4%
-0.3%
2.0%
32.5%
6.9%
-13.5%
17.2%
Real Value
Added/Hour
n/a
-8.7%
-14.7%
-4.1%
-2.7%
4.8%
28.4%
0.6%
-1.5%
19.9%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, 1997.
4C-9
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
e. Capital expenditures
Petroleum industry capital expenditures increased substantially between 1988 and 1993, and decreased between 1993 and
1997, as shown in Table 4C-5. In 1997 the industry spent $5.7 billion in constant 2000 dollars, as compared with $3.9 billion
($2000) in 1988. In the early 1990's, capital expenditures peaked at over $8 billion per year in real terms. Much recent
investment in petroleum refineries has been to expand and de-bottleneck units downstream from distillation, partially in
response to environmental requirements. Changes in refinery configurations have included adding catalytic cracking units,
installing additional sulfur removal hydrotreaters, and using manufacturing additives such as oxygenates. These process
changes have resulted from two factors:
>• processing of heavier crudes with higher levels of sulfur and metals; and
>• regulations requiring gasoline reformulation to reduce volatiles in gasoline and production of diesel fuels with
reduced sulfur content (U.S. EPA, 1996b).
Environmentally-related investments have also accounted for a substantial portion of capital expenditures. Substantial capital
investments by refineries will be required in the future, to comply with product quality regulations, including EPA's Tier 2
Gasoline Sulfur Rule requiring reductions in the sulfur content of gasoline; reductions or elimination of the use of MTBE in
gasoline; and proposed sulfur reductions in highway diesel fuel (NPC, 2000).
Table 4C-5: Capital Expenditures for Petroleum
(SIC 2911)
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Refineries
Capital Expenditures (in millions, constant $2000)
3,970
4,529
4,730
7,726
8,751
8,883
8,539
8,788
6,799
5,704
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
Figure 4C-5 shows pollution control expenditures (capital plus operating costs) reported by American Petroleum Institute
(API) members. Expenditures to control current environmental releases (air, water and waste) account for the largest portion
of total pollution control expenditures. Of the total 1999 environmental expenditures to address air, water, and waste
pollution from on-going operations, 31 percent (1.8 million) was capital expenditures and 68 percent (4 million) was
operating maintenance.
Figure 4C-5: Environmental Expenditures by Type and Medium for Petroleum Refineries (SIC 2911)
Environmental Expenditures by Individual Type, 1999
Remediation
4% ~"
Wastes
6%
Water /
15%
Spills other
o% r 6%
Air
"69%
Refining Expenditures by Aggregated Types (in millions)
6,000
5,000
4,000
3,000
2,000
1,000
0
/
-Air/Water/Waste
-Remediation/Spills
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Source: American Petroleum Institute, 2001.
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Section 316(b) EA Chapter 4 for New Facilities
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f. Capacity utilization
The most commonly-used measure of refinery capacity is expressed in terms of crude oil distillation capacity. EIA defines
refinery capacity utilization as input divided by calendar day capacity. Calendar day capacity is the maximum amount of
crude oil input that can be processed during a 24-hour period with certain limitations. Some downstream refinery capacities
are measured in terms of "stream days," which is the amount a unit can process running full capacity under optimal crude
and product mix conditions for 24 hours (U.S. DOE, 1999a). Downstream capacities are reported only for specific units or
products, and are not summed across products, since not all products could be produced at the reported levels simultaneously.
As reported by the Census Bureau, Figure 4C-6 below shows the increase in overall capacity utilization in the petroleum
industry from 1990 to 1994. After declining between 1994 and 1995, the capacity utilization gradually increased until 1998.
Overall refinery utilization has remained high over this entire time period. Utilization of specific portions of refinery
capacities may vary, however, as the industry adjusts to changes in the desired product mix and characteristics.
Figure 4C-6: Capacity Utilization Rates (Fourth Quarter) for Petroleum Refineries
(SIC 2911)
100 -,
95
90
85
80
75 -
70
65
60
• *—-~~^^
^^^ \ » .
*^^^ N^^*
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Source: U.S. DOC, 1989-1998.
Standard & Poor's reports that utilization rates remained over 90 percent in 2000, as refineries appeared to operate on a "just-
in-time" system to reduce costs, resulting in low refinery product inventories. High demand combined with low inventories
has kept operating rates high (S&P 2001).
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Petroleum and Coal Products
AC.2 Structure and Competitiveness
The petroleum refining industry in the United States is made up of integrated international oil companies, integrated domestic
oil companies, and independent domestic refining/marketing companies. In general, the petroleum industry is highly
integrated, with many firms involved in more than one sector. Large companies, referred to as the "majors," are fully
integrated across crude oil exploration and production, refining, and marketing. Smaller, nonintegrated companies, referred
to as the "independents," generally specialize in one sector of the industry.
Like the oil business in general, refining has been dominated in the 1990s by integrated internationals, specifically a few large
companies such as Exxon Corporation, Mobil Corporation,5 and Chevron Corporation. These three ranked in the top ten of
Fortune's 500 sales ranking during this time period. Substantial diversification by major petroleum companies into other
energy and non-energy sectors was financed by high oil prices in the 1970s and 1980s. With lower profitability in the 1990s,
the major producers began to exit nonconventional energy operations (e.g., oil shale) as well as coal and non-energy
operations in the 1990s. Some have recently ceased chemical production.
During the 1990s, several mergers, acquisitions, and joint ventures occurred in the petroleum refining industry in an effort to
cut cost and increase profitability. This consolidation has taken place among the largest firms (as illustrated by the
acquisition of Amoco Corporation by the British Petroleum and the mega-merger of Exxon and Mobil Corporation) as well as
among independent refiners and marketers (e.g., the independent refiner/marketer Ultramar Diamond Shamrock (UDS)
acquired Total Petroleum North America in 1997) (U.S. DOE, 1999b). BP Amoco recently announced a deal to sell its
250,000 barrel per day Alliance refinery in Louisiana to the leading U.S. independent refining and marketing company Tosco
Corp.
Exxon and Mobil Corporations have recently merged into one company.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
a. Geographic distribution
Petroleum refining facilities are concentrated in areas near crude oil sources and near consumers. The cost of transporting
crude oil feed stocks and finished products is an important influence on the location of refineries. Most petroleum refineries
are located along the Gulf Coast and near the heavily industrialized areas of both the east and west coasts (U.S. DOE, 1997).
Figure 4C-7 below shows the distribution of U.S. petroleum refineries. In 1992, there were 44 refineries in Texas, 32 in
California, and 20 in Louisiana, accounting for 43 percent of all facilities in SIC 2911 in the United States.
Figure 4C-7: Geographic Distribution of Petroleum Refineries (SIC 2911)
Number of Facilities
0-1
2-4
5-8
9-20
21-44
Source: U.S. DOC, 1987, 1992, and 1997.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
b. Establishment size
A substantial portion of the facilities in SIC 2911 are large facilities, with 41 percent having 250 or more employees. Figure
4C-8 shows that approximately 87 percent of the value of shipments for the industry is produced by the 41 percent of
establishments with more than 250 employees. Establishments with more than 1,000 employees are responsible for
approximately 36 percent of all industry shipments.
Figure 4C-8: Value of Shipments and Number of Facilities for Petroleum Refineries
by Employment Size Category (SIC 2911)
Number of Facilities
50
45
40
35-
30
25-
20-
15
10-
5-
0
1-4
5-9
10-19 20-49
50-99
100-249 250-499 500-999 1,000-
2,499
1992 Value of Shipments (in millions)
50,000-
45,000-
40,000-
35,000-
30,000-
25,000-
20,000-
15,000-
10,000-
5,000-
0
1-4 5-9 10-19 20-49 50-99 100-249 250-499 500-999 1,000-
2,499
Source: U.S. DOC, 1987, 1992, and 1997.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
c. Firm size
The Small Business Administration defines a small firm for SIC 2911 as a firm with 1,500 or fewer employees. The size
categories reported in the Statistics of U.S. Businesses (SUSB) do not correspond with the SB A size classifications. It is
therefore not possible to apply the SBA size threshold precisely. Table 4C-6 below shows the distribution of firms,
establishments, and receipts in SIC 2911 by the employment size of the parent firm. The SUSB data show that 165 of the 248
SIC 2911 establishments reported for 1997 (67 percent) are owned by larger firms (those with 500 employees or more), some
of which may be defined as small under the SBA definition, and 83 (33 percent) are owned by small firms (those with fewer
than 500 employees).
Table 4C-6: Number of Firms, Establishments, and Estimated Receipts for Petroleum Refineries
(SIC 2911) by Firm Employment Size Category (1997)
Employment Size Category
0-19
20-99
100-499
500+
Total
Number of
Firms
27
22
25
54
128
Number of
Establishments
27
23
33
165
248
Estimated Receipts
(in millions, constant $2000)
451
1,432
6,508
207,078
215,469
Source: U.S. SBA, 2000.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
d. Concentration and specialization ratios
Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is closely related
to entry barriers, with more concentrated industries generally having higher barriers.
The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common measures of
industry concentration. The CR4 indicates the market share of the four largest firms. For example, a CR4 of 72 percent
means that the four largest firms in the industry account for 72 percent of the industry's total value of shipments. The higher
the concentration ratio, the less competition there is in the industry, other things being equal.6 An industry with a CR4 of
more than 50 percent is generally considered concentrated. The HHI indicates concentration based on the largest 50 firms in
the industry. It is equal to the sum of the squares of the market shares for the largest 50 firms in the industry. For example, if
an industry consists of only three firms with market shares of 60, 30, and 10 percent, respectively, the HHI of this industry
would be equal to 4,600 (602 + 302 + 102). The higher the index, the fewer the number of firms supplying the industry and the
more concentrated the industry. An industry is considered concentrated if the HHI exceeds 1,000.
The petroleum industry is considered competitive, based on CR4 and the HHI. As shown in Table 4C-6, the CR4 and the
HHI for SIC 2911 are both below the benchmarks of 50 percent and 1,000, respectively.
The specialization ratio is the percentage of the industry's production accounted for by primary product shipments. The
coverage ratio is the percentage of the industry's product shipments coming from facilities from the same primary industry.
The coverage ratio provides an indication of how much of the production/product of interest is captured by the facilities
classified in an SIC code. The specialization and coverage ratios presented in Table 4C-7 show a very high degree of
specialization by petroleum refineries: In 1997, 97 percent of the value of shipments from SIC 2911 establishments were
classified as SIC 2911 petroleum products. In addition, SIC 2911 establishments accounted for 99 percent of the value of all
petroleum products shipped domestically.
Table 4C-7: Selected Ratios for Petroleum Refineries (SIC 2911/NAICS 324110)
SIC
2911
Year
1987
1992
1997
Total
Number
of Firms
200
132
122
Concentration Ratios
4 Firm
(CR4)
32%
30%
28%
8 Firm
(CR8)
52%
49%
49%
20 Firm
(CR20)
78%
78%
83%
50 Firm
(CR50)
95%
97%
98%
Herfindahl-
Hirschman
Index
435
414
422
Specialization
Ratio
99%
99%
97%
Coverage
Ratio
99%
99%
99%
Source: U.S. DOE, 1987, 1992, and 1997.
6 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a high
concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with foreign producers
or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage containers). Concentration ratios are
therefore only one indicator of the extent of competition in an industry.
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
e. Foreign trade
The United States consumes more petroleum than it produces, requiring net imports of both crude oil and products to meet
domestic demand. In 1997, the U.S. imported 8.23 million barrels per day (MBD) of crude oil, or 56 percent of the total crude
oil supply of 14.77 MBD, and imported 1.94 MBD of refined products. These refined product imports represented ten
percent of the 18.62 MBD of refined products supplied to U.S. consumers. The U.S. exported 0.9 MBD of refined products
in 1997.
Imports of refined petroleum products have fluctuated since 1985. Imports rose to 2.3 MB in the early 1980s, due to rapid
growth in oil consumption, especially consumption of light products, which exceeded the growth in U.S. refining capacity.
Imports then declined as a result of the 1990/91 recession and a surge in upgrading of refinery capacity resulting primarily
from the Clean Air Act Amendments and other environmental requirements (U.S. DOE, 1997). Since the lowest point in
1995, imports have been steadily increasing through 2000 (see Figure 4C-9).
Figure 4C-9: Value of Imports and Exports for Petroleum Refining
(in millions, constant $2000)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: U.S. DOE, 2000b.
Until the early 1980s, petroleum product exports consisted primarily of petroleum coke, because trade in most other products
was restricted by allowances. Export license requirements for various petroleum products imposed in 1973 were eliminated
in late 1981, however, and exports of other products began to grow. Petroleum exports continue to include heavy products
such as residual fuel oil and petroleum coke, which are produced as co-products with motor gasoline and other light products.
Production of these heavier products often exceeds U.S. demand, and foreign demand absorbs the excess. Petroleum coke is
the leading petroleum export product, accounting for 30 percent of petroleum exports in 1997, followed by distillate fuel oil
(15 percent of exports) and motor gasoline (almost 14 percent) (U.S. DOE, 1997). Exports generally reflect foreign demand,
but other factors influence exports as well. For example, exports of motor gasoline increased due to high prices in Europe at
the time of the 1990 Persian Gulf crisis. U.S. refiners and marketers have gained experience in marketing to diverse world
markets, and U.S. products are now sold widely abroad (U.S. DOE, 1997). As reported by the International Trade
Administration and shown in Figure 4C-9, the real value of petroleum exports fluctuated during the years 1989 to 1996, and
have been steady for the four year period of 1997 through 2000.
4C-18
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
Export dependence and import penetration are the two measures of foreign competition that are used in this profile.
Export dependence is the share of value of shipments that is exported. Import penetration is the share of domestic
consumption met by imports. Trade statistics for petroleum refineries from 1989 to 1997 are presented in Table 4C-8. This
table shows the stability of both import penetration and export dependence for the petroleum refining industry.
Table 4C-8: Foreign Trade Statistics for Petroleum Refining
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total
Percent
Change
1989-1997
Average
Annual
Growth Rate
Value of imports
(in millions,
constant $2000)
20,470
20,933
18,168
17,075
17,423
17,219
14,905
19,978
22,736
11%
1.3%
Value of exports
(in millions,
constant $2000)
6,547
5,239
6,415
6,086
6,159
5,194
5,333
5,560
10,139
55%
6%
Value of Shipments
(in millions,
constant $2000)
198,927
197,450
200,565
194,180
192,868
198,911
203,761
206,804
212,100
7%
0.8%
Implied
Domestic
Consumption3
212,850
213,144
212,318
205,169
204,132
210,936
213,333
221,222
224,697
6%
0.7%
Import
Penetrationb
10%
10%
9%
8%
9%
8%
7%
9%
10%
Export
Dependence0
3%
3%
3%
3%
3%
3%
3%
3%
5%
a Calculated by EPA as shipments + imports - exports.
b Calculated by EPA as imports divided by implied domestic consumption.
c Calculated by EPA as exports divided by shipments.
Source: U.S. DOC, 2001; U.S. DOE, 2000b.
4C.3 Financial Condition and Performance
Refiners' profitability depends on the spread between product prices on the one hand, and the price of crude oil and other
inputs (the gross refining margin), investment costs, and operating costs on the other hand. Operating costs in turn reflect
facility configurations (complexity), scale and efficiency, the mix of high-end versus low-end products produced, and
location. Refinery yields vary with refinery configuration, operating practices, and crude oil characteristics. Revenues
earned from a barrel of crude depend on the prices of different products, the mix of products produced, and the refinery yield
for each product. Relatively small swings in the price of gasoline (which represents the largest product output) and the price
of crude oil can cause large changes in cash margins and refinery profits.
Returns on investments to produce higher quality products from a given mix of crude oil (or to produce a given product mix
from heavier crude oil) depend on the differentials between high and low quality crude. Price discounts for low quality crude
have not always been enough to earn competitive returns on investments in extra coking and sulfur removal capacity.
4C-19
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Petroleum and Coal Products
Through the first half of the 1990s, the U.S. refining and marketing industry was characterized by unusually low product
margins, low profitability, and substantial restructuring. These low profit margins were the result of three different factors:
(1) increases in operating costs as a result of governmental regulations; (2) expensive upgrading of processing units to
accommodate lower-quality crude oils;7 and (3) upgrading of operations to adapt to changes in demand for refinery products.8
A combination of higher cost as a result of these three trends and lower product prices as a result of competitive pressures led
to pressure on profits (American Petroleum Institute, 1999).
In the late 1990s, the U.S. majors aggressively pursued cost-cutting throughout their operations (Rodekohr, 1999). There were
improvements in both gross and net margins.9 Reductions in costs resulted from:
*• divesting marginal refineries and gasoline outlets;
*• divesting less profitable activities (e.g., gasoline credit cards);
*• reducing corporate overhead costs, including eliminating redundancies through restructuring;
*• outsourcing some administrative activities; and
>• use of new technologies requiring less labor.
These cost-cutting measures, along with increases in the prices of petroleum refining products, have resulted in significantly
improved margins in the petroleum refining sector. Refinery profits remained high in 2000 and the first half of 2001, due to
low product inventories and high operating rates.
7 Crude oils processed by U.S. refineries have become heavier and more contaminated with materials such as sulfur. This trend
reflects reduced U.S. dependence on the more expensive high gravity ("light") and low sulfur ("sweet") crude oils produced in the Middle
East, and greater reliance on crude oil from Latin America (especially Mexico and Venezuela), which is relatively heavy and contains
higher sulfur ("sour") (U.S. DOE, 1999a).
8 Demand for lighter products such as gasoline and diesel fuel has increased, and demand for heavier products has decreased.
9 Gross margin is revenues per refined product barrel less raw materials cost (i.e., average product price minus average crude oil
cost). Net margin is gross margin minus operating costs (all out-of-pocket refining and retailing expenses such as energy costs and
marketing costs.)
4C-20
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
The substantial fluctuation in return on investment from 1977 through 1999, including the relatively low returns in the early
1990s and improvements in the late 1990s, are shown in Figure 4C-10.10
Figure 4C-10: U.S. Petroleum and Natural Gas Refining and Marketing,
Return on Investment 1977 - 1999
16% n
14% -
12% -
10% -
8% -
6% -
4% -
2% -
0%
-2% J
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999
Source: U.S. DOE, Financial Reporting System.
10 The Financial Reporting System (FRS) is described in U.S. DOE, 1997. Quarterly financial results are collected for a group of
specialized refiner/marketers and major integrated petroleum companies. Data are reported separately for their U.S. refining/marketing
lines of business. Companies drop in and out of the survey as a result of acquisitions and mergers. Data include only the U.S. operations
for foreign affiliates (BP American, Fina, Shell Oil) but worldwide operations for U.S.-based companies. The surveyed companies
account for approximately 80 percent of total U.S. companies' worldwide investment in petroleum and natural gas, and approximately 25
percent of worldwide refining capacity (excluding State Energy Companies) (Rodekohr, 1999).
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
Table 4C-9 below shows trends in estimated operating margins for the petroleum refining industry, based on Census data for
SIC 2911. Margins increased over one percent overall between 1988 and 1997, from 15.6 percent to 16.5 percent, after
declining in the early 1990s.
Table 4C-9: Operating Margins for Petroleum Refineries (SIC 2911)
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Value of Shipments
(in millions, constant $2000)
$202,773
$198,927
$197,450
$200,565
$194,180
$192,868
$198,911
$203,986
$206,804
$212,100
Cost of Materials
(in millions, constant $2000)
$166,070
$167,584
$171,595
$170,941
$166,627
$163,659
$163,074
$168,572
$173,851
$171,916
Payroll (all employees)
(in millions, constant $2000)
$4,998
$4,525
$3,958
$4,757
$5,183
$5,543
$5,890
$5,678
$4,890
$5,161
Operating Margin
15.6%
13.5%
11.1%
12.4%
11.5%
12.3%
15.1%
14.6%
13.6%
16.5%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, 1997.
4C.4 Facilities Operating Cooling Water Intake Structures
In 1982, the Petroleum and Coal Products industry (SIC 29) withdrew 590 billion gallons of cooling water, accounting for
approximately 0.8 percent of total industrial cooling water intake in the United States. The industry ranked 4th in industrial
cooling water use, behind the electric power generation industry and the chemical and primary metals industries (1982 Census
of Manufactures).
This section presents information from EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures on
existing facilities with the following characteristics:
*• they withdraw from the waters of the United States;
> they hold an NPDES permit;
>• they have a design intake flow of equal to or greater than two MOD;
>• they use at least 25 percent of that flow for cooling purposes.
These facilities are not "new facilities" as defined by the section 316(b) New Facility Rule and are therefore not subject to
this regulation. However, they meet the criteria of the rule except that they are already in operation. These existing facilities
therefore provide a good indication of what new facilities in these sectors may look like. The remainder of this section refers
to existing facilities with the above characteristics as "section 316(b) facilities."
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
a. Cooling water uses and systems
Information collected in the Detailed Questionnaire found that an estimated 31 of 163 petroleum refining facilities, or 19
percent, meet the characteristics of a section 316(b) facility. Eighty-seven percent of these facilities use cooling water for
production line (or process) contact or noncontact cooling. Approximately 35 and 16 percent of the section 316(b) facilities
also reported use of cooling water in electricity generation and air conditioning, respectively.
Table 4C-10 shows the distribution of existing section 316(b) petroleum refineries by type of water body and cooling system.
Twenty-two facilities, or 71 percent, obtain their cooling water from either a freshwater stream or a river. Four facilities (13
percent) of refineries obtain their cooling water from either an estuary or a tidal river. Two facilities, or 6.5 percent, obtain
their cooling water from a Great Lake. The other two sources of cooling water reported for petroleum refineries were oceans
and a joint withdrawal from lakes/reservoirs and estuaries/tidal rivers, accounting for three percent each.
The most common cooling water system used by petroleum refineries is a recirculating cooling system, representing
approximately 48 percent of all systems used by refineries. Thirty-two percent of all refineries use a combination cooling
system. The remaining 20 percent use a once-through cooling system or another type of cooling system.
Table 4C-10: Number of Section 316(b) Petroleum Refining Facilities by Water Body Type and Cooling
System Type
Water Body Type
Estuary or Tidal
River
Freshwater Stream
or River
Great Lake
Lake or Reservoir
Lake or Reservoir &
Estuary or Lidal
River
Ocean
Total1
Cooling System
Recirculating
Number
0
14
0
1
0
0
75
%of
Total
0%
64%
0%
100%
0%
0%
48%
Once-Through
Number
1
2
0
0
1
1
5
%of
Total
25%
9%
0%
0%
100%
100%
16%
Combination
Number
3
5
2
0
0
0
10
%of
Total
75%
23%
100%
0%
0%
0%
32%
Other
Number
0
1
0
0
0
0
1
%of
Total
0%
5%
0%
0%
0%
0%
3%
Total
4
22
2
1
1
1
31
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2000.
According to the American Petroleum Institute and EPA, water use in the petroleum refining industry has been declining
because facilities are increasing their reuse of water. These restrictions are likely to reduce section 316(b)-related costs, and a
complete phase out of once-through cooling water in refineries is expected (U.S. EPA, 1996a).
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Petroleum and Coal Products
b. Facility size
Section 316(b) facilities in SIC 2911 are somewhat larger on average than the average employment size distribution of the
industry as a whole, as reported in the Census. Figure 4C-11 shows the number of section 316(b) facilities by employment
size category. Fifty-two percent of section 316(b) refineries employ over 500 people and all employ over 100 employees.
Figure 4C-11: Number of Section 316(b) Petroleum Refineries by Employment Size Category
(SIC 2911)
121
10-
8
6-
4-
2-
0
clOO
100-249 250-499 500-999
>=1000
Source: U.S. EPA, 2000.
c. Firm size
EPA used the Small Business Administration (SB A) small entity thresholds to determine the number of existing section
316(b) petroleum refineries owned by small firms. Firms in this industry are considered small if they employ fewer than 1,500
people. Table 4C-11 shows that 94 percent of all section 316(b) petroleum refineries are owned by large firms. Only two
section 316(b) petroleum refining facilities are owned by small firms.
Table 4C-11: Number of Section 316(b) Petroleum Refineries by Firm Size
SIC
2911
Large
No.
29
% of SIC
94%
Small
No.
2
% of SIC
6%
Total
31
Source: U.S. EPA, 2000; D&B, 2001.
4C-24
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Petroleum and Coal Products
REFERENCES
American Petroleum Institute. 2001. U.S. Petroleum Industry's Environmental Expenditures, 1990-1999. January 19,2001.
American Petroleum Institute. 1999. Policy Analysis and Strategic Planning Department. Economic State of the U.S.
Petroleum Industry. February 26, 1999.
Bureau of Labor Statistics (BLS). 2000. Producer Price Index. Series: PCU29_#-Petroleum Refining and Related
Products.
Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.
Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification Manual.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration 1999.
U.S. Industry and Trade Outlook '99.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration 1998.
U.S. Industry and Trade Outlook '98.
National Petroleum Council. 2000. U.S. Petroleum Refining: Assuring the Adequate and Affordability of Cleaner Fuels.
June, 2000.
Rodekohr, Dr. Mark. Financial Developments in '96- '97: How the U.S. Majors Survived the 1998 Crude Oil Price Storm.
Presentation. May 27, 1999. At: http://www.eia.doe.gov/emeu/finance/highlite7/sld001.htm
Standard & Poor's. (S&P) 2001. Industry Surveys - Oil & Gas: Production & Marketing. March 8, 2001.
U.S. Department of Commerce (U.S. DOC). 2001. Bureau of the Census. International Trade Administration.
U.S. Department of Commerce (U.S. DOC). 1989-1998. Bureau of the Census. Current Industrial Reports. Survey of Plant
Capacity.
U.S. Department of Commerce (U.S. DOC). 1988-1991 and 1993-1996. Bureau of the Census. Annual Survey of
Manufactures.
U.S. Department of Commerce (U.S. DOC). 1987, 1992, and 1997. Bureau of the Census. Census of Manufactures.
U.S. Department of Energy (U.S. DOE). 1997. Energy Information Administration. Petroleum 1996: Issues and Trends.
p. 15. DOE/EIA-0615(96). September 1997.
U.S. Department of Energy (U.S. DOE). 1999(a). Energy Information Administration. Petroleum: An Energy Profile, 1999.
p. 25.
U.S. Department of Energy (U.S. DOE). 1999(b). Energy Information Administration. The U.S. Petroleum Refining and
Gasoline Marketing Industry. Recent Structural Changes in U.S. Refining: Joint Ventures, Mergers, and Mega-Mergers.
July 9, 1999.
U.S. Department of Energy (U.S. DOE). 2000(a). Energy Information Administration. Petroleum Supply Annual 2000,
Volume 1.
U.S. Department of Energy (U.S. DOE). 2000(b). Energy Information Administration. Annual Energy Review.
U.S. Department of Energy (U.S. DOE). 2001. Energy Information Administration. Monthly Energy Review. October 2001.
U.S. Department of Energy (U.S. DOE). Financial Reporting System (FRS) historical data.
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Petroleum and Coal Products
U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling Water Intake
Structures.
U.S. Environmental Protection Agency (U.S. EPA). 1996a. Office of Water. Preliminary Data for the Petroleum Refining
Category. EPA-821-R-96-016. July 1996.
U.S. Environmental Protection Agency (U.S. EPA). 1996b. Office of Solid Waste. Study of Selected Petroleum Refining
Residuals: Industry Study. August, 1996.
U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR section 121.201.
Value Line. 2001. "Petroleum (Integrated) Industry." September 21, 2001.
4C-26
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
4D STEEL (SIC 331)
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified five 4-digit SIC codes in the
Steel Works, Blast Furnaces, and Rolling and Finishing Mills Industries (SIC 331) with at least one existing facility that
operates a CWIS, holds a NPDES permit, withdraws equal to or greater than two million gallons per day (MOD) from a water
of the United States, and uses at least 25 percent of its intake flow for cooling purposes. (Facilities with these characteristics
are hereafter referred to as "section 316(b) facilities"). For each of the five SIC codes, Table 4D-1 below provides a
description of the industry sector, a list of primary products manufactured, the total number of detailed questionnaire
respondents (weighted to represent national results), and the number and percent of section 316(b) facilities.
Table 4D-1: Section 316(b) Facilities in the Steel Industry (SIC 331)
SIC
3312
3315
3316
3317
SIC Description
Steel Works, Blast
Furnaces (Including Coke
Ovens), and Rolling Mills
Steel Wiredrawing and
Steel Nails and Spikes
Cold-Rolled Steel Sheet,
Strip, and Bars
Steel Pipe and Tubes
Total Steel Products
Electrometallurgical
Products, Except Steel
Important Products Manufactured
Steel Mills (SIC 3312)
Hot metal, pig iron, and silvery pig iron from iron ore and
iron and steel scrap; converting pig iron, scrap iron, and
scrap steel into steel; hot-rolling iron and steel into basic
shapes, such as plates, sheets, strips, rods, bars, and tubing;
merchant blast furnaces and byproduct or beehive coke
ovens
Steel Products (SICs 3315, 3316, 3317)
Drawing wire from purchased iron or steel rods, bars, or
wire; further manufacture of products made from wire; steel
nails and spikes from purchased materials
Cold-rolling steel sheets and strip from purchased hot-rolled
sheets; cold-drawing steel bars and steel shapes from hot-
rolled steel bars; producing other cold finished steel
Production of welded or seamless steel pipe and tubes and
heavy riveted steel pipe from purchased materials
Other Sectors
Ferro and nonferrous metal additive alloys by
electrometallurgical or metallothermic processes, including
high percentage ferroalloys and high percentage nonferrous
additive alloys
Total Steel (SIC 331)
Total SIC Code 331a
Number of Weighted
Detailed Questionnaire
Survey Respondents
Total
161
122
57
130
309
6
476
Section 316(b)
Facilities
No.
40
^
9
n
20
2
62
%
24.9%
2.5%
16.4%
5.7%
6.4%
30.4%
13.0%
a Individual numbers may not add up due to independent rounding.
Source: U.S. EPA, 2000; Executive Office of the President, 1987
4D-1
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Steel
The responses to the Detailed Questionnaire indicate that two main steel sectors account for the largest numbers of section
316(b) facilities: (1) Steel Mills (SIC code 3312) and (2) Steel Products (SIC codes 3315,3316, and 3317). Of the 62 section
316(b) facilities in the steel industry, 40, or 65 percent, are steel mills, and 20, or 32 percent, are steel products facilities. The
remainder of the steel industry profile therefore focuses on these two industry sectors.
40.1 Domestic Production
Steel is one of the dominant products in the U.S. industrial metals industry. For most of the twentieth century the U.S. steel
industry consisted of a few large companies utilizing an integrated steelmaking process to produce the raw steel used in a
variety of commodity steel products. The integrated process requires very large capital investment to process coal, iron ore,
limestone, and other raw materials into molten iron, which is then transformed into finished steel products (S&P, 2001). In
recent decades, the integrated steel industry has undergone a dramatic downsizing as a result of increased steel imports,
decreased consumption by the auto industry, and the advent of "minimills" (S&P, 2001).' While the traditional integrated
facilities using basic oxygen furnaces (EOF) still account for a substantial percent of U.S. steel mill product production, the
share of electric arc furnace (EAF) facilities using scrap steel as an input has grown steadily.2 The range of products
produced by EAFs has expanded over time. Initially, EAFs produced primarily lower-quality structural materials. Starting in
the 1990s, EAFs began producing higher quality sheet products as well. All recent capacity additions have been at EAF
facilities.
Basic steel mill products include carbon steel, steel alloys, and stainless steel. Steel forming and finishing operations may
take place at facilities co-located with steelmaking or at separate facilities. These operations take steel (in the form of
blooms, billets, and slabs) and use heating, rolling or drawing, pickling, cleaning, galvanizing, and electroplating processes in
various combinations to produce finished bars, wire, sheets, and coils (semifinished steel products). Establishments that
produce hot rolled products, along with basic EOF and EAF steelmaking facilities, are included in SIC 3312. SICs 3315,
3316, and 3317 perform additional processing of steel bars, wires, sheets, and coils (including cold-rolling of sheets) to
produce steel products for a variety of end-uses (U.S. EPA, 1995).
The steel industry is the fourth largest energy-consuming sector. Energy costs account for approximately 20 percent of the
total cost to manufacture steel. Steelmakers use coal, oil, electricity, and natural gas to fire furnaces and run process
equipment. Minimill producers require large quantities of electricity to operate the electric arc furnaces used to melt and
refine scrap metal, while integrated steelmakers are dependent on coal for up to 60 percent of their total energy requirements
(McGraw-Hill, 1998).
1 Large integrated producers include such companies as Bethlehem Steel, LTV, and U.S. Steel. Nucor is the largest U.S. minimill
producer.
2 Production from open hearth furnaces, which dominated production until the early 1950s, ended in 1991. BOF facilities have
traditionally been referred to as integrated producers, because they combined iron-making from coke, production of pig iron in a blast
furnace, and production of steel in the BOF. In recent years, some facilities have closed their coke ovens. These BOF facilities are no
longer fully integrated.
4D-2
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
a. Output
Steel mill products are sold to service centers (which buy finished steel, often process it further, and sell to a variety of
fabricators, manufacturers, and construction industry clients), to vehicle producers, and to the construction industry. The
rapid growth in sales of heavy sports utility vehicles contributed to increased steel consumption in the U.S. in the 1990s.
Efforts to increase the fuel efficiency of vehicles has eroded steel's position in the automotive market as a whole, however, as
aluminum and plastic has replaced steel in many automotive applications. Other end-uses for steel include a wide range of
agricultural, industrial, appliance, transportation, and container applications. Use of steel in beverage cans has been largely
replaced by aluminum.
Table 4D-2 shows trends in production from the two major groups of steel producers: EOF and EAF facilities.
Table 4D-2: Steel Production by Type of Producer
Year
1990a
1991b
1992
1993
1994
1995
1996
1997
1998
1999
2000
Total Percent Change
1990-2000
Average Annual
Growth Rate change
Jan- July 2000
Jan- July 2001
Steel Production
Million MT
89.7
79.7
84.3
88.8
91.2
95.2
95.5
98.5
98.6
97.4
106
18.2%
1.7%
68.5
60.1
% Change
n/a
-11.1%
5.8%
5.3%
2.7%
4.4%
0.3%
3.1%
0.1%
-1.2%
8.8%
n/a
-12.3%
Percent from
EOF
59.1%
60.0%
62.0%
60.6%
60.7%
59.6%
57.4%
56.2%
54.9%
53.7%
53.8%
53.8%
53.2%
Percent from
EAF
37.3%
38.4%
38.0%
39.4%
39.3%
40.4%
42.6%
43.8%
45.1%
46.3%
46.2%
46.2%
46.8%
a 3.5 percent of 1990 production was from open hearth furnaces.
b 1.6 percent of 1991 production was from open hearth furnaces.
Source: AISI, 2001b; USGS, 2000; USGS, 1997; USGS, Iron and Steel Statistical
Compendium.
4D-3
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Steel
This table shows the cyclical nature of basic steel production, with variations in growth from year to year reflecting general
U.S. and world economic conditions, a world oversupply of steel capacity, the competitive strength of imports, and trends in
steel's share of the automotive and other end-use markets for steel sectors. The U.S. steel industry went through a difficult
restructuring process in the 1980s and early 1990s, including the closing of a number of inefficient mills, substantial
investment in new technologies, and reductions in the labor force. The U.S. became a world leader in low-cost production,
lead by the minimill producers. While U.S. demand for steel was strong in the late 1990s, however, there was a dramatic
increase in low-price imports in 1998 which lead to a number of U.S. steel bankruptcies and steelworker layoffs. This import
crisis resulted from the Asian financial crisis, with the associated decline in Asian demand for steel and currency
devaluations. The President initiated the Steel Action Program in response to the crisis, focusing on strong enforcement of
trade laws through the World Trade Organization and bilateral efforts to address market-distorting practices abroad.3 The
industry began to show signs of recovery in the second half of 1999, and by early 2000 capacity utilization recovered to
above 90 percent and earnings were up for most major steel companies (U.S. DOC, 2000). Softness in the U.S. economy
starting in 2000 resulted in significant decreases in steel demand, however. As a result, U.S steel production declined by 12
percent in the first seven months of 2001 compared with the same period in 2000 (AISI, 200 Ib and 200Ic; S&P, 2001).
Value of shipments and value added provide measures of the value of output that can be compared with other
industries.4 Historical trends provide insight into the overall economic health and outlook for an industry. Value of
shipments is the sum of the receipts a manufacturer earns from the sale of its outputs. It is an indicator of the overall size of a
market or the size of a firm in relation to its market or competitors. Value added is used to measure the value of production
activity in a particular industry. It is the difference between the value of shipments and the value of inputs used to make the
products sold.
Using the relevant producer price index, value of shipments and value added for steel mills and steel products were adjusted
for the changes in steel product prices. Figure 4D-1 presents trends in constant-dollar value of shipments and value added for
steel mills and steel products. Value of shipments and value added from SIC 3312 (basic steel) declined in the early 1990s,
and recovered through 1997, prior to the 1998 import crisis. Value of shipments and value added for steel products (SICs
3315, 3316 and 3317) were less volatile, increasing gradually over the period 1990 through 1997.
3 World steel trade is characterized by noncompetitive practices in a number of countries, which have resulted in substantial friction
over trade issues since the late 1960s. Since 1980, almost 40 percent of the unfair trade practice cases investigated in the U.S. have been
related to steel products (U.S. DOC, 2000).
4 Terms highlighted in bold and italic font are further explained in the glossary.
4D-4
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
Figure 4D-1: Real Value of Shipments and Value Added for Profiled Steel Industry Sectors
(in millions, constant $2000)
Value of Shipments
f-0 ooo
•so ooo
40 000
7n 000
20,000 -
1 0 000
0 -
^___ .___ . -^ — • — *~~<
+^^^ — + — * * — *
w w
i t t ± ±
A A A A A A *- A * * *
1987 19881989 1990 1991 19921993 1994 19951996 1997
— •— Steel Mills (SIC
3312)
—A— Steel Products (SIC
TT 1 « 77 1 fi 77 1 7s!
Value Added
75 000 n
70 000 -
1 5 000 -
1 0 000 -
5,000 -
o -
^
^~~~~^~~~^ ^^*~^
>»^
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
— •— Steel Mills (SIC
3312)
—A— Steel Products (SIC
3315,3316,3317)
Source: U.S. DOC, 1988-1991 and 1993-1996; US. DOC, 1987, 1992, 1997.
4D-5
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
b. Prices
The producer price index (PPI) is a family of indexes that measure price changes from the perspective of the seller. It is
an indicator of product prices and is used to inflate nominal monetary values to constant dollars. This profile uses PPIs at the
4-digit SIC code level to convert nominal values to 2000 dollars.
Figure 4D-2 below shows that prices increased from 1987 to 1989 and then decreased in the early 1990s, due to a depressed
domestic economy and the resulting decline in the demand for steel. Prices rebounded sharply through 1995 before eroding
again, due to the global oversupply and increases in exports discussed earlier. Basic steel prices declined sharply with the
growth of imports in the late 1990s, recovered in 2000, but have dropped again in 2001 with the decline in demand for steel
(S&P, 2001; AISI, 2001a).
Figure 4D-2: Producer Price Index for Profiled Steel Industry Sectors
-SteelMills (SIC3312)
-SteelProducts (SIC
3315, 3316, 3317)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: BLS, 2000.
4D-6
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
c. Number of facilities and firms
The number of steel mills fluctuated significantly between 1989 and 1998, as the U.S. industry underwent a substantial
restructuring. Table 4D-3 shows substantial decreases in the number of facilities in 1992 and 1993 due to a significant
decrease in the global demand for steel products and the resulting overcapacity. This decrease was followed by a significant
recovery in 1995 and 1996. The import crisis in 1998 ultimately led to bankruptcy for a number of U.S. producers, including
LTV and most recently Bethlehem Steel (S&P, 2001).
In contrast to the volatility and overall decrease in the number of steel mills, the number of facilities in the Steel Products
sector has remained relatively stable for the past ten years, with only small decreases between 1994 and 1997.
Table 4D-3: Number of
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Total Percent
Change
1989-1998
Average Annual
Growth Rate
Steel Mills
Number of
Facilities
476
497
531
412
343
339
391
483
297
346
Facilities in the Profiled Steel Industry
(SIC 3312)
Percent Change
n/a
4.4%
6.8%
-22.4%
-16.7%
-1.2%
15.3%
23.5%
-38.5%
16.9%
-27.3%
-3.5%
Sectors
Steel Products (SIC 3315, 3316, 3317)
Number of
Facilities
784
776
807
831
833
804
791
770
727
801
Percent Change
n/a
-1.0%
4.0%
3.0%
0.2%
-3.5%
-1.6%
-2.7%
-5.6%
10.2%
2.2%
0.2%
Source: U.S. SBA, 2000.
4D-7
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
The trend in the number of firms over the period between 1990 and 1998 has been similar to the trend in the number of
facilities in both industry sectors. The number of firms in the Steel Mill sector decreased from a high of 433 in 1991 to alow
of 216 in 1997, before increasing slightly in 1998. According to the American Iron and Steel Institute (AISI), 23 U.S. steel
companies either declared bankruptcy or ceased operations entirely through September 2001 since 1997, as a result on the
continuing trade crisis (AISI, 200 la). The number of firms in the Steel Products sector has also decreased steadily in recent
years from its peak of 661 in 1992, reflecting consolidation in ownership of capacity.
Table 4D-4 shows the number of firms in the two profiled steel sectors between 1990 and 1998.
Table 4D-4: Number
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
Total Percent
Change
1990-1998
Average Annual
Growth Rate
of Firms in the Profiled Steel Industry
Steel Mills (SIC 3312)
Number of Firms
408
433
321
261
258
309
397
216
267
Percent Change
n/a
6.1%
-25.9%
-18.7%
-1.1%
19.8%
28.5%
-45.6%
26.3%
-34.6%
-5.2%
Sectors
Steel Products (SIC 3315, 3316, 3317)
Number of Firms
597
635
661
641
618
607
583
544
541
Percent Change
n/a
6.4%
4.1%
-3.0%
-3.6%
-1.8%
-4.0%
-6.7%
-0.6%
-9.4%
-1.2%
Source: U.S. SBA, 2000.
4D-8
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
d. Employment and productivity
Employment is a measure of the level and trend of activity in an industry. Figure 4D-3 below provides information on
employment from the Annual Survey of Manufactures for the Steel Mills and Steel Products sectors. The figure shows that
employment levels in the Steel Mills industry decreased by a total of 23 percent between 1987 and 1997. Employment is a
primary cost component for steelmakers, accounting for approximately 30 percent of total costs (McGraw-Hill, 1998).
Lowering labor costs enabled the steel mills to improve profitability and competitiveness given the limited opportunity to
raise prices in the competitive market for steel products. The steady declines in employment reflect the decreasing number of
steel mill facilities and firms, in conjunction with aggressive efforts to improve worker productivity in order to cut labor costs
and improve profits (McGraw-Hill, 1998). Employment declined further as a result of the 1998 import crisis, with almost
26,000 U.S. steelworkers reportedly losing their jobs (AISI, 2001a). Employment in the Steel Products sector over the period
1987-1997 showed a steady positive trend.
Figure 4D-3: Employment for Profiled Steel Industry Sectors
750 000
200 000 -
1 50 000 -
1 00 000 -
50,000 -
n -
* — — — *~~— *-—
1987 19881989 1990 1991 19921993 1994 19951996 1997
— •— Steel Mills (SIC
3312)
—A— Steel Products (SIC
3315, 3316, 3317)
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, 1997.
4D-9
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
Table 4D-5 presents the change in value added per labor hour, a measure of labor productivity, for the Steel Mill and Steel
Products sectors between 1987 and 1997. Labor productivity at steel mills has increased substantially over this time period.
Value added per labor hour increased 66 percent between 1987 and 1997. This increase reflects the efforts by steel mills to
improve worker productivity in order to cut labor costs and improve profits. Much of the increase in labor productivity can
be attributed to the restructuring of the U.S. steel industry and the increased role of minimills in production. Minimills are
capable of producing rolled steel from scrap with substantially lower labor needs than integrated mills (McGraw-Hill, 1998).
Labor productivity in the steel products sector has also fluctuated, but decreased 3 percent overall from 1987 to 1997.
Table 4D-5: Productivity Trends for the Profiled Steel Industry Sectors
(in millions, constant $2000)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change 1987-
1997
Average
Annual
Growth Rate
Steel Mills (SIC 3312)
Value
Added
16,067
18,608
17,815
17,177
13,990
16,303
17,358
19,212
19,495
20,192
22,347
39.1%
3.4%
Production
Hours
(millions)
306
324
348
315
279
111
268
266
263
260
253
-17.3%
-1.9%
Value Added/Hour
Number
53
57
51
55
50
59
65
72
74
78
88
66.0%
5.2%
Percent
Change
n/a
8%
-11%
8%
-9%
18%
10%
11%
3%
5%
13%
Steel Products (SIC 3315, 3316, 3317)
Value
Added
6894
6480
6420
5939
6274
6160
7078
6829
6857
7158
7,010
1.7%
0.2%
Production
Hours
(millions)
108
94
112
93
106
87
109
91
114
134
113
4.6%
0.5%
Value Added/Hour
Number
64
69
57
64
59
71
65
75
60
54
62
-3.1%
-0.3%
Percent
Change
n/a
8%
-17%
12%
-8%
20%
-8%
15%
-20%
-10%
15%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
z. Capital expenditures
Steel production is a relatively capital intensive process. Capital-intensive industries are characterized by large,
technologically complex manufacturing facilities which reflect the economies of scale required to manufacture products
efficiently. The integrated production process requires large capital investments of approximately $2,000 per ton of capacity
for plants and equipment to support the large-scale production capacities needed to keep unit costs low. The nonintegrated
process employed in minimills is significantly less capital intensive with capital costs of approximately $500 per ton of
capacity (McGraw-Hill, 1998).
4D-10
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
New capital expenditures are needed to modernize, expand, and replace existing capacity to meet growing demand.
Capital expenditures in the Steel Mills and the Steel Products sectors between 1987 and 1997 are presented in Table 4D-6
below. The table shows that, while capital expenditures in the Steel Products sector have fluctuated dramatically from one
year to the next, the level of capital expenditures by Steel Mills more than doubled between 1987 and 1997. The majority of
this increase was realized in the late 1980s and early 1990s, when capital expenditures increased by a total of 131 percent
from 1987 to 1991. This substantial increase coincides with the advent of thin slab casting, a technology that allowed
minimills to compete in the market for flat rolled sheet steel. The significant decreases in capital expenditures by steel mills
that followed this expansion reflects the bottoming out of the demand for steel products in the early 1990s. The recovery in
capital expenditures in the mid 1990s reflected increased demand and high utilization rates (McGraw-Hill, 1998). The import
crisis of the late 1990s has put pressure on the domestic industry, and expenditures for new capacity are likely to have
decreased since 1997 (McGraw-Hill, 2000).
Table 4D-6: Capital
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change
1987-1997
Average Annual
Growth Rate
Expenditures for the Profiled Steel Industry Sectors
(in millions, constant $2000)
Steel Mills (SIC 3312)
Capital Expenditures Percent Change
1,241
1,801
2302
2400
2868
2175
1724
2420
2414
2573
2,513
102.5%
7.3%
n/a
45.1%
27.8%
4.3%
19.5%
-24.2%
-20.7%
40.4%
-0.2%
6.6%
-2.3%
Steel Products (SIC 3315,
3316, 3317)
Capital Expenditures Percent Change
661
479
556
575
434
458
498
554
528
587
590
n/a
-27.5%
16.1%
3.4%
-24.5%
5.5%
8.7%
11.2%
-4.7%
11.2%
0.5%
-10.7%
-1.1%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4D-11
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
f. Capacity utilization
Capacity utilization measures actual output as a percentage of total potential output given the available capacity and is
used as a key barometer of an industry's health. Capacity utilization is an index used to identify potential excess or
insufficient capacity in an industry which can help to project whether new investment is likely. Figure 4D-4 presents the
capacity utilization index from 1989 to 1998 for the 4-digit SIC codes that make up the Steel Mill and Steel Products sectors.
As shown in the figure, the index follows similar trends in each SIC code. For all sectors, capacity utilization peaked in 1994
and has decreased through most of the late 1990s. This trend reflects the over-capacity in the U.S. steel industry that has
followed the substantial capacity additions in the late 1980s and early 1990s and increased imports throughout the 1990s.
Figure 4D-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Steel Industry Sectors
-Steel Mills (SIC 3312)
- Steel Wire and Related
Products (SIC 3315)
- Cold Finishing of Steel
Shapes (SIC 3316)
Steel Pipe and Tubes (SIC
3317)
65
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Source: U.S. DOC, 1989-1998.
40.2 Structure and Competitiveness
The companies that manufacture steel operate in a highly capital intensive industry. The steel mill industry is comprised of
two different kinds of facilities, integrated mills and minimills. The integrated steelmaking process requires expensive plant
and equipment purchases that will support production capacities ranging from two million to four million tons per year. Until
the early 1960s integrated steelmaking was the dominant method of steel manufacturing in the U.S. Since then, the integrated
steel business has undergone dramatic downsizing due to competition from minimills and imports. These trends have reduced
the number of integrated steelmakers (S&P, 2000). Minimills vary in size, from capacities of 150,000 tons at small facilities
to larger facilities with annual capacities of between 400,000 tons and two million tons. Integrated companies have
significant capital costs of approximately $2,000 per ton of capacity compared with minimills' $500 per ton. Because
minimills do not require as much investment in capital equipment as integrated steelmakers, minimills have been able to
lower prices, driving integrated companies out of many of the commodity steel markets (S&P, 2000). The advent of
minimills, with their lower initial capital investments, has made it easier for firms to enter the market.
4D-12
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
a. Geographic Distribution
Steel mills are primarily concentrated in the Great Lakes Region (New York, Pennsylvania, Ohio, Indiana, Illinois, and
Michigan). Historically, mill sites were selected for their proximity to water (both for transportation and for use in cooling
and processing) and the sources of their raw materials, iron ore and coal. The geographic concentration of the industry has
begun to change as minimills can be built anywhere where electricity and scrap are available at a reasonable cost and where a
local market exists (U.S. EPA, 1995). The Steel Products sector is concentrated in the Great Lakes region and California.
Ohio, Illinois, Pennsylvania, Michigan, and California manufactured 41 percent of all steel products in the U.S.
Figure 4D-5 below shows the distribution of U.S. steel mills and steel products facilities.
Figure 4D-5: Geographical Distribution of Facilities in the Profiled Steel Industry Sectors
Number of Facilities
0-3
4-8
9-32
33-58
59 - 104
Source: U.S. DOC, 1987, 1992, and 1997.
4D-13
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Steel
b. Facility size
Seventy-one percent of all steel mills employed 100 or more employees in 1992, as shown in Figure 4D-6. The vast majority,
approximately 98 percent, of industry value of shipments in the same year was produced by facilities with more than 100
employees. Facilities with more than 1,000 employees accounted for approximately 69 percent of all steel mill shipments.
Data from the 1997 Census of Manufactures for Iron and Steel Mills (NAICS 331111), which is roughly comparable to the
SIC 3312 data shown in Figure 4D-6, shows that the 11 percent of facilities with more than 1,000 employees accounted for 63
percent of industry value of shipments in 1997, reflecting growth in the role of minimills from 1992 to 1997.
The Steel Products sector is characterized by smaller facilities than steel making, with only 26 percent of facilities in the steel
product industry employing 100 or more employees in 1992. While the majority of facilities in the Steel Products sector
employed less than 100 people, most of the output from this sector was produced at the largest facilities. Figure 4D-6 shows
that steel products facilities with more than 100 employees accounted for approximately 74 percent of the industry's 1992
value of shipments.
4D-14
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
Figure 4D-6: Value of Shipments and Number of Facilities by Employment Size Category for the Profiled
Steel Industry Sectors
Number of Facilities, 1992
L
s—f
m
^=
I
f=
1
1
_
^
I
. H H, CL
| Steel Mills (SIC 3312)
| Steel Products (SIC
3315, 3316, 3317)
1-9 10-19 20-49 50-99 100-249 250-499 500-999 1000- 2500+
2499
1992 Value of Shipments (in millions)
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
1 Steel Mills (SIC 3312)
| Steel Products (SIC 3315,
3316, 3317)
10-19 20-49 50-99 100-249 250-499 500-999 1,000- 2500 +
2,499
Source: U.S. DOC, 1987, 1992, and 1997.
4D-15
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
c. Firm size
The Small Business Administration (SBA) defines small firms in the profiled steel industries according to the firms' number
of employees. Firms in both Steel Mills (SIC 3312) and Steel Products (SIC 3315, 3316, and 3317) are defined as small if
they have 1,000 or fewer employees. Table 4D-7 below shows the distribution of firms, facilities, and receipts by the
employment size of the parent firm.
The size categories reported in the Statistics of U.S. Businesses (SUSB) do not coincide with the SB A small firm standard of
1,000 employees. It is therefore not possible to apply the SBA size thresholds precisely. The SUSB data presented in Table
4D-6 show that in 1997, 141 of 216 firms in the Steel Mills sector had less than 500 employees. Therefore, at least 65 percent
of firms in this sector were classified as small. These small firms owned 143 facilities, or 48 percent of all facilities in the
sector, and accounted for 5 percent of industry receipts. In contrast, the 75 largest firms that employ over 500 employees own
52 percent of all facilities in SIC 3312 and are responsible for 95 percent of all industry receipts. Some of these 75 firms may
be defined as small under SBA Standards.
Of the 544 ultimate parent firms with facilities that manufacture steel products, 435, or 80 percent, employ fewer than 500
employees, and are therefore considered small businesses. Small firms own 65 percent of facilities in the industry and
account for 28 percent of industry receipts. The 109 larger firms that employ over 500 employees own 109 of the 727
facilities in SIC codes 3315, 3316, and 3317 and are responsible for 72 percent of all industry receipts. Again, some of these
109 firms may be classified as small under the SBA Standards.
Table 4D-7: Number of Firms, Facilities, and Estimated Receipts in the Profiled Steel Industry Sectors
by Employment Size Category, 1997
Employment
Size Category
0-19
20-99
100-499
500+
Total
Steel Mills (SIC 3312)
Number of
Firms
74
31
36
75
216
Number of
Facilities
74
31
38
154
297
Estimated Receipts
(in millions,
constant $2000)
277
116
2,204
49,018
51,615
Steel Products (SIC 3315, 3316, 3317)
Number of
Firms
211
128
96
109
544
Number of
Facilities
211
136
126
254
727
Estimated Receipts
(in millions,
constant $2000)
348
1,453
3,516
13,922
19,240
Source: U.S. SBA, 2000.
d. Concentration and Specialization Ratios
Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is closely related
to entry barriers with more concentrated industries generally having higher barriers.
The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common measures of
industry concentration. The CR4 indicates the market share of the four largest firms. For example, a CR4 of 72 percent
means that the four largest firms in the industry account for 72 percent of the industry's total value of shipments. The higher
the concentration ratio, the less competition there is in the industry, other things being equal.5 An industry with a CR4 of
more than 50 percent is generally considered concentrated. The HHI indicates concentration based on the largest 50 firms in
the industry. It is equal to the sum of the squares of the market shares for the largest 50 firms in the industry. For example, if
5 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a high
concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with foreign producers
or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage containers). Concentration ratios
based on share of production are therefore only one indicator of the extent of competition in an industry.
4D-16
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
an industry consists of only three firms with market shares of 60, 30, and 10 percent, respectively, the HHI of this industry
would be equal to 4,600 (602 + 302 + 102). The higher the index, the fewer the number of firms supplying the industry and the
more concentrated the industry. An industry is considered concentrated if the HHI exceeds 1,000.
The Steel Mills (SIC 3312) and Steel Products sectors (SICs 3315, 3316, 3317) are considered competitive, based on standard
measures of concentration. The CR4 and the HHI for all the relevant SIC codes are below the benchmarks of 50 percent and
1,000, respectively. The concentration ratios presented in Table 4D-8 indicate that the majority of the output generated in
these industry sectors is not concentrated in a few large firms. Moreover, the table shows that each of the industry sectors has
became more competitive between 1987 and 1992.
The specialization ratio is the percentage of the industry's production accounted for by primary product shipments. The
coverage ratio is the percentage of the industry's product shipments coming from facilities from the same primary industry.
The coverage ratio provides an indication of how much of the production/product of interest is captured by the facilities
classified in an SIC code.
The specialization and coverage ratios in Table 4D-8 show that steel mills (SIC 3312) are highly specialized in the production
of steel products. These establishments also account for virtually all of the steel mill product produced in the U.S. Steel
Product establishments classified in SIC codes 3315, 3316, and 3317 are also highly specialized, although 20 percent of
production in SIC code 3316 are products classified in a different industry. Establishments in SIC codes 3316 and 3317
account for over 95 percent of U.S. production of their primary products, and SIC 3315 accounts for 88 percent. More recent
data from the 1997 Census of Manufactures (based on NAICS codes) shows similar specialization and coverage ratios for
these industries.
Table 4D-8: Selected Ratios for the Profiled Steel Industry Sectors
SIC
Code
3312
3315
3316
3317
Year
Total
Number
of Firms
Concentration Ratios
4 Firm
(CR4)
1987
1992
271
135
44%
37%
1987
1992
1987
1992
1987
1992
274
271
156
158
155
166
21%
19%
45%
43%
23%
19%
8 Firm
(CR8)
63%
58%
34%
32%
62%
60%
34%
31%
20 Firm
(CR20)
Steel M
81%
81%
Steel Prod
54%
54%
82%
81%
58%
53%
50 Firm
(CR50)
Ms
94%
96%
ucts
78%
80%
95%
96%
85%
80%
Herfindahl-
Hirschman
Index
Specialization
Ratio
Coverage
Ratio
607
551
98%
98%
97%
97%
212
201
654
604
242
194
96%
96%
80%
80%
91%
95%
88%
88%
94%
95%
92%
97%
Source: U.S. DOC, 1987, 1992, 1997.
4D-17
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Steel
e. Foreign trade
The global market for steel continues to be extremely competitive. From 1945 until 1960, the U.S. steel industry enjoyed a
period of tremendous prosperity and was a net exporter until 1959. However, by the early 1960s, foreign steel industries had
thoroughly recovered from World War II and had begun construction of new plants that were more advanced and efficient
than the U.S. integrated steel mills. Foreign producers also enjoyed lower labor costs, allowing them to take substantial
market share from U.S. producers. This increased competition from foreign producers, combined with decreased
consumption in some key end use markets, served as a catalyst for the restructuring and downsizing of the U.S. steel industry.
The industry has emerged from this restructuring considerably smaller, more technologically advanced and internationally
competitive (S&P, 2000).
This profile uses two measures of foreign competition: export dependence and import penetration. Export dependence
is the share of value of shipments that is exported. Import penetration is the share of implied domestic consumption met by
imports. Table 4D-9 presents trade statistics for the profiled steel industry sectors from 1990 to 2000. The table shows that
while the trend in export dependence has been relatively stable, import penetration has been increasing since the early 1990s.
Historically, the U.S. steel industry has exported a relatively small share of shipments when compared to steel industries in
other developed nations (McGraw-Hill, 2000). U.S. exports rose in 1995 to the highest level since 1941, but steel exports
only accounted for only 7 percent of shipments that year. Imports as a percentage of implied domestic consumption rose to
an estimated 30 percent in 1998, from 18 percent in the early 1990s. This increase in imports reflects excess steel capacity
worldwide and the competitiveness of foreign steel producers, as described previously. The AISI reports that imports have
continued high through August 2001, although 26 percent lower than during the first eight months of 2000 (reflecting a
decline in U.S. demand for steel), after the three highest annual import volumes in the period 1998 through 2000 (AISI,
2001a).
4D-18
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
Table 4D-9: Import Share and Export Dependence: Steel Mill Products
(in thousand metric tons)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000d
Total Percent
Change
1990-2000
Average
Annual
Growth Rate
Raw Steel
Production
89,700
79,700
84,300
88,800
91,200
95,200
95,500
98,500
98,600
97,400
106,000
18.2%
1.7%
Imports
15,600
14,400
15,500
17,700
27,300
22,100
26,500
28,300
37,700
32,400
36,800
135.9%
9.0%
Exports
3,900
5,760
3,890
3,600
3,470
6,420
4,560
5,470
5,010
4,920
6,000
53.8%
4.4%
Shipments
77,100
71,500
74,600
80,800
86,300
88,400
91,500
96,000
92,900
96,300
105,000
36.2%
3.1%
Implied
Domestic
Consumption3
88,800
80,140
86,210
94,900
110,130
104,080
113,440
118,830
125,590
123,780
135,800
52.9%
4.3%
Import
Penetration1"
18%
18%
18%
19%
25%
21%
23%
24%
30%
26%
27%
Export
Dependence0
5%
8%
5%
4%
4%
7%
5%
6%
5%
5%
6%
a Calculated by EPA as shipments + imports - exports.
b Calculated by EPA as imports divided by implied domestic consumption.
c Calculated by EPA as exports divided by shipments.
d Estimated
Source: USGS, 2001; USGS, 1999, USGS, 1997; USGS, 1994; USGS, Historical Statistics for Mineral Commodities in the US.
4D-19
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
40.3 Financial Condition and Performance
The steel industry is generally characterized by relatively large plant sizes and technologically complex production processes
which reflect the economies of scale required to manufacture steel efficiently. Because of the high fixed costs associated with
steel manufacturing operations, larger production volumes are required to spread these costs over a greater number of units in
order to maintain profitability. Operating margins for steel producers can be volatile due to changes in raw material costs,
energy costs, and production levels relative to capacity (S&P, 2001).
Table 4D-10 presents trends in operating margins for steel mills and steel products manufacturers. The table shows that
operating margins were relatively stable in both industry sectors between 1987 and 1997. The decrease in operating margins
for steel mills and, to a lesser extent, steel products producers in 1991 resulted from a worldwide decrease in steel
consumption (McGraw-Hill, 1998).
Table 4D-10: Operating Margins for the Profiled Steel Industry Sectors (in millions, constant $2000)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change
1987-1997
Annual Average
Growth Rate
Steel Mills (SIC 3312)
Value of
Shipments
$39,209
$45,284
$44,084
$43,172
$39,158
$41,537
$43,401
$46,994
$47,892
$47,538
$49,777
27%
2.4%
Cost of
Materials
$23,251
$27,430
$26,678
$26,269
$24,748
$24,984
$26,073
$28,054
$28,725
$29,859
$29,699
28%
2.5%
Payroll (all
employees)
$6,528
$6,693
$6,597
$6,885
$6,664
$6,923
$6,786
$6,748
$6,589
$6,805
$6,789
4%
0.4%
Operating
Margin
24.1%
24.6%
24.5%
23.2%
19.8%
23.2%
24.3%
25.9%
26.3%
22.9%
26.7%
Steel Products (SIC 3315, 3316, 3317)
Value of
Shipments
$15,217
$16,845
$16,378
$16,393
$15,959
$16,722
$17,981
$18,744
$18,990
$18,850
$18,947
25%
2.2%
Cost of
Materials
$9,830
$10,850
$10,730
$10,804
$10,598
$10,891
$11,599
$11,954
$12,309
$12,152
$11,989
22%
2.0%
Payroll (all
employees)
$2,022
$2,055
$1,988
$2,081
$2,088
$2,231
$2,343
$2,302
$2,297
$2,370
$2,414
19%
1.8%
Operating
Margin
22.1%
23.4%
22.3%
21.4%
20.5%
21.5%
22.5%
23.9%
23.1%
23.0%
24.0%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
The sharp decline in prices caused by the import surge in 1998 and low operating rates resulted in reduced profitability for
U.S. producers. The industry reported an operating loss of $51 million in the first half of 1999, compared with an operating
profit of $537 million in the first half in the first half of 1998. Federal legislation was passed in August 1999 authorizing
federal loan guarantees of up to $1 billion to the steel industry, to allow steel companies to borrow at market rates to
modernize their plants (McGraw-Hill, 2000). Standard & Poor's reported that low operating rates, decreased volume, and
lower product prices again led to operating losses for the eight largest steelmakers in the first quarter of 2001, compared with
operating profits in the first quarter of 2000. As of June 2001, eight U.S. steel producers had gone bankrupt in the prior two
years, including LTV and Trico Steel (a minimill joint venture), (S&P, 2001).
4D-20
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Steel
40.4 Facilities Operating Cooling Water Intake Structures
In 1982, the Primary Metals industries as a whole (including Nonferrous and Steel producers) withdrew 1,312 billion gallons
of cooling water, accounting for approximately 1.7 percent of total industrial cooling water intake in the United States. The
industry ranked 3rd in industrial cooling water use, behind the electric power generation industry, and the chemical industry
(1982 Census of Manufactures).
This section presents information from EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures on
existing facilities with the following characteristics:
*• they withdraw from a water of the United States;
> they hold an NPDES permit;
>• they have a design intake flow of equal to or greater than two MOD;
>• they use at least 25 percent of that flow for cooling purposes.
These facilities are not "new facilities" as defined by the section 316(b) New Facility Rule and are therefore not subject to
this regulation. However, they meet the criteria of the rule except that they are already in operation. These existing facilities
therefore provide a good indication of what new facilities in these sectors may look like. The remainder of this section refers
to existing facilities with the above characteristics as "section 316(b) facilities."
a. Cooling water uses and systems
Information collected in EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures found that an
estimated 40 out of 158 steel mills (25 percent) and 19 out of 312 steel product manufacturers (6 percent) meet the
characteristics of a section 316(b) facility.
Minimills use electric-arc-furnace (EAF) to make steel from ferrous scrap. The electric-arc-furnace is extensively cooled by
water and recycled through cooling towers (U.S. EPA, 1995). This is important to note since most new steel facilities are
minimills.
Steel section 316(b) facilities use cooling water for a combination of purposes, including contact and non-contact production
line or process cooling, electricity generation, and air conditioning:
* All section 316(b) steel mills use cooling water for production line (or process) contact or noncontact cooling. The
other major uses of cooling water by steel mills are air conditioning (69 percent), electric generation (43 percent),
and other uses (40 percent).
*• Ninety-five percent (18 facilities) of section 316(b) steel product facilities use cooling water for production line (or
process) contact or noncontact cooling. Other major uses of cooling water for steel product facilities include other
uses (79 percent), air conditioning (33 percent), and electric generation (6 percent).
4D-21
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
Table 4D-11 shows the distribution of existing section 316(b) facilities in the profiled steel sectors by type of water body and
cooling system. The table shows that most of the existing section 316(b) facilities employ a combination of a once-through
and recirculating system (25, or 41%) or a once through system (20, or 33%). The largest proportion of existing facilities
draw water from a freshwater stream or river (49, or 82%).
Table 4D-11: Number of Section 316(b) Facilities in the Profiled Steel Industry Sectors
by Water Body Type and Cooling System Type
Water Body Type
Cooling Systems
Recirculating Combination
Number ° , Number
Steel Mi
Freshwater Stream or
River
Great Lake
TotaV
3 10% 10
0 0% 9
3 8% IS
Steel Products (£
Freshwater Stream or
River
Lake or Reservoir
TotaV
6 33% 6
0 0% 0
6 31% 6
Total for Profiled Steel Indus
Freshwater Stream or
River
Great Lake
Lake or Reservoir
Total*
9 19% 16
0 0% 9
0 0% 0
9 16% 25
%of
Total
is (sic s:
32%
88%
46%
1C 3315,
33%
0%
31%
try (SIC c
32%
88%
0%
41%
Once-Through
Number
(12)
12
1
13
3316, 331
6
0
6
312, 331E
19
1
0
20
%of
Total
40%
12%
33%
7)
33%
0%
31%
5, 3316, 3
38%
12%
0%
33%
Unknown
Number
5
0
5
0
1
2
317)
5
0
"J
%of
Total
Total
18%
0%
13%
30
10
40
0%
100%
6%
19
1
20
11%
0%
100%
11%
49
10
1
60
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2000.
4D-22
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
b. Facility size
The distribution of employment for section 316(b) facilities for steel mills and steel products tends to be larger than the
distribution for their respective industries. Sixty-three percent of 316(b) steel mills employ over 1,000 people. None of the
316(b) steel product manufacturers employ less than 100 people.
Figure 4D-7: Number of Section 316(b) Facilities in the Profiled Steel Industry Sectors
by Employment Size
30-
25-
20-
15-
10-
5-
0
<100 100-249 250-499 500-999 >=1000
| Steel Mills (SIC 3312)
| Steel Products (SIC
3315,3316,3317)
Source: U.S. EPA, 2000.
4D-23
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Steel
d. Firm size
EPA used the Small Business Administration (SB A) small entity size standards to determine the number of existing section
316(b) profiled steel industry facilities owned by small firms. Table 4D-12 shows that of the 40 section 316(b) steel mills, 6,
or 16 percent, are owned by small firms. There are three section 316(b) steel product facilities that are owned by a small firm.
Table 4D-12: Number of Section 316(b) Facilities by Firm Size for the Profiled Steel Sectors
SIC Code
Large
Number
Steel
3312
34
Steel Product
3315
3316
3317
Totalt
3
6
7
17
Total for Profiled Steel Fc
Total3
51
% of SIC
Mills (SIC 32
84%
s (SIC 3315,
100%
67%
100%
84%
cilities (SIC 2
84%
Small
Number
12)
6
3316, 3317]
0
3
0
3
312, 3315,
9
% of SIC
Total
16%
40
0%
33%
0%
16%
3
9
7
20
3316, 3317)
16%
60
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2000; D&B, 2001.
4D-24
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Steel
REFERENCES
American Iron and Steel Institute (AISI). 200la. "Imports Continue at Severely Depressed Prices; United U.S. Steel Industry
Urges Effective 201 Trade Remedy." September 25, 2001.
American Iron and Steel Institute (AISI). 200 Ib. July 2001 Selected Steel Industry Data.
American Iron and Steel Institute (AISI). 2001c. "Shipments Down 10 Percent Through August 2001." October 12, 2001.
Bureau of Labor Statistics (BLS). 2000. Producer Price Index. Series: PCU33_#-Primary Metal Industries.
Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.
Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification Manual.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000.
U.S. Industry & Trade Outlook '00.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 1998.
U.S. Industry & Trade Outlook '98.
Standard & Poors (S&P). 2001. Industry Surveys - Metals: Industrial. July 12, 2001.
U.S. Department of Commerce (U.S. DOC). 2000. International Trade Administration. Report to the President: Global
Steel Trade-Structural Problems and Future Solutions. July, 2000.
U.S. Department of Commerce (U.S. DOC). 1989-1998. Bureau of the Census. Current Industrial Reports. Survey of Plant
Capacity.
U.S. Department of Commerce (U.S. DOC). 1988-1991 and 1993-1996. Bureau of the Census. Annual Survey of
Manufactures.
U.S. Department of Commerce (U.S. DOC). 1987, 1992, and 1997. Bureau of the Census. Census of Manufactures.
U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling Water Intake
Structures.
U.S. Environmental Protection Agency (U.S. EPA). 1995. Profile of the Iron and Steel Industry. EPA 310-R-95-005.
September, 1995.
United States Geological Survey (USGS). Historical Statistics for Mineral Commodities in the United States. Iron and Steel.
United States Geological Survey (USGS). Iron and Steel Statistical Compendium.
United States Geological Survey (USGS). 1999. Minerals Yearbook. Iron and Steel. Author: Michael D. Fenton.
United States Geological Survey (USGS). 1994. Minerals Yearbook. Iron and Steel. Author: Michael D. Fenton.
United States Geological Survey (USGS). 2001. Mineral Commodity Summaries. Iron and Steel. Author: Michael D.
Fenton.
United States Geological Survey (USGS). 1997. Mineral Commodity Summaries. Iron and Steel. Author: Michael D.
Fenton.
U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR section 121.201.
4D-25
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Steel
THIS PAGE INTENTIONALLY LEFT BLANK
4D-26
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
4E ALUMINUM (SIC 333/5)
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified two 4-digit SIC codes in the
nonferrous metals industries (SIC codes 333/335) with at least one existing facility that operates a CWIS, holds a NPDES
permit, withdraws equal to or greater than two million gallons per day (MOD) from a water of the United States, and uses at
least 25 percent of its intake flow for cooling purposes. (Facilities with these characteristics are hereafter referred to as
"section 316(b) facilities".) For each of the two SIC codes, Table 4E-1 below provides a description of the industry sector, a
list of products manufactured, the total number of detailed questionnaire respondents (weighted to represent national results),
and the number and percent of section 316(b) facilities.
Table 4E-1: Section 316(b) Facilities in the Aluminum Industries (SIC 333/335)
SIC
3334
3353
SIC Description
Primary Production of
Aluminum
Aluminum Sheet,
Plate, and Foil
Important Products Manufactured
Producing aluminum from alumina and in
refining aluminum by any process
Flat rolling aluminum and aluminum-base alloy
basic shapes, such as rod and bar, pipe and tube,
and tube blooms; producing tube by drawing
Total
Number of Weighted Detailed
Questionnaire Survey Respondents
Total
31
57
88
Section 316(b) Facilities
No.
11
6
17
%
35.8%
10.9%
19.6%
Source: U.S. EPA, 2000; Executive Office of the President, 1987.
4E.1 Domestic Production
Commercial production of aluminum using the electrolytic reduction process, known as the Hall-Heroult process, began in
the late 1800s. The production of primary aluminum involves mining bauxite ore and refining it into alumina, one of the
feedstocks for aluminum metal. Direct electric current is used to split the alumina into molten aluminum metal and carbon
dioxide. The molten aluminum metal is then collected and cast into ingots. Technological improvements over the years have
improved the efficiency of aluminum smelting, with a particular emphasis on reducing energy requirements. There is
currently no commercially viable alternative to the electrometallurgical process (Aluminum Association, 2001).
Almost half of all U.S.-produced aluminum (48 percent of U.S. output in 2000) comes from recycled scrap. Recycling
consists of melting used beverage cans and scrap generated from operations. Recycling saves approximately 95 percent of
the energy costs involved in primary smelting from bauxite (S&P, 2001). In contrast to the steel industry, aluminum
minimills have had limited impact on the profitability of traditional integrated aluminum producers. Aluminum minimills are
not able to produce can sheet of the same quality as that produced by integrated facilities. They are able to compete only in
production of commodity sheet products for the building and distributor markets, which are considered mature markets.
According to Standard & Poor's, construction of new minimill capacity is unlikely given the potential that added capacity
would drive down prices in the face of slow growth in the markets for minimill products (S&P, 2001). No secondary smelters
(included, along with secondary smelting of other metals, in SIC code 3341) were reported in EPA's detailed questionnaire.
These facilities are therefore not addressed in this profile.
4E-1
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Aluminum
Facilities in SIC code 3353 produce semifabricated products from primary or secondary aluminum. Examples of
semifabricated aluminum products include (Aluminum Association, undated):
*• sheet (cans, construction materials, and automotive parts);
*• plate (aircraft and spacecraft fuel tanks);
*• foil (household aluminum foil, building insulation, and automotive parts);
>• rod, bar, and wire (electrical transmission lines); and
>• extrusions (storm windows, bridge structures, and automotive parts).
U.S. aluminum companies are generally vertically integrated. The major aluminum companies own large bauxite reserves,
mine bauxite ore and refine it into alumina, produce aluminum ingot, and operate the rolling mills and finishing plants used to
produce semifabricated aluminum products (S&P, 2001).
Q. Output
The largest single source of demand for aluminum is the transportation sector, primarily the manufacture of motor vehicles.
Demand for lighter, more fuel efficient vehicles has led to increased demand for aluminum in auto manufacturing, at the
expense of steel (S&P, 2001). Until five years ago, containers were the largest U.S. market for aluminum. Production of
beverage cans is a major use of aluminum sheet, and aluminum has almost entirely replaced steel in the beverage can market.
Other major uses of aluminum include construction (including aluminum siding, windows, and gutters) and consumer
durables (USGS, 2001).
Demand for aluminum reflects the overall state of the domestic and world economies, as well as long-term trends in materials
use in major end-use sectors. Because aluminum production involves large fixed investments and capacity adapts only slowly
to fluctuations in demand, the industry has experienced alternating periods of excess capacity and tight supplies. The early
1980s were a period of oversupply, high inventories, excess capacity, and weak demand. By 1986, excess capacity had been
closed, inventories were low, and demand increased dramatically. The early 1990s were affected by reduced U.S. demand
and by the dissolution of the Soviet Union, which resulted in dramatic increases in Russian exports of aluminum. By the mid-
1990s, global production had declined, demand rebounded, and aluminum prices rebounded. Subsequent increases in
production reflected an overall increase in the demand for aluminum with stronger domestic economic growth, driven by
increased consumption by the transportation, container, and construction sectors. The economic crises in Asian markets in the
later 1990s, along with growing Russian exports, again resulted in a period of oversupply, although U.S. demand for
aluminum remained strong. Sales to the automotive sector were at record levels in 1999 and 2000. Demand has declined
starting in 2000, however, reflecting slower growth in both the U.S. and the world economy. In addition, there has been a
major decrease in production from primary smelters affected by the Pacific Northwest energy crisis (Aluminum Association,
1999; USGS, 1999; USGS, 1998; USGS, 1994; Value Line, 2001).
4E-2
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
Table 4E-2 shows trends in output of aluminum by primary aluminum producers and recovery of aluminum from old and new
scrap. Secondary production grew from 37 percent to almost half of total domestic production over the period from 1990 to
2000. Of the total secondary production in 2000, 1,430 thousand metric tons (MT) or 42 percent, is from old scrap (discarded
aluminum products), as opposed to new scrap (from manufacturing). Primary production of aluminum has showed a small
net decrease over the 10-year period, and declined sharply in the first half of 2001 compared to the same period in 2000. This
decrease reflects reduced domestic and world demand for aluminum, and curtailed production at a number of Pacific
Northwest mills caused by the California energy crisis (S&P 2001; USGS, 200 la).
Table 4E-2: Quantities of Aluminum Produced
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Total percent change
1990-2000
Average annual growth
rate
Jan- July 2000
Jan- July 2001
Aluminum Ingot
Primary Production
Thousand MT
4,048
4,121
4,042
3,695
3,299
3,375
3,577
3,603
3,713
3,779
3,688
-8.9%
-0.9%
2,202
1,592
% Change
n/a
1.8%
-1.9%
-8.6%
-10.7%
2.3%
6.0%
0.7%
3.1%
1.8%
-2.4%
n/a
-27.7%
Secondary Production
(from old & new scrap)
Thousand MT
2,390
2,290
2,760
2,940
3,090
3,190
3,310
3,550
3,440
3,750
3,460
44.8%
3.8%
2,070
1,820
% Change
n/a
-4.2%
20.5%
6.5%
5.1%
3.2%
3.8%
7.3%
-3.1%
9.0%
-7.7%
n/a
-12.1%
Source: USGS, 2001b; USGS, 1999; USGS, 1994;.
4E-3
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
Value of shipments and value added are two measures of the value of manufacturing output.1 Historical trends provide
insight into the overall economic health and outlook for an industry. Value of shipments is the sum of the receipts a
manufacturer earns from the sale of its outputs. It is an indicator of the overall size of a market or the size of a firm in relation
to its market or competitors. Value added is used to measure the value of production activity in a particular industry. It is the
difference between the value of shipments and the value of inputs used to make the products sold.
Figure 4E-1 presents trends in real value of shipments and real value added for the primary aluminum, and aluminum sheet,
plate, and foil sectors between 1987 and 1997. The producer price index for the 4-digit SIC code is used to inflate the
nominal monetary values to constant 2000 dollars, as discussed in the following sub-section on prices.
Figure 4E-1: Real Value of Shipments and Value Added for Profiled Aluminum Sectors
(in millions, constant $2000)
Real Value of Shipments
14,000 -
* ' * * * '^i— -* ^^
t — *-
^---' -• — * *
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
• VOS -Primary Aluminum
Production (SIC 3334)
Plate, and Foil (SIC 3353)
Real Value Added
4 500
4 000
3 500
3 000
2 500 -
1 500
1 000
500
/N. ^*
^ ^—^ /—
L S^ S ^
y^4^^^^*^ J^^*^^«^^*
"*"~ ^^^
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
» VA-Primary Aluminum
Production (SIC 3334)
— A — VA-Aluminum Sheet,
Plate, and Foil (SIC 33 53)
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992 and 1997.
1 Terms highlighted in bold and italic font are further explained in the glossary.
4E-4
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
The real value of primary aluminum shipments shows generally the same pattern as the quantity data shown in Table 4E-2.
Trends in production reflect trends in demand for aluminum, growth since 1990 in the percentage of domestic demand
provided by imports, and increasing secondary production of aluminum, which substitutes in some but not all markets for
primary production. Real value added by aluminum production excludes the value of purchased materials and services
(including electricity), and shows more fluctuation since 1990 than real value of shipments.
Demand for semifinished aluminum products reflects demand from the transportation, container, and building industries. Real
value of shipments of aluminum sheet, plate, and foil declined from the late 1980s through 1993, and then recovered.
Demand for semifinished products has been affected by strong growth in both the container and packaging sector and the auto
sector (S&P, 2001).
b. Prices
Figure 4E-2 shows the producer price index (PPI) for the 4-digit SIC code for the profiled aluminum sectors. The PPI is a
family of indexes that measure price changes from the perspective of the seller. This profile uses the PPI to convert nominal
monetary values to constant dollars. Sharp changes in prices reflect the cyclical nature of this industry and major changes in
world markets.
Figure 4E-2: Producer Price Indexes for Profiled Aluminum Sectors
- Primary Aluminum
Production (SIC 3334)
- Aluminum Sheet, Plate,
andFoil (SIC 3353)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: BLS, 2000.
The price trends shown for primary aluminum in Figure 4E-2 reflect the fluctuations in world supply and demand discussed in
the previous section. During the early 1980s, the aluminum industry experienced oversupply, high inventories, excess
capacity, and weak demand, resulting in falling prices for aluminum. By 1986, much of the excess capacity had been
permanently closed, inventories had been worked down, and worldwide demand for aluminum increased dramatically. This
resulted in price increases through 1988, as shown in Figure 4E.2.
In the early 1990s, the dissolution of the Soviet Union had a major impact on aluminum markets. Large quantities of Russian
aluminum that formerly had been consumed internally, primarily in military applications, were sold in world markets to
generate hard currency. At the same time, world demand for aluminum was decreasing. The result was increasing
inventories and depressed aluminum prices.
The United States and five other primary aluminum producing nations signed an agreement in January 1994 to curtail global
output, in response to the sharp decline in aluminum prices. At the time of the agreement, there was an estimated global
overcapacity of 1.5 to 2.0 million metric tons per year (S&P, 2000).
4E-5
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
By the mid-1990s, production cutbacks, increased demand, and declining inventories led to a sharp rebound of prices. Prices
declined again during the late 1990s, when the economic crises in Asian markets reduced the demand for aluminum (USGS,
200Ib). During 2000, prices rebounded sharply despite the continuing trend of high Russian production and exports. The
improved market for aluminum reflects strong worldwide demand and a decrease in U.S. production (S&P, 2001).
c. Number of facilities and firms
Data compiled by the U.S. Geological Survey suggest that the number of primary aluminum facilities and the number of firms
that own them has remained fairly constant over the period 1995 through 1995, as shown in Table 4E-3.
Table 4E-3: Primary Aluminum Production - Number of Companies and Number of Plants
Year
1995
1996
1997
1998
1999
2000
Number of Companies
13
13
13
13
12
12
Number of Plants
22
22
22
23
23
23
Source: USGS, 2001a.
Statistics of U.S. Businesses covers a larger number of facilities classified under SIC 3334 than do the USGS data, and also
provide data on SIC 3353 (Aluminum Sheet, Plate, and Foil). These data, shown in Table 4E-4 and 4E-5, show more
fluctuation in the number of establishments and the number of firms.
4E-6
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
Table 4E-4 shows that the number of primary aluminum facilities decreased by 30 percent between 1991 and 1995, with the
majority of this decrease, 27 percent, occurring between 1991 and 1993. The number of facilities in the aluminum sheet,
plate, and foil sector has shown a more consistent trend, increasing each year except in 1993.
Table 4E-4: Number of
Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent Change
1989-1997
Average Annual
Growth Rate
Facilities for Profiled Aluminum Sectors
Primary Aluminum Production
(SIC 3334)
Number of
Establishments
56
54
57
52
44
41
40
51
34
Percent Change
n/a
-3.6%
5.6%
-8.8%
-15.4%
-6.8%
-2.4%
27.5%
-33.3%
-39.3%
-6.0%
Aluminum Sheet, Plate,
(SIC 3353)
and Foil
Number of _ _,,
_,,,., , Percent Change
Establishments &
61
64
73
73
63
69
76
81
91
n/a
4.9%
14.1%
0.0%
-13.7%
9.5%
10.1%
6.6%
12.3%
49.2%
5.1%
Source: U.S. SBA, 2000.
4E-7
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
The trend in the number of firms over the period between 1989 and 1997 has been similar to the trend in the number of
facilities in both industry sectors. Table 4E-5 presents SUSB information on the number of firms in each sector between
1989 and 1997.
Table 4E-5
Year
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change
1990-1997
Average Annual
Growth Rate
Primary
: Number of Firms for Profiled Aluminum Sectors
Aluminum Production
(SIC 3334)
Number of Firms Percent Change
38
41
36
33
30
30
40
23
n/a
7.9%
-12.2%
-8.3%
-9.1%
0.0%
33.3%
-42.5%
-39.5%
-6.9%
Aluminum Sheet, Plate,
(SIC 3353)
and Foil
Number of Firms Percent Change
43
53
53
45
47
51
56
66
n/a
23.3%
0.0%
-15.1%
4.4%
8.5%
9.8%
17.6%
53.5%
6.3%
Source: U.S. SBA, 2000.
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
d. Employment and productivity
Figure 4E-3 below provides information on employment from the Annual Survey of Manufactures for the primary aluminum
and aluminum sheet, plate, and foil sectors. Trends in primary aluminum facility employment reflect both trends in
production and producers' efforts to improve labor productivity to compete with less labor-intensive minimills (McGraw-Hill,
2000). The figure shows that employment in the primary aluminum production sector has declined steadily since 1992, even
in years of increased production.
Employment in the aluminum sheet, plate, and foil sector declined from 1987 through 1994, yet rose after that. There were
26,100 people employed in the aluminum sheet sector in 1987 but only 22,400 in 1994. Employment in this sector increased
from its lowest level in 1994 steadily through 1997.
Figure 4E-3: Employment for Profiled Aluminum Sectors
•Primary Production of
Aluminum (SIC 3334)
-Aluminum Sheet, Plate,
and Foil (SIC 3353)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4E-9
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
Table 4E-6 presents the change in real value added per labor hour, a measure of labor productivity, for the primary
aluminum and aluminum sheet, plate, and foil sectors between 1987 and 1997. The trend in labor productivity in both sectors
has shown a fair amount of volatility over this period, reflecting variations in capacity utilization. Real value added per hour
in the primary aluminum sector decreased 47 percent between 1988 and 1993 but showed a 23 percent net increase over the
entire period 1987 and 1997. Real value added per hour in the aluminum sheet, plate, and foil sector saw substantial
increases in the early 1990s, improving by 48 percent between 1989 and 1992 and 33 percent between 1988 and 1997.
Table 4E-6: Productivity Trends for Profiled Aluminum Sectors
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total
Percent
Change
1987-1997
Average
Annual
Growth Rate
Primary Production of Aluminum (SIC 3334)
Value
Added
(in millions,
constant
$2000)
1,992
2,929
2,435
2,195
1,936
2,060
1,550
2,007
2,419
2,019
2,311
16.0%
1.5%
Production
Hours
(millions)
28
32
30
32
32
32
29
27
28
29
26
-7.1%
-0.7%
Value Added/Hour
$2000
72
92
80
68
60
64
53
75
85
71
89
23.6%
2.1%
Percent
Change
n/a
27%
-12%
-15%
-12%
6%
-16%
40%
15%
-17%
25%
Aluminum Sheet, Plate, and Foil (SIC 3353)
Value
Added
(in millions,
constant
$2000)
2,540
2,274
2,079
2,911
3,127
3,914
3,305
3,199
2,824
3,422
3,507
38.1%
3.3%
Production
Hours
(millions)
40
41
41
40
39
40
39
37
38
39
42
5.0%
0.5%
Value Added/Hour
$2000
63
55
51
73
80
98
86
88
74
88
84
33.3%
2.9%
Percent
Change
n/a
-13%
-8%
44%
8%
23%
-13%
2%
-15%
19%
-5%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4E-10
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
e. Capital expenditures
Aluminum production is a highly capital-intensive process. Capital expenditures are needed to modernize, replace, and when
market conditions warrant, expand capacity. Environmental requirements also require major capital expenditures. Possible
measures required to reduce greenhouse gas (GHG) emissions may require significant expenditures by aluminum producers.
Capital expenditures in the primary aluminum and aluminum sheet, plate, and foil sectors between 1987 and 1997 are
presented in Table 4E-7 below. The table shows that capital expenditures in the primary aluminum sector increased
throughout the early 1990s, peaking in 1992. This period of increased capital investment was followed by a significant
decrease of 54 percent between 1993 and 1995. These decreases resulted from the production cutbacks and capacity
reductions implemented in response to oversupply conditions prevalent in the market for aluminum.
Capital expenditures in the aluminum sheet, plate, and foil sector have also fluctuated considerably between 1987 and 1997,
with the highest in 1990, two years earlier than the primary aluminum sector. Producers of aluminum sheet, plate, and foil
reduced capital expenditures by 47 percent between 1988 and 1997.
Table 4E-7: Capital Expenditures
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Percent
Change
1987-1997
Average Annual
Growth Rate
for Profiled Aluminum Sectors (in millions, constant $2000)
Primary Aluminum Production (SIC 3334)
Capital Expenditures
182
117
151
187
244
275
226
135
128
207
240
Percent Change
n/a
-35.5%
28.7%
23.7%
30.4%
12.9%
-18.0%
-40.2%
-5.5%
62.1%
16.0%
31.9%
2.8%
Aluminum Sheet, Plate,
Capital Expenditures
623
608
615
791
687
507
296
324
344
406
329
and Foil (SIC 3353)
Percent Change
n/a
-2.4%
1.2%
28.5%
-13.1%
-26.3%
-41.5%
9.3%
6.2%
17.9%
-18.9%
-47.2%
-6.2%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4E-11
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
f. Capacity utilization
Capacity utilization measures actual output as a percentage of total potential output given the available capacity. Capacity
utilization reflects excess or insufficient capacity in an industry and is an indication of whether new investment is likely.
Figure 4E-4 presents the capacity utilization index from 1989 to 1998 for the primary aluminum and aluminum sheet, plate,
and foil sectors. The figure shows that for most of the 1990s, the primary aluminum industry was characterized by excess
capacity. The capacity utilization index for this sector was near 100 percent between 1990 and 1992, and then decreased
sharply in 1993 as large amounts of Russian aluminum entered the global market for the first time (McGraw-Hill, 1999).
Capacity utilization remained low through 1996, reflecting the continued oversupply in the global aluminum market.
There continues to be a substantial amount of idled capacity in the U.S. that could be brought on-line as demand improves,
which is likely to limit construction of new capacity and to limit price increases for aluminum (S&P, 2001). There has not
been any new smelter capacity constructed in the United States since 1980 (McGraw-Hill, 1999). Deregulation of the U.S.
power industry may encourage some smelter expansions in the U.S., if electricity prices decrease significantly once electricity
markets are deregulated.
Capacity utilization in the aluminum sheet, plate, and foil sector has fluctuated but has grown overall between 1989 and 1998.
This positive trend is largely driven by the continued strength of rolled aluminum products, which account for more than 50
percent of all shipments from the aluminum industry. Increased consumption by the transportation sector, the largest end-use
sector for aluminum sheet, plate, and foil, is responsible for bringing idle capacity into production (McGraw-Hill 1999).
Figure 4E-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Aluminum Sectors
Primary Production of
Aluminum (SIC 3334)
Aluminum Sheet, Plate,
and Foil (SIC 3353)
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: U.S. DOC, 1989-1998.
4E.2 Structure and Competitiveness
Aluminum production is a highly-concentrated industry. A number of large mergers among aluminum producers have
increased the degree of concentration in the industry. For example, Alcoa (the largest aluminum producer) acquired Alumax
(the third largest producer) in 1998 and Reynolds (the second largest producer) in May 2000. Some sources speculate that,
with increased consolidation resulting from mergers, aluminum producers might refrain from returning idle capacity to
production as demand for aluminum grows, which could reduce the cyclical volatility in production and aluminum prices that
has characterized the industry in the past (S&P, 2000).
4E-12
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
a. Geographic distribution
The cost and availability of electricity is a driving force behind decisions on the location of new or expanded smelter
capacity. The primary aluminum producers (SIC 3334) are generally located in the Pacific Northwest (OR, MT, WA) and the
Ohio River Valley (IL, IN, KY, MI, MO, OH, PA), where they are usually abundant supplies of hydroelectric and coal-based
energy. In 1998, approximately 39 percent of the domestic production capacity was located in the Pacific Northwest and 32
percent in the Ohio River Valley. The aluminum sheet, plate, and foil industry is located principally in California and the
Appalachian Region (Alabama, Kentucky, Maryland, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia).
Figure 4E-5 shows the distribution of all facilities in both profiled aluminum sectors (primary smelters and aluminum sheet,
plate, and foil producers), based on the 1992 Census of Manufactures.
Figure 4E-5: Number of Facilities by State for Aluminum Sectors (SIC 3334 and 3353)
Source: U.S. DOC, 1987, 1992, and 1997.
4E-13
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
b. Facility size
Facility size can be expressed by the number of employees and/or by the total value of shipments, with the most accurate
depiction of size being a combination of both. Census data by SIC code include numerous small facilities (less than 10
employees) for the profiled aluminum sectors, as shown in Figure 4E-6. These facilities may or may not be production
facilities. Value of shipments, however, are dominated by large establishments (greater than 500 employees) for both primary
aluminum production and aluminum sheet, plate, and foil industries. Figure 4E-6 shows that 93 percent of the value of
shipments for the primary aluminum production industry is produced by establishments with more than 250 employees.
Approximately 88 percent of the value of shipments for the aluminum sheet, plate, and foil industry is produced by
establishments with more than 250 employees. Establishments in the primary aluminum production and the aluminum sheet,
plate, and foil sectors with more than 1,000 employees are responsible for approximately 37 and 53 percent of all industry
shipments, respectively.
Figure 4E-6: Value of Shipments and Number of Facilities in 1992 by Employment Size Category for Profiled
Aluminum Sectors
Number of Facilities
^
1
c
^
c
c
|Primary Production of
Aluminum (SIC 3334)
I Aluminum Sheet, Plate.
and Foil (SIC 3353)
1992 Value of Shipments (in millions)
] Primary Production of
Aluminum (SIC 3334)
1 Aluminum Sheet, Plate,
and Foil (SIC 3353)
Source: U.S. DOC, 1987, 1992, and 1997.
4E-14
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
c. Firm size
The Small Business Administration (SBA) defines a small firm for SIC codes 3334 and 3353 as a firm with 1,000 or fewer
and 750 or fewer employees, respectively. The Statistics of U.S. Businesses (SUSB) provide employment data for firms with
500 or fewer employees and do not specify data for companies with 500-750 employees for SIC 3353 and 500-1000 for SIC
3334. Therefore, based on the data for firms with up to 500 employees,
*• 8 of the 23 firms in the Primary Aluminum Production sector (SIC 3334) had less than 500 employees. Therefore, at
least 35 percent of firms are classified as small. These small firms owned 8 facilities, or 24 percent of all facilities in
the sector.
> 49 of the 66 firms in the Aluminum Sheet, Plate and Foil sector (SIC 3353) had less than 500 employees. Therefore,
at least 74 percent of firms are classified as small. These small firms owned 49 facilities, or 54 percent of all
facilities in the sector.
Table 4E-8 below shows the distribution of firms, facilities, and receipts in SIC 3334 and 3353 by the employment size of the
parent firm. While there are some very small firms in each four-digit SIC code, it is unlikely that these small firms operate
the facilities that are most likely to be affected by the section 316(b) requirements.
Table 4E-8: Number of Firms, Establishments and Estimated Receipts by Employment Size Category
for the Profiled Aluminum Sectors, 1997
Employment
Size Category
0-19
20-99
100-499
500+
Total
Primary Aluminum Production (SIC 3334)
Number
of Firms
5
2
1
15
23
Number of
Facilities
5
2
1
26
34
Estimated Receipts
($2000 millions)
31
13
6
6,003
6,053
Aluminum Sheet, Plate, and Foil (SIC 3353)
Number of
Firms
28
12
9
17
66
Number of
Facilities
28
12
9
42
91
Estimated
Receipts ($2000
millions)
44
93
428
12,603
13J68
Source: U.S. SBA, 2000.
d. Concentration and Specialization Ratios
Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is closely related
to entry barriers with more concentrated industries generally having higher barriers.
The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common measures of
industry concentration. The CR4 indicates the market share of the four largest firms. For example, a CR4 of 72 percent
means that the four largest firms in the industry account for 72 percent of the industry's total value of shipments. The higher
the concentration ratio, the less competition there is in the industry, other things being equal.2 An industry with a CR4 of
more than 50 percent is generally considered concentrated. The HHI indicates concentration based on the largest 50 firms in
the industry. It is equal to the sum of the squares of the market shares for the largest 50 firms in the industry. For example, if
an industry consists of only three firms with market shares of 60, 30, and 10 percent, respectively, the HHI of this industry
would be equal to 4,600 (602 + 302 + 102). The higher the index, the fewer the number of firms supplying the industry and the
2 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a high
concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with foreign producers
or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage containers). Concentration ratios
based on share of domestic production are therefore only one indicator of the extent of competition in an industry.
4E-15
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
more concentrated the industry. An industry is considered concentrated if the HHI exceeds 1,000.
The four largest firms in primary aluminum production accounted for 59 percent of total U.S. primary capacity in 1992.
Consolidation in the industry since the early 1990s has increased concentration. With the merger of Alcoa, Inc. and Reynolds
in May 2000, the single merged company accounts for 56 percent of domestic primary aluminum capacity, and the four
largest U.S. producers control 74 percent of the domestic capacity reported at the end of 1999 (USGS, 1999). The three
largest firms accounted for 62 percent of U.S. primary capacity (Alcoa Inc. for 44 percent, Reynolds for almost 11 percent,
and Kaiser Aluminum Corp. for almost 7 percent) (S&P, 2001).3
The specialization ratio is the percentage of the industry's production accounted for by primary product shipments. The
coverage ratio is the percentage of the industry's product shipments coming from facilities from the same primary industry.
The coverage ratio provides an indication of how much of the production/product of interest is captured by the facilities
classified in an SIC code. The reported ratios in Table 4E-9 indicate that establishments classified in SIC's 3334 and 3353
are highly specialized in production of aluminum and aluminum products, and that these establishments account for virtually
all of the aluminum and semifinished aluminum product produces in the U.S.
Table 4E-9: Selected Ratios for the Profiled Aluminum Sectors
SIC
Code
3334
3353
Year
1987
1992
1987
1992
Total
Number
of Firms
34
30
39
45
Concentration Ratios
4 Firm
(CR4)
74%
59%
74%
68%
8 Firm
(CR8)
95%
82%
91%
86%
20 Firm
(CR20)
99%
99%
99%
99%
50 Firm
(CR50)
100%
100%
100%
100%
Herfindahl-
Hirschman
Index
1934
1456
1719
1633
Specialization
Ratio
95%
n/a
96%
96%
Coverage
Ratio
100%
99%
98%
98%
Source: U.S. DOC, 1987, 1992, and 1997.
Alcoa Inc. and Reynolds merged in May 2000, following approval by the U.S. Department of Justice.
4E-16
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
e. Foreign trade
U.S. aluminum companies have a large overseas presence, which makes it difficult to analyze import data. Reported import
data may reflect shipments from an overseas facility owned by a U.S. firm. The import data therefore do not provide a
completely accurate picture of the extent to which foreign companies have penetrated the domestic market for aluminum.
Table 4E-10 shows trends in export dependence and import share for aluminum ingot, semifabricated products and scrap
combined, since 1990. Imports of primary aluminum rose dramatically in both 1993 and 1994, primarily due to the large
exports from Russian producers. Representatives of major aluminum producing countries met in late 1993 and 1994 to
address the excess global supply of primary aluminum. Those discussions resulted in the Russian Federation's agreement to
reduce production by 500,000 MTs per year, and plans for other producers to cut their production and to assist Russian
producers to improve their environmental performance and stimulate the development of internal demand for the Russian
production (USGS Minerals Yearbook, 1994). Nonetheless, imports have continued to represent a substantial and growing
proportion of U.S. demand. Exports of aluminum and aluminum products combined have remained at approximately 30
percent of domestic production since the mid-1990s, increasing slightly by 2000.
Table 4E-10: Import Share and Export Dependence: Aluminum Ignot, Semifinished, and Scrap
(in thousand metric tons)
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000d
Total Percent Change
1990-2000
Average Annual
Percent Change
Production
(Primary + Recycled
from Old Scrap)
5,407
5,441
5,652
5,325
4,799
4,885
5,147
5,133
5,213
5,349
5,300
-2.0%
-0.2%
Imports for
Consumption
1,514
1,490
1,730
2,540
3,380
2,980
2,810
3,080
3,550
4,000
4,200
177.4%
10.7%
Exports
1,659
1,760
1,450
1,210
1,370
1,610
1,500
1,570
1,590
1,640
1,750
5.5%
0.5%
Apparent
Consumption3
5,264
5,040
5,730
6,600
6,880
6,300
6,610
6,720
7,090
7,740
7,900
50.1%
4.1%
Imports as a
Share of
Apparent
Consumption1"
28.8%
29.6%
30.2%
38.5%
49.1%
47.3%
42.5%
45.8%
50.1%
51.7%
53.2%
Exports as a
Percent of
Production0
30.7%
32.3%
25.7%
22.7%
28.5%
33.0%
29.1%
30.6%
30.5%
30.7%
33.0%
a Calculated by USGS as domestic primary metal production + recovery from old aluminum scrap + net import reliance. Net import c
reliance calculated by USGS as imports - exports + adjustments for Government and industry stock changes.
b Calculated by EPA as imports divided by apparent consumption.
c Calculated by EPA as exports divided by domestic production (primary + recovery from old aluminum scrap)
d Estimated
Source: USGS, 2001a; USGS, 1999; USGS, 1997; USGS, 1994; USGS, Historical Statistics for Mineral Commodities in the US.
4E-17
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
Table 4E-11 shows trends in exports and imports separately for aluminum metal and alloys and for semifinished products
separately. This table shows that imports have grown substantially in both categories between 1993 and 2000, but that the
composition of exports has shifted from primary aluminum (exports of which have declined substantially) to semifinished
(exports of which have grown substantially over the period shown). Exports and imports of both product categories declined
sharply in the first half of 2001, due to the reduction in demand in the U. S. and abroad.
Table 4E-11: Trade Statistics for Aluminum and Semifabricated Aluminum Products
(in thousand metric tons)
Year
1993
1994
1995
1996
1997
1998
1999
2000
Total Percent
Change
1993-2000
Average Annual
Growth Rate
Jan- June 2000
Jan- June 2001
Percent Change
2000-2001
Metals and Alloys, Crude
Import Quantities
1,840
2,480
1,930
1,910
2,060
2,400
2,650
2,490
35.3%
4.4%
1,340
1,210
-9.7%
Export Quantities
400
339
369
417
352
265
318
273
-31.8%
-5.3%
145
102
-29.7%
Plate, Sheets,
Import Quantities
400
507
622
498
562
649
735
791
97.8%
10.2%
398
336
-15.6%
Bars, Strip, etc.
Export Quantities
594
719
812
760
882
893
907
907
52.7%
6.2%
456
426
-6.6%
Source: USGS, 200Ib; USGS, 1999; USGS, 1994.
4E.3 Financial Condition and Performance
The production of primary aluminum is an electrometallurgical process, which is extremely energy intensive. Electricity
accounts for approximately 30 percent of total production costs for primary aluminum smelting. The aluminum industry is
therefore a major industrial user of electricity, spending more than $2 billion annually. The industry has therefore pursued
opportunities to reduce its use of electricity as a means of lowering costs. In the last 50 years, the average amount of
electricity needed to make a pound of aluminum has declined from 12 kilowatt hours to approximately 7 kilowatt hours.
(Aluminum Association, undated).
Like integrated steel mills, aluminum manufacturers require very large capital investments to transform raw material into
finished product. Because of the high fixed costs of production, earnings can be very sensitive to production levels, with high
output levels relative to capacity needed for plants to remain profitable.
4E-18
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Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
Operating margin measures the relationship between revenues and operating costs. Relatively small changes in output or
prices can have large positive or negative impacts on operating margins, given the high fixed capital costs in the aluminum
industry (S&P, 2000). Operating margins do not reflect the changes of capital costs, however, and therefore are only a rough
measure of profitability.
Table 4E-12 below shows trends in operating margins for the primary aluminum and aluminum sheet, plate, and foil sectors
between 1987 and 1997. The table shows considerable volatility in the trends for each sector. Operating margins for the
primary aluminum sector decreased between 1988 and 1993, reflecting the conditions of oversupply in the market that led to
decreasing shipments from U.S. producers (McGraw-Hill, 2000). The increase in value of shipments from 1987 to 1992 is
attributed to the increase in payroll and cost of materials. The operating margin Lower prices for aluminum were responsible
for lower material costs for the aluminum sheet, plate, and foil sector and a modest increase in operating margins between
1989 and 1992.
Table 4E-12: Operating Margins for the Profiled Aluminum Sectors (in millions, constant $2000)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Primary Aluminum Production (SIC 3334)
Value of
Shipments
$5,247
$6,242
$6,348
$6,999
$7,275
$7,485
$6,984
$6,238
$5,620
$5,928
$5,914
Cost of
Materials
$3,196
$3,335
$3,931
$4,821
$5,331
$5,409
$5,424
$4,248
$3,281
$3,832
$3,522
Payroll (all
employees)
$596
$535
$596
$746
$911
$1,031
$983
$790
$627
$749
$672
Operating
Margin
27.7%
38.0%
28.7%
20.5%
14.2%
14.0%
8.3%
19.2%
30.5%
22.7%
29.1%
Aluminum Sheet, Plate, and Foil (SIC 3353)
Value of
Shipments
$13,475
$13,516
$13,179
$12,906
$13,056
$12,905
$11,875
$12,506
$12,637
$12,812
$13,531
Cost of
Materials
$11,126
$11,518
$10,778
$10,075
$9,482
$8,814
$8,460
$9,710
$9,910
$9,155
$9,939
Payroll (all
employees)
$1,294
$1,118
$1,107
$1,185
$1,212
$1,229
$1,257
$1,160
$936
$1,094
$1,180
Operating
Margin
7.8%
6.5%
9.8%
12.8%
18.1%
22.2%
18.2%
13.1%
14.2%
20.0%
17.8%
Source: U.S. DOC, 1988-1991 and 1993-1996; U.S. DOC, 1987, 1992, and 1997.
4E-19
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Aluminum
4E.4 Facilities Operating Cooling Water Intake Structures
In 1982, the Primary Metals industries as a whole (including Steel and Non-ferrous producers) withdrew 1,312 billion gallons
of cooling water, accounting for approximately 1.7 percent of total industrial cooling water intake in the United States. The
industry ranked 3rd in industrial cooling water use, behind the electric power generation industry, and the chemical industry
(1982 Census of Manufactures).
This section presents information from EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures on
existing facilities with the following characteristics:
* they withdraw from a water of the United States;
> they hold an NPDES permit;
*• they have a design intake flow of equal to or greater than two MOD;
*• they use at least 25 percent of that flow for cooling purposes.
These facilities are not "new facilities" as defined by the section 316(b) New Facility Rule and are therefore not subject to
this regulation. However, they meet the criteria of the rule except that they are already in operation. These existing facilities
therefore provide a good indication of what new facilities in these sectors may look like. The remainder of this section refers
to existing facilities with the above characteristics as "section 316(b) facilities."
a. Cooling water uses and systems
Information collected in EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures found that 11 out
of 31 primary aluminum producers (35 percent) and 6 out of 57 aluminum sheet, plate, and foil manufacturers (11 percent)
meet the characteristics of a section 316(b) facility. Aluminum section 316(b) facilities use cooling water for a combination
of purposes, including contact and noncontact production line or process cooling, electricity generation, and air conditioning:
* All section 316(b) primary aluminum producers use cooling water for production line (or process) contact or
noncontact cooling. Thirty percent also use cooling water for air conditioning, 11 percent use cooling water for
electricity, and 60 percent have other uses for cooling water.
*• All section 316(b) aluminum sheet, plate, and foil manufacturers use cooling water for production line (or process)
contact and noncontact cooling. Fifty percent use cooling water for air conditioning, and 50 percent have other uses
for cooling water.
4E-20
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
Table 4E-13 shows the distribution of existing section 316(b) facilities in the profiled aluminum sector by type of water body
and cooling system. The table shows that three-quarters of the section 316(b) facilities employ either a once-through cooling
system (13, or 76%) and one-quarter use a recirculating system (4, or 24%). Ten of the 11 section 316(b) primary aluminum
producers obtain their cooling water from a freshwater stream or river. The other section 316(b) primary producer draws
from a lake or reservoir. All of the section 316(b) aluminum sheet, plate, and foil manufacturers obtain their cooling water
from either a freshwater stream or river. Ninety-four percent (16 facilities) of all section 316(b) aluminum facilities withdraw
their cooling water from a freshwater stream or river.
Table 4E-13: Number of Section 316(b) Facilities by Water Body Type and Cooling System Type for the
Profiled Aluminum Sectors
Water Body Type
Cooling System
Recirculating
Number
Primar
Freshwater Stream or River
Lake or Reservoir
Total
0
1
1
Alumin
Freshwater Stream or River
Total
3
3
Total for Pr(
Freshwater Stream or River
Lake or Reservoir
Total
3
1
4
%of
Total
y Productior
0%
100%
9%
jm Sheet, P
50%
50%
•filed Alumir
19%
100%
24%
Combination
Number
of Aluminu
0
0
0
late, and F(
0
0
turn Facilitie
0
0
0
%of
Total
m (SIC 333
0%
0%
0%
>il (SIC 335
0%
0%
s (SIC 333-^
0%
0%
0%
Once-Through
Number
*)
10
0
10
3)
o
3
\. 3353)
13
0
13
%of
Total
Total
100%
0%
91%
10
1
11
50%
50%
6
6
81%
0%
76%
16
1
17
Source: U.S. EPA, 2000.
4E-21
-------
Section 316(b) EA Chapter 4 for New Facilities
Manufacturing Profile: Aluminum
b. Facility Size
Figure 4E-7 shows the number of section 316(b) facilities by employment size category for the profiled aluminum sectors.
All of the establishments in both SIC codes employ over 500 people, and 45 percent of primary aluminum producers and 50
percent aluminum sheet, plate, and foil manufacturers employ over 1,000 employees.
Figure 4E-7: Number of Section 316(b) Facilities by Employment Size for the
Profiled Aluminum Sectors
| Primary Production of
Aluminum (SIC 3334)
| Aluminum Sheet, Plate,
and Foil (SC 3353)
<500
500-999
>=1000
Source: U.S. EPA, 2000.
c. Firm Size
EPA used the Small Business Administration (SB A) small entity size standards to determine the number of existing section
316(b) profiled aluminum industry facilities owned by small firms. Firms in the Primary Production of Aluminum sector
(SIC 3334) are defined as small if they have 1000 or fewer employees; firms in the Aluminum Sheet, Plate, and Foil sector
(SIC 3353) are defined as small if they have 750 or fewer employees. Table 4E-14 shows that all of the section 316(b)
primary aluminum producers are owned by large firms. The same is true for all the section 316(b) aluminum sheet, plate, and
foil producers.
Table 4E-14: Number of Section 316(b) Facilities by Firm Size for the
Profiled Aluminum Sectors
SIC Code
3334
3353
Total
Large
Number
11
6
17
% of SIC
100%
100%
100%
Small
Number
0
0
0
% of SIC
0%
0%
0%
Total
11
1"
Source: U.S. EPA, 2000; D&B, 2001.
4E-22
-------
Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Aluminum
REFERENCES
The Aluminum Association. Undated. Aluminum: An American Industry in Profile.
The Aluminum Association. 2001. The Aluminum Situation. September 2001.
The Aluminum Association. 1999. "Northwest Smelter Restarts Are Seen Unlikely", Industry News. October 29, 1999.
Bureau of Labor Statistics (BLS). 2000. Producer Price Index. Series: PCU33_#-Primary Metal Industries.
Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.
Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification Manual.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000.
U.S. Industry & Trade Outlook '00.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 1999.
U.S. Industry & Trade Outlook '99.
Standard & Poor's (S&P). 2000. Industry Surveys - Metals: Industrial. January 20, 2000.
Standard & Poor's (S&P). 2001. Industry Surveys - Metals: Industrial. July 12, 2001.
U.S. Department of Commerce (U.S. DOC). 1989-1998. Bureau of the Census. Current Industrial Reports. Survey of Plant
Capacity.
U.S. Department of Commerce (U.S. DOC). 1988-1991 and 1993-1996. Bureau of the Census. Annual Survey of
Manufactures.
U.S. Department of Commerce (U.S. DOC). 1987, 1992, and 1997. Bureau of the Census. Census of Manufactures.
U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling Water Intake
Structures.
U.S. Environmental Protection Agency (U.S. EPA). 1995. Office of Enforcement and Compliance Assurance. Profile of the
Nonferrous Metals Industry, EPA Office of Compliance Sector Notebook Project. EPA 310-R-95-010. September, 1995.
United States Geological Survey (USGS). Historical Statistics for Mineral Commodities in the United States. Aluminum.
United States Geological Survey (USGS). 200 la. Mineral Commodity Summaries. Aluminum. Author: Patricia Plunkert.
United States Geological Survey (USGS). 200 Ib. Mineral Industry Surveys. Aluminum, author: Patricia Plunkert.
July 2001.
United States Geological Survey (USGS). 1999. Minerals Yearbook. Aluminum. Author: Patricia Plunkert.
United States Geological Survey (USGS). 1998. Metal Prices in the United States through 1998.
United States Geological Survey (USGS). 1997. Mineral Commodity Summaries. Aluminum. Author: Patricia Plunkert.
United States Geological Survey (USGS). 1994. Minerals Yearbook. Aluminum. Author: Patricia Plunkert.
U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR section 121.201.
Value Line. 2001. Metals & Mining (Diversified) Industry. July 27, 2001.
4E-23
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Section 316(b) EA Chapter 4 for New Facilities Manufacturing Profile: Aluminum
THIS PAGE INTENTIONALLY LEFT BLANK
4E-24
-------
Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Chapter 5: Baseline Projections of
New Facilities
INTRODUCTION
Facilities regulated under the final section 316(b) New
Facility Rule are new greenfield and stand-alone
electric generators and manufacturing facilities that
operate a new cooling water intake structure (CWIS)
or a CWIS whose design capacity is increased, require
a National Pollutant Discharge Elimination System
(NPDES) permit, have a design intake flow of equal to
or greater than two million gallons per day (MOD),
and use at least 25 percent of their intake water for
cooling purposes. The overall costs and economic
impacts of the final rule depend on the number of new
facilities subject to the rule and on the planned
characteristics (i.e., construction, design, location, and
capacity) of their CWISs. The projection of the
number and characteristics of new facilities represents
baseline conditions in the absence of the rule and
identifies the facilities that will be subject to the final
section 316(b) New Facility Rule.
CHAPTER CONTENTS
5.1 New Electric Generators 5-1
5.1.1 Projected Number of New Facilities 5-2
5.1.2 Development of Model Facilities 5-9
5.1.3 Summary of Forecasts for New Electric
Generators 5-11
5.1.4 Uncertainties and Limitations 5-11
5.2 New Manufacturing Facilities 5-13
5.2.1 Methodology 5-13
5.2.2 Projected Number of New Manufacturing
Facilities 5-16
5.2.3 Summary of Forecasts for New Manufacturing
Facilities 5-33
5.2.4 Uncertainties and Limitations 5-34
5.3 Summary of Baseline Projections 5-35
References 5-36
Appendix to Chapter 5 5-37
This chapter presents forecasts of the number of new
electric generators and manufacturing facilities subject to the final section 316(b) New Facility Rule that will begin operating
between 2001 and 2020. The chapter consists of three sections. Section 5.1 presents the methodology and results of
estimating the number and characteristics of new electric generating facilities. Section 5.2 presents the methodology and
results of estimating the number of new manufacturing facilities. Each section discusses uncertainties about the estimated
number and type of facilities that will be constructed in the future. The final section summarizes the results of the new
baseline projections of facilities.
5.1 NEW ELECTRIC GENERATORS
EPA estimates that 83 new electric generators subject to the final section 316(b) New Facility Rule will begin operation
between 2001 and 2020. Of these, 69 are new combined-cycle facilities and 14 are new coal facilities.1 This projection is
based on a combination of national forecasts of new steam electric capacity additions and information on the characteristics of
specific facilities that are planned for construction in the near future or that have been constructed in the recent past. Using
these two types of information, EPA developed model facilities that provide the basis for estimating costs and economic
impacts for electric generators throughout the remainder of this document.
1 Combined-cycle facilities use an electric generating technology in which electricity is produced from otherwise lost waste heat
exiting from one or more gas (combustion) turbines. The exiting heat is routed to a conventional boiler or to a heat recovery steam
generator for utilization by a steam turbine to produce electricity. This process increases the efficiency of the electric generating unit.
5-1
-------
Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
5.1.1 Projected Number of New Facilities
EPA used four main data sources to project the number and characteristics of new steam electric generators subject to the
final rule: (1) the Energy Information Administration's (EIA) Annual Energy Outlook 2001 (AEO2001); (2) Resource Data
International's (RDI) NEWGen Database, (3) EPA's section 316(b) industry survey of existing facilities; and (4) EIA's Form
EIA-860A and 860B databases. The diagram in Figure 5-1 below presents the steps and data inputs required for EPA's
estimate of the number of new in-scope electric generators. Also included are the values and the data sources of each input.
Figure 5-1: Estimation of the Number of New Steam Electric Generators, 2001 - 2020
Variable
Total Capacity
Additions
X
*
% of Capacity
Additions from
New Facilities
±
Capacity Additions
from New Facilities
i
Avg. Capacity
New Facilities
±
Total # of
New Facilities
X
*
In-Scope
%
±
# New In-Scope
Facilities
Value
Combined
Cycle
203,985 MW
87.7%
178,894 MW
741 MW
241
28.6%
69
Coal
21,813 MW
76.1%
16,599 MW
475 MW
35
40.5%
14
Source
Combined
Cycle Coal
AEO
NEWGen
Calcu
NEWGen
Database
Calcu
EPA Research
ofNEWGen
Facilities
Calcu
2001
Database
lation
EIA-860A and
EIA-860B
Databases
lation
§316(b)
Industry Survey
lation
Source: U.S. EPA analysis, 2001.
The following sections provide detail on each data source used in this analysis and the calculations necessary to derive the
numbers presented in the diagram. The final subsection, 5.1.1 .e, summarizes how EPA combined the information from the
different data sources to calculate the number of new combined-cycle and coal facilities.
a. Annual Energy Outlook 2001
The Annual Energy Outlook (AEO) is published annually by the U.S. Department of Energy's Energy Information
Administration (EIA) and presents forecasts of energy supply, demand, and prices. These forecasts are based on results
generated from EIA's National Energy Modeling System (NEMS, U.S. DOE, 2000a). The NEMS system generates
5-2
-------
Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
projections based on known levels of technological capabilities, technological and demographic trends, and current laws and
regulations. Other key projections are made regarding the pricing and availability of fossil fuels, levels of economic growth,
and trends in energy consumption. The AEO projections are used by Federal, State, and local governments, trade
associations, and other planners and decision-makers in both the public and private sectors. EPA used the most recent
forecast of capacity additions between 2001 and 2020 (presented in the AEO2001) to estimate the number of new combined-
cycle and coal-fired steam electric plants.
The AEO2001 presents forecasts of both planned and unplanned capacity additions between 2001 and 2020 for eight facility
types (coal steam, other fossil steam, combined-cycle, combustion turbine/diesel, nuclear, pumped storage/other, fuel cells
and renewables). EPA has determined that only facilities that employ a steam electric cycle require significant quantities of
cooling water and are thus potentially affected by the final section 316(b) New Facility Rule. As a result, this analysis
considers capacity additions associated with coal steam, other fossil steam, combined-cycle, and nuclear facilities only. In its
Reference Case, the AEO2001 forecasts total capacity additions of 370 GW from all facility types between 2001 and 2020.2
Coal steam facilities account for 22 GW, or 6 percent of the total forecast, and combined-cycle facilities account for 204 GW,
or 55 percent. The remaining capacity additions, 39 percent of the total, come from non-steam facility types. Based on all
available data in the rulemaking record, EPA projects no new additions for nuclear and other fossil steam capacity.
Table 5-1 below presents the forecasted capacity additions between 2001 and 2020 from the Reference Case of the AEO2001.
Section 5.A.2 in the Appendix to this chapter contains additional information on the AEO forecast, including capacity
additions by year; Section 5. A.5 contains information on the distribution of the forecasted combined-cycle capacity additions
by North American Electric Reliability Council (NERC) region.
Table 5-1: AEO2001 Capacity Addition Forecasts by Facility Type
Facility Type
Coal Steam
Other Fossil Steam"
Combined-Cycle
Nuclear
Total Steam Electric Capacity Additions
Combustion Turbine/Diesel
Pumped Storage/Other15
Fuel Cells
Renewable0
Total Capacity Additions
Capacity Addition (MW)
21,813
0
203,985
0
225, 798
136,085
0
(2001 - 2020)
Percent of Total Additions
6%
0%
55%
0%
61%
37%
0%
289 < 1%
8,209
370,381
2%
100%
a Includes oil-, gas-, and dual-fired capability.
b Other includes methane, propane gas, and blast furnace gas for utilities; and hydrogen, sulfur, batteries, chemicals, fish oil, and spent
sulfite liquor.
c Includes conventional hydroelectric, geothermal, wood, wood waste, municipal solid waste, other biomass, solar thermal,
photovoltaics, and wind power.
Source: Adapted from U.S. DOE, 2001a (Supplement Table 72)
2 Among other model parameters, the AEO2001 Reference Case assumes economic growth of 3 percent and electricity demand
growth of 1.8 percent.
5-3
-------
Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
b. NEWGen database
The NEWGen database is created and regularly updated by Resource Data International's (RDI) Energy Industry Consulting
Practice. The database provides detailed facility-level data on electric generation projects, including new (greenfield and
stand-alone) facilities and additions and modifications to existing facilities, proposed over the next several years. Information
in the NEWGen database includes: generating technology, fuel type, generation capacity, owner and holding company,
electric interconnection, project status, on-line dates, and other operational details. The majority of the information contained
in this database is obtained from trade journals, developers, local authorities, siting boards, and state environmental agencies.
EPA used the February 2001 version of the NEWGen database to develop model facilities for the economic analysis of
electric generators. Specifically, the database was used to:
>• calculate the percentage of total combined-cycle capacity additions and the percentage of total coal capacity
additions derived from new (greenfield and stand-alone) facilities;
>• estimate the in-scope percentage of new combined-cycle facilities; and
>• determine the technical, operational, and ownership characteristics of new in-scope combined-cycle facilities.
The first step in the NEWGen database analysis was to identify the electric generation projects of interest to the final section
316(b) New Facility Rule. EPA screened the database by state, project status, and facility type to eliminate projects that are
out of the scope of this rule. The next subsection presents EPA's screening analysis. The following subsections present a
description of each of the three uses of the NEWGen database listed above.
»** NEWGen screening analysis
The February 2001 version of the NEWGen database contains 941 electric generation projects. EPA screened each of these
facilities with respect to the following criteria:
*• State: Only facilities located within the United States are affected by the final section 316(b) New Facility Rule.
EPA did not consider facilities located in Canada or Mexico in this analysis.
*• Project status: EPA considered only those projects that are "Under Construction," "Operating," in "Early
Development," or in "Advanced Development." The analysis did not consider projects that were "Canceled" or
"Tabled" because those projects are unlikely to be completed.
*• Facility type: Only facilities that employ a steam electric cycle use substantial amounts of cooling water and are
therefore of interest to the analysis of the final section 316(b) New Facility Rule. Since the AEO2001, discussed in
Section 5.1.1.a above, only predicts steam electric capacity additions at combined-cycle and coal steam facilities,
EPA's analysis only considered these two types of projects listed in the NEWGen database.3
Of the 941 projects in the NEWGen database, 383 combined-cycle facilities and 26 coal facilities passed these three
screening criteria. EPA furthermore differentiated between projects at "New Plants" (i.e., greenfield or stand-alone) and
those at "Existing Facilities." Table 5-2 summarizes the results of the screening analysis.
3 Facility types considered for the combined-cycle analysis include "Comb Cycle," "CC/Cogen," and "CT/Cogen." Facility types
considered for the coal analysis include "Coal Boiler" and "Coal Boiler/Cogen."
5-4
-------
Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-2: Number of New Projects
Facility Type
Combined-Cycle
Coal
Total
New Plants
320
16
336
Identified in the NEWGen Screening Analysis
Existing Facilities
63
10
73
Total
383
26
409
a The number of new plants include facilities in scope and out of scope of the New Facility Rule.
Source: EDI, 2001.
»** Percentage of capacity additions derived from new facilities
The first step in estimating the capacity additions derived from new facilities is to determine their share of the projected total
new capacity of both new facilities and existing facilities (see diagram in Figure 5-1 above). The NEWGen database provides
this information for both combined-cycle and coal facilities. Together, new facilities and existing facilities with capacity
additions constitute all of the proposed capacity additions associated with combined-cycle and coal facilities. Table 5-3
below presents the size of the new and existing facilities identified in the screening analysis as well as the percentage of total
capacity associated with new and existing facilities of each type. The table shows that for both combined-cycle and coal
facilities, the vast majority of capacity additions, 88 percent and 76 percent, respectively, come from new facilities.
Table 5-3: Share of Capacity Additions from New (Greenfield and Stand-alone) Facilities
Facility Type
Combined-Cycle
Coal
Number of Facilities
New Existing
320 63
16 10
Steam Capacity (MW)
New Existing
223,868 31,531
9,339 2,930
Percent of Total Capacity
New Existing
87.7% 12.3%
76.1% 23.9%
Source: EDI, 2001.
While information on both new and existing plants as well as both combined-cycle and coal plants was used to determine the
percentage of capacity additions derived from new (greenfield and stand alone) facilities, all subsequent analyses of the
NEWGen database only consider the 320 new combined-cycle plants. Projects at "Existing Facilities," which may include
capacity additions and modifications, will be addressed under the Phase II or Phase III section 316(b) rules for existing
facilities (to be proposed in February of 2002 and June of 2003, respectively) and are therefore not of interest to the analysis
of the final section 316(b) New Facility Rule. In addition, because the total number of new coal plants identified in the
NEWGen database (16) is small, EPA found it more reliable to use the section 316(b) Industry Survey, described in Section
5.1.1.C below, to estimate the in-scope percentage, capacity, and technology characteristics for coal plants subject to the final
section 316(b) New Facility Rule. The survey included far more facilities over a longer period of time, providing better
information on the characteristics of coal plants.
»** In-scope percentage of new combined-cycle facilities
Identification of facilities within the scope of the final section 316(b) New Facility Rule requires information on the source
and quantity of cooling water used by each of the 320 new combined-cycle facilities that passed the screening analysis. Only
limited information on cooling water use was available in the NEWGen database. As a result, EPA obtained cooling water
information through extensive research of public data sources such as state permitting authorities and public utility
5-5
-------
Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
departments. This research revealed information on cooling water use for 199 of the 320 new combined-cycle facilities.4
Each of the 199 greenfield or stand-alone combined-cycle facilities for which cooling water information was available was
subsequently screened with respect to the following criteria to identify those facilities in scope of the final section 316(b)
New Facility Rule:
*• Cooling Water Source: The facility withdraws from a water of the United States;
> New or Modified CWIS: The facility uses a new or modified CWIS;5
> NPDES Permit: The facility holds or requires an NPDES permit; and
*• Design Intake Capacity: The facility has a design intake capacity equal to or greater than two million gallons per
day (MOD).
The analysis of the permit applications showed that 57 of the 199 facilities with cooling water information, or 28.6 percent,
meet all four criteria, and thus fall within the scope of the final section 316(b) New Facility Rule. Table 5-4 presents the
results of this analysis. The table also provides an indication of why each of the remaining 142 facilities was determined to
be out of scope of the final rule. The table indicates that the vast majority (93 percent) of the 142 out of scope facilities do
not withdraw from waters of the U.S. For more information on cooling water sources of the 199 facilities, see Section 5. A.3
in the Appendix to this chapter.
Table 5-4: In Scope Status of NEWSen Combined-Cycle Facilities
In Scope Status
In Scope
Out of Scope
Does not -withdraw from -waters of the U.S."
Existing CWIS with no increase in design capacity
No NPDES permit
Design intake flow less than 2 MGD
Number of Facilities Percent of Facilities
57 28.6%
142 71.4%
132
7
2
1
93.0%
4.9%
1.4%
0.7%
a Includes 22 facilities that employ a dry cooling technology.
Source: U.S. EPA analysis of information from state permitting authorities, 2001, andRDI, 2001.
Most of the remaining discussion of the NEWGen database analysis focuses on the 57 in-scope combined-cycle facilities.
The average steam capacity (in MW) of the 199 facilities with cooling water information is required to estimate the total
number of projected new combined-cycle facilities. Table 5-5 below summarizes the proposed average steam electric
generating capacity of the 199 NEWGen facilities, by in-scope status. The table shows that the average capacity of all 199
facilities is 741 MW (the average capacity for in-scope facilities is 747 MW, while the average for out of scope facilities is
739 MW).
4 Facilities for which cooling water information is not available are not disregarded when determining overall impacts from the final
rule. The methodology of estimating the number of new combined-cycle facilities is based on the overall new capacity projected by the
AEO2001, and the distribution of characteristics of facilities for which cooling water information was available (see Section 5.1.1 .e
below). EPA applied those percentages to an estimate of the number of new facilities based on energy demand to determine the number of
in-scope facilities. The total number of facilities that may experience costs and an economic impact under the final section 316(b) New
Facility Rule is therefore independent of the absolute number of NEWGen facilities for which cooling water information is available.
5 A modified CWIS is an existing CWIS whose design intake capacity is increased to accommodate the additional cooling water
needs of the new facility.
5-6
-------
Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-5: Average Size of
In Scope Status
In Scope
Out of Scope
Total
Number of Facilities
57
142
199
MEWSen Combined-Cycle Facilities
Steam Capacity
(MW)
42,563
104,892
147,455
Average Steam Capacity
(MW)
747
739
741
Source: U.S. EPA analysis of information from state permitting authorities, 2001, and RDI, 2001.
»** Ch aracteristi.es of in-scope NE WGen facilities
The final use of the NEWGen database in the analysis of new combined-cycle facilities was to characterize the facilities'
cooling water use characteristics. The costing analysis for the final section 316(b) New Facility Rule depends in part on two
factors: the facility's cooling water source (i.e., freshwater or marine water) and its baseline cooling system type (i.e., once-
through or recirculating system).6 Table 5-6 presents the distribution of the 57 in-scope facilities by these two characteristics.
For more information on the types of water bodies from which the 57 NEWGen facilities propose to withdraw cooling water,
see Section 5.A.4 in the Appendix to this chapter.
Table 5-6: In-Scope NEWSen Combined-Cycle Facilities by Water Body Type and Cooling System Type
Marine
Freshwater
Total
Recirculating
No.
3
33
36
%
5%
58%
63%
Once Through
No.
3
0
3
%
5%
0%
5%
Unknown
No.
3
15
IS
%
5%
26%
32%
Total
No.
9
48
57
%
16%
84%
100%
Source: U.S. EPA analysis of information from state permitting authorities, 2001, and RDI, 2001.
Table 5-6 shows that the majority of in-scope facilities, 36, or 63 percent, propose to use a recirculating cooling system in the
baseline, while only three facilities, or five percent, plan to build a once-through system. For 18 facilities, or 32 percent, the
cooling system type was unknown.7 Forty-eight of the 57 in-scope facilities propose to withdraw from a freshwater source,
while nine will withdraw from a marine source.
c. Section 316(b) Industry Survey of Existing Facilities
The NEWGen database discussed in the previous section contained information on only 16 new (greenfield and stand-alone)
coal facilities. EPA believes that information from EPA's section 316(b) industry survey of existing facilities (U.S. EPA,
2000) was more reliable for estimating characteristics of new coal facilities projected over the 2001-2020 analysis period
because it included far more plants over a longer time period.
*• The screener questionnaire was sent to 1,050 nonutility plants and 1,550 manufacturing facilities in January 1999.
>• The detailed questionnaire was sent to 280 utility electric generation plants, 52 nonutility electric generation plants,
and 320 manufacturing plants in January 2000.
6 Marine sources of cooling water include oceans, estuaries, and tidal rivers. Facilities using marine sources of cooling water may not
always achieve the high recycle rates obtainable by using freshwater for cooling. Thus, facilities using marine waters may have higher
costs associated with pumping greater volumes of make-up water.
7 How these 18 facilities were integrated into the analysis is described in Section 5.1.2.a below.
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
*• The short technical questionnaire was sent to 637 utility plants that did not receive a detailed questionnaire in
January 2000.
All three survey instruments requested technical information, including the facility's in-scope status, cooling system type,
intake flow, and source water body. In addition, the screener questionnaire and the detailed questionnaire also requested
economic and financial information. For more information on the three survey instruments, see Information Collection
Request; Detailed Industry Questionnaires: Phase II Cooling Water Intake Structures (U.S. EPA, 1999).
EPA used the following survey data on coal plants constructed during the past 20 years to project the number and
characteristics of new (greenfield and stand-alone) coal facilities:8
* In-scope status: The three survey instruments identified 111 unique coal-fired facilities that began commercial
operation between 1980 and 1999. Of the 111 facilities, 45, or 40.5 percent, would be in scope of the final section
316(b) New Facility Rule if they had been new facilities.9
>• Water body type: Of the 45 in scope facilities, 42 withdraw cooling water from a freshwater body while three
withdraw from a marine water body.
*• Cooling system type: The 45 in scope facilities have the following cooling system types: 28 recirculating, nine
once-through, four recirculating with a cooling lake or pond, and four with a combination system.
In developing model coal facilities, EPA only considered those existing survey plants that have a once-through system, a
recirculating system, or a recirculating system with a cooling lake or pond. Table 5-7 below presents the distribution of the
41 in-scope facilities that meet these cooling system criteria by water body type and cooling system type.
Table 5-7: Survey Coal Facilities by Water Body Type and Cooling System Type
Marine
Freshwater
Total
Recirculating
No. %
3 7%
25 61%
28 68%
Recirculating with Lake
No. %
0 0%
4 10%
4 10%
Once-Through
No. %
0 0%
9 22%
9 22%
Total
No. %
3 7%
38 93%
41 100%
Source: U.S. EPA analysis, 2001.
d. El A databases
In addition to the section 316(b) industry survey of existing facilities, EPA used two of EIA' s electricity databases in the
analysis of projected new coal plants: Form EIA-860A, Annual Electric Generator Report - Utility and Form EIA-860B,
Annual Electric Generator Report - Nonutility (U.S. DOE, 1998a; U.S. DOE, 1998b). EPA used these databases for three
purposes:
* Identify which of the surveyed electric generators are "coal" plants: EPA used the prime mover and the primary
energy source, reported in the EIA databases, to determine if a surveyed facility is a coal plant. Only plants that only
have coal units were considered in this analysis.
* Identify coal plants constructed during the past 20 years: Both EIA databases request the in-service date of each
unit. Of the surveyed facilities, 111 coal-fired plants began commercial operation between 1980 and 1999.
8 Coal plants constructed during the past 20 years were identified from Forms EIA-860A and EIA-860B. See discussion in
subsection 5.1.1. d below.
9 For convenience, these 45 existing facilities that would be subject to the final section 316(b) New Facility Rule if they were new
facilities, are referred to as the 45 "in-scope" facilities, although as existing facilities, they will not in fact be subject to the rule.
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Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
>• Determine the average size of new coal plants: The 111 identified coal plants have an average nameplate rating of
475 MW.10
e. Summary of the number of new facilities
EPA estimated the number of projected new combined-cycle and coal plants using information from the four data sources
described in subsections 5.1.1.a to S.l.l.dabove. EPA used the U.S. Department of Energy's estimate of new capacity
additions (combined-cycle: 204 GW, coal: 22 GW) and multiplied it by the percentage of capacity additions that will be built
at new facilities (combined-cycle: 88%, coal: 76%) to determine the new capacity that will be constructed at new facilities
(combined-cycle: 179 GW, coal: 17 GW). EPA then divided this value by the average facility size (combined-cycle: 741
MW, coal: 475 MW) to determine the total number of potential new facilities (combined-cycle: 241, coal: 35; both in scope
and out-of-scope of the section 316(b) New Facility Rule). Finally, based onEPA's estimate of the percentage of facilities
that meet the two MOD flow threshold (combined-cycle: 28.6%, coal: 40.5%), EPA estimates there will be 69 new in-scope
combined-cycle facilities and 14 new coal facilities over the 2001-2020 period. These calculations are summarized in Figure
5-1 at the beginning of Section 5.1.1.
5.1.2 Development of Model Facilities
The final step in the baseline projection of new electric generators was the development of model facilities for the costing and
economic impact analyses. This step required translating characteristics of the analyzed combined-cycle and coal facilities
into characteristics of the 83 projected new facilities. The characteristics of interest are: (1) the type of water body from
which the intake structure withdraws (freshwater or marine water); (2) the facility's type of cooling system (once-through or
recirculating system); and (3) the facility's steam electric generating capacity. The following two subsections discuss how
EPA developed model facilities for combined-cycle and coal facilities, respectively.
a. Combined-cycle facilities
EPA's analysis projected 69 new in-scope combined-cycle facilities. Cooling water and economic characteristics of these 69
facilities were determined based on the characteristics of the 57 in-scope NEWGen facilities.11 EPA developed six model
facility types based on the 57 facilities' combinations of source water body and type of cooling system. Within each source
water body/cooling system group, EPA created between one and three model facilities, depending on the number of facilities
within that group and the range of their steam electric capacities. For example, there were 48 NEWGen facilities that plan to
withdraw from a freshwater body and build a recirculating system. Their steam electric capacities ranged from 165 MW to
1,600 MW. EPA sorted the 48 facilities by their capacity and divided them into three groups of approximately equal size.
For each group, the average facility size was calculated. The model facility based on the NEWGen facilities in the first group
represents freshwater/recirculating facilities with a relatively small generating capacity (439 MW); the second model facility
represents freshwater/recirculating facilities with a medium generating capacity (699 MW); and the third model facility
represents freshwater/recirculating facilities with a relatively large generating capacity (1,061 MW). The same approach was
taken to develop model facilities that withdraw from a marine water body and/or plan to install a once-through system.
Based on the distribution of the 57 NEWGen facilities by source water body group, cooling system type, and size group, EPA
determined how many of the 69 projected new facilities are represented by each of the six model facility types. Table 5-9
below presents the six model facility types, their estimated steam electric capacity, the number of NEWGen facilities upon
which each model facility type was based, and the number of projected new facilities that belong to each type. Section 5.A.6
in the Appendix to this chapter provides more detail on the 57 NEWGen facilities and the model facility assignment of the 69
projected new facilities.
10 The average capacity for in-scope coal facilities is 763 MW, while the average for out-of-scope coal facilities is 278 MW.
11 As shown in Table 5.6 above, EPA could determine the water body type for all 57 in-scope facilities but did not have information
on the cooling system type for 18 facilities. Since all freshwater facilities with a known cooling system type propose to build a
recirculating system, EPA assumed that the 15 freshwater facilities with an unknown cooling system type will also build a recirculating
system. For marine facilities, EPA assumed that two of the three facilities with an unknown system type would build a recirculating
system in the baseline while one would build a once-through system.
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-9: Combined-Cycle Model Facilities
Model Facility
Type
CC OT/M-1
CCR/M-1
CCR/M-2
CC R/FW-1
CC R/FW-2
CC R/FW-3
Total
Cooling System
Type
Once-Through
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Source Water
Body
Marine
Marine
Marine
Freshwater
Freshwater
Freshwater
Steam Electric
Capacity (MW)
1,031
489
1,030
439
699
1,061
Number of NEWGen
Facilities
4
4
1
15
17
16
57
Number of Projected
New Facilities
5
5
1
18
21
19
69
Source: U.S. EPA analysis, 2001.
b. Coal facilities
EPA's analysis projected 14 new in-scope coal facilities. The same approach was used to assign cooling water and economic
characteristics to these 14 facilities as was used for combined-cycle facilities (see discussion in the previous section). EPA
determined the characteristics of the 14 projected new coal facilities based on the characteristics of the 41 existing in-scope
coal facilities presented in Table 5-7 above. EPA developed eight model facility types based on the 41 facilities' source water
body and their type of cooling system. Within each source water body/cooling system group, EPA created between one and
three model facilities, depending on the number of facilities within that group and the range of their steam electric capacities.
Based on the distribution of the 41 survey facilities by source water body group, cooling system type, and size group, EPA
determined how many of the 14 projected new coal facilities are represented by each of the eight model facility types. Table
5-10 below presents the eight model facility types, their estimated steam electric capacity, the number of survey facilities
upon which each model facility type was based, and the number of projected new coal facilities that are represented by each
type. Section 5.A.7 in the Appendix to this chapter provides more detail on the 14 survey facilities and the model facility
assignment of the 14 projected new coal facilities.
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-10: Coal Model Facilities
Model Facility
Type
CoalR/M-1
CoalOT/FW-1
Coal OT/FW-2
Coal OT/FW-3
CoalR/FW-1
Coal R/FW-2
Coal R/FW-3
CoalRL/FW-1
Total
Cooling System Type
Recirculating
Once-Through
Once-Through
Once-Through
Recirculating
Recirculating
Recirculating
Recirculating with Lakea
Source Water
Body
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Steam Electric
Capacity (MW)
812
63
515
3,564
173
625
1,564
660
Number of
Existing Survey
Facilities
3
3
5
1
10
7
8
4
41
Number of
Projected New
Facilities
1
1
1
1
3
3
3
1
14
a For this analysis, recirculating facilities with cooling lakes are assumed to exhibit characteristics like a once-through facility.
Source: U.S. EPA analysis, 2001.
5.1.3 Summary of Forecasts for New Electric Generators
EPA estimates that a total of 276 new steam electric generators will begin operation between 2001 and 2020. Of the total
number of new plants, EPA projects that 83 will be in scope of the final section 316(b) New Facility Rule. Sixty-nine are
expected to be combined-cycle facilities and 14 coal-fired facilities. Table 5-11 summarizes the results of the analysis.
Table 5-11: Number of Projected New Electric Generators (2001 to 2020)
Facility Type
Combined-Cycle
Coal
Total
Total
Number of
New
Facilities
241
35
276
Facilities In Scope of the Final Rule
Recirculating
Freshwater
58
9
67
Marine
6
1
7
Recirc. with Lake
Freshwater
0
1
1
Marine
0
0
0
Once-Through
Freshwater
0
3
3
Marine
5
0
5
Total
69
14
83
Source: U.S. EPA analysis, 2001.
5.1.4 Uncertainties and Limitations
There are unavoidable uncertainties associated with EPA's estimation of the number of new electric generators that will be
subject to the final section 316(b) New Facility Rule. While 20-year projections about economic and technological trends are
always challenging, this is particularly the case for the electric generating industry which is in the middle of a major
restructuring as the result of ongoing industry deregulation. In this analysis, EPA has used the best information available to
reasonably estimate the costs and economic impacts of this rule. This analysis employs the following assumptions:
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Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
>• The AEO2001 accurately forecasts new capacity additions. EPA believes that the AEO2001, developed using
the Department of Energy's (DOE) National Energy Modeling System (NEMS), represents the best information on
future capacity trends currently available. Its results are well reviewed and documented, publicly available, and
widely accepted. However, new technology developments, changes in energy costs, or economic growth rates
different from those projected in AEO2001 could result in different actual capacity trends.12
*• Future combined-cycle facilities will be the same size as NEWGen combined-cycle facilities planned for the
near future. The average size of the analyzed NEWGen combined-cycle facilities is 741 MW. EPA believes that
this estimate is reasonable because it is consistent with DOE's forecast of the average size of a new combined-cycle
unit of approximately 360 MW (U.S. DOE, 2000b, Table 43).13 According to DOE, new combined-cycle facilities
generally have more than one unit (Beamon, 200 la). If new facilities had two units on average, the average new
combined-cycle facility would have a generating capacity of approximately 720 MW.
*• Future coal facilities will be the same size as coal facilities constructed during the past 20 years. The average
size of the analyzed coal facilities is 475 MW, which is somewhat smaller than DOE's forecast of the size of a new
coal facility (U.S. DOE, 2000b, Table 43).14 DOE estimates that a new coal unit would be 400 MW and that a coal
facility would generally have more than one unit (Beamon, 200 Ib). However, using a smaller average size would
result in an overestimate of the number of new coal facilities, not an underestimate. The results of EPA's analysis
are therefore conservative.
*• Future facilities will have the same cooling water characteristics as the analyzed existing facilities. EPA
estimates that 28.6 percent of new combined-cycle facilities and 40.5 percent of new coal facilities will be subject to
the final section 316(b) New Facility Rule as a result of their cooling water characteristics. In addition, EPA
estimates that 93 percent of all new combined-cycle facilities and 71 percent of all new coal facilities will install a
recirculating system in the baseline. EPA believes that the high projected use of recirculating systems reflects a
trend towards increasing consciousness in many parts of the country of the value of aquatic resources and the need to
conserve water. As a result, EPA expects that these characteristics are not short-term phenomena that are tied to
economic conditions but represent developments that are likely to continue beyond the current business cycle. The
Agency therefore believes that the projected number of new in-scope facilities and their projected cooling system
types are realistic.
For the reasons listed above, EPA has a fairly high degree of confidence in its overall projection of the number of new electric
generation facilities.
12 The Department of Energy (DOE) believes that there has been a change in the forecast of new capacity additions since the
publication of the AEO2001. In specific, DOE believes that 185 GW of new combined-cycle capacity (instead of 204 GW) and 30 GW of
new coal capacity (instead of 22 GW) will begin operation between 2001 and 2020. EPA recalculated the projected number of new
combined-cycle and coal facilities using these alternative projections. This re-analysis resulted in an decrease in the number of combined-
cycle facilities from 241 to 219. The number of in-scope combined-cycle facilities decreased from 69 to 63. The total number of coal
facilities increased from 35 to 48. The number of in-scope coal facilities increased from 14 to 19. The six in-scope combined-cycle
facilities that are no longer projected are all estimated to employ recirculating systems in the baseline. Of the five additional coal facilities,
four are estimated to operate a recirculating system and one a once-through system in the baseline. This change in capacity forecasts
would further result in an increase in the total annualized cost for new coal facilities from $21.4 to $23.7 million and a decrease in the total
annualized cost for new combined-cycle facilities from $13.3 to $12.8 million. Overall annualized costs for the final rule would increase
from $47.7 to $49.5 million. See Chapter 6: Facility Compliance Costs for the calculation of annualized costs incurred under the final rule.
13 DOE projects three types of new combined-cycle units: integrated coal-gasification combined-cycle (428 MW), conventional
gas/oil combined-cycle (250 MW), and advanced oil/gas combined-cycle (400 MW). The average size of all three types is approximately
360 MW.
14 DOE only projects one type of new coal unit: conventional pulverized coal (400 MW).
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Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
5.2 NEW MANUFACTURINS FACILITIES
EPA estimates that 38 new manufacturing facilities subject to the final section 316(b) New Facility Rule will begin operation
between 2001 and 2020. Of the 38 facilities, 22 are chemical facilities, ten are steel facilities, two are petroleum refineries,
two are paper mills, and two are aluminum facilities.15 The projection is based on a combination of industry-specific forecasts
and information on the characteristics of existing manufacturing facilities.
As described in Chapter 4, the recent slowdown in the U.S. economy has not yet been fully reflected in published forecasts
for various industries. The Congressional Budget Office is continuing to forecast modest GDP growth for 2002 and after, but
acknowledges that there is substantial uncertainly in its forecasts. To the extent that overall economic growth is overstated by
current forecasts, the industry-specific growth rates used in this chapter may also be overstated, which will result in an
overstatement of the number of new facilities that will be subject to requirements of the final section 316(b) New Facility
Rule.
5.2.1 Methodology
EPA used several steps to estimate the number of new manufacturing facilities subject to the final rule. For each industry
sector, EPA:
>• identified the SIC codes with potential new in-scope facilities;
>• obtained industry growth forecasts;
*• determined the share of growth from new (greenfield and stand-alone) facilities;
*• projected the number of new facilities;
*• determined cooling water characteristics of existing facilities; and
*• developed model facilities.
The remainder of this section briefly outlines each of these six steps. Section 5.2.2 describes the baseline projections of new
manufacturing facilities for each of the five industry sectors.16
a. SIC codes with potential new in-scope facilities
EPA used results from the section 316(b) Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures to
identify the SIC codes within each of the five industry sectors that are likely to have one or more new (greenfield and stand-
alone) facilities subject to the final section 316(b) New Facility Rule. SIC codes that were included in this analysis are those
that, based on the Detailed Industry Questionnaire, have at least one existing facility that meets the in-scope criteria of the
final rule. Facilities meet the in-scope criteria of the final rule if they:
* use a CWIS to withdraw from a water of the U.S.;
> hold an NPDES permit;
* withdraw at least two million gallons per day (MOD); and
*• use 25 percent or more of their intake flow for cooling purposes.17
15 Data on industrial water use, presented in Chapter 2, showed that the Paper and Allied Products (SIC 26), Chemicals and Allied
Products (SIC 28), Petroleum and Coal Products (SIC 29), and Primary Metals (SIC 33) industry sectors account for more than 90 percent
of the water used for cooling purposes in the manufacturing sector. Other industry sectors draw relatively small volumes of water for
cooling purposes, and it is unlikely that significant numbers of facilities in these industries will exceed the two MGD threshold. This
baseline projection of new manufacturing facilities and the subsequent economic analyses therefore focus on these four sectors.
16 This analysis divides the Primary Metals sector (SIC 33) into two subsectors: steel (SIC 331) and aluminum (SIC 333/335).
Section 5.2.2 therefore discusses five separate sectors, not four.
17 For convenience, existing facilities that meet the criteria of the final section 316(b) New Facility Rule are referred to as "existing
in-scope facilities" or "in-scope survey respondents." As existing facilities, they will not in fact be subject to the rule. However, they
would be subject to the final section 316(b) New Facility Rule if they were new facilities.
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Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
For each SIC code with at least one in-scope survey respondent, EPA estimated the total number of facilities in the SIC code
(based on the sample weighted estimate from EPA's section 316(b) industry survey of existing facilities), and the number and
percentage of in-scope survey respondents.
b. Industry growth forecasts
Forecasts of the number of new (greenfield and stand-alone) facilities that will be built in the various industrial sectors are
generally not available over the 20-year time period required for this analysis. Projected growth rates for value of shipments
in each industry were used to project future growth in capacity. A number of sources provided forecasts, including the annual
U.S. Industry Trade & Industry Outlook (2000), the Assumptions to the Annual Energy Outlook 2001, and other sources
specific to each industry.18 EPA assumed that the growth in capacity will equal growth in the value of shipments, except
where industry-specific information supported alternative assumptions.
c. Share of growth from new facilities
There are three possible sources of industry growth: (1) construction of new (greenfield and stand-alone) facilities; (2) higher
or more efficient utilization of existing capacity; and (3) capacity expansions at existing facilities. Where available,
information from industry sources provided the basis for estimating the potential for construction of new facilities. Where
this information was not available, EPA assumed as a default that 50 percent of the projected growth in capacity will be
attributed to new facilities. This assumption likely overstates the actual number of new (greenfield and stand-alone) facilities
that will be constructed.
d. Projected number of new facilities
EPA projected the number of new facilities in each SIC code by multiplying the total number of existing facilities by the
forecasted 10-year growth rate for that SIC code. The resulting value was then multiplied by the share of growth from new
facilities to derive the total number of new facilities over ten years. However, not all of the projected new facilities will be
subject to requirements of the final section 316(b) New Facility Rule. Information on the likely water use characteristics of
new facilities that will determine their in-scope status under the final rule is generally not available for future manufacturing
facilities. EPA assumed that the characteristics of new facilities will be similar to the characteristics of existing survey
respondents (i.e., the percentage of new facilities subject to the final rule would be the same as the percentage of existing
facilities that meet the rule's in-scope criteria). Using this assumption, EPA calculated the number of new in-scope facilities
by multiplying the 10-year forecast of new facilities by the in-scope percentage of existing facilities. To derive the 20-year
estimate, both the estimated total number of new facilities and the estimated number of new in-scope facilities were doubled.
This approach most likely overstates the number of new facilities that will incur regulatory costs, because new facilities may
be more likely than existing ones to recycle water and to use cooling water sources other than a water body of the U.S.
The diagram in Figure 5-2 below presents the steps and data inputs required for EPA's 10-year projection of the number of
new manufacturing facilities in each SIC code.
18 The Reference section at the end of this chapter presents a complete list of the data sources used in this baseline projection.
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Figure 5-2: Estimation of the Number of New Manufacturing Facilities, 2001 - 2010
Total Number of Existing Facilities
X
10-YearIndustry Growth Rate
X
Share ofGrowth from New Facilities
i
Number of New Facilities
(10-Year Forecast)
X
±
In-Scope Percentage
1
Number ofNew In-Scope Facilities
(10-Year Forecast)
Source: U.S. EPA analysis, 2001.
e. Cooling water characteristics of existing in-scope facilities
EPA used information from EPA's section 316(b) Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures
to determine the characteristics of the in-scope survey respondents. The survey requested technical information, including the
facility's cooling system type, source water body, and intake flow in addition to economic and financial information.19
Cooling water characteristics of interest to the analysis are the facility's baseline cooling system type (i.e., once-through or
recirculating system) and its cooling water source (i.e., freshwater or marine water). In addition, the facility's design intake
flow was used in the costing analysis.
19 For more information on the survey instrument, see Information Collection Request; Detailed Industry Questionnaires: Phase II
Cooling Water Intake Structures (U.S. EPA, 1999).
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
f. Development of model facilities
The final step in the baseline projection of new manufacturing facilities was the development of model facilities for the
costing and economic impact analyses. This step required translating characteristics of the existing in-scope facilities into
characteristics of the projected new facilities. Again, the characteristics of interest are: (1) the facility's type of cooling
system in the baseline (once-through or recirculating system) and (2) the type of water body from which the intake structure
withdraws (freshwater or marine water). EPA developed one model facility for each cooling system/water body combination
within each 4-digit SIC code. Based on the distribution of the in-scope survey respondents by cooling system type and source
water body, EPA assigned the projected new in-scope facilities to model facility types.
5.2.2 Projected Number of New Manufacturing Facilities
a. Paper and Allied Products (SIC 26)
•»« SIC codes with potential new in-scope facilities
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified five 4-digit SIC codes in the
Paper and Allied Products industry (SIC code 26) with at least one existing facility that operates a CWIS, holds a NPDES
permit, withdraws at least two million gallons per day (MOD) from a water of the U.S., and uses 25 percent or more of its
intake flow for cooling purposes. Table 5-12 below presents the total number of existing facilities, the number of in-scope
questionnaire respondents, and the in-scope percentage for each of the five SIC codes.
Table 5-12: Section 316(b) Facilities in the Paper and Allied Products Industry (SIC 26)
SIC
Code
2611
2621
2631
2676
2679
SIC Description
Pulp Mills
Paper Mills
Paperboard Mills
Sanitary Paper Products
Converted Paper and Paperboard
Products, Not Elsewhere Classified
Total SIC 26
Total Number of
Existing Facilities
60
290
190
4
19
562
In-Scope Survey Respondents
No.
26
74
43
2
3
147
%
43.6%
25.4%
22.4%
50.0%
14.2%
26.1%
Source: U.S. EPA, 2000; OMB, 1987.
EPA analyzed these industry segments to estimate the number of new in-scope facilities in the Paper and Allied Products
Industry.
•»« Projected growth in shipments
Shipments of pulp and paper products are closely tied to the overall state of the U.S. and world economies. The growth in
sales will be linked to increased foreign demand as exports continue to be the major end use. Industry sources project the
following growth rates for the different segments of the market (McGraw-Hill, 2000):
*• Pulp mill shipments (SIC code 2611) are expected to increase by 1.75 percent annually over the 5-year period 2000
through 2004, with most of the growth representing increased exports.
>• Shipments from the paper and paperboard mills sector (SIC codes 2621 and 2631) are expected to increase by about
1.8 percent annually from 2000 through 2004.
*• No specific forecasts for sanitary paper products (SIC codes 2676 and 2679) are available. EPA therefore assumed
that between 2001 and 2020, shipments from these facilities will grow at the same rate as the overall U.S. GDP, or
3.0 percent annually (U.S. DOE, 2000b).
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Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
•»« Share of growth from new facilities
According to the S&P Paper and Forest Products Industry Survey (S&P, 2000), most sectors of the paper industry have been
consolidating in an attempt to achieve profit growth in a mature industry. Many companies have shut down some older, less
cost-efficient plants, but are reluctant to invest in major new capacity that would lead to oversupply in the market. Most
companies that have increased operating capacity in recent years have taken over existing mills rather than construct new
mills. Those firms that cannot find a merger partner or an acquirable mill are often modernizing existing facilities rather than
constructing a major new facility.
According to the annual capacity survey released in late 2000 by the American Forest & Paper Association (AF&PA), U.S.
capacity to produce paper and paperboard will increase by an annual average of 0.7 percent over the period 2001 to 2003
(S&P, 2000). This increase is well below the average annual rate of 2.1 percent during the previous 10 years. The AF&PA
survey cites several factors to explain the slow growth in capacity, including a highly competitive trade environment for some
grades, competing demands for the industry's capital, and mill and machine shutdowns. Although most conditions
influencing the industry are conducive to some growth, certain grades are experiencing reduced demand. Standard and Poor's
estimates that six percent of U.S. containerboard capacity was shut down between late 1998 and early 1999 (S&P, 2000).
The recent decline in investment in new capacity is likely to continue. Any growth in production in the pulp, paper, and
paperboard mill sectors (SIC codes 2611, 2621, and 2631) will likely result from increased efficiency at existing facilities,
reopening of capacity that is currently idle, or perhaps rebuilding or expanding existing facilities (Stanley, 2000; Jensen,
2000). Therefore, EPA assumed that none of the projected growth in these industries would result from new (greenfield and
stand-alone) facilities.
Substantial growth has occurred in the secondary fiber deink sector since 1990. The number of deink facilities has grown
from 43 (1990) to about 77 over the past ten years. The sanitary paper products sector (SIC 2676) potentially includes deink
facilities and may therefore experience construction of new greenfield and stand-alone facilities. EPA does not expect these
new deink facilities to be in scope of the final section 316(b) New Facility Rule, however, because evidence suggests that
cooling water intake flows of stand-alone deink facilities are well below the two MGD minimum flow threshold of the final
section 316(b) New Facility Rule (Wisconsin Tissues, 1999) The existing facilities in SIC 2676 identified in the detailed
questionnaire all have intake flows substantially above two MGD, and are therefore likely to be in the non-deink part of SIC
2676. No growth is projected for new non-deink facilities in SIC 2676.
•»« Projected number of new facilities
Table 5-13 presents the number of existing facilities in the five analyzed SIC codes, the projected industry growth (annual
growth rate and compounded growth rate over ten years), the share of growth from new facilities, and the number of projected
new facilities (total and in-scope). To calculate the number of projected new facilities, EPA applied the industry-specific 10-
year growth rate and the percentage of capacity growth from new facilities to the total number of existing facilities. Based on
its research, EPA believes that none of the projected growth in these industries would result from new (greenfield and stand-
alone) facilities. However, in comments on the proposed section 316(b) New Facility Rule, the American Forestry and Paper
Association (AF&PA) stated that one or two new greenfield and stand-alone paper mills are expected to be built over the next
decade. In response to this comment, EPA assumed that two new in-scope paper mills (SIC code 2621) would be subject to
the final section 316(b) New Facility Rule.
5-17
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-13: Projected Number of New Paper Facilities (SIC 26)
SIC
Code
2611
2621
2631
2676d
2679
Total
Total
Number of
Existing
Facilities
60
290
190
4
19
562
Projected Industry Growth Rate
Annual
1.75%
1.80%
1.80%
3.00%
3.00%
Over 10
Years3
18.94%
19.53%
19.53%
34.39%
34.39%
Share of
Growth from
New Facilities
0.0%
0.0%
0.0%
0.0%
0.0%
Estimated Number of New Facilities'"
10- Year Forecast
(2001-2010)
Total
0
1
0
0
0
1
In-Scope
Percentage
43.6%
-
22.4%
50.0%
14.2%
26.1%
In-
Scope
0
1
0
0
0
1
20- Year Forecast
(2001-2020)c
Total
0
^
0
0
0
2
In-Scope
0
2
0
0
0
2
a Total percentage growth over 10 years, based on the forecasted annual growth rate [(1 + Annual Rate)10 - 1].
b EPA's forecast methodology does not project any new in-scope facilities for this SIC code. This projection is based on a comment
submitted by the AF&PA.
c Equal to 2 * the 10-Year Forecast.
d Facilities in this SIC code are assumed to be facilities other than deink facilities.
Source: U.S. EPA analysis, 2001.
•»« Characteristics of existing facilities
EPA used information from EPA's section 316(b) Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures
to estimate characteristics of the new in-scope manufacturing facilities projected over the 2001-2020 analysis period. The
survey requested technical information, including the facility's cooling system type, source water body, and intake flow in
addition to economic and financial information.
EPA used the following survey data on existing in-scope paper mills (SIC code 2621) to project characteristics of the two
new (greenfield and stand-alone) facilities:20
* Cooling system type: There were 74 existing in-scope paper mills. These 74 facilities have the following cooling
system types: 36 once-through, three recirculating, 13 combination system, and 21 other system types.
* Water body type: Of the 74 in-scope facilities, 71 withdraw cooling water from a freshwater body while two
withdraw from a marine water body. One paper mill withdraws water from both a freshwater and marine water
body.
In developing model manufacturing facilities, EPA only considered those existing survey plants that have a once-through
system, a recirculating system, or a combination system. For this analysis, EPA classified facilities with a combination
system as once-through and facilities withdrawing from both water body types as marine, providing for a conservative
estimate. Table 5-14 below presents the distribution of the 53 in-scope facilities that meet these cooling system criteria by
cooling system type and source water body.
The numbers in this section may not add up to totals because the survey facilities are sample-weighted and rounded.
5-18
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-14: Existing Paper Mill Facilities by Water Body Type and Cooling System Type (SIC 2621)
SIC
2621
Recirculating
Freshwater
No.
3
%
6%
Marine
No.
0
%
0%
Once-Through
Freshwater
No.
47
%
88%
Marine
No.
o
%
5%
Total
No.
53
%
100%
Source: [7.5. EPA, 2000; U.S. EPA analysis, 2001.
•»« Development of model facilities
This analysis assumes that two new in-scope paper mills (SIC code 2621) will begin operation during the next 20 years. The
distribution of existing facilities across water body and cooling system types showed that 88 percent of all existing in-scope
paper mills operate a once-through system and withdraw from a freshwater body. EPA therefore assumed that both projected
new in-scope paper mills will be freshwater facilities with a once-through system. Table 5-15 below presents the model
facility type, the number of in-scope survey facilities upon which the model facility type was based, and the number of
projected new facilities that belong to that model type.
Table 5-15: SIC 26 Model Facilities
Model Facility
Type
MAN OT/F-2621
SIC Code
2621
Cooling System
Type
Once- Through
Source Water
Body
Freshwater
Number of In-Scope
Survey Respondents
47
Number of New In- 1
Scope Facilities
1
Source: U.S. EPA analysis, 2001.
b. Chemicals and Allied Products Industry (SIC 28)
•»« SIC codes with potential new in-scope facilities
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified fifteen 4-digit SIC codes in the
Chemicals and Allied Products Industry (SIC 28) with at least one existing facility that operates a CWIS, holds a NPDES
permit, withdraws at least two million gallons per day (MOD) from a water of the U.S., and uses 25 percent or more of its
intake flow for cooling purposes. Table 5-16 below presents the total number of existing facilities, the number of in-scope
questionnaire respondents, and the in-scope percentage for each of the 15 SIC codes.
5-19
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-16: Section 316(b) Facilities in the Chemicals and Allied Products Industry (SIC 28)
SIC
Code
2812
2813
2816
2819
2821
2823
2824
2833
2834
2841
2865
2869
2873
2874
2899
SIC Description
Alkalies and Chlorine
Industrial Gases
Inorganic Pigments
Industrial Inorganic Chemicals, Not
Elsewhere Classified
Plastics Material and Synthetic
Resins, and Nonvulcanizable
Elastomers
Cellulosic Manmade Fibers
Manmade Organic Fibers, Except
Cellulosic
Medicinal Chemicals and Botanical
Products
Pharmaceutical Preparations
Soaps and Other Detergents, Except
Speciality Cleaners
Cyclic Organic Crudes and
Intermediates, and Organic Dyes and
Pigments
Industrial Organic Chemicals, Not
Elsewhere Classified
Nitrogenous Fertilizers
Phosphatic Fertilizers
Chemicals and Chemical
Preparations, Not Elsewhere
Classified
Total SIC 28
Total Number of
Existing Facilities
28
110
26
271
305
7
36
33
91
36
59
364
60
41
162
1,629
In-Scope Survey Respondents
No.
20
4
4
33
15
1
9
3
4
4
4
48
9
1
4
164
%
68.7%
3.9%
16.7%
12.2%
4.8%
17.9%
24.1%
9.9%
4.7%
12.0%
7.3%
13.1%
14.4%
2.9%
2.7%
10.0%
Source: U.S. EPA, 2000; OMB, 1987.
EPA analyzed each of these 15 industry segments to estimate the number of new in-scope facilities in the Chemicals and
Allied Products Industry.
•»« Projected growth in shipments
The Kline Guide to the U.S. Chemical Industry projects that shipments of the products from the chemical industry will
generally follow the pattern of overall industrial growth over the next decade (Kline, 1999). The American Chemistry
Council (previously known as Chemical Manufacturers Association (CMA)) reported that most chemical companies have
been experiencing tough competition, with strong downward pressure on pricing, the loss of some export markets, and
growing over-capacity. In response to an uncertain outlook for global chemical demand, firms are accelerating the pace of
restructuring, joint ventures and mergers. Industry consolidation, competition, and continuing globalization has led to excess
capacity for many products and generally lower profitability than in the past (S&P, 200 Ib). Chemicals industry performance
is cyclical, reflecting trends in domestic and foreign economies, input prices, and fluctuations in operating rates. The
industry's performance was strong through most of 2000, but fell sharply at the end of 2000 and early 2001, due to rising
5-20
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Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
feedstock and energy prices, lower manufacturing demand, and lower operating rates. (S&P, 200Ib). Forecasts of growth
vary by sector, with lower growth forecast for commodity chemicals and higher growth expected for plastics. In particular,,
industry sources project the following growth rates for value of shipments in different chemicals market segments:
>• Shipments of industrial gases (SIC code 2813) are projected to grow at a rate of 2.8 percent annually through 2003,
while the rest of the inorganic chemicals sector (SIC code 281) will grow at a rate of 1.9 percent annually (Kline,
1999).21
*• Shipments in the plastics industry (SIC code 2821) are forecasted to grow by more than 4 percent annually through
2003 (McGraw-Hill, 2000; Kline, 1999).
>• Research at proposal showed that man-made fibers production (SIC codes 2823 and 2824) is expected to grow by
1.9 percent annually through 2000 (McGraw-Hill, 1999). Since that forecast, growth in the man-made fiber industry
has slowed down to no growth in the value of industry shipments between 1998 and 1999 (McGraw-Hill, 2000). In
the absence of a newer growth projection, EPA continued to use the original annual growth estimate of 1.9 percent
for the final rule analysis.
>• Medicinal chemicals shipments (SIC code 2833) are expected to grow by 2.8 percent per year through 2003. The
growth will be fueled by increased demand for new products (McGraw-Hill, 2000).
>• Research at proposal showed that growth in shipments of U.S. pharmaceutical products (SIC 2834) are projected to
average "in the mid-single digits" for five years (McGraw-Hill, 1999). A more current forecast predicts the industry
to have a positive growth rate for the next five years (McGraw-Hill, 2000). Since no more specific information was
available, EPA continued to use the original annual growth estimate of 5 percent for SIC 2834 for the final rule
analysis.
>• Shipments of soaps and detergents (SIC 2841) are projected to increase by 2.4 percent per year through 2003 (Kline,
1999).
*• Basic petrochemical shipments (SIC 2865) are expected to grow by 3.3 annually through 2003 (Kline, 1999). S&P
forecasts that long-term shipment growth for ethylene, the largest-volume organic chemical produced in the U.S.,
will grow 3 to 4 percent annually (S&P, 200Ib). This is consistent with Kline's forecast that the entire industry will
grow by 3.3 percent annually.
>• Shipments of industrial organic chemicals not elsewhere classified (SIC 2869) are projected to increase by almost 3
percent annually through 2004 (McGraw-Hill, 2000).
*• Shipments of fertilizers are projected to increase by 2.4 percent annually through 2003 (Kline, 1999). The fertilizer
industry (SICs 2873 and 2874) reflects a modest projected growth in the underlying American farm economy
(McGraw-Hill, 2000).
>• Shipments of miscellaneous chemicals (SIC 2899) are expected to increase by 3 percent annually through 2003
(McGraw-Hill, 2000).
21 SIC code 281 is officially titled "Industrial Inorganic Chemicals." However, to avoid confusion with SIC code 2819, "Industrial
Inorganic Chemicals, Not Elsewhere Classified," this chapter will refer to SIC code 281 as the "Inorganic Chemicals sector."
5-21
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Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
•»« Share of growth from new facilities
In their comments on the proposed section 316(b) New Facility Rule, the American Chemistry Council commented that EPA
overestimated the number of new in-scope chemical facilities in the proposal analysis because the percent of growth that
comes from new facilities (50 percent) was overstated. The comment did not provide an alternative estimate. For this
analysis, EPA therefore reduced its estimate by half and assumed that the growth in capacity that will come from new
chemical facilities will be 25 percent.22
•»« Projected number of new facilities
Table 5-17 presents the number of existing facilities in the 15 analyzed SIC codes, the projected industry growth (annual
growth rate and compounded growth rate over ten years), the share of growth from new facilities, and the number of projected
new facilities (total and in-scope). To calculate the number of projected new facilities, EPA applied the industry-specific 10-
year growth rate and the percentage of capacity growth from new facilities to the total number of existing facilities. EPA then
applied the in-scope percentage (based on information from the section 316(b) Detailed Industry Questionnaire: Phase II
Cooling Water Intake Structures) to the 10-year forecast of new facilities to derive the projected number of new in-scope
facilities over 10 years. Both the number of new facilities and the number of new in-scope facilities were doubled to
calculate the 20-year projection. EPA estimates that 282 new facilities will be constructed in the relevant SIC code 28
segments over the next 20 years. Of these, 22 are expected to be in scope of the final section 316(b) New Facility Rule.
Eight of the in-scope facilities are expected to produce industrial organics (SIC code 2869), four are plastics manufacturing
facilities (SIC code 2821), and four are industrial inorganic chemical facilities (SIC code 2819). In addition, two new in-
scope facilities are projected in each of the following sectors: alkalies and chlorine (SIC code 2812), pharmaceutical
preparations (SIC code 2834), and nitrogenous fertilizers (SIC code 2873).
22 EPA also estimated the projected number of new chemical facilities if 37.5 percent (the midpoint between 25 percent used for the
final rule analysis and 50 percent used for the proposal analysis) of growth was assumed to come from new facilities. Using this
alternative assumption would increase the number of projected new chemical facilities from 22 to 40. Total annualized costs for chemical
facilities would increase from $6.8 million to $11.1 million. Overall annualized costs for the final rule would increase from $47.7 million
to 52.0 million. See Chapter 6: Facility Compliance Costs for the calculation of annualized costs incurred under the final rule.
5-22
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-17: Projected Number of New Chemical Facilities (SIC 28)
SIC
Code
2812
2813
2816
2819
2821
2823
2824
2833
2834
2841
2865
2869
2873
2874
2899
Total
Total
Number of
Existing
Facilities
28
110
26
271
305
7
36
33
91
36
59
364
60
41
162
1,629
Projected Industry Growth Rate
Annual
1.9%
2.8%
1.9%
1.9%
4.0%
1.9%
1.9%
2.8%
5.0%
2.4%
3.3%
3.0%
2.4%
2.4%
3.0%
Over 10
Years3
20.7%
31.8%
20.7%
20.7%
48.0%
20.7%
20.7%
31.8%
62.9%
26.8%
38.4%
34.4%
26.8%
26.8%
34.4%
Share of
Growth from
New Facilities
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
Estimated Number of New Facilities
10- Year Forecast
(2001-2010)
Total"
1
o
1
14
37
0
2
3
14
2
6
31
4
3
14
0
In-Scope
Percentage
68.7%
3.9%
16.7%
12.2%
4.8%
17.9%
24.1%
9.9%
4.7%
12.0%
7.3%
13.1%
14.4%
2.9%
2.7%
10.0%
In-Scopec
1
0
0
2
2
0
0
0
1
0
0
4
1
0
0
11
20- Year Forecast
(2001-2020)"
Total
2
18
2
28
74
0
4
6
28
4
12
62
8
6
28
282
In-Scope
2
0
0
4
4
0
0
0
2
0
0
8
2
0
0
22
a Total percentage growth over 10 years, based on the forecasted annual growth rate [(1 + Annual Rate)10 - 1].
b Equal to Total Number of Existing Facilities * 10-Year Growth Rate * Share of Growth from New Facilities.
c Equal to Estimated Number of New Facilities * In-Scope Percentage.
d Equal to 2 * the 10-Year Forecast.
Source: U.S. EPA analysis, 2001.
•»« Characteristics of existing facilities
EPA used information from EPA's section 316(b) Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures
to estimate characteristics of the new in-scope chemical facilities projected over the 2001-2020 analysis period. The survey
requested technical information, including the facility's cooling system type, source water body, and intake flow in addition
to economic and financial information.
EPA used the following survey data on existing chemical facilities to project characteristics of the 22 new (greenfield and
stand-alone) facilities:23
* Cooling system type: There were 128 existing in-scope chemical facilities in the sectors with projected new in-
scope facilities. These 128 facilities have the following cooling system types: 70 once-through, 23 combination
system, 17 recirculating, 13 with other system types, and four that have unknown system types.
*• Water body type: Of 128 in-scope chemical facilities, 109 withdraw cooling water from a freshwater body and 17
23 The numbers in this section may not add up to totals because the survey facilities are sample-weighted and rounded.
5-23
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
withdraw from a marine water body. One facility withdraws from both a freshwater and marine water body.
In developing model manufacturing facilities, EPA only considered those existing survey plants that have a once-through
system, a recirculating system, or a combination system. For this analysis, EPA classified facilities with a combination
system as once-through and facilities withdrawing from both water body types as marine, providing a conservative estimate.
Table 5-18 below presents the distribution of the 111 in-scope facilities that meet these cooling system criteria by water body
type and cooling system type.
Table 5-18: Existing Chemical Facilities by Water Body Type and Cooling System Type (SIC 28)
SIC Code
2812
2819
2821
2834
2869
2873
Total
Recirculating
Freshwater
No.
4
5
0
0
4
4
17
%
28%
14%
0%
0%
11%
50%
16%
Marine
No.
0
0
0
0
0
0
0
%
0%
0%
0%
0%
0%
0%
0%
Once-Through
Freshwater
No.
6
16
10
4
35
4
75
%
36%
47%
100%
100%
89%
50%
67%
Marine
No.
6
13
0
0
0
0
19
%
36%
39%
0%
0%
0%
0%
17%
Total
No.
15
33
10
4
39
9
111
%
100%
100%
100%
100%
100%
100%
100%
Source: U.S. EPA, 2000; U.S. EPA analysis, 2001.
•»« Development of model facilities
EPA projected that 22 new in-scope chemical facilities will begin operation during the next 20 years. Based on the
distribution of the in-scope survey respondents across water body and cooling system types, EPA assigned the 22 new
facilities to 10 different model facility types, by SIC code:
*• SIC code 2812: EPA projects that two new in-scope facilities will begin operation during the next 20 years. The
distribution of existing in-scope facilities across water body and cooling system types showed that 36 percent of the
existing facilities operate a once-through system and withdraw from a freshwater body and 36 percent operate a
once-through system and withdraw from a marine body. EPA therefore projected one new once-through/freshwater
facility and one new once-through system/marine facility.
*• SIC code 2819: Four new industrial inorganic chemicals, not elsewhere classified facilities are projected to begin
operation during the 20-year analysis period. The distribution of existing facilities across water body and cooling
system types showed that 47 percent of the existing in-scope facilities operate a once-through system and withdraw
from a freshwater body, 39 percent operate a once-through system and withdraw from a marine water body, and 14
percent operate a recirculating system and withdraw from a freshwater body. EPA therefore projected two new
once-through/freshwater facilities and two new once-through/marine facilities.
*• SIC code 2821: EPA projects that four new in-scope facilities will begin operation during the next 20 years. The
distribution of existing facilities across water body and cooling system types showed that all existing in-scope
plastics material and synthetic resins, and nonvulcanizable elastomer facilities operate a once-through system and
withdraw from a freshwater body. EPA therefore assumed that all four projected new in-scope facilities will be
freshwater facilities with a once-through system.
*• SIC code 2834: EPA projects that two new in-scope facilities will begin operation during the next 20 years. The
distribution of existing facilities across water body and cooling system types showed that all existing in-scope
5-24
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
pharmaceutical preparation facilities operate a once-through system and withdraw from a freshwater body. EPA
therefore assumed that both projected new in-scope facilities will be freshwater facilities with a once-through
system.
*• SIC code 2869: Eight new facilities in the Industrial Organic Chemical, Not Elsewhere Classified sector are
projected to begin operation during the 20-year analysis period. The distribution of existing facilities across water
body and cooling system types showed that 89 percent of the existing facilities operate a once-through system and
withdraw from a freshwater body and 11 percent operate a recirculating system and withdraw from a freshwater
body. Therefore EPA projected seven new once-through/freshwater facilities and one new recirculating/freshwater
facility.
*• SIC code 2873: EPA projected that two new in-scope nitrogenous fertilizer facilities will begin operation in the next
20 years. The distribution of existing facilities across water body and cooling system types showed that 50 percent
of the existing facilities operate a recirculating system and withdraw from a freshwater body and 50 percent operate
once-through systems and withdraw from a freshwater body. EPA therefore projected one new
recirculating/freshwater facility and one new once-through/freshwater facility.
Table 5-19 below presents the model facility type, the number of in-scope survey facilities upon which the model facility type
was based, and the number of projected new facilities that belong to that model type.
Table 5-19: SIC 28 Model Facilities
Model Facility Type
MANOT/M-2812
MAN OT/F-2812
MANOT/M-2819
MANOT/F-2819
MANOT/F-2821
MAN OT/F-2834
MAN OT/F-2869
MAN RE/F-2869
MAN OT/F-2873
MAN RE/F-2873
Total
SIC
2812
2812
2819
2819
2821
2834
2869
2869
2873
2873
Cooling System
Type
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Recirculating
Once-Through
Recirculating
Source Water
Body
Marine
Freshwater
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Number of
Existing In-Scope
Facilities
6
6
13
16
10
4
35
4
4
4
102
Number of
Projected New
Facilities
1
1
2
2
4
2
7
1
1
1
22
Source: U.S. EPA analysis, 2001.
c. Petroleum and Coal Products (SIC 29)
•»« SIC codes with potential new in-scope facilities
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified one 4-digit SIC code in the
Petroleum and Coal Products Industry (SIC 29) with at least one existing facility that operates a CWIS, holds a NPDES
permit, withdraws at least two million gallons per day (MOD) from a water of the U.S., and uses 25 percent or more of its
intake flow for cooling purposes. Table 5-20 below presents the total number of existing facilities, the number of in-scope
questionnaire respondents, and the in-scope percentage for SIC code 2911.
5-25
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-20: Section 316(b) Facilities in the Petroleum and Coal Products Industry (SIC 29)
In-Scope Survey Respondents
Total Number of
Existing Facilities
SIC Code
Source: U.S. EPA, 2000; OMB, 1987.
EPA analyzed the petroleum refining industry to estimate the number of new in-scope facilities.
•»« Projected growth in shipments
The Energy Information Administration (EIA) forecasts that U.S. petroleum consumption will increase by 6.3 million barrels
(bbl) a day between 1999 and 2020. Approximately 96 percent of the projected demand growth results from increased
consumption of "light products," including gasoline, diesel, heating oil, jet fuel, and liquified petroleum gases. Additional
petroleum imports are expected to fill the projected widening gap between supply and consumption. Petroleum imports are
projected to be about 64 percent of total consumption in 2020 (U.S. DOE, 2000a).
No forecasts of shipments specific to petroleum refineries are available. Therefore, EPA assumed that shipments from this
industry will grow at the same 3.0 percent annual rate as forecast for overall GDP (U.S. DOE, 2000b).
•»« Share of growth from new facilities
EIA projects that domestic refinery capacity (SIC code 2911) will grow from 16.5 million bbl per day in 1999 to between
18.2 million bbl per day (low economic growth case) and 18.8 million bbl per day (high economic growth case) in 2020. This
expansion will result from expanded capacity at existing refineries. No new refineries are likely to be constructed in the U.S.
due to financial and legal constraints (U.S. DOE, 2000a).
•»« Projected number of new facilities
Table 5-21 presents the number of existing facilities in the analyzed SIC code, the projected industry growth (annual growth
rate and compounded growth rate over ten years), the share of growth from new facilities, and the estimated number of new
facilities (total and in-scope). At proposal, EPA projected that there would be no new petroleum refineries constructed in the
U.S. over the analysis period. The petroleum industry commented that the assumption of no new petroleum refineries over
the next 20 years is invalid. Even though the Annual Energy Outlook 2001 still projects no new refineries during the next 20
years, EPA nevertheless revised this estimate and made the conservative assumption that two new in-scope petroleum
refineries will be subject to in the final section 316(b) New Facility Rule.
Table 5-21: Projected Number of New Petroleum Refinery Facilities (SIC 2911)
SIC
Code
2911
Total
Number of
Existing
Facilities
163
Projected Industry Growth Rate
Annual
3.0%
Over 10
Years3
34.4%
Share of
Growth from
New Facilities
0.0%
Estimated Number of New Facilities'"
10- Year Forecast
(2001-2010)
Total
1
In-Scope
Percentage
--
In-Scope
1
20- Year Forecast
(2001-2020)c
Total
2
In-Scope
2
a Total percentage growth over 10 years, based on the forecasted annual growth rate [(1 + Annual Rate)10 - 1].
b EPA's forecast methodology does not project any new in-scope facilities for this SIC. This projection is based on a comment
submitted by the petroleum industry.
c Equal to 2 * the 10-Year Forecast.
Source: U.S. EPA analysis, 2001.
5-26
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
•»« Characteristics of existing facilities
EPA used information from EPA's section 316(b) Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures
to estimate the characteristics of the new in-scope petroleum refineries assumed over the 2001-2020 analysis period. The
survey requested technical information, including the facility's in-scope status, cooling system type, source water body, and
intake flow in addition to economic and financial information.
EPA used the following survey data on existing petroleum facilities to project characteristics of the two new petroleum
facilities:24
* Cooling system type: There were 31 existing in-scope petroleum refineries. These 31 facilities have the following
cooling system types: 15 recirculating, 10 combination system, 5 once-through, and one other.
* Water body type: Of the 31 in-scope facilities, 26 withdraw cooling water from a freshwater body and five
withdraw from a marine water body.
In developing model manufacturing facilities, EPA only considered those existing survey plants that have a once-through
system, a recirculating system, or a combination system. For this analysis, EPA classified facilities with a combination
system as once-through facilities, providing a conservative estimate. Table 5-22 below presents the distribution of the 30 in-
scope facilities that meet these cooling system criteria by water body type and cooling system type.
Table 5-22: Existing Petroleum Facilities by Water Body Type and Cooling System Type (SIC 2911)
SIC Code
2911
Recirculating
Freshwater
No
15
%
50%
Marine
No
0
%
0%
Once-Through
Freshwater
No
9
%
29%
Marine
No
6
%
21%
Total
No
30
%
100%
Source: U.S. EPA, 2000; U.S. EPA analysis, 2001.
•»« Development of model facilities
EPA projected that two new in-scope petroleum refineries (SIC code 2911) will begin operation during the next 20 years.
The distribution of existing facilities across water body and cooling system types showed that 50 percent of the existing
petroleum refineries operate a recirculating system and withdraw from a freshwater body and 29 percent operate once-through
systems and withdraw from a freshwater body. EPA therefore assumed that the two new projected facilities would have those
characteristics. Table 5-23 below presents the model facility type, the number of in-scope survey facilities upon which the
model facility type was based, and the number of projected new facilities that belong to that model type.
Table 5-23: SIC 29 Model Facilities
Model Facility Type
MANOT/F-2911
MANRE/F-2911
Total
SIC
Code
2911
2911
Cooling System
Type
Once-Through
Recirculating
Source Water
Body
Freshwater
Freshwater
Number of
Existing In-Scope
Facilities
9
15
24
Number of
Projected New
Facilities
1
1
2
Source: U.S. EPA analysis, 2001.
The numbers in this section may not add up to totals because the survey facilities are sample-weighted and rounded.
5-27
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
d. Steel (SIC 331)
•»« SIC codes with potential new in-scope facilities
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified five 4-digit SIC codes in the
Steel Works, Blast Furnaces, and Rolling and Finishing Mills Industries (SIC 331) with at least one existing facility that
operates a CWIS, holds a NPDES permit, withdraws at least two million gallons per day (MOD) from a water of the U.S., and
uses 25 percent or more of its intake flow for cooling purposes. Table 5-24 below presents the total number of existing
facilities, the number of in-scope questionnaire respondents, and the in-scope percentage for each of the five SIC codes.
Table 5-24: Section 316(b) Facilities in the Steel Industry (SIC 331)
SIC Code
3312
3313
3315
3316
3317
SIC Description
Steel Works, Blast Furnaces (Including Coke
Ovens), and Rolling Mills
Electrometallurgical Products, Except Steel
Steel Wiredrawing and Steel Nails and Spikes
Cold-Rolled Steel Sheet, Strip, and Bars
Steel Pipe and Tubes
Total SIC 331
Total Number of
Existing Facilities
161
6
122
57
130
476
In-Scope Survey Respondents
No.
40
2
-3
9
n
62
%
24.9%
30.4%
2.5%
16.4%
5.7%
13.0%
Source: U.S. EPA, 2000; OMB, 1987.
EPA analyzed each of these five industry segments to determine the number of new in-scope facilities in the Steel Industry.
•»« Projected growth in shipments
Demand for North American steel is expected to increase over the long term. Steel shipments are expected to rise at a 1 to 2
percent annual rate through 2004, assuming continued moderate economic growth (McGraw-Hill, 2000).
•»« Share of growth from new facilities
Industry-specific information on the potential for the construction of new facilities was not available. EPA therefore assumed
that 50 percent of the projected growth in shipments in all potentially-affected steel industries will result from new facilities.
•»« Projected number of new facilities
Table 5-25 presents the number of existing facilities in the analyzed SIC code, the projected industry growth (annual growth
rate and compounded growth rate over ten years), the share of growth from new facilities, and the number of projected new
facilities (total and in-scope). To calculate the number of projected new facilities, EPA applied the industry-specific 10-year
growth rate and the percentage of capacity growth from new facilities to the total number of existing facilities. EPA then
applied the in-scope percentage (based on information from the section 316(b) Detailed Industry Questionnaire: Phase II
Cooling Water Intake Structures) to the 10-year forecast of new facilities to derive the projected number of new in-scope
facilities over 10 years. Both the number of new facilities and the number of new in-scope facilities were doubled to
calculate the 20-year projection. EPA estimates that 78 new facilities will be constructed over the next 20 years, of which 10
will be in scope of the final section 316(b) New Facility Rule.
5-28
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-25: Projected Number of New Iron and Steel Facilities (SIC 331)
SIC
Code
3312e
3313
3315
3316
3317
Total
Total
Number of
Existing
Facilities
161
6
122
57
130
476
Projected Industry Growth Rate
Annual
1.5%
3.0%
1.5%
1.5%
1.5%
Over 10
Years3
16.1%
34.4%
16.1%
16.1%
16.1%
Share of
Growth from
New Facilities
50.0%
50.0%
50.0%
50.0%
50.0%
Estimated Number of New Facilities
Ten Year Forecast
(2001-2010)
Total"
13
1
10
5
10
39
In-Scope
Percentage
24.9%
30.4%
2.5%
16.4%
5.7%
13.0%
In-Scopec
3
0
0
1
1
5
Twenty Year Forecast
(2001-2020)"
Total
26
^
20
10
20
78
In-Scope
6
0
0
2
2
10
a Total percentage growth over 10 years, based on the forecasted annual growth rate [(1 + Annual Rate)10 - 1].
b Equal to Total Number of Existing Facilities * 10-Year Growth Rate * Share of Growth from New Facilities.
c Equal to Estimated Number of New Facilities * In-Scope Percentage.
d Equal to 2 * the 10-Year Forecast.
e Recent growth in new steelmaking capacity has been in minimills. The success of the thin slab caster/flat rolling mill is expected to
result in the addition of 8 million tons of new minimill steel capacity in the U.S. between 2001 and 2003 (S&P, 2001a). While new
low-cost minimills have been starting up, some antiquated, less efficient integrated mills have been shut down and other integrated
producers have increased output efficiencies at their existing blast furnaces during the late 1990's (McGraw-Hill, 1999). EPA therefore
assumes that all new facilities in the basic steel sector will be new minimills rather than new integrated mills.
Source: U.S. EPA analysis, 2001.
•»« Characteristics of existing facilities
EPA used information from EPA's section 316(b) Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures
to estimate characteristics of the new in-scope steel facilities projected over the 2001-2020 analysis period. The survey
requested technical information, including the facility's cooling system type, source water body, and intake flow in addition
to economic and financial information.
.25
EPA used the following survey data on existing steel facilities to project characteristics of the 10 new steel facilities:
* Cooling system type: There are 57 existing in-scope steel facilities. These 57 facilities have the following cooling
system types: 21 combination systems, 20 once-through, 9 recirculating, and 7 other system types.
*• Water body type: All 57 facilities withdraw cooling water from a freshwater body.
In developing model manufacturing facilities, EPA only considered those existing survey plants that have a once-through
system, a recirculating system, or a combination system. For this analysis, EPA classified facilities with a combination
system as once-through facilities, providing a conservative estimate. Table 5-26 below presents the distribution of the 50 in-
scope facilities that meet these cooling system criteria by water body type and cooling system type.
25 The numbers in this section may not add up to totals because the survey facilities are sample-weighted and rounded.
5-29
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-26: Existing Steel Facilities by Water Body Type and Cooling System Type (SIC 331)
SIC
3312
3316
3317
Total
Recirculating
Freshwater
No
-3
3
3
o
%
9%
33%
50%
18%
Marine
No
0
0
0
0
%
0%
0%
0%
0%
Once-Through
Freshwater
No
32
6
3
41
%
91%
67%
50%
82%
Marine
No
0
0
0
0
%
0%
0%
0%
0%
Total
No
35
9
6
50
%
100%
100%
100%
100%
Source: U.S. EPA, 2000; U.S. EPA analysis, 2001.
•»« Development of model facilities
EPA projected that 10 new in-scope steel facilities will begin operation during the next 20 years. Based on the distribution of
the in-scope survey respondents across water body and cooling system types, EPA assigned the 10 new facilities to six
different model facility types, by SIC code:
* SIC code 3312: Six steel mills are projected to begin operation during the 20-year analysis period. The distribution
of existing facilities across water body and cooling system types showed that 91 percent of the existing facilities
operate a once-through system and withdraw from a freshwater body and nine percent operate a recirculating system
and withdraw from a freshwater body. Therefore EPA projected five new once-through/freshwater facilities and one
recirculating/freshwater facility.
*• SIC code 3316: EPA projected that two new in-scope cold-rolled steel sheet, strip, and bar facilities will begin
operation in the next 20 years. The distribution of existing facilities across water body and cooling system types
showed that 67 percent of the existing facilities operate a once-through system and withdraw from a freshwater body
and 33 percent operate a recirculating system and withdraw from a freshwater body. EPA therefore projected one
once-through/freshwater and one recirculating/freshwater facility.
*• SIC code 3317: EPA projected that two new in-scope steel pipe and tube facilities will begin operation in the next
20 years. The distribution of existing facilities across water body and cooling system types showed that 50 percent
of the existing facilities operate a recirculating system and withdraw from a freshwater body and 50 percent operate
once-through systems and withdraw from a freshwater body. EPA therefore assumed that the two new projected
facilities would have those characteristics.
Table 5-27 below presents the model facility type, the number of in-scope survey facilities upon which the model facility type
was based, and the number of projected new facilities that belong to that model type.
5-30
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-27: SIC 331 Model Facilities
Model Facility Type
MANOT/F-3312
MANRE/F-3312
MANOT/F-3316
MANRE/F-3316
MANOT/F-3317
MANRE/F-3317
Total
SIC
Code
3312
3312
3316
3316
3317
3317
Cooling System
Type
Once-Through
Recirculating
Once-Through
Recirculating
Once-Through
Recirculating
Source Water
Body
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Number of
Existing In-Scope
Facilities
32
3
6
3
3
3
50
Number of
Projected New
Facilities
5
1
1
1
1
1
10
Source: U.S. EPA analysis, 2001.
e. Aluminum (SIC 333/335)
•»« SIC codes with potential new in-scope facilities
EPA's Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures identified two 4-digit SIC codes in the
nonferrous metals industries (SIC codes 333/335) with at least one existing facility that operates a CWIS, holds a NPDES
permit, withdraws at least two million gallons per day (MOD) from a water of the U.S., and uses 25 percent or more of its
intake flow for cooling purposes. Table 5-28 below presents the total number of existing facilities, the number of in-scope
questionnaire respondents, and the in-scope percentage for the two SIC codes.
Table 5-28: Section 316(b) Facilities in the Aluminum Industries (SIC 333/335)
SIC Code
3334
3353
SIC Description
Primary Production of Aluminum
Aluminum Sheet, Plate, and Foil
Total SIC 333, 335
Total Number of
Existing Facilities
31
57
88
In-Scope Survey Respondents
No.
11
6
17
%
34.3%
11.1%
19.2%
Source: U.S. EPA, 2000; OMB, 1987.
EPA analyzed these two industry segments to determine the number of new in-scope facilities in the Aluminum Industry.
•»« Projected growth in shipments
Total shipments for all sectors of the aluminum industry are expected to increase 2.5 percent annually from 1999 through
2004 (McGraw-Hill, 2000). EPA therefore assumed that shipments of primary aluminum smelters (SIC 3334) and aluminum
sheet, plate, and foil (SIC 3353) will increase at an annual rate of 2.5 percent.
•»« Share of growth from new facilities
Domestic production is expected to increase as idled capacity is reactivated. The U.S. is responsible for approximately 40
percent of the idle capacity worldwide (McGraw-Hill, 2000). The 1998 capacity utilization rate of 88 percent was well below
the 1987 rate of approximately 97 percent. The U.S. aluminum industry requires substantial amounts of capital to mine
bauxite, handle materials, and operate smelters, rolling mills, and finishing plants. It would be extremely difficult for a new
5-31
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
facility to enter this industry and operate as a vertically integrated firm (S&P, 200 la). These conditions make it likely that
any capacity increases will involve using existing capacity or expansions at existing facilities, rather than the construction of
new greenfield and stand-alone facilities. No new primary smelters have been constructed in the U.S. since 1980 (McGraw-
Hill, 2000). According to Standard & Poor's, construction of new minimill capacity is also unlikely given the potential that
added capacity would drive down prices in the face of slow growth in the markets for minimill products (S&P, 200 la). EPA
therefore assumed that all projected growth in primary aluminum shipments (SIC 3334) will result from using the currently-
idled capacity or from expansions at existing facilities. In the absence of specific information for SIC code 3353, EPA
assumed that half of the growth in shipments would result from new facilities, rather than from idled capacity or expansions
at existing facilities.
•»« Projected number of new facilities
Table 5-29 presents the number of existing facilities in the analyzed SIC code, the projected industry growth (annual growth
rate and compounded growth rate over ten years), the share of growth from new facilities, and the number of projected new
facilities (total and in-scope). To calculate the number of projected new facilities, EPA applied the industry-specific 10-year
growth rate and the percentage of capacity growth from new facilities to the total number of existing facilities. EPA then
applied the in-scope percentage (based on information from the section 316(b) Detailed Industry Questionnaire: Phase II
Cooling Water Intake Structures) o the 10-year forecast of new facilities to derive the projected number of new in-scope
facilities over 10 years. Both the number of new facilities and the number of new in-scope facilities were doubled to
calculate the 20-year projection. EPA estimates that 16 new facilities may be constructed in the relevant aluminum sectors,
over the next twenty years. Of these, two new Aluminum Sheet, Plate and Foil facilities (SIC code 3353) are expected to be
in scope of the final section 316(b) New Facility Rule.
Table 5-29: Projected Number of New Aluminum and Other Nonferrous Metal Facilities (SIC 333,335)
SIC
Code
3334
3353
Total
Total
Number of
Existing
Facilities
31
57
oo
oo
Projected Industry Growth Rate
Annual
2.5%
2.5%
Over 10
Years3
28.0%
28.0%
Share of
Growth from
New Facilities
0.0%
50.0%
Estimated Number of New Facilities
Ten Year Forecast
(2001-2010)
Total"
0
Q
O
In-Scope
Percentage
34.3%
11.1%
19.2%
In-Scopec
0
1
1
Twenty Year Forecast
(2001-2020)"
Total
0
16
16
In-Scope
0
2
2
a Total percentage growth over 10 years, based on the forecasted annual growth rate [(1 + Annual Rate)10 - 1].
b Equal to Total Number of Existing Facilities * 10-Year Growth Rate * Share of Growth from New Facilities.
c Equal to Estimated Number of New Facilities * In-Scope Percentage.
d Equal to 2 * the 10-Year Forecast.
Source: U.S. EPA analysis, 2001.
•»« Characteristics of existing facilities
EPA used information from EPA's section 316(b) Detailed Industry Questionnaire: Phase II Cooling Water Intake Structures
to estimate characteristics of the new in-scope aluminum facilities projected over the 2001-2020 analysis period. The survey
requested technical information, including the facility's cooling system type, source water body, and intake flow in addition
to economic and financial information.
EPA used the following survey data on existing aluminum facilities to project characteristics of the two new aluminum
facilities:26
*• Cooling system type: There were six existing in-scope aluminum facilities in SIC code 3353. Three of these
The numbers in this section may not add up to totals because the survey facilities are sample-weighted and rounded.
5-32
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
facilities have a recirculating system and three have a once-through system.
*• Water body type: All six of the in-scope aluminum facilities withdraw cooling water from a freshwater body.
Table 5-30 below presents the distribution of the six in-scope facilities that meet these cooling system criteria by water body
type and cooling system type.
Table 5-30: Existing Aluminum Facilities by Water Body Type and Cooling System Type
SIC Code
3353
Recirculating
Freshwater
No
-3
%
50%
Marine
No
0
%
0%
Once-Through
Freshwater
No
3
%
50%
Marine
No
0
%
0%
(SIC 3353)
Total
No
6
%
100%
Source: U.S. EPA, 2000; U.S. EPA analysis, 2001.
•»« Development of model facilities
EPA projected that two new in-scope aluminum facilities will begin operation in the next 20 years. The distribution of
existing facilities across water body and cooling system types showed that 50 percent of the existing aluminum facilities
operate a recirculating system and withdraw from a freshwater body and 50 percent operate once-through systems and
withdraw from a freshwater body. EPA therefore assumed that the two new projected facilities would have those
characteristics. Table 5-31 below presents the model facility type, the number of in-scope survey facilities upon which the
model facility type was based, and the number of projected new facilities that belong to that model type.
Table 5-31: SIC 3353 Model Facilities
Model Facility Type
MAN OT/F-3353
MAN RE/F-3353
Total
SIC
Code
3353
3353
Cooling System
Type
Once-Through
Recirculating
Source Water
Body
Freshwater
Freshwater
Number of
Existing In-Scope
Facilities
3
3
6
Number of
Projected New
Facilities
1
1
2
Source: U.S. EPA analysis, 2001.
5.2.3 Summary of Forecasts for New Manufacturing Facilities
EPA estimates that a total of 380 new manufacturing facilities will begin operation between 2001 and 2020. Thirty-eight of
these are expected to be in scope of the final section 316(b) New Facility Rule. Of the 38 facilities, 22 are chemical facilities,
ten are steel facilities, two are petroleum refineries, two are paper mills, and two are aluminum facilities. Table 5-32
summarizes the results of the analysis.
5-33
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Table 5-32: Number of Projected New Manufacturers (2001 to 2020)
Facility Type
Paper and Allied Products (SIC
26)
Chemicals and Allied Products
(SIC 28)
Petroleum Refining And Related
Industries (SIC 29)
Blast Furnaces and Basic Steel
Products (SIC 331)
Aluminum Sheet, Plate, and Foil
(SIC 3353)
Total
Total Number
of New Facilities
2
282
2
78
16
380
Facilities In Scope of the Final Rule
Recirculating
Freshwater
0
2
j
3
j
fj
Marine
0
0
0
0
0
0
Once-Through
Freshwater
2
17
1
7
1
28
Marine
0
3
0
0
0
3
Total
2
22
2
10
2
38
Source: U.S. EPA analysis, 2001.
5.2.4 Uncertainties and Limitations
There are uncertainties in EPA's projections of the number of new manufacturing facilities that will be subject to the final
section 316(b) New Facility Rule. EPA's results depend on several key assumptions:
*• Industry growth forecasts are accurate. For most industries, EPA used 5-year growth forecasts developed in late
2000. EPA assumed that the projected growth will continue over the next 10 years. EPA then doubled this estimate
to project the number of new facilities over the next 20 years. There are two main uncertainties associated with this
approach. First, predicting growth over a 20-year time period is always uncertain. Applying a 5-year forecast to a
20-year analysis period therefore introduces uncertainty. Second, the economy has recently experienced a
substantial slow-down. This development has not been reflected in the industry forecasts used for this analysis. It is
therefore likely that the analysis presented in this chapter overstates the number of new manufacturing facilities that
will be subject to the final § 316(b) New Facility Rule, at least for the near term.
>• EPA accurately predicted the share of industry growth from new (greenfield and stand-alone) facilities.
While 5 year forecasts of industry shipments are available for most of the relevant industries, forecasts of the likely
growth in capacity and numbers of new facilities are less readily available. Those that are available generally apply
only for the next few years. For the steel sectors and the aluminum sheet, plate, and foil sector, no industry-specific
information on new facility construction was available. EPA made the assumption that 50 percent of future growth
in these sectors will occur at new (greenfield and stand-alone) facilities.27 This assumption was likely to be
conservative when EPA proposed this rule. With the recent economic slow-down, new facility construction has
become even less likely. EPA therefore believes that the analysis in support of this rule overstates the number of
new manufacturing facilities that will be subject to the final § 316(b) New Facility Rule over the next 20 years.
*• Future manufacturing facilities will have the same size as the analyzed survey facilities. EPA's methodology
for estimating the number of new (greenfield and stand-alone) facilities rests on the assumption that future facilities
will have the same size as existing ones in the same SIC code. If future facilities are likely to be either larger or
smaller than existing facilities, EPA's estimate will overstate or understate, respectively, the number of new
facilities.
27 The steel sectors and the aluminum sheet, plate, and foil sectors account for 12 of the 38 projected in-scope manufacturing
facilities.
5-34
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Section 316(b) EA Chapter 5 for New Facilities
Baseline Projections of New Facilities
Future facilities will have the same cooling water characteristics as the analyzed survey facilities. EPA's
forecasts assume that the characteristics of new facilities that determine their regulatory status under the final rule
will be the same as those of the existing facilities in the same industries. A variety of factors may lead new facilities
to use municipal or ground water instead of a water of the U.S. or to recycle the process water more often than do
existing facilities. Thus, this assumption may overstate the number of new facilities.
5.3 SUMMARY OF BASELINE PROJECTIONS
EPA estimates that over the next 20 years a total of 656 new greenfield and stand-alone facilities will be built in the industry
sectors analyzed for this final regulation. Two hundred and seventy-six of these new facilities will be steam electric
generating facilities and 380 will be manufacturing facilities. As Table 5-33 shows, only 121 of the 656 new facilities are
projected to be in scope of the final section 316(b) New Facility Rule, including 83 electric generators, 22 chemical facilities,
12 primary metals facilities, two new pulp and paper, and two petroleum facilities.
Table 5-33: Projected Number of New In-Scope Facilities (2001 to 2020)
SIC
SIC 49
SIC 26
SIC 28
SIC 29
SIC 33
SIC 331
SIC 333
SIC 335
SIC Description
Electric Generators
Electric Generators
Manufacturing Facilities
Paper and Allied Products
Chemicals and Allied Products
Petroleum Refining And Related Industries
Primary Metals Industries
Blast Furnaces and Basic Steel Products
Primary Aluminum, Aluminum Rolling, and
Drawing and Other Nonferrous Metals
Total Manufacturing
Total
Projected Number of New Facilities
Total
276
2
282
2
78
16
380
656
In-Scope
83
2
22
2
10
2
38
Source: U.S. EPA analysis, 2001.
5-35
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Section 316(b) EA Chapter 5 for New Facilities Baseline Projections of New Facilities
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Executive Office of the President. 1987. Office of Management and Budget (OMB). Standard Industrial Classification
Manual.
Jensen, Carl. 2000. Miller Freeman. Phone conversation with Nancy Hammett, Abt Associates Inc., April 11.
Kline & Company, Inc. 1999. Guide to the U.S. Chemical Industry, 6th edition.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000. U.S. Industry & Trade Outlook
'00.
McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 1999. U.S. Industry & Trade Outlook
'99.
Resource Data International (RDI). 2001. NEWGen Database. February 2001.
Standard & Poor's (S&P). 2001a. Industry Surveys-Metals: Industrial. January 18, 2001.
Standard & Poor's (S&P). 200Ib. Industry Surveys - Chemicals: Basic. January 4, 2001.
Standard & Poor's (S&P). 2000. Industry Surveys-Paper and Forest Products. October 19, 2000.
Stanley, Gary. 2000. U.S. Department of Commerce, International Trade Administration, Forest Products Service. Phone
Conversation with Nancy Hammett, Abt Associates Inc., April 11.
U.S. Department of Energy (U.S. DOE). 2001a. Energy Information Administration. E-mail communication from J. Alan
Beamon, April 6, 2001.
U.S. Department of Energy (U.S. DOE). 2001b. Energy Information Administration. E-mail communication from J. Alan
Beamon, March 29, 2001
U.S. Department of Energy (U.S. DOE). 2000a. Energy Information Administration (ElA). Annual Energy Outlook 2001
with Projections to 2020. DOE/EIA-0383(2001). December 2000.
U.S. Department of Energy (U.S. DOE). 2000b. Energy Information Administration. Assumptions to the Annual Energy
Outlook 2001 (AEO2001) with Projections to 2020. DOE/EIA-0554(2001). December 2000.
U.S. Department of Energy (U.S. DOE). 1998a. Form EIA-860A. Annual Electric Generator Report - Utility for the
Reporting Period 1998.
U.S. Department of Energy (U.S. DOE). 1998b. Form EIA-860B. Annual Electric Generator Report - Nonutility for the
Reporting Period 1998.
U.S. Environmental Protection Agency (U.S. EPA). 2000. Section 316(b) Industry Survey. Detailed Industry
Questionnaire: Phase II Cooling Water Intake Structures and Industry Short Technical Questionnaire: Phase II Cooling
Water Intake Structures, January, 2000 (OMB Control Number 2040-0213). Industry Screener Questionnaire: Phase I
Cooling Water Intake Structures, January, 1999 (OMB Control Number 2040-0203).
U.S. Environmental Protection Agency (U.S. EPA). 1999. Information Collection Request; Detailed Industry
Questionnaires: Phase II Cooling Water Intake Structures. August, 1999.
Wisconsin Tissues, Weldon, N.C. 1999. Environmental Assessment on 4/23/1999. Email communication from J. Troy
Swackhammer to Antje Siems, May 2000.
5-36
-------
Section 316(b) EA Chapter 5 for New Facilities Appendix to Chapter 5
Appendix to Chapter 5
This Appendix presents additional, more detailed information on the data sources, calculations, and results of the projection
of new facilities subject to the final section 316(b) New Facility Rule.
5.A.I BACKSROUND
The electric power industry is currently experiencing a rapid expansion due to the transition from a highly regulated
monopolistic industry to a more competitive industry. This expansion has contributed to a surge in the number of generating
plants being planned or under construction. As discussed in other parts of this EA, only steam electric facilities use
substantial amounts of cooling water and were considered for this analysis. The AEO2001 and the NEWGen data show a
trend toward combined-cycle generating technologies. This trend may reflect the transition toward competitive pricing for
electricity. In competitive markets, prices will reflect the interaction of supply and demand for electricity. During most time
periods, the price of electricity will be set by the generating unit with the highest operating costs needed to meet spot market
demand (i.e., the "marginal cost" of production). The lower capital and operating cost usually associated with gas generation
technologies may be one reason for the trend toward combined-cycle generating technology employed by new facilities.
The NEWGen data and the section 316(b) Industry Survey data also show a trend away from the use of waters of the U. S. as
a source of cooling water. EPA believes this trend reflects the increased competition for water and an increasing awareness
of the need for water conservation. As a result, the projected number of new electric generators subject to this rule is low,
despite the expected expansion in new generating capacity.
5.A.2 ANNUAL ENERGY OUTLOOK 2001
As described in Section 5.1.1 .a, EPA used a forecast of capacity additions between 2001 and 2020 (presented in the
AEO2001) to estimate the number of new combined-cycle and coal-fired plants. The AEO2001 projects both planned and
unplanned capacity additions between 2001 and 2020 for eight facility types (coal steam, other fossil steam, combined-cycle,
combustion turbine/diesel, nuclear, pumped storage/other, fuel cells and renewables).
Table 5.A-1 below presents AEO2001's forecast of total annual capacity additions between 2001 and 2020. The total
forecasted capacity additions represent the sum of all planned and unplanned capacity additions for each year and each
technology type. In addition, the table presents EPA's distribution of the projected 276 new combined-cycle and coal plants,
as well as the projected 83 new in-scope combined-cycle and coal plants over the 20-year analysis period. This distribution is
proportionate to the distribution of new combined-cycle and coal capacity additions over the 20 years.
5-37
-------
Section 316(b) EA Chapter 5 for New Facilities
Appendix to Chapter 5
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-------
Section 316(b) EA Chapter 5 for New Facilities
Appendix to Chapter 5
5. A. 3 COOLINS WATER SOURCE CHARACTERISTICS OF NEW COMBINED-CYCLE
FACILITIES
The screening analysis of the NEWGen database and EPA's research of public data sources produced information on cooling
water use for 199 new combined-cycle facilities. Table 5.A-2 below presents the number and capacity of these 199 facilities
by cooling water source. The table shows that approximately two thirds of new combined-cycle facilities do not use waters of
the U.S. for cooling purposes. For those facilities the most common alternative sources of cooling water are: municipal water
(22 percent), groundwater (16 percent), gray water (12 percent),28 and dry cooling (11 percent). The remaining facilities that
do not use waters of the U.S. use either unknown or multiple non-surface sources of cooling water. The table also indicates
that the average capacity per facility is relatively stable across the different cooling water sources, ranging from 643 to 907
MW. The average capacity for the 199 facilities is 741 MW.
Table 5.A-2: NEWSen Combined-Cycle Facilities by Cooling Water Source
Cooling Water Source
Water of the U.S.a
Municipal Water
Groundwater
Gray Water
Dry Cooling
unknown non- surf ace
multiple non-surface
Total
Number of
Facilities
67
44
32
23
22
5
6
199
Percent of
Facilities
34%
22%
16%
12%
11%
3%
3%
100%
Capacity (MW)
49,760
33,789
25,184
15,226
14,154
3,900
5,443
147,455
Percent of
Capacity
34%
23%
17%
10%
10%
3%
4%
100%
Average Capacity
per Facility
743
768
787
662
643
780
907
^74J
a Sixty-seven new combined-cycle facilities withdraw from a water of the U.S. However, 10 of these are not considered in scope
of the final section 316(b) New Facility Rule because they do not meet one or more of the other in-scope criteria.
Source: EPA analysis of information from state permitting authorities, 2001.
5.A.4 COOLINS WATER SOURCE CHARACTERISTICS OF IN-SCOPE NEW6EN
COMBINED-CYCLE FACILITIES
Of the 199 new combined-cycle facilities with cooling water information, 57 were determined to be in scope of the final
section 316(b) New Facility Rule. Table 5.A-3 below presents the distribution of planned cooling water sources for the 57
new in-scope combined-cycle facilities. The table shows that the majority of in-scope facilities, 84 percent, plans to draw
cooling water from freshwater sources, while the remaining 16 percent will withdraw water from marine sources.29 In
addition, the table indicates that 77 percent of in-scope facilities draw cooling water from rivers, both freshwater and tidal.
The most common source of cooling water is freshwater rivers, with 65 percent of all in-scope facilities. The second most
common surface water body types are tidal rivers, and lakes and reservoirs, with about 12 percent each.
28 Gray water is treated effluent from sewage systems.
29 Marine sources of cooling water include oceans, estuaries, and tidal rivers.
5-39
-------
Section 316(b) EA Chapter 5 for New Facilities
Appendix to Chapter 5
Table 5.A-3: In-Scope NEWSen Combined-Cycle Facilities by Cooling Water Source
Cooling Water Source
Freshwater
River
Lake/Reservoir
Canal
Multiple surface -waters of the U.S.
Unknown surface water of the U.S.
Total Freshwater
Marine
River
Canal
Unknown surface water of the U.S.
Total Marine
Total
Number of
Facilities
37
7
1
2
1
48
1
1
1
9
57
Percent of
Facilities
65%
12%
2%
4%
2%
84%
12%
2%
2%
16%
100%
Capacity
(MW)
28,000
5,030
265
1,310
846
35,451
4,682
1,030
1,400
7,772
42,563
Percent of
Capacity
66%
12%
1%
3%
2%
83%
11%
2%
3%
77%
100%
Source: RDI, 2001.
5. A.5 DISTRIBUTION OF NEW COMBINED-CYCLE CAPACITY BY NERC RESIGN
Figure 5.A-1 presents the distribution of projected new combined-cycle capacity additions by North American Electric
Reliability Council (NERC) region. Figure 5. A.I contains two graphs: The graph on the left presents the capacity of the 199
NEWGen combined-cycle facilities with available cooling water information. These are the facilities upon which EPA's
analysis of new combined-cycle facilities is based. For comparison purposes, the graph on the right presents the combined-
cycle capacity addition forecasts for 2001 to 2020 from the Annual Energy Outlook 2001 (AEO2001).
> 199 NEWGen combined-cycle facilities: The first graph shows that the largest share of capacity additions,
approximately 24 percent, will be in WSCC (the Western Systems Coordinating Council). SERC (the Southeastern
Electric Reliability Council) accounts for the second largest share with 21 percent. Only one NERC region, MAPP
(the Mid-Continent Area Power Pool), did not have any planned NEWGen facility with known cooling water
characteristics.30
* AEO2001: The second graph shows that, similar to the NEWGen capacity additions, SERC (24 percent) and WSCC
(20 percent) are the two regions with the largest combined-cycle capacity additions. The only region without
projected new combined-cycle capacity is MAIN (the Mid-America Interconnected Network).
A comparison of the two graphs shows that the regional capacity distribution projected by the two data sources is very
similar. Only for two of the ten NERC regions do the forecasts differ by 5 percent or more: (1) FRCC (the Florida Reliability
Coordinating Council) only accounts for three percent of the capacity additions in the NEWGen database whereas it accounts
for 11 percent in the AEO2001; and (2) MAIN does not have any combined-cycle capacity additions in the AEO2001
30 The absence of new combined-cycle NEWGen facilities located in MAPP may be partially explained by the fact that the AEO2001
does not forecast new combined-cycle additions in MAPP until 2009, which is beyond the time-period covered by the NEWGen database.
5-40
-------
Section 316(b) EA Chapter 5 for New Facilities
Appendix to Chapter 5
whereas it accounts for 8 percent of the NEWGen capacity additions.
Figure 5.A-1: Distribution of New Combined-Cycle Capacity Additions by NERC Region"
NEWGen Capacity Additions (in MW)
AEO2001 Capacity Additions 2001-2020 (in MW)
40,000-
35,000-
25,000-
20,000-
15,000-
5,000-
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a The NERC regions included in these graphs are: ECAR - East Central Area Reliability Coordination Agreement; ERCOT - Electric
Reliability Council of Texas; FRCC - Florida Reliability Coordinating Council; MAAC - Mid-Atlantic Area Council; MAIN - Mid-
America Interconnect Network; MAPP - Mid-Continent Area Power Pool; NPCC - Northeast Power Coordinating Council; SERC -
Southeastern Electric Reliability Council; SPP - Southwest Power Pool; WSCC - Western Systems Coordinating Council.
Source: RDI, 2001; U.S. DOE 2000a; U.S. EPA analysis, 2001.
5.A.6 DEVELOPMENT OF COMBINED-CYCLE MODEL FACILITIES
EPA's analysis projected 69 new in-scope combined-cycle facilities. The cooling water and economic characteristics of these
69 facilities were based on the 57 in-scope combined-cycle facilities identified from the NEWGen database. EPA developed
six model facility types:
* Model Facility 1, developed based on 15 freshwater/recirculating facilities with relatively small capacities (on
average 439 MW);
*• Model Facility 2, developed based on 17 freshwater/recirculating facilities with medium capacities (on average 699
MW);
*• Model Facility 3, developed based on 16 freshwater/recirculating facilities with relatively large capacities (on
average 1,061 MW);
>• Model Facility 4, developed based on 4 marine/once-through facilities with an average size of 1,031 MW;
*• Model Facility 5, developed based on 4 marine/recirculating facilities with relatively small capacities (on average
489 MW);
*• Model Facility 6, developed based on 1 marine/recirculating facility with a relatively large capacity (1,030 MW).
In general, the number of model facility types for each water body/cooling system combination depended on the number of
NEWGen facilities with that combination of characteristics and their size distribution: EPA developed more model facilities
for water body/cooling system combinations with a large number of NEWGen facilities and/or with a wide range of facility
sizes.
Table 5.A-4 below presents the characteristics of the 57 new in-scope combined-cycle facilities (water body type, cooling
system type, and actual steam-electric capacity) as well as the model facility by which they are represented and their model
facility capacity.
5-41
-------
Section 316(b) EA Chapter 5 for New Facilities
Appendix to Chapter 5
Table 5.A-4: In-Scope NEW6en Facilities
No.
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
^
^
^
^
^
^
^
^
^
^
^
^
^
^
^
^
^
-3
-3
-3
-3
-3
-3
-3
-3
-3
-3
-3
-3
-3
-3
NEWGen
Facility
NEWGen 1
NEWGen 2
NEWGen 3
NEWGen 4
NEWGen 5
NEWGen 6
NEWGen 7
NEWGen 8
NEWGen 9
NEWGen 10
NEWGen 1 1
NEWGen 12
NEWGen 13
NEWGen 14
NEWGen 15
NEWGen 16
NEWGen 17
NEWGen 18
NEWGen 19
NEWGen 20
NEWGen 21
NEWGen 22
NEWGen 23
NEWGen 24
NEWGen 25
NEWGen 26
NEWGen 27
NEWGen 28
NEWGen 29
NEWGen 30
NEWGen 31
NEWGen 32
NEWGen 33
NEWGen 34
NEWGen 35
NEWGen 36
NEWGen 37
NEWGen 38
NEWGen 39
NEWGen 40
NEWGen 41
NEWGen 42
NEWGen 43
NEWGen 44
NEWGen 45
NEWGen 46
Water Body Type
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Baseline CWS
Type
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Actual Steam
Capacity (MW)
165
265
265
343
360
493
500
503
510
510
520
520
530
544
550
600
600
600
620
620
620
640
660
673
700
750
775
800
800
800
808
825
837
846
850
850
900
975
1,000
1,000
1,075
1,086
1,100
1,130
1,134
1,200
Model Facility ID
CC R/FW-1
CCR/FW-1
CC R/FW-1
CCR/FW-1
CCR/FW-1
CCR/FW-1
CCR/FW-1
CCR/FW-1
CC R/FW-1
CC R/FW-1
CC R/FW-1
CC R/FW-1
CC R/FW-1
CC R/FW-1
CC R/FW-1
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-2
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
CC R/FW-3
Model Steam
Capacity (MW)
439
439
439
439
439
439
439
439
439
439
439
439
439
439
439
699
699
699
699
699
699
699
699
699
699
699
699
699
699
699
699
699
1,061
1,061
1,061
1,061
1,061
1,061
1,061
1,061
1,061
1,061
1,061
1,061
1,061
1,061
5-42
-------
Section 316(b) EA Chapter 5 for New Facilities
Appendix to Chapter 5
Table 5.A-4: In-Scope NEW6en Facilities
No.
-3
-3
4
4
4
4
C
c
c
c
6
NEWGen
Facility
NEWGen 47
NEWGen 48
NEWGen 49
NEWGen 50
NEWGen 51
NEWGen 52
NEWGen 53
NEWGen 54
NEWGen 55
NEWGen 56
NEWGen 57
Water Body Type
Freshwater
Freshwater
Marine
Marine
Marine
Marine
Marine
Marine
Marine
Marine
Marine
Baseline CWS
Type
Recirculating
Recirculating
Once- Through
Once- Through
Once- Through
Once- Through
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Actual Steam
Capacity (MW)
1,400
1,600
750
900
1,075
1,400
440
448
525
544
1,030
Model Facility ID
CC R/FW-3
CC R/FW-3
CC OT/M-1
CC OT/M-1
CC OT/M-1
CC OT/M-1
CCR/M-1
CCR/M-1
CCR/M-1
CCR/M-1
CCR/M-2
Model Steam
Capacity (MW)
1,061
1,061
1,031
1,031
1,031
1,031
489
489
489
489
1,030
Source: RDI, 2001; U.S. EPA analysis, 2001.
5.A.7 DEVELOPMENT OF COAL MODEL FACILITIES
The approach to developing coal model facilities was the same as that described for combined-cycle model facilities. EPA's
analysis projected 14 new in-scope coal facilities. The cooling water and economic characteristics of these 14 facilities were
based on the 41 existing coal facilities with "in-scope" characteristics identified from the section 316(b) Industry Survey.
EPA developed eight coal model facility types.
Model Facility 1,
MW);
Model Facility 2,
Model Facility 3,
MW);
Model Facility 4,
Model Facility 5,
Model Facility 6,
Model Facility 7,
Model Facility 8,
based on 10 freshwater/recirculating facilities with relatively small capacities (on average 173
based on 7 freshwater/recirculating facilities with medium capacities (on average 625 MW);
based on 8 freshwater/recirculating facilities with relatively large capacities (on average 1,564
based on 4 freshwater/recirculating facilities with cooling lakes with an average size of 660 MW;
based on 3 freshwater/once-through facilities with very small capacities (on average 63 MW);
based on 5 freshwater/once-through facilities with medium capacities (on average 515 MW);
based on 1 freshwater/once-through facility with a very large capacity (on average 3,564 MW);
based on 3 marine/recirculating facilities with an average size of 812 MW.
As with the combined-cycle analysis, the number of model facility types for each water body/cooling system combination
depended on the number of survey facilities with that combination of characteristics and their size distribution: EPA
developed more model facilities for water body/cooling system combinations with a large number of survey facilities and/or
with a wide range of facility sizes.
Table 5.A-5 below presents the characteristics of the 41 coal survey facilities (water body type, cooling system type, and
actual steam-electric capacity) as well as the model facility by which they are represented and their model facility capacity.
5-43
-------
Section 316(b) EA Chapter 5 for New Facilities
Appendix to Chapter 5
Table 5.A-5: Coal Survey Facilities with In-Scope Characteristics
No.
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
4
4
4
4
5
5
5
6
6
6
6
6
1
8
8
8
Survey
Facility
Survey 1
Survey 2
Survey 3
Survey 4
Survey 5
Survey 6
Survey 7
Survey 8
Survey 9
Survey 10
Survey 1 1
Survey 12
Survey 13
Survey 14
Survey 15
Survey 16
Survey 17
Survey 18
Survey 19
Survey 20
Survey 21
Survey 22
Survey 23
Survey 24
Survey 25
Survey 26
Survey 27
Survey 28
Survey 29
Survey 30
Survey 31
Survey 32
Survey 33
Survey 34
Survey 35
Survey 36
Survey 37
Survey 38
Survey 39
Survey 40
Survev^^^
Water Body Type
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Marine
Marine
Marine
Baseline CWS Type
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating w. Lake
Recirculating w. Lake
Recirculating w. Lake
Recirculating w. Lake
Once- Through
Once- Through
Once- Through
Once- Through
Once- Through
Once- Through
Once- Through
Once- Through
Once- Through
Recirculating
Recirculating
Recirculating
Actual Steam
Capacity (MW)
58
58
95
96
114
140
182
240
330
417
450
509
566
664
721
726
736
1,010
1,147
1,300
1,429
1,627
1,700
1,700
2,600
444
546
570
1,080
50
69
70
213
261
655
721
725
3,564
230
848
^U58
Model Facility
ID
Coal R/FW-1
Coal R/FW-1
Coal R/FW-1
Coal R/FW-1
Coal R/FW-1
Coal R/FW-1
Coal R/FW-1
Coal R/FW-1
Coal R/FW-1
Coal R/FW-1
Coal R/FW-2
Coal R/FW-2
Coal R/FW-2
Coal R/FW-2
Coal R/FW-2
Coal R/FW-2
Coal R/FW-2
Coal R/FW-3
Coal R/FW-3
Coal R/FW-3
Coal R/FW-3
Coal R/FW-3
Coal R/FW-3
Coal R/FW-3
Coal R/FW-3
CoalRL/FW-1
CoalRL/FW-1
CoalRL/FW-1
Coal RL/FW-1
Coal OT/FW-1
Coal OT/FW-1
Coal OT/FW-1
Coal OT/FW-2
Coal OT/FW-2
Coal OT/FW-2
Coal OT/FW-2
Coal OT/FW-2
Coal OT/FW-3
CoalR/M-1
CoalR/M-1
CoalR/M-1
Model Steam
Capacity
(MW)
173
173
173
173
173
173
173
173
173
173
625
625
625
625
625
625
625
1,564
1,564
1,564
1,564
1,564
1,564
1,564
1,564
660
660
660
660
63
63
63
515
515
515
515
515
3,564
812
812
812
Source: U.S. EPA 2000; U.S. EPA analysis, 2001.
5-4
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Section 316(b) BA Chapter 6 for New Facilities
Facility Compliance Costs
Chapter O: Facility Compliance
Costs
CHAPTER CONTENTS
6.1 Unit Costs ..... . . . . . ................. 6-1
6.1.1
6.1.2
6.2
' 6.2 J;>
,.6:2.2
_
Section 3 16(b) Technology Costs ... 6-2.
Administrative Costs ........ . . . .^ 6-5
rLevel Costs . „-. . %. j . .* -~«v /„,:,. r: . , ^ 6":|T
Jfevr Electric- Generators _. .,. -/'.jx."". •fc?
ifewManiifecteing Facilities '.....
*
\ ^smbutiqnjaf NewjtorScbpe -...'^iT-i
" Facilities by Y&tr -. r . I ." . 1 ^/.'^l I "
INTRODUCTION
This chapter presents the estimated costs to facilities of
complying with the final section 316(b) New Facility Rule.
EPA developed costs at three levels: (1) unit costs of
complying with the various requirements of this regulation,
including costs of section 316(b) technologies and
administrative costs; (2) facility-level costs for each
projected iii-scope facility; and (3) total facility compliance
costs aggregated to the national level. .
Under the final New Facility Rule, facilities must comply
with one of two alternative sets of permitting requirements
(Track I and Track II).1 Facilities choosing to comply with.
Track I permitting requirements would be required to meet
flow reduction, velocity, and design and construction
technology requirements. Facilities choosing to comply with
Track E permitting requirements would be required to
perform a comprehensive demonstration study to document that proposed technologies reduce the level of impingement and
entrainment (I&E) to lie same level that would be achieved by implementing the flow reduction, velocity, and design and
construction technology requirements of Track I, The remainder of this chapter presents the estimated costs of compliance
and the methodology and unit costs used to develop the estimates. The chapter is organized as follows:
*• Section 6.1 presents the unit costs associated with various actions that facilities may take as part of the regulatory
alternatives described above". "The unit costs include average costs of implementing-specific changes to a facility's
cooling water intake structure (CWIS) or its cooling water system and are based on certain facility characteristics
such as volume of flow. Unit costs are also estimated for administrative activities.
•• Section 6.2 discusses compliance cost estimates for the 121 projected new facilities.
*• Section 6.3 presents the estimated facility compliance costs aggregated to the national level.
•• Section 6.4 presents an estimate of facility costs for two nuclear facilities and four coal facilities installing concrete
cooling towers.
» Section 6.5 discusses the limitations and uncertainties in EPA's compliance cost estimates.
6.1 UNIT COSTS
Unit costs are estimated costs of certain activities or actions, expressed on a uniform basis (i.e., using the same units), that a
facility may take to meet the regulatory requirements. Unit costs are developed to facilitate comparison of the costs of
1 See Chapter 1: Introduction and Overview for a summary of this rule's requirements.
6-1
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Section 316(b) EA Chapter 6 for New Facilities Facility Compliance Costs
different actions. For this analysis, the unit basis is dollars per gallon per minute ($/gpm) of cooling water intake flow. All
capital and operating and maintenance (O&M) costs were estimated in those units. These unit costs are the building blocks
for developing costs at the facility and national levels.
Individual facilities will incur only a subset of the unit costs, depending on the extent to which they would have already
complied with the requirements as originally designed (in the baseline) and on the compliance response they select. The unit
costs presented in this section are engineering cost estimates, expressed in year 2000 dollars. More detail on the development
of these unit costs is provided in the Technical Development Document for the Final Regulations Addressing Cooling Water
Intake Structures for New Facilities (Technical Development Document).
6.1.1 Section 316(b) Technology Costs
New facilities that in their original designs do not comply with the section 316(b) New Facility Rule framework would have
to implement one or more technologies to reduce (I&E). These technologies reduce I&E through one of three general
methods:
•• reducing the design intake flow;
»• reducing the design intake velocity; or
>• implementing other design, and construction technologies (referred to as "other technologies") to reduce I&E:
The remainder of Section 6.1.1 discusses specific section 316(b) technologies and their respective costs. ••-.•• • • •• '• •
a. Reducing design intake .flow
New facilities have a number of alternatives for reducing their intake flow to meet the rule's requirements. Under Track I,
facilities must reduce their intake flow, at a minimum-, to a level commensurate with that which could be obtained by use of a •
closed-cycle recirculating system. Under Track n, facilities have the opportunity to demonstrate that alternative technologies
•will reduce impingement and entrainment to the same levels that would be achieved under Track I. EPA therefore developed
cost estimates based on switching to recirculating systems.
By switching to a recirculating system, it is possible for a new facility to reduce its intake flow to less than two MOD and
therefore be exempt from the final section 316(b) New Facility Rule. For some facilities, the cost of reducing the intake flow
such that they are exempt from regulation under section 316(b) may be lower than that of any other compliance response.
Switching to a recirculating system involves redesigning the proposed facility to replace the planned once-through cooling
system. Cooling towers aire by far the most Common type of recirculating system. EPA therefore assumed that all planned
facilities switching to recirculating systems will use cooling towers. This is also consistent with the requirement of the final
section 316(b) New Facility Rule to reduce intake flow to a level commensurate with that which could be obtained by use of a
closed-cycle recirculating system.
Cooling tower configurations differ with respect to design characteristics, such as the type of air flow (either natural or
mechanical draft), the materials used in tower construction (redwood, fiberglass, steel, and/or concrete), and whether water is
recirculated or discharged to a receiving water body after cooling (only configurations that recirculate water will b'e useful in
meeting the Track I regulatory requirements).
The cost of installing cooling towers and their associated intakes and equipment is largely determined by the volume of
cooling water needed, the material used to construct the tower (e.g., redwood, fiberglass), and the special features of the
tower (e.g., plume abatement). The volume of water needed for cooling depends on the following factors: source water
temperature and quality; the type of airflow in the cooling tower (i.e., whether it is natural or mechanical draft); type and
make of equipment to be cooled (e.g., coal fired equipment, natural gas powered equipment); and the plant size/generating
capacity (e.g., 50 megawatt vs. 800 megawatt).
EPA estimated capital costs for recirculating wet cooling towers with redwood construction and splash fill. EPA chose to use
redwood for its estimate over fiberglass because although EPA's records show that the standard cooling tower installation for
recently constructed facilities is fiberglass, the cost of installing fiberglass is negligibly lower than the costs of installing
redwood. EPA believes that the use of redwood reflects a conservative estimate. For purposes of cost estimation, EPA
considered reuse and recycling at manufacturing facilities to be equivalent to closed-cycle, recirculating cooling water
systems at electric generators.
6-2
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Section 316(b) EA Chopter 6 for New Facilities
Facility Compliance Costs
Table 6-1 presents estimated capital and installation costs for redwood cooling towers with splash fill, broken down by the
volume of water used. To calculate estimated capital costs, EPA made the following assumptions:
»• The wet tower approach was 10 °F with a temperature rise of 20 °F.
»• Installation costs were estimated as 80% of cooling tower equipment costs, based on discussions with industry
representatives.
*• The recirculating cooling water flow was assumed to be equal to the baseline once-through flow when comparing
these technologies.
*• For electric generators, .make-up water intake flow is 5% of cooling water flow for freshwater and 8% of cooling
water flow for marine water. To account for other water uses and potential limitations on reuse/recycle at
manufacturing facilities, these values are doubled to 10% (freshwater) and 16% (marine water) for manufacturers.
i able 6-1: Capital and Installation
-*% * ~ - >• ^
--. -- - - " Mow (gpm) - ( "
2,000-18,000
• "" 22,000-36,000
45,000-67,000 , ,.
73,000-102,000
, . . , 112,000-204,000
Costs for Redwood Cooling Towers with Splash Fill ($2000), "•
. ''. •',-'•.. v- "-•> -»!
„ . , - , - Total Capital Cost" ;
$170,000-$1,308,000 !
' ' $1,589,000:52,557,000
••.,,-.'• $3,169,000-54,630,000
$5,019,000-56,851,000
'•.=.•.-.. , , $7,463,000-512,608,000
Source: Based on cost curves (U.S. EPA, 2001a).
EPA also estimated O&M costs for cooling towers. These O&M costs tend to be driven by factors such as:
*•" the size of the cooling tower, ••'•-'. • -...•-.•.-.-•..•
• >•' me'material from wMch me cooling tower is built, • - •,,-
»• various features of the cooling tower, , •
»• the source of make-up water, . .
* the disposition of biowdown water, and ' ' • • ,
>• the tower's remaining useful life (maintenance costs increase as useful life diminishes).
To calculate estimated annual O&M costs, EPA made the following assumptions:
»• For small cooling towers, five percent of capital costs is attributed to chemical costs and routine maintenance. To
account for economies of scale, that percentage is gradually decreased to two percent for the largest cooling tower.
This assumption is based on documented discussion with cooling tower vendors.
>• Evaporative loss is assumed to be 80% of make-up water intake flow.
* Make-up water was assumed to come from a water of the U.S., and disposal of blowdown was assumed to be either
to a pond or back to the original water source, at a combined cost of $0.50/1000 gallons.
*• Maintenance costs are 15 percent of capital costs, averaged over a 20-year period, based on documented discussion
with cooling tower vendors.
In addition, EPA applied an energy penalty cost to those electric generators switching to recirculating systems to account for
reductions of energy or capacity produced because of adoption of recirculating cooling tower systems. These reductions in
performance are associated with reduced turbine efficiencies due to higher back pressures associated with cooling towers, as
well as with power requirements to operate cooling tower pumps and fans. EPA's costing methodology for perfoimance
penalties is based on the concept of lost operating revenue due to a mean annual performance penalty. EPA estimated the
mean annual performance penalty for recirculating cooling tower systems as compared to once-through cooling systems.
EPA then applied this mean annual penalty to the annual revenue estimates for each facility projected to install a recirculating
cooling tower technology as a result of the rule. It should be noted that EPA took a conservative approach and double-
6-3
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Section 316(b) EA Chapter 6 for New Facilities • Facility Compliance Costs
counted some parts of the energy penalty, since fan and pump power costs were included in both the energy penally and the
cooling tower O&M costs.
Cost curves developed based on the above assumptions and used to estimate costs can be found in the Technical Development
Document, along with further details on the development of estimated costs. -
b. Reducing design intake velocity
A facility not in compliance with the velocity criteria established by the final section 316(b) New Facility Rule may need to
alter its CWIS to reduce the design intake velocity. This reduction can be achieved by branching the intake into a greater
number of openings/pipes, installing velocity caps, or constructing a passive screen system.
For the final section 316(b) New Facility Rule, EPA did not estimate costs for reducing design intake velocity as a separate
line item, but instead included these costs in the costs of implementing other design and construction technologies to reduce
I&E, as discussed in the following section.
c. Implementing other design and construction technologies to reduce I<5E
Facilities may have to employ additional technologies that reduce I&E, depending on their CWIS location and velocity. EPA
assumed that the baseline technology for electric generators would be traveling screens with an intake velocity of 1.0 ft/s, and
that the baseline technology for manufacturing facilities would be trash racks. EPA assumed that facilities would add
traveling screens with fish handling features, with an intake velocity of 0.5 ft/s, as a way to limit I&E. This is a conservative
assumption, since such technologies are among the more expensive technologies available for reducing I&E. "
Vertical traveling screens contain a series of wire mesh screen panels that are mounted end to end on a band to form a vertical
loop. As water flows through the panels, debris and fish that are larger than the screen openings are caught on the screen or at
the base of each panel in a basket As the screen rotates, each panel passes through a series of spray wash systems that
remove debris and fish from the basket The first system is alow pressure spray wash which is used to release fish to a
bypass/retum trough. Once the fish have been removed, a high pressure jet spray wash system is used to remove debris. As
the screen continues to rotate, the clean panels move down and back into the water to screen intake flow.
Two components were analyzed in estimating total capital costs associated with the installation of traveling screens with fish
handling features: equipment costs and installation costs. Equipment costs for a basic traveling screen with-fish handling.
features include costs for screens constructed of carbon steel coated with epoxy paint, a spray system, a fish trough; housings
and transitions, continuous operating features, a drive unit, frame seals, and engineering. Installation costs include costs for
site preparation and earthwork, clearing the site, excavation, paving and surfacing, and structural concrete work and
underwater installation (personnel, equipment, and mobilization, including the cost of a barge equipped with a crane and the
crew to operate it). . '
Table 6-2 presents the total capital costs associated with the installation of traveling screens with fish baskets. Costs are
presented for screen panels of various widths and for selected well depths. Well'depth includes the height of the structure
above the water line and can exceed water depth by a few to tens of feet. Capital costs for traveling screens with fish
handling features were calculated based on vendor estimates and information from Heavy Construction Cost Data 1998 (R.S.
Means, 1997) and Paroby (1999). Cost curves used to estimate costs can be found in the Technical Development Document,
along with further details on the development of estimated costs.
O&M costs for traveling screens vary by type, size, and mode of operation of the screen. Based on discussions with industry
representatives, EPA estimated that the annual O&M cost factor ranges between eight percent of total capital cost for the
smallest traveling screen (with and without fish baskets) and five percent for the largest traveling screen, since O&M costs do
not increase proportionateley with screen size. See the Technical Development Document for further information on O&M
costs.
6-4
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Section 316(b) £A Chapter 6 for New Facilities
Facility Compliance Costs
Table 6-2: Capital Costs for Traveling Screens with Fish Handling Features s($2000)a ;
Well Depth (ft)
10
25
50
75
!- ' 100 , .
Screening Basket Panel Width (ft) - ,
2
$93,000
$132,750
$196,500
$260,500
$345,000
5- , -:
$135,500
' $199,250
, $294,750
$391,750
$489,750 •. - •• •
10
$207,500
$315,250
$470,250
$604,750
. $739,250
14
$292,500
$465,000
$664,250
$853,250
$1,037,000
Source: Based on cost curves (U.S. EPA 2001 a).
6.1.2 Administrative Costs
Compliance with the final section 316(b) New Facility Rule requires facilities to cany out certain administrative functions.-
These functions are either one-time requirements (compilation of information for the initial NPDES permit) or recurring
. requirements (compilation of information for NPDES permit renewal, and monitoring and record keeping). This section
describes each of these administrative requirements and their estimated costs. • •
a. Initial NPDES permit application ;
The final section 316(b) New Facility Rule requires all new facilities subject to this regulation to submit information
regarding the location, construction, design, and capacity of their proposed CWIS as part of their initial NPDES permit
application. Some of these activities are already required under the current case-by-case CWIS permitting procedures, so to
some extent this rule is over-costed. Certain activities are required of all facilities, while others depend on whether a facility
is following Track I or Track n, as identified below. Activities and costs associated with the initial pennit'application
•include: • •••"• • • • ' ' " "! • • •••'•••' :- -*<.:•>•
•'••• •'* start-up activities: reading and understanding the rule; mobilizing and planning; and training staff; • <
>•' general permit application activities: developing drawings that show the physical characteristics of the source
water; developing a description of the CWIS's configuration; developing a facility water balance diagram;
developing a narrative of operational characteristics; submitting materials for review by the Director; and keeping
•• '- ••• records; •• •••.••. • • • • . . . .
;/>. source water body flow information activities: collecting information characterizing flow; performing engineering
"'• ' calculations; submitting materials for review by the Director; and keeping records;
» source water body baseline characterization activities: identifying available data and documenting efforts;
compiling and analyzing existing data; submitting materials for review by the Director; and keeping records;
» remote monitoring device capital and O&M costi: imiailaAoa of remote monitoring device;
>• CWIS flow reduction requirement activities (Track I only}: developing information characterizing CWIS flow;
performing engineering calculations; submitting data and analysis for review; and keeping records;
>• CWIS velocity requirement activities (Track I only): developing a narrative description; performing engineering
calculations; submitting data and analysis for review; revising analysis based on state review; and keeping records;
> design and construction technology plan (Track I only): developing a narrative description; performing
engineering calculations; submitting data and analysis for review; and keeping records;
»• comprehensive demonstration study plan (Track II only): developing description of historical studies that will be
used; listing source water Body and CWIS data; developing a source water baseline biological characterization
sampling plan; developing a verification monitoring plan; submitting data and plans for review; revising plans based
on state review; and keeping records;
> source water body baseline biological characterization study (Track II only): performing biological sampling;
developing a profile of source water body biota; identifying critical species; developing a report based on results of
the study; submitting data and study report for review; revising the study based on state review; and keeping records;
6-5
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Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
>• source water body baseline biological characterization study capital and O&M costs (Track II only); laboratory
analysis of samples;
»• evaluation of potential CWIS effects (Track II only): developing a statement of the baseline against which
comparative analyses will be made; performing engineering calculations for efficacy projections; performing
impingement and entrainment pilot studies; submitting data and analysis for review; and keeping records;
>• impingement and entrainment pilot study capital and O&M costs (Track II only): purchasing, installing and
operating pilot study technology; and laboratory analysis of samples.
Table 6-3 lists the estimated maximum costs of each of the initial NPDES permit application activities described above. The
specific activities that a facility will have to undertake depend on the facility's source water body type and the pennittmg
track it follows. Certain activities are expected to be more costly for marine facilities than for freshwater facilities. Some
activities will apply to all facilities, while other activities'will apply depending on whether the facility is foEowing Track I or
Track H, The maximum cost a facility that is required to implement all the activities would incur for its initial NPDES permit
application is estimated to be $1,007,059 under Track II and S82,548 under Track I.
Table 6-3: Cost of Initial NPDES Permit Application Activities ($200O)
Activity _-._•"
Start-up activities*
General permit application activities*
Source water body flow information activities* • ' ••
Source water body baseline biological characterization activities"
Remote monitoring device capital and O&M costs '
CWIS flow reduction requirement activities (Track I only)3
CWIS velocity requirement activities (Track I only)*
Design and construction technology plan (Track I only)*
Comprehensive demonstration study plan (Track n only)"
Source water body baseline biological characterization study
(Track Henry)*
Source water body baseline biological characterization study
capital and O&M costs (Track H only)b
Evaluation of potential CWIS effects (Track n only)"
Impingement and eatrainment pilot study capital and O&M costs
(Track II only)1
Total Initial NPDES Permit Application Cost
Estimated Cost
per Permit
--- ' ; Track I*
- (Recirculatlng)
Freshwater
$1,635
$5,098
$3,110
$9,725 . ,
$51,000
•$3,661
$5,428
'$2,890
—
_
_
._
—
$82,548
i Marine
$1,635
.$5,098
$3,110
$9,725
$51,000
$3,661
$5,428
$2,890
•' —
• _
-
. _
— ,
$82,548
Track H
(Once-Through)
Freshwater
$1,635
$5,098
$3,110
$9,725
_•
-~
— •
_ . .
$14,563
$229,619
$118,500
$112,651
$321,600
Marine
$1,635
$5,098
$3,110
• $9,725 '
• , ••_;•> '•
—
- ._ •-.
— . • •
' $14,563
_ . ' $287,845
$199,230
$135,642
$350,210
.$816,502 i $1,007,059
* The costs for these activities are incurred in the year prior to the permit application.
b The costs for these activities are incurred in the three years prior to the permit application,
Source: U.S. EPA 2001b.
6-6
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Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
b. NPbES permit renewal
Each new facility operating a CWIS will have to apply for a NPDES permit renewal every 5 years, (Many times a NPDES
permit is administratively continued for a period of time^ beyond the permit expiration date.) Permit renewal requires
collecting and submitting the same type of information as required for the initial permit application, EPA expects that
facilities can use some of the information from the initial permit. Building upon existing information is expected to require
less effort than developing the data the first time.
Table 6-4 lists the estimated costs of each of the NPDES repermit application activities. Certain activities are expected to be
more costly for marine facilities than for freshwater facilities. Some activities will apply to all facilities, while other activities
will apply depending on whether the facility is following Track I or Track II. The maximum cost a facility that is required to
implement all the renewal activities would incur for its NPDES permit renewal is estimated to be $44,953 under Track II and
$15,094 under Track I.
" -. i Table 6-4: Cost of NP&ES Repertnit Application Activities ($2000) - .".
-- "' " ~~ "->.• "= --" "?v-
Activity, - -
_ — _=,
^Start-up activities" - • .
' General permit application activities*
.Source water baseline biological characterization activities8
. CWIS flow reduction requirement activities1
CWIS velocity requirement activities3
Design and construction technology plan (Track I only)1
Comprehensive demonstration study plan (Track II only)*
Source water baseline biological characterization study (Track n
only)3
".'' ' '•
Evaluation of potential CWIS effects (Track II only)*
Total NPDES Permit Renewal Application Cost
; - ~ _ i - EstimatecTGost .- " - ~
-/ ." - _.; -'1-- ~" If" Permit _^ „ t -_ ~ ~ -
J 1^ Tra
_ : (Recire
Freshwater
$471
$2,475
•'.$5,146
- '$2,595
$3,425
$982
—
: —
. —
$15,094
ckl J ~-"
nlating)^ _,~
Marine
$471
$2,475
$5,146
$2,595
$3,425
$982
.*-.
._
—
$15,094
Track IT.- r
' (OncePTnroHgn) _
Freshwater
$471- "
$2,475
$5,146 -
$2,595
$3,425 -
— •
$6,433
$16,966
$7,001
$44;S12
Marine
$471
' $2,475
• $5,146-
• $2,595
$3,425
• —
$6,433
$17,407
$7,001
• -$44,953
* The costs for these activities'are incurred in the year prior to the application for a permit renewal.
Source: U.S. EPA, 2001b.
c. Monitoring, record keeping, and reporting
All new facilities subject to the final section 316(b) New Facility Rule are required to monitor to show compliance with the
requirements set forth in the rule. Facilities must keep records of their monitoring activities and report the results in a yearly
status report. Monitoring, record keeping, and reporting activities and costs include:
•• verification monitoring plan (Track II only): conducting technology performance monitoring; submitting
monitoring results and study analysis; and keeping records (see § 125.86 (c)(2)(ii)(C));
»• biological monitoring - impingement (Track I and II): collecting monthly samples for at least two (2) years after
the initial permit issuance; identifying and enumerating organisms; and keeping records (see § 125.87(a)(l));
•• biological monitoring - entrainment (Track I and II): collecting biweekly samples during the primary period of
reproduction, larval recruitment, and peak abundance for at least two (2) years after the initial permit issuance;
6-7
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Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
identifying and enumerating organisms; and keeping records (see 125.87(a)(2));
>• velocity monitoring (Track I and H): monitoring head loss across the cooling water intake screen or velocity at the
point of enfty through the device (other than an intake screen); correlating the head loss value with the design intake
screen velocity; and keeping records (see § 125,87(b));
»• visual or remote inspections (Track I and II): conducting weekly visual inspections or employing remote
monitoring devices of all installed design and construction technologies (e.g., barrier nets, aquatic filter barrier
systems, and fish handling return systems); and keeping records (see § 125.87(c));
»• yearly status report activities: detailing biological monitoring results; detailing velocity monitoring results; reporting
on visual or remote inspection; compiling and submitting the report; and keeping records (see § 125.88(b)).
Table 6-5 lists the estimated costs of each of the monitoring, record keeping, and reporting activities described above. The
specific activities that a facility will have to undertake depend on the facility's source water body type and the permitting
track it is following. Certain activities are expected to be more costly for marine facilities than for freshwater facilities.
Some activities will apply to all facilities, while other activities will apply depending on whether the facility is following
Track I or Track II. The maximum cost a facility will incur for its monitoring, record keeping, and reporting activities is
estimated to be $109,383 under Track II and $96,396 under Track I.
Table 6-5: Cost of Annual Monitoring, Record 'Keeping, and Reporting Activittes_($2000) ' • •-
""*'*'*** ~
Activity* '•"•" -
_ " - - ' - ~
Verification monitoring (Track n only)
Biological monitoring (impingement)
Biological monitoring (entrainment)
Entrainmcnt monitoring capital and O&M costs (Track II only)
Velocity monitoring
Weekly visual inspections
Remote monitoring capital and O&M costs
Yearly status report activities
Total Monitoring, Record Keeping, and Reporting Cost
' • - - -' - Estime.
Trackl
(Recirculating)
Freshwater
—
"""" "
$16,347
............. .
$36,370
$8,300
$5,093
$667
$250
$13,821 ,
$80,849
Marine
—
$20,890
$45,035
$10,640
$5,093
$667
$250
$13,821
$96,396
ted Cost
- Track EC ,
(Once-Through)
Freshwater
$4,304
$16,347
$36,370
$8,300
$5,093
$8,259
—
$13,821
$92,494
Marine
$5,646
$20,890
$45,035 -
$10,640
••$5,093 ..
$8,259
,
$13,821
$109,383
Source; U,S.EPA, 20Qlb.
6.2 FACTUTY-LEVEL COSTS
The cost estimates presented in this section are based on the unit costs presented in the previous section. EPA used 41 model
facilities to develop cost estimates for the 121 facilities projected to begin operation between 2001 and 2020. EPA
established a number of baseline scenarios, reflecting various baseline cooling water system types and water body types, so
that the unit costs could be applied to the various model facilities to obtain facility-level costs.
f
In this analysis, the baseline technology represents an estimation of the technologies proposed to be constructed at new
facilities independently of implementation of the final section 316(b) New Facility Rule. Specifically, the costs presented in
the tables below represent the net increase in costs for each set of technology performance monitoring requirements as
compared to the baseline technology. To calculate net costs, EPA first calculated the cost for the entire cooling system for the
baseline technology combination, and then subtracted those costs from the calculated cost of the entire cooling system for
6-8
-------
Section 316(t>) EA Chapter 6 for New Facilities Facility Compliance Costs
each compliance technology combination.
For purposes of cost estimation, EPA assumed that facilities that were projected to have recirculating baseline cooling water
systems would follow Track I. EPA developed cost estimates for these facilities based on the assumption that they would
already be installing cooling towers, and thus would only have to .install design and construction technologies of traveling
screens with fish return systems.
EPA assumed that facilities that were projected to have once-through baseline cooling water systems would follow Track II.
EPA developed cost estimates for these facilities based on the assumption that they would perform comprehensive
demonstration studies, but would still have to install cooling towers and design and construction technologies of traveling
screens with fish return systems to meet the regulatory requirements. This is a conservative assumption that may
overestimate compliance costs if a significant number of Track II facilities are able to demonstrate that their alternative
technologies will reduce the level of impingement and entrainment to the same level that would be achieved by implementing
the flow reduction, velocity, and design and construction technology requirements of Track I.
Some facilities were projected to have mixed once-through and recirculating baseline cooling water systems. EPA treated
these facilities the same as facilities with baseline once-through cooling water systems. This represents a conservative
approach since it will tend to overestimate the size of the baseline cooling water system mat would have to be replaced, and
thus overestimate the corresponding compliance cost In addition, one coal facility that was projected to have a reeireulating
system with a cooling pond was treated as a once-through system in the baseline and costed to switch to a cooling tower.2
6.2.1 New Electric Generators
EPA used 14 model plants to develop costs for the 83 electric generator facilities projected to begin operation between 2001
and 2020. The first six model plants are combined-cycle facilities; the remaining eight model plants are coal-fired facilities.
EPA developed these model facilities to reflect a range of low, medium, and high MW capacity facilities within each baseline
scenario (baseline cooling system type and water body type). , :
EPA developed the model coal-fired facilities using cooling water intake structure survey data for coal-fired plants • ' •.
constructed within the last 20 years. EPA took design flow and facility characteristic (e.g., cooling water system type and
water body type) data for these facilities from the Detailed Technical Questionnaire (DQ), Short Technical Questionnaire
(SQ), and Screener survey databases. EPA assumed that, between these three survey databases, the entire universe of coal-
fired power plants constructed within the last 20 years had been identified; therefore, survey weights were not used when
developing flow estimates for these model facilities.
With the exception of monitoring costs, all cost components used either the design intake flow or the design codling water
flow (which was estimated from the design intake flow) as the input variable for deriving the facility cost, "However, design
intake flows were not available for the SQ and screener facilities; EPA therefore estimated design flows for these facilities, as
described in the Technical Development Document, • <•
EPA developed the model combined-cycle facilities using data from the NEWGen database of planned new electric
generation facilities. The methodology used to develop the combined-cycle model facilities was similar to that used to
develop the coal-fired model facilities and is described in detail in the Technical Development Document. However, the
NEWGen facilities were not always consistent in how they reported their intake flows. Some NEWGen facilities reported
design flows, some reported maximum flows, and some reported average flows. EPA assumed design flows to be equivalent
to maximum flows, or to three times average flows. EPA based its model facility flow estimates on only those NEWGen
facilities that reported their flows; NEWGen facilities that did not report flows were assumed to follow the same distribution
as those that reported flow information.
2 In some states, a cooling pond is considered a water of the U:S. In these states, a plant with such a cooling system would have to
comply with the recirculating requirements of the final section 3I6(b) New Facility Rule. In those states where a cooling pond is not
considered a water of the U.S., a plant would not have to comply with the recirculating requirements of this final New Facility Rule. This
costing analysis made the conservative assumption that facilities with a cooling pond would have to comply with the recirculating
requirements. These recirculating facilities with cooling ponds were therefore costed as if they had a once-through system in the baseline.
6-9
-------
Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
Table 6-6 summarizes the characteristics of the model electric generating facilities, and identifies the projected number of
facilities to which they correspond.
. **' * •• • "Table 6-6: Baseline Characteristics for Model Electric ; Generators - ,
Model Facility Type
CCOT/M-1
CCR/M-1
CCRM-2
CCR/FW-1
CCR/FW-2
GCR/FW-3
CoalOT/FW-1
CoalOT/FW-2
CoalOT/FW-3
CoalRM-1
CoalR/FW-1
CoalR/FW-2
CoalR/FW-3
CoalRL/FW-1
Cooling System Type
Once Through
Recalculating
Recirculating
Recirculating
Recirculating
Recirculating • •
Once-Throttgh
Once-Through
Once-Through
Recirculating
Recirculating
Recirculating,,,
Recirculating
RecirculaSing with
Lake
Source Water Body
-
Marine
Marine
Marine
Freshwater
Freshwater . ,
"•'. 'Freshwater ; ••••
Freshwater
Freshwater
Freshwater
•' " Marine
Freshwater
Freshwater.
Freshwater
, "/Freshwater
Steam Electric
Capacity (MW)
1,031
489
1,030
439
699
1,061
63
515
3,564 .
•'' ' 812 ,
173
) -625.
1,564 ''"
660
Baseline Intake
Flow (MGD)
613
8
18 .
10
12 ,
14 -' '
64
420
, 1,550 ;•
44
' 5
20
77
537
Number of
•Projected New
Facilities
5
5
1
18
21
• ;•- .. 19
1
1
' -• : 1
'. ; , 1
•'•'- 3
•• •' '• 3
3
1
Note: OT"OEce-Through;R = RecirciiIating;RL = RecircHlating with Lake; M = Marine; FW = Freshwater.
Source: U.S. EPA analysis, 2001. ,: , : ,,._ . ., ,,, , . . .„. . -
EPA expects the following compliance responses:
> once-through facilities would install a cooling tower and install traveling screens with fish handling equipment (0.5
ft/s velocity), and
> recireulating facilities would install traveling screens with fish handling equipment (0.5 ft/s velocity).
More detailed information on each model facility, including its water body type, the expected compliance response of each
facility, and the capital costs, if any, associated with the final rule can be found in the Technical Development Document.
Each facility subject to the final section 316(b) New Facility Rule will incur capital costs, annual O&M costs, and
administrative costs. Administrative costs include one-time costs (initial permit application) and recurring costs (permit
renewal, and monitoring, record keeping, and reporting), and depend on the facility's water body type and the permitting
track the facility follows. In addition, facilities required to install a recireulating system will incur an energy penalty cost.
Once again, as with the NPDES permit application requirements, some of these activities would be required anyway under the
current case-by-case permitting procedures. Table 6-7 presents the estimated capital and O&M costs for the 14 model electric
generators, as well as costs for the administrative activities and the energy penalty.
6-10
-------
Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
Table 6-7: Cost Estimates for Electric Generating Facilities (Unit Costs, $2000) B
- Model Facility
Type
CC OT/M-1
CCWM-1
CCR/M-2
CCR/FW-1
CCM/FW-2
CCIWFW-3
Coal OT/FW-1 .
Coal OTVFW-2
Coal OT/FW-3
CoalR/M-1
Coal R/FW-1
Coal R/FW-2
CoalR/FW-3
CoalRL/FW-1
- No. of
New
Facilities
5
5
1
18
21
19
1
1
1
1
3
3
3
1
One-Time Costs
Capital -
Technology
$12,612,500
$118,000
$202,250
$129,250
$141,750
$162,250 ;
$1,495,000
$10,242,750
$35,652,250
$486,750
$97,500
'$222,750
$790,500
$13,566,250
Initial Permit
Application
$1,007,000
$82,500
$82,500
$82,500
$82,500
$82,500
$816,500
$816,500
$816,500
$82,500
$82,500
$82,500
$82,500
$816,500
Sii
. Recurring Costs - -_ - . H
O&M
$1,341,000
$83,250
$82,250
$71,750
$73,000
$73,000
$216,750
$925,000
$2,937,500
$90,250
$71,750
$71,750
$86,250
$005,750
Energy
Penalty
$619,250
$0
$0
$0
SO
$0
$231,250
$1,891,250
$13,088,250
$0
$0
$0
$0
$2,423,750
Permit
Renewal
$45,000
$15,000
$15,000
$15,000
$15,000
$15,000
$44,500
$44,500
$44,500
$15,000
$15,000
$15,000
$15,000
$44,500
Monitoring, •
Record B
Keeping, & H
~ Reporting . H
$109,500 jl
$96,500 |
$96,500 H
; $80,750 H
; $80,750 •
.,..«*... ... . ....... ...*fi9
' $80,750 H
$92,500 If
$92,500 I
$92,500 B
$96,500 H
$80,750 H
• ; $80,750 • H
$80,750 |
$92,500 I
Source: U.S. EPA, 2Q01a; U.S. EPA, 2001b.
6.2.2 New Manufacturing 'Facilities
EPA used 21 model plants to develop the costs for the 38 manufacturing facilities projected to begin operation between 2001
and 2020. ,
EPA developed the model manufacturing facilities using section 316(b) Industry Survey data for manufacturing facilities,
regardless of their year of construction. Since facilities with the same Standard Industrial Classification (SIC) code generally
have similar operations and generate similar products, EPA assumed that the characteristics of new facilities in a given SIC
code will be similar to the characteristics of existing facilities in that same SIC code. Because the survey manufacturing
facilities represent only a sampling of the total population of manufacturing facilities, survey weights were used in developing
flow estimates for these model facilities.
To develop model manufacturing facilities, EPA first sorted the survey manufacturing facilities according to their 4-digit SIC
codes. Within each 4-digit SIC code, EPA then grouped the facilities according to cooling system type (once-through vs.
recirculating) and water body type (freshwater vs. marine) to yield a number of baseline scenarios. For each baseline
scenario, EPA developed model facilities to reflect medium flow manufacturing facilities. The methodology that EPA used to
develop the model facilities is described in detail in the Technical Development Document.
6-11
-------
Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
Table 6-8 summarizes the characteristics of the model manufacturing facilities, and identifies the projected number of
facilities to which they correspond.
Table 6-8; Baseline Characteristics of-Model Manufacturing Facilities
Model Facility
Type
MAN OT/F-2621
MAN OT/M-2812
MAN OT/F-2812
MAN OT/M-2819
MANOT/F-2819
MAN OT/F-2821
MAN OT/F-2834
MANOT/F-2869
MANRE/F-2869
MAN OT/F-2873
MANRBF-2873
MANOT/F-2911
MANRE/F-2911
MANOT/F-3312
MANRE/F-3312
MANOT/F-3316
MANRE/F-3316
MAN OT/F-3317
MANRE/F-3317
MAN OT/F-33S3
SIC Code
2621
2812
2812
2819
' 2819
2821
2834
2869
2869
2873
2873
2911
2911
3312
3312
3316
3316
3317
3317
3353
MANRE/F-3353 . 3353
TiMHiKHJiHBB^HBiBBBBBUM
SOUKS; U.S. EPA analysis, 2001.
Cooling System
type
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Recirculatktg
Once-Through
Recirculating
Once Through
•
Recirculating
Once-Through
Recirculating
Once-Through
Recirculating
Once-Through
Recirculating
Once-Through
Recirculating
•••^••••^nJ^BiH
Source Water
Body
Freshwater
Marine
Freshwater
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
fx^aaiLMtif^f[ia^,ffiygt'1
Baseline
Intake Flow
(MGD)
24
265
94
27
19
78
18
40
4
33
30
105
8
124
85
23
12
39
4
35
mneaUHmHliiUim
Number of
Projected New
Facilities
2
. 1
1
2
.' •• -2
• 4
• ' . 2
7
1
: ' 1
1
•••-• -1
1
5
1
1
1
1
1
1
1
3HBHBBBHB1
EPA expects the following compliance responses:
«- once-through facilities would implement reuse/recycle and install traveling screens with fish handling equipment
(0.5 ft/s velocity), and
* recirculaflng facilities would install traveling screens with fish handling equipment (0.5 ft/s velocity).
6-12
-------
Section 316{b) EA Chapter 6 for New Facilities
Facility Compliance Costs
Table 6-9 presents the estimated capital, and O&M costs associated with the projected compliance response of each model
manufacturing facility. In addition, each facility subject to the final section 316(b) New Facility Rule will incur
administrative costs. These costs include one-time costs (initial permit application) and recurring costs (permit renewal, and
monitoring, record keeping, and reporting), and depend on the facility's water body type and the permitting track the facility
follows. More detailed information on each model facility, including its water body type, the expected compliance response,
and ffie capital costs, if any, associated with the expected action can be found in the Technical Development Document.
Table 6-9: Cost .Estimates for Manufacturing Facilities (Unit Costs, $2000)
Model facility ,
MAN OT/F-2621
MANOT/M-2812
MAN OT/F-2812
MANOT/M-2819
MANOT/F-2819
MAN OT/F-2821
MANOT/F-2834
MAN OT/F-2869
MANRE/F-2869
MANOT/F-2873
MAN RE/F-2873
MANOT/F-2911
MANRE/F-2911
MAN OT/F-3312
MANRE/F-3312
MANOT/F-3316
MANRE/F-3316
MAN OT/F-3317
MAN RE/F-3317
MAN OT/F-3353
MAN RE/F-3353
^PJBMj^tpJSSgfe
No.of
New
"Facilities
2
1
1
2
2
4
2 • '
7 '
1
1
1
1
1
5 •
1
1
- 1
1
- 1
1
1
, One-Time Costs
Capftal Initial Permit
Technology -. Application
$882,000 $816,500
$7,492,000 $1,007,000
$2,706,500 $816,500
$1,050,250 $1,007,000
$742,250 $816,500
$2,279,250 $816,500
$720,750 $816,500
$1,307,000 $816,500
$127,250 182,500
$1,118,000 $816,500
$449,750 $82,500
$2,957,000 $816,500
$183,750 $82,500
$3,428,250 $816,500
$4,179,750 $82,500
$852,250 $816,500
$269,000 $82,500
$1,277,250 $816,500
$127,250 $82,500
$1,169,500 , $816,500
$167,250 $82,500
^aBape^aa^'ge^gasiiaatigs
- - Recurring Costs" " -
. QiujL*- - - Permit _ Monitoring, Record -
--Renewal Keeping, & Reporting_
$143,750 $44,500 ' : • $92,500
$814,250 $45,000 $109,500
$333,750 $44,500 $92,500
$173,500 $45,000 $109,500
$127,250 $44,500 $92,500
$290,500 $44,500 $92,500
$125,250 $44,500 , $92,500
$189,000 . $44,500 $92,500
$75,000 $15,000 $80,750
$168,500 $44,500 $92,500
$84,250 $15,000 $80,750
$358,250 $44,500 $92,500
$77,000 $15,000 $80,750
$405,500 $44,500 ' $92,500
$345,000 $15,000 $80,750
$140,750 $44,500 $92,500
$82,250 $15,000 $80,750
$185,750 $44,500 $92,500
$75,000 $15,000 $80,750
$173,500 $44,500 $92,500
$77,000 $15,000 $80,750
Source: U.S. EPA, 2001a; U.S. EPA, 2001b.
6-13
-------
Section 316(b) EA Chapter 6 for New Facilities Facility Compliance Costs
6.3 TOTAL FACILITY COMPLIANCE COSTS
EPA estimated the national compliance costs for the final section 316(b) New Facility Rule based on the facility-level costs
discussed in Section 6.2. The costs developed in this section represent the total compliance costs for new facilities expected
to begin operation between 2001 and 2020.3 EPA estimated total compliance costs over the first 30 years of the final rule
(i.e., 2001 to 2030). Accordingly, the Agency considered all compliance costs incurred by each of the 121 facilities over this
30-year time period.4
6.3.1 Distribution of New In-Scope Facilities by Year
Table 6-10 below presents the distribution of the 121 new in-scope facilities by year of operation and facility type. The
appendix to Chapter 5 described EPA's methodology for determining the on-line years of new in-scope electric generators.
For manufacturing facilities, no information on when new facilities may be constructed was available. EPA therefore
distributed facilities, by 2-digit SIC code (i.e., 26,28,29, and 33), making the following assumptions:
* 50 percent of the projected in-scope facilities will begin operation between 2001 and 2010; 50 percent will begin
operation between 2011 and 2020;
>• the first facility will begin operation in 2001; ; ••:••••
>• one facility will begin operation in each subsequent year until 50 percent of the facilities are assigned; '
>• the distribution of in-scope manufacturing facilities within the two 10-year periods is identical (i.e., if there are five
new facilities in,2001, there will be five in 2011).
For example, EPA projected 12 new in-scope facilities in SIC code 33 (steel and aluminum). Following the methodology
outlined above, EPA assumed that six facilities will begin operation between 2001 and 2010, and six will begin operation
between 2011 and 2020. Within the first 10-year period, the first facility in SIC code 33 will begin operation in 2001. The
remaining five will begin operation between 2002 and 2006. The six facilities assigned to the second 20-year period will
begin operation between 2011 and 2016, one in each year.5 '•••••" ;
This methodology provides a conservative estimate of the national cost of the rule because more facilities are predicted to
begin operation early in each 10-year period, resulting in less discounting and higher annualized costs. For the yearly
distribution by cooling system and water body, seethe Appendix to this chapter. -• :,,.,
' The national cost estimate presented in this chapter only accounts for pre-tax, private costs directly incurred by facilities. It does
not represent total social cost of the final section 316(b) New Facility Rule.
* This approach does not account for all compliance costs incurred by the 121 projected in-scope facilities because the analysis
disregards costs incurred after 2030. For example, for a facility estimated to begin operation in 2015, the analysis would only include the
first 16 years of costs in the national aggregate.
s For SIC code 28 (chemical facilities), EPA projected 22 new in-scope facilities. In this case, EPA assigned two new facilities to the
first year in each 10-year period, i.e., 2001 and 2011, and the remaining 18 facilities to the other 18 years.
6-14
-------
Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
Table 6-10: Number of Projected New In-Scope generators by Year and Facility Type
Year of
Operation
2001
2002
2003
2004
2005 '
2006
200?
2008 '
2009
2010
2011 :
2012 •-.
2013
2014
2015 -•
2016
2017
2018
2019
2020
Total
'ngsflBPtai^gttin
Electric Generators
Combined-
Cycle
' 1
' 5
6
s
6
5 • .
5
4
. • 4 • '
4
4
*1
4
"*(
4
3
3
69
^BKHpUppI
Coal
2
3
5
1
1 ,
1 -
1
14
tSaiKi«JW^ft*!H3Rai
'" ., Manufacturers ,
SIC 26
1
w , * * *
2
^BQ^BBI^
o SICi28
2
1
1
1
1
1
'1
1
• !l-." .
r
1
2' '
"- • 1- - -
' ' I '
1
' - l .
1
1
•|
\
1
WB&K§^S&SKi&3lm&
SIC 29
1
1
2
SMiflyMBmai
SIC 33
1
i
i
i
i
i
i
i
i
i
i
i
12
BmBEBaEBOSB
KoreiWGSenHiKffi
Total
5
2
2
3
9
11
11
:• • s
-> 7
6
9
'-•- . 6
-•'.' ' 6
6
'••• 5
6
4
5
5
5
121
WWMHiMWlftgHHHB
Source: U.S. EPA analysis, 2001.
6-15
-------
Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
6.3.2 Present Value and Annualized Costs
EPA calculated the present value of each cost category using a seven percent discount rate. The following formula was used
to calculate the present value of each year's cost:6
Cost
Present Value, = —
where:
(1 + r)'
Cost^, *= Costs in category x and year t
x = Cost category
r ** Discount rate (7% in this analysis)
t = Year in which cost is incurred (2001 to 2030)
Total present value for each cost component was derived by summing the present value of each year's cost Finally, EPA
calculated armualized costs using the following formula:
Aromatized CosL =
where:
r x ^ * r>"
(1 + r)" - 1
PVX
r
n
™ Cost category
m Present value of compliance costs in category x
= Discount rate (7% in this analysis)
« Amortization period (30 years)
Table 6-11 presents the estimated national aggregate of facility compliance costs of the final section 316(b) New Facility Rule
by cost category. The table shows that the total arraualized cost for the 121 facilities is estimated to be $47.7 million. Of this,
S34.7 million will be incurred by electric generators and $13 million by manufacturing facilities.
•Table 6-1 J: Annualized Facility Compliance Costs (in millions $2000).
Industry Category
(Number of
Facilities Affected)
Electric Generators
(83)
Manufacturing
Facilities (38)
Total (121)
One-Time Costs
Capital
Technology
$7.1
S3.8
S10.9
Initial Permit
Application
S0.7
$1.4
$2.0
' ,_ Recurring Costs
•.,O&M-.
S9.4
$5.8
$15,2
Energy
Penalty
$14.1
$0.0
$14.1
Permit
Renewal
$0.1
SO.l
$0.3
>^
Monitoring,
Record
Keeping &
Reporting
$3.2
$1.9
$5.2
Total
$34.7
$12.9
$47.7
Source: U.S. EPA, 200Ia; U.S. EPA, 2001b; U.S. EPA analysis, 2001.
Calculation of the present value" assumes that the cost is incurred at the end of the year.
6-16
-------
Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
6.4 ADDITIONAL FACILITY ANALYSES
Estimating compliance costs for the section 316(b) New Facility Rule requires projecting the types of facilities that will be
built in the future, EPA's projections do not include some facility types that could incur higher costs or more significant
impacts than estimated here, if these types of plants were constructed. For example, the AEO2001 did not project any new
nuclear capacity additions over the next 20 years. EPA therefore did not estimate compliance costs for nuclear facilities.
This section presents EPA's analysis of the cost of complying with the final section 316(b) New Facility Rule to two
hypothetical nuclear plants. In addition, EPA tested the sensitivity of analysis results to the assumption that new in-scope
coal facilities would install redwood cooling towers. EPA developed costs for four additional coal facilities, using the
assumptions that they would install concrete cooling towers instead.
EPA made the following assumptions for the six additional facility analyses:
»• Nuelear-1: This facility has a generating capacity of 2,708 MW. It has a concrete natural draft cooling tower in the
baseline and plans to withdraw from a marine water body. Its design intake flow of 209 MOD is the maximum flow
for a nuclear facility with a recirculating system reported in the 1995 Form EIA-767 database (U.S. DOE, 1995). •
>• Nudear-2: This facility has a generating capacity of 2,666 MW. It has a once-through system in the baseline and
plans to withdraw from a marine water body. Its design intake flow of 2,931 MOD is average flow of the top third
of nuclear facilities with once-through systems reported in the 1995 Form EIA-767 database (U.S. DOE, 1995).
*• The four coal facilities are similar to the four coal model new facilities estimated to install a cooling tower to
comply with the final section 316(b) New Facility Rule (Coal OT/FW-1, Coal OT/FW-2,Coal OT/FW-3,and Coal
RL/FW-1). They have identical characteristics to the model new facilities presented in section 6.2 above, except that
they will install a concrete cooling tower instead of a redwood one. • •••:."
Table 6-11 presents the unit costs for these six facilities. ,
Table 6-11: Unit Cost Estimates for Six ^Additional Facilities ($2000)
Model Facility
One-Time Costs
' Capital
Technology
initial
Permit
Application
Recurring Costs ^
O&M
Energy Penalty
1 >
Permit
Renewal
Monitoring, Record
Keeping, &- ,
Reporting ""~~
Nuclear-l
Nuclear-2
$2,316,250
$203,103,000
$82,500
$1,007,000
$134,500
$374,750
$0
$11,261,500
$15,000
$45,000
$96,500
$109,500
Coal OT/FW-1
Coal OT/FW-2
$2,280,500
$15,079,500
$816,500
$816,500
$158,000
' $575,000
$231,250
$1,891,250
$44,500
$44,500
$92,500
$92,500
Coal OT/FW-3
Coal RL/FW-1
$52,726,750
$19,593,250
$816,500
$816,500
$1,725,000
$674,500 •
$13,088,250
$2,423,750
$44,500
$44,500
$92,500
$92,500
Source: U.S. EPA, 2001a; U.S. EPA, 20Qlb; U.S. EPA analysis, 2001.
Capital costs for the nuclear facility with a recirculating system in the baseline (Nuclear-l) are $2.3 million. This is higher
man the capital costs for coal and combined-cycle electric generators, which range from $97,500 to $790,600. For the
nuclear facility with a once-through system in the baseline (Nuclear-2), capital costs are $203 million, compared to between
$1.5 and $35.7 million for combined-cycle and coal facilities with once-through systems.
6-17
-------
Section 316(b) EA Chapter 6 for New Facilities Facility Compliance Costs
For coal plants installing concrete cooling towers, capital costs range from $2.3 million to $52.7 million compared to costs for
equivalent facilities under the final rule which range from $1.5 million to $35.7 million and assume redwood cooling towers.
Annual O&M costs are less expensive for coal facilities installing concrete cooling towers with costs ranging from $0.2
million to $1.7 milEon compared to $0.2 minion to $2.9 million for redwood cooling towers. These six facilities are not
expected to be constructed in addition to the 121 projected new in-scope facilities. Therefore, their costs were not added to
the cost estimate in section 6.3.
6.5 LIMITATIONS AND UNCERTAINTIES
EPA's estimates of the compliance costs associated with the final section 316(b) New Facility Rule are subject to limitations
because of uncertainties about the number and characteristics of the new facilities that wUl be subject to the rule. Projecting
the number of new facilities in different industries is subject to uncertainties about future industry growth rates and about the
portion of new capacity that will come from new greenfield and stand alone facilities as opposed to expansions at existing
facilities. This is especially,the case when extending forecasts 20 years into the future.
To the extent possible, EPA used information on the characteristics of facilities that are now being planned to project the
baseline characteristics of facilities affected by the rule. Information on these planned facilities and on the characteristics of
existing facilities that have CWIS provided a basis for projecting the characteristics of new facilities beyond those for which •
plans are available. • The estimated national facility compliance costs may be over- or understated if the'projected number of
new facilities is incorrect or if the characteristics of new facilities are different from those assumed in the analysis; In !
particular, the analysis may overestimate the number of facilities mat will withdraw from a water of the U.S. and thus be
subject to the final rule,, given observed trends toward greater use of recirculating systems and away from the use of a water
of the U.S. to provide cooling water. .. ••.:•"•
Limitations in EPA's ability to consider a full range of compliance responses.may result in an overestimate of facility
compliance costs. The Agency was not able to consider certain compliance responses, including the costs of using alternative
sources of cooling water and the cost of some methods of changing the cooling system design. Costs will be overstated if
these excluded compliance responses are less expensive than the projected compliance response for some facilities. ' •„
6-18
-------
Section 316(b) EA Chapter 6 for New Facilities Facility Compliance Costs
REFERENCES
R.S. Means. 1997. Heavy Construction Cost Data 1998. y,
Paroby.Rich. 1999. E-mail communication between Rich Paroby, District Sales Manager, Water Process Group and
Deborah Nagle, U.S. EPA, May 12,1999.
U.S. Department of Energy (U.S. DOE), 1995. FonnEIA-767. Steam-Electric Plant Operation and Design Report for the
Reporting Period 1995.
U.S. Environmental Protection Agency (U.S. EPA). 2Q01a. Technical Development Document for the Final Regulations
Addressing Cooling Water Intake Structures for New Facilities. EPA-821-R-01-036. November 2001.
U.S. Environmental Protection Agency (U.S. EPA). 2Q01b. Information Collection Request for Cooling Water Intake
Structures, New Facility Final Rule. October 2001,
6-19
-------
Section 316(b) EA Chapter 6 for New Facilities Facility Compliance Costs
Appendix to Chapter
Section 6.3 above presented the distribution of new in-scope electric generator and manufacturing facilities over the 20-year
forecast period 2001 to 2020. This appendix describes EPA's approach to assigning model facility characteristics to the
yearly distribution of facilities and the results.
EPA assigned model facility types evenly over the years with projected new facilities. For example, EPA estimates that five
of the 69 new, in-scope, combined-cycle facilities would install a cooling tower as a result of the rule. The.cost analysis
therefore assumes ftat the lrt, 16th, 30th, 44*, and 58* combined-cycle facility to begin operation will incur costs of a cooling
tower. In addition, EPA estimates that three of the 14 new in-scope coal-fired facilities are planning to build a once-through
system in the baseline. The cost analysis therefore assumes that the 1st, 6*, and 11th coal-fired facility to begin operation will
incur costs of a cooling tower. One coal facility with a cooling pond is also assumed to require a cooling tower. This facility
will be the 2nd to begin operation.. EPA followed the same approach for new in-scope manufacturing facilities. In general,
EPA always assigned the highest cost model facilities of each facility type to the facilities beginning operation first. This
approach is conservative as the highest costs are discounted less, resulting in a higher annualized cost.
The following three tables present the distribution of new in-scope combined-cycle, coal, and manufacturing model facilities
by year.
6-20
-------
Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
Table 6.A-1: Distribution of Projected New In-Scope Combined-Cycle by Year
On-Lirie
Year
2004
2005
2006
2007
2008
.2009
2010
201*1
2012
2013
2014
2015
2016
, 2017
2018
2019
2020
Total
Once-Through
Marine
J.
* •«• «•»« ••• H ••
1
1
1 •
1
5
Recirculating " J ". „ , „••>••
* " ; ~ , , »-.-.-,^_r-
Freshwater
Small
i
*
3
3 :
i
2
2
3
1
•t
1
18
Medium
4
2
2
2
2 ' '
3
1
1
1
I
2
21 ,
Large
4
1
3
3 .
j
• .
3
1
1
1
19
Marine
Small '-
"I
^
J
1
5
.
Large
1
•• ••
1
Total
I
5
6
• 5
6
5
5
4
4
4
^|
3
4
3
4
3
3
69
Source; U.S. EPA analysis, 2001.
6-21
-------
Section 316(b) EA Chapter 6 for New Facilities
Facility Compliance Costs
Table 6.A-2: Distribution of Projected New Ih-Seope Coal Facilities by Year
On-Line
Year
2005
2006
2007
2008
2009
2019
2020
Total
Once^SOirongli
Small
1
1
Freshwatei
Medium
1
1
•
Large
1
1
Recirculating mthLake
Freshwater
1
1
, Recirculating
Small,
j
1
1
3
Freshwater
Medium
1
1
1
3
Large
1
1
1
mmB*t\
, Marine
Small
• • 1
emewj
Total*
2
3
S
1
I
1
1
14
Source: U.S. EPA analysis, 2001.
6-22
-------
(A
(9
O
Table 6. A-3; Distribution of Projected New In-Scope Manufacturing Facilities by Year
On-Line
Year •
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
2621 1 2812
OT OT
. F j F
1
2
1
1
M
1
1
2819 2821 1 2834
,.'2869 -
OT i OT j OT | OT.
F
1
1
2
M
1
1
" 2
F
1
1
1
1
bmnm
F-
1
1
2
F
1
1
1
1
1
1
1
R
F
1
.Z.LL*
' 2873:
OT E
'•F".
i
p
i
:* 2911 1 3312'. ' | 3316- '
OT «;j OT'
,'F |r> F'
i 1
i
i
-JJ^JLLi-
i
i
F;
1
1
1
1
1
•
R j OT I ; R"
" ""f"" '*••; — ••"
::F, | P.- : F
:
i
:
;
i
1 1
j
i
j
I
!
i
i
"" !" — """
i
| 1
!
;
;
;
:
:
!
s
!
;
• !
e '• 1 s i
in «~i
'
1
1
. 3317 .
1 OT, i R,
'"1
F 1 F
••
1
1
1
1
3353 ,
OT
F.
1
R
F
.
1
SSSaUaE
Total
5
2
2
2
2
2
1
1
1
1
5
~2
i 2
2
2
2
1
1
1
1
38
Notes; OT = Once-Through; R = Recirculating; F = Freshwater; M = Marine.
Source: U.S. EPA analysis, 2001.
-------
Section 316(b) EA Chapter 6 for New Facilities
THIS PAGE INTENTIONALLY LEFT BLANK
6-24
-------
Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
Chapter / : economic Impact
Analy
sis
INTRODUCTION
The final section 316(b) New Facility Rule applies to a number
of industries, but only affects a small number of facilities in
each industry. EPA estimates that in total over the next 20
years, the rule will apply to 121 new facilities. EPA conducted
an analysis to assess whether it is likely that the final rule will
have a significant economic impact on any of the 121 projected
new facilities. This chapter presents EPA's analysis of
economic impacts for these 121 new facilities. Later chapters
consider impacts on small entities (Chapter 8) and on
governments, electricity supply, and ratepayers (Chapter 9) as
special cases.
The economic impact analysis is conducted at the facility-level.
EPA assessed whether the facility-level results indicated the
potential for significant impacts or if one firm owned multiple
facilities that are affected by the rule. The facility-level
analysis showed that nine of the 121 projected new facilities
would have annual compliance costs of more than one percent
CHAPTER CONTENTS
7.1 New Steam Electric Generators 7-2
7.1.1 Annualized Compliance Cost to Revenue
Measure 7-3
7.1.2 Initial Compliance Cost to Plant
Construction Cost Measure 7-6
7.2 New Manufacturing Facilities 7-7
7.2.1 Annualized Compliance Cost to Revenue
Measure 7-8
7.3 Summary of Facility-Level Impacts 7-10
7.4 Potential for Firm- and Industry-Level
Impacts 7-11
7.5 Additional Facility Analyses 7-11
7.5.1 Annualized Compliance Cost to Revenue
Measure 7-12
7.5.2 Initial Compliance Cost to Plant
Construction Cost Measure 7-13
References 7-15
of revenues. Only three of these nine facilities are expected to
have a cost-to-revenue ratio of more than three percent. EPA therefore concludes that compliance with this regulation is both
economically practicable and achievable at the facility-, firm-, industry and national levels.
The remainder of this chapter is organized as follows:
>• Section 7.1 discusses the methodology used to assess economic impacts for the projected 83 new electric generators,
including the approach for estimating the economic characteristics of the regulated facilities, the specific economic
impact measures used, and the results of the analysis.
*• Section 7.2 presents the economic impact analysis for the projected 38 new manufacturing facilities. This section
discusses the same information as section 7.1 for electric generators.
>• Section 7.3 provides a summary of the economic impact analysis at the facility-level.
>• Section 7.4 discusses the potential for firm- and industry-level impacts as a result of the final section 316(b) New
Facility Rule.
*• Section 7.5 presents the impact analysis for the two nuclear case study facilities and four coal facilities for which
costs were developed in Chapter 6: Facility Compliance Costs.
7-1
-------
Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
7.1 NEW STEAM ELECTRIC GENERATORS
EPA projected that 83 new steam electric generators in scope of the final section 316(b) New Facility Rule will begin
commercial operation within the next 20 years. The discussion in Chapter 5: Baseline Projections of New Facilities
explained in detail how EPA developed six model combined-cycle facilities and eight model coal facilities for the costing and
economic impact analyses. Each model facility is characterized by its combination of cooling system type (once-through or
recirculating system) and source water body (freshwater or marine) as well as its steam electric generating capacity. Within
each cooling system/source water body combination, EPA created between one and three model facilities, depending on the
number of facilities within that group and the range of their steam electric capacities.
Table 7-1 below presents the 14 model facility types, their cooling system type, the source water body from which they
withdraw cooling water, their estimated steam electric capacity, and the number of projected new in-scope facilities that
belong to each type.
Table 7-1: Model Facilities for New Electric Generators
Model Facility
Type
CC OT/M-1
CCR/M-1
CCR/M-2
CCR/FW-1
CC R/FW-2
CC R/FW-3
Coal OT/FW-1
Coal OT/FW-2
Coal OT/FW-3
CoalR/M-1
Coal R/FW-1
Coal R/FW-2
Coal R/FW-3
Coal RL/FW-1
Cooling System
Type
Once Through
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Once Through
Once Through
Once Through
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating with
Lake
Source Water
Body
Marine
Marine
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Steam Electric
Capacity (MW)
1,031
489
1,030
439
699
1,061
63
515
3,564
812
173
625
1,564
660
Number of Projected
New Facilities
5
5
1
18
21
19
1
1
1
1
3
3
3
1
Source: U.S. EPA analysis, 2001.
EPA used two economic impact measures for the 83 new electric generators: (1) the ratio of total annualized compliance costs
to estimated revenues ("cost-to-revenue ratio") and (2) the ratio of initial compliance costs to the construction cost of the
plant ("initial cost-to-plant construction cost ratio").
7-2
-------
Section 316(b) EEA Chapter 7 for New Facilities Economic Impact Analysis
7.1.1 Annualizcd Compliance Cost to Revenue Measure
Calculating the annualized compliance cost to revenue measure requires the following information for each new in-scope
steam electric generator:
*• total annualized compliance costs and
*• estimated annual revenues.
a. Annualized compliance costs
Estimating the ratio of annualized compliance cost to estimated revenues ("cost-to-revenue ratio") required discounting
compliance costs that occur in the future and annualizing them over 30 years (the expected useful life of the compliance
equipment).1 Chapter 6: Facility Compliance Costs presented EPA's methodology for estimating model facility costs and
annualizing them to determine the national cost of the final section 316(b) New Facility Rule. In contrast to the national cost
estimate, which considered all costs incurred during the first 30 years of the rule (i.e., 2001 to 2030), the impact analysis
presented in this chapter considers compliance costs incurred during the first 30 years of each facility's life.2
EPA estimated annualized compliance costs for the impact analysis by first calculating the present value of the stream of
costs over the first 30 years of each facility's life, beginning with the year that the costs are incurred. The present value was
determined as of the first year of operation of each facility.3 This present value was then annualized over 30 years to derive
the constant annual value of the stream of future costs. This calculation used a seven percent discount rate (see formulas in
Chapter 6: Facility Compliance Costs, Section 6.3).
b. Estimated annual revenues
EPA estimated expected annual revenues by making assumptions about future electricity sales for each facility. This
calculation used the following formula:
Revx = GenCapx * ESF * Price
where:
Revx = Annual revenues of model facility x
GenCap x = Generation capacity of model facility x (in MW)
ESF = Projected electricity sales factor (in MWh/MW)
Price = Projected electricity price (in $2000)
Each component of this calculation is further explained below.
»** Generating capacity
The generating capacities of the model facilities are the average capacities of the actual facilities upon which the model
facilities are based (57 NEWGen facilities for the six combined-cycle model facilities; 41 existing section 316(b) Industry
Survey facilities for the eight coal model facilities). Chapter 5: Baseline Projections of New Facilities and its appendix
provide more detail on model facility development, including the generating capacity estimate.
1 Annualizing compliance costs over the useful life of the equipment is in accordance with standard Agency practice.
2 Including 30 years of compliance costs for each facility (beginning when the costs are incurred) is a better indicator of potential
facility-level impact than limiting costs to the first 30 years of the rule, which would exclude some out-year costs for facilities constructed
later in the 30-year period.
3 Discounting compliance costs back to the first year of the facility's operation as opposed to the first year of the rule will increase
the facility-level annualized cost for all facilities except those that begin operation in the first year.
7-3
-------
Section 316(b) EEA Chapter 7 for New Facilities Economic Impact Analysis
»** Electricity sales factor
EPA estimated the average amount of electricity sold per MW of generating capacity using forecasts from the Energy
Information Administration's (EIA) Annual Energy Outlook 2001 (U.S. DOE, 2000a). The calculation was made by dividing
the total projected annual electricity sales between 2001 and 2010 by the total projected capacity over the same time period,
using the following formula:
2010
£ Electricity Sold
ESF = "2m
2010
£ GenCap
t= 2001
where:
ESF = Projected electricity sales factor
Electricity Sold = AEO2001 annual electricity sales forecast (in MWh)
GenCap = AEO2001 annual generating capacity forecast (in MW)
t = Year of forecast (from 2001 to 2010)
EPA developed separate electricity sales factors for new coal facilities and new combined-cycle facilities. For coal facilities,
EPA used the national forecast of electricity sales and generating capacity associated with coal energy sources only.
However, electricity sales were not available for combined-cycle technologies. Therefore, EPA used the average electricity
sales and capacity across all energy sources. EPA believes that this average is a reasonable approximation for combined-
cycle facilities, which are primarily designed to supply peak and intermediate capacity but can also be used to meet baseload
requirements (U.S. DOE, 2000a, p. 73). They are therefore likely to have dispatch frequencies close to the average for all
facilities.4
»** Electricity price
The final component needed to calculate annual revenues is the price of electricity. EPA used a national price of generation,
excluding transmission and distribution charges, forecasted by the U.S. Department of Energy's Policy Office Electricity
Modeling System (POEMS, U.S. DOE 1999). The generation price reflects the amount of revenue plants are likely to receive
in a deregulated electricity market in which transmission and distribution services are separated from the generation function.
POEMS forecasts electricity prices for several years into the future under a reference case and a competitive case. For this
analysis, EPA took the U.S. average of six forecasted prices: the projections for 2005, 2010 and 2015, each under the
reference case and the competitive case (U.S. DOE, 1999).5
4 The actual amount of electricity that is generated and sold by a facility depends on how often the facility' s units are dispatched.
Using the calculated factors may therefore over- or underestimate actual facility sales. The factors would overestimate electricity sales,
and therefore estimated revenues, if the projected new electric generators were dispatched less than the average facility; they would
underestimate sales and revenues if the new facilities were dispatched more than the average.
5 EPA also considered using the EIA's Annual Energy Outlook 2001 (AEO2001) forecasts, but the available AEO results do not
distinguish the price of generation from the distribution and transmission charges.
7-4
-------
Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
c. Results
Table 7-2 presents the results of the annualized compliance cost to revenue analysis for the 83 new electric generators.
Projected annual facility revenues range from approximately $14 million to $791 million and annualized compliance costs
range from approximately $0.17 million to $19.1 million. The table shows that the cost-to-revenue ratio forthe new electric
generators ranges between 0.07 and 5.24 percent. Five of the model facility types which represent nine projected new
facilities have an impact of greater than one percent. Of these nine facilities, three facilities (represented by three model
facility types) have an impact of greater than three percent.
Table 7-2: Annualized Compliance Cost to Revenue Measure for New In -Scope Electric Generators
($2000 millions)
Model
Facility Type
CC OT/M-1
CCR/M-1
CCR/M-2
CC R/FW-1
CC R/FW-2
CC R/FW-3
CoalOT/FW-1
Coal OT/FW-2
Coal OT/FW-3
CoalR/M-1
Coal R/FW-1
Coal R/FW-2
Coal R/FW-3
CoalRL/FW-1
Steam
Electric
Capacity
(MW)
1,031
489
1,030
439
699
1,061
63
515
3,564
812
173
625
1,564
660
Electricity
Sales
Factor
4,566
4,566
4,566
4,566
4,566
4,566
6,803
6,803
6,803
6,803
6,803
6,803
6,803
6,803
Annual
Electricity
Sales
(MWh)
4,709,114
2,234,118
4,703,406
2,002,373
3,193,938
4,846,963
428,284
3,503,722
24,246,596
5,524,323
1,177,021
4,249,202
10,641,153
4,490,156
Price
(S/MWh)
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
Estimated
Annual
Revenues
$154
$73
$153
$65
$104
$158
$14
$114
$791
$180
$38
$139
$347
$146
Annualized
Compl.
Cost
$3.2
$0.20
$0.20
$0.17
$0.18
$0.18
$0.73
$3.8
$19.1
$0.23
$0.17
$0.18
$0.24
$4.8
Annualized
Compl. Cost/
Annual
Revenues
2.07%
0.27%
0.13%
0.26%
0.17%
0.11%
5.25%
3.33%
2.41%
0.13%
0.44%
0.13%
0.07%
3.27%
No. of
New In-
Scope
Facilities
5
5
1
18
21
19
1
1
1
1
3
3
3
1
Source: U.S. DOE 1999; U.S. DOE, 2000a; U.S. EPA analysis, 2001.
To test the sensitivity of these result to changes in the price of electricity, EPA re-calculated these impacts using the lowest
electricity price of any NERC region projected by POEMS.6 This price was $25.38. A lower price reduces the annualized
cost because it decreases the value of the energy penalty. However, it also reduces facility revenues. The overall effect is an
increase in the cost-to-revenue ratio. Using this lower price would result in only slight increases in the cost-to-revenue ratios
for the 83 projected new electric generators: the ratio would range between 0.09 percent and 6.27 percent, compared to 0.07
percent to 5.26 percent using the U.S. average. The number of facilities with impacts of greater than one percent and greater
than three percent would remain the same. Based on this analysis, EPA concludes that the impact results are not very
sensitive to changes in electricity prices and that even if these changes to the price of electricity occurred, compliance with
this regulation is both economically practicable and achievable at the facility-, firm-, industry, and national levels.
6 Similar to the main analysis, the price used in this sensitivity analysis is the average of the baseline and competitive cases for 2005,
2010, and 2015.
7-5
-------
Section 316(b) EEA Chapter 7 for New Facilities Economic Impact Analysis
7.1.2 Initial Compliance Cost to Plant Construction Cost Measure
Calculating the initial cost-to-plant construction cost ratio requires the following information for each new in-scope steam
electric generator:
*• initial compliance costs, and
*• plant construction costs.
a. Initial compliance cost
Initial compliance costs include the compliance costs of the final section 316(b) New Facility Rule that will be incurred
before a new facility can begin operation. These are capital technology costs and initial permit application costs. EPA
assumed that facilities would incur capital costs one year before operation begins. Facilities that choose Track II would begin
incurring initial permit application costs three years before the start of operations, and Track I facilities one year before the
start of operations. Since initial compliance costs are incurred at the same time as the plant construction costs, with which
they are compared, it was not necessary to discount these costs or make any other adjustments to them.
b. Plant construction costs
EPA used the Assumptions to the Annual Energy Outlook 2001 (U.S. DOE, 2000b) to estimate the total construction cost of
the new electric generating facilities. Table 43 of \h& Assumptions presents the cost and performance characteristics of new
generating technologies assumed in EIA's electricity forecasts. Technology-specific overnight capital costs were used in the
analysis.7 Overnight capital costs are the base costs estimated to build a plant in a hypotheticalMiddletown, USA. EPA
calculated an average value for the projected new combined-cycle facilities, using the cost per kilowatt for three technologies:
Advanced Gas/Oil Combined-Cycle, Integrated Coal-Gasification Combined-Cycle, and Conventional Gas/Oil Combined-
Cycle. Table 43 presents only one value for coal facilities. The following overnight capital costs were used in the analysis:
> Average Combined Cycle $796/kW
> Conventional Pulverized Coal $1,121/kW
EPA adjusted the overnight capital costs to recognize that learning effects may reduce costs over time. Learning parameters
are published in Table 45 of the Assumptions. As with the overnight capital costs, EPA calculated an average value for the
projected new combined-cycle facilities, using the parameters for the three combined-cycle technologies (Advanced Gas/Oil
Combined-Cycle, Integrated Coal-Gasification Combined-Cycle, and Conventional Gas/Oil Combined-Cycle). Table 45
presents only one value for coal facilities. The following parameters were used in the analysis:
*• Average Combined Cycle 8.3 percent
*• Conventional Pulverized Coal 5.0 percent
These parameters are the minimum total learning by 2020 and may overstate cost reductions for facilities constructed in the
early years of the rule.
7 EIA's overnight capital cost include contingency factors, but exclude regional multipliers and learning effects. Interest charges are
also excluded. These represent costs of new projects initiated in 2000. EPA adjusted the overnight capital costs from 1999 to 2000 dollars
using the Engineering News-Record Construction Cost Index. EPA did not make an adjustment for regional multipliers this analysis uses
the U.S. average. No adjustment for interest charges was necessary because the compliance costs, to which the overnight capital costs are
compared, also do not include interest charges. Adjustments for learning effects are discussed below.
7-6
-------
Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
c. Results
Table 7-3 presents the results of the economic impact analysis for the 83 new electric generators. The table shows that the
initial cost-to-plant construction cost ratio for the new electric generators ranges between 0.03 and 3.45 percent. Four of the
model facility types which represent eight projected new facilities have an impact of greater than one percent. Only one
model facility type, which represents one projected new facility, has an impact of greater than three percent.
Table 7-3: Initial Compliance Cost to Construction Cost Measure for New In Scope Electric Generators
($2000)
Model Facility
Type
CC OT/M-1
CCR/M-1
CCR/M-2
CC R/FW-1
CC R/FW-2
CC R/FW-3
CoalOT/FW-1
Coal OT/FW-2
Coal OT/FW-3
CoalR/M-1
Coal R/FW-1
Coal R/FW-2
Coal R/FW-3
CoalRL/FW-1
Steam
Electric
Capacity
(MW)
1,031
489
1,030
439
699
1,061
63
515
3,564
812
173
625
1,564
660
Plant
Construction
Cost
(S/kW)a
$730
$730
$730
$730
$730
$730
$1,065
$1,065
$1,065
$1,065
$1,065
$1,065
$1,065
$1,065
Total Plant
Construction
Cost (mill.)
$753
$357
$752
$320
$511
$775
$67
$549
$3,796
$865
$184
$665
$1,666
$703
Initial Compl.
Cost (mill.)
$13.6
$0.20
$0.28
$0.21
$0.22
$0.24
$2.3
$11.1
$36.5
$0.57
$0.18
$0.31
$0.87
$14.4
Compl. Cost/
Construction
Cost
1.81%
0.06%
0.04%
0.07%
0.04%
0.03%
3.45%
2.02%
0.96%
0.07%
0.10%
0.05%
0.05%
2.05%
No. of New
In-Scope
Facilities
5
5
1
18
21
19
1
1
1
1
3
3
3
1
a Plant Construction Cost =
Source: U.S. DOE, 2000b;
Overnight Capital Cost * (1- Learning Parameter).
U.S. EPA analysis, 2001.
7.2 NEW MANUFACTURINS FACILITIES
EPA projected that 38 new manufacturing facilities in scope of the section 316(b) New Facility Rule will begin commercial
operation within the next 20 years (see Chapter 5: Baseline Projections of New Facilities). The 38 new manufacturing
facilities include 22 chemical facilities, 10 steel facilities, two aluminum facilities, two paper mills, and two petroleum
refineries.
The discussion in Chapter 5: Baseline Projections of New Facilities explained in detail how EPA developed model
manufacturing facilities for the costing and economic impact analyses. Within each 4-digit SIC code, EPA developed one
model facility for each cooling system type/source water body combination with at least one projected new in-scope facility.1
8 The four potential cooling system type/source water body combinations are (1) once-through/freshwater, (2) once-through/marine,
(3) recirculating/freshwater, and (4) recirculating/marine.
7-7
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Section 316(b) EEA Chapter 7 for New Facilities Economic Impact Analysis
EPA analyzed economic impacts for each of those model facilities.
EPA used annualized compliance costs as a percent of average annual revenues ("cost-to-revenue ratio") as a measure of
economic impacts for manufacturing facilities. The comparison of initial compliance costs to plant construction costs used
for electric generators could not be estimated for manufacturing facilities because information on facility construction cost is
not readily available.
7.2.1 Annualized Compliance Cost to Revenue Measure
Estimation of the cost-to-revenue ratio requires the following information for each new in-scope manufacturing facility:
>• total annualized compliance cost, and
>• estimated annual revenues.
a. Annualized compliance cost
EPA used the same methodology to estimate annualized compliance costs for the projected new manufacturing facilities as
was used for the new electric generators described above: EPA discounted compliance costs that occur in the future and
annualizing them over 30 years (the expected useful life of the compliance equipment). Chapter 6: Facility Compliance
Costs presented EPA's methodology for estimating model facility costs and annualizing them to determine the national cost
of the final section 316(b) New Facility Rule. In contrast to the national cost estimate, which considered all costs incurred
during the first 30 years of the rule (i.e., 2001 to 2030), the impact analysis presented in this chapter considers compliance
costs incurred during the first 30 years of each facility's life?
EPA estimated annualized compliance costs for the impact analysis by first calculating the present value of the stream of
costs over the first 30 years of each facility's life. The present value was determined as of the first year of operation of each
facility.10 This present value was then annualized over 30 years to derive the constant equivalent annual value of the stream
of future costs. This calculation used a seven percent discount rate (see formulas in Chapter 6: Facility Compliance Costs,
Section 6.3).
»** Estimated annual revenues
EPA estimated facility-level revenues for the 38 projected new facilities using information for existing facilities in the
relevant industries. The Agency used results from the section 316(b) Detailed Industry Questionnaire: Phase II Cooling
Water Intake Structures to project revenues, using the following methodology:
> Calculating average revenues: EPA assumed that the financial characteristics of the existing in-scope facilities
would be similar to the projected new facilities. To develop revenues for the model facilities, EPA calculated an
average revenue for all of the existing facilities with the same characteristics as that model facility.11
*• Supplement missing data, where necessary: Some of the existing in-scope facilities upon which the model facilities
are based did not report revenues in the detailed industry questionnaire. For these facilities, EPA estimated facility
revenues using firm-level revenues.12 EPA multiplied firm revenues by the ratio of facility employment to firm
employment, making the assumption that revenues per employee would be the same on the facility level as on the
firm level.
9 Including 30 years of compliance costs for each facility is a better indicator of potential facility-level impact than limiting costs to
the first 30 years of the rule.
10 Discounting compliance costs back to the first year of the facility's operation as opposed to the first year of the rule will increase
the facility-level annualized cost for all facilities except those that begin operation in the first year.
11 The same facilities were used to calculate the average flows of that model facility.
12 EPA used firm-level revenues from the section 316(b) Industry Survey. For one facility, EPA used Dun and Bradstreet data
because neither facility nor firm revenues were available from the survey (D&B, 2001).
7-8
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Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
Table 7-4 presents the results of the economic impact analysis for the 38 projected new manufacturing facilities. The table
shows that the cost-to-revenue ratio for the 38 facilities ranges between 0.01 percent and 0.50 percent. No facilities are
expected to have a cost-to-revenue ratio of greater than one percent. Based on the low values of this impact measure, EPA
believes that the economic impacts of the final section 316(b) New Facility Rule on new manufacturing facilities will be
minimal.
Table 7-4: Annual ized Compliance Cost to Revenue Measure for New In -Scope Manufacturers
($2000 mill.)
Model Facility
Type
MANOT/F-2621
MANOT/M-2812
MAN OT/F-2812
MANOT/M-2819
MANOT/F-2819
MAN OT/F-2821
MAN OT/F-2834
MAN OT/F-2869
MAN RE/F-2869
MAN OT/F-2873
MAN RE/F-2873
MANOT/F-2911
MANRE/F-2911
MANOT/F-3312
MANRE/F-3312
MANOT/F-3316
MANRE/F-3316
MANOT/F-3317
MANRE/F-3317
MANOT/F-3353
MANRE/F-3353
SIC
Code
2621
2812
2812
2819
2819
2821
2834
2869
2869
2873
2873
2911
2911
3312
3312
3316
3316
3317
3317
3353
3353
Cooling System
Type
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Once-Through
Recirculating
Once-Through
Recirculating
Once Through
Recirculating
Once- Through
Recirculating
Once- Through
Recirculating
Once-Through
Recirculating
Once-Through
Recirculating
Source
Water
Body
Freshwater
Marine
Freshwater
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Total
Annualized
Compl.
Cost3
$0.38
$1.6
$0.67
$0.45
$0.35
$0.64
$0.35
$0.46
$0.18
$0.42
$0.21
$0.73
$0.18
$0.85
$0.77
$0.37
$0.20
$0.45
$0.18
$0.43
$0.18
Estimated
Annual
Revenues
$234
$517
$943
$226
$104
$483
$70
$1,045
$956
$111
$415
$1,562
$2,246
$1,076
$595
$118
$362
$222
$217
$444
$939
Annualized
Compl.
Cost/
Revenues
0.16%
0.30%
0.07%
0.20%
0.34%
0.13%
0.50%
0.04%
0.02%
0.38%
0.05%
0.05%
0.01%
0.08%
0.13%
0.32%
0.05%
0.20%
0.08%
0.10%
0.02%
No. of
New In-
Scope
Facilities
2
1
1
2
2
4
2
7
1
1
1
1
1
5
1
1
1
1
1
1
1
a The total annualized compliance costs of all facilities, except the two facilities in SIC code 2812, are based on the assumption that
initial permit costs and capital costs are incurred prior to the facility's operation. The two facilities in SIC code 2812, and other
manufacturing facilities projected to begin operation during 2001, 2002, or 2003 would incur part of these costs concurrent with the
first three years of operation.
Source: U.S. EPA analysis, 2001.
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Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
7.3 SUMMARY OF FACILITY-LEVEL IMPACTS
The economic impact analysis for the final section 316(b) New Facility Rule shows that the requirements of this regulation
would have minimal impacts on projected new electric generators and manufacturing facilities. Of the 121 projected
facilities, only nine facilities are expected to incur annualized costs greater than one percent of revenues. Initial compliance
costs compared to the plant construction costs are also expected to be small for electric generators. Table 7-5 summarizes the
results of the impact analysis by industry sector.
Table 7-5: Compliance Costs and Economic Impacts by Sector
Sector
SIC 49 Steam Electric Generating
SIC 26 Pulp & Paper
SIC 28 Chemicals
SIC 29 Petroleum
SIC 331 Steel
SIC 333/335 Aluminum
Total
Number of
Projected New In
Scope Facilities
83
2
22
2
10
2
121
Total Annualized Compl. Cost/
Annual Revenues
Lowest
0.07%
0.16%
0.02%
0.01%
0.05%
0.02%
0.01%
Highest
5.24%
0.16%
0.50%
0.05%
0.32%
0.10%
5.24%
Initial Compl. Cost/
Plant Construction Cost
Lowest
0.03%
Highest
3.45%
Source: U.S. EPA analysis, 2001.
To test the sensitivity of these result to the length of the amortization period, EPA re-calculated the impact ratios using a 15-
year amortization period. This 15-year period may more closely reflect the financing terms for some of the new in-scope
facilities in the current market, especially for generators operating in deregulated electricity markets. The shorter
amortization period only affects initial compliance costs, including capital costs and initial permitting costs. All other
compliance costs are annual costs and are not affected by the amortization period.13 Using a 15-year amortization period
would result in two different impact ratio values for each facility during the 30-year analysis period: (1) a higher ratio for the
first 15 years, which reflects full amortization of the capital costs and the initial permitting costs associated with the rule; and
(2) a lower ratio which reflects the on-going costs over the second 15 years but does not include any charges for capital costs
and initial permitting. EPA only calculated the first, higher, impact ratio in this sensitivity analysis.
For electric generators, reducing the amortization period to 15 years would result in only slight increases in the cost-to-
revenue ratios. The ratio would range between 0.08 percent and 5.73 percent (compared to 0.07 percent to 5.24 percent using
a 30-year amortization period). The number of facilities with impacts of greater than one percent and greater than three
percent would remain the same.14 For manufacturing facilities, the change in impacts from reducing the amortization period
to 15 years would be equally small. The ratio would range between 0.01 percent and 0.57 percent (compared to 0.01 percent
to 0.50 percent using the 30-year amortization period). No manufacturing facilities are expected to have a cost-to-revenue
ratio of greater than one percent.
13 The only other compliance cost that is not an annual cost is the cost of repermitting. However, this cost is very minor and will not
be incurred until five years after the facility begins operation. EPA does not expect this cost to be included in the initial 15-year loan
arrangement and therefore annualized it over 30 years.
14 The change in amortization period does not affect the initial cost-to-plant construction cost ratio because for this measure,
compliance costs are not discounted and annualized.
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Section 316(b) EEA Chapter 7 for New Facilities Economic Impact Analysis
Based on this analysis, EPA concludes that even if some facilities have to finance their debt over a shorter period of time,
compliance with this regulation is both economically practicable and achievable at the facility-, firm-, industry-, and national
levels.
7.4 POTENTIAL FOR FIRM- AND INDUSTRY-LEVEL IMPACTS
The previous section presented EPA's estimate of facility-level impacts as a result of the final section 316(b) New Facility
Rule. Given the low impacts on the facility-level, EPA did not conduct a formal impact analysis at the firm- or industry-
levels. Based on the analysis presented in this chapter, EPA concludes that the final section 316(b) New Facility Rule will
not cause impacts on the firms owning the projected new in-scope facilities or on their industries, for reasons discussed in this
section.
The final rule is expected to increase the cost of the projected new in-scope facilities relative to other new facilities and to
existing facilities. Annualized compliance costs as a percentage of revenues at the facility-level ranged from 0.07 to 5.24
percent for new electric generators and from 0.01 to 0.50 percent for new manufacturing facilities. Since firm revenues are
always equal to or greater than facility-level revenues, the cost-to-revenue ratio at the firm-level cannot be higher than at the
facility-level. In most cases, this ratio would be lower. EPA therefore concluded that significant firm-level impacts as a
result of the final section 316(b) New Facility Rule are unlikely.
A rule that substantially increases the cost of new facilities could present a barrier to new entry, and constrain capacity
growth in the affected industries. Barriers to new entry result in higher product prices in the long run and can retard valuable
technological innovation. EPA concluded that the final rule is unlikely to discourage new entry, because the compliance
costs associated with the final rule are small compared with the expected revenues of the projected facilities. Also, EPA
expects that facilities will be able to secure financing for the capital costs associated with the rule because these costs
represent such a small percentage of the overall plant construction costs. However, the rule may influence the design of
cooling systems and choice of water sources of new facilities planning to use cooling water.
Given the small number of affected in-scope facilities relative to the size of the affected industries, EPA also concluded that
impacts at the industry-level are very unlikely. The maximum costs incurred in any one year represent a very small
percentage of total industry revenues at the 4-digit SIC level. The rule affects too small a portion of any industry to have
observable impacts at the industry level. EPA therefore does not expect any impacts on industry productivity, competition,
prices, output, foreign trade, or employment. EPA concluded that a detailed market analysis is not required for any of the
affected industries, given the screening analysis results.
7.5 ADDITIONAL FACILITY ANALYSES
EPA also estimated economic impacts for the six additional facilities costed in Section 6.4 of Chapter 6: Facility Compliance
Costs. These six facilities include two large nuclear facilities (one with a once-through system and one a recirculating system
in the baseline) and four coal facilities installing concrete cooling towers instead of redwood.
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Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
Table 7-6 presents the six facilities, for which EPA conducted additional facility analyses, their cooling system type, the type
of water body from which they withdraw cooling water, and their estimated capacity.
Table 7-6: Characteristics of Six Additional Facilities
Model Facility Type
Nuclear- 1
Nuclear-2
Coal OT/FW-1
Coal OT/FW-2
Coal OT/FW-3
Coal RL/FW-1
Cooling System Type
Recirculating
Once-Through
Once-Through
Once-Through
Once-Through
Recirculating with Lake
Source Water Body
Marine
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Capacity (MW)
2,708
2,666
63
515
3,564
660
Source: U.S. EPA analysis, 2001.
EPA used the same two economic impact measures for the six additional facility analyses as were used for the 83 projected
new electric generators discussed in Section 7.1 above: (1) the ratio of total annualized compliance costs to estimated
revenues ("cost-to-revenue ratio") and (2) the ratio of initial compliance costs to the construction cost of the plant ("initial
cost-to-plant construction cost ratio").
7.5.1 Annualized Compliance Cost to Revenue Measure
Calculating the cost-to-revenue ratio requires total annualized compliance costs and estimated annual revenues for each of the
six additional facilities. The same methodology described in Section 7.1.1 above was used to calculate annualized
compliance costs and annual revenues for these six facilities.
Chapter 6: Facility Compliance Costs (Section 6.4) presents facility unit costs for each of the six facilities. EPA estimated
annualized compliance costs for the impact analysis by first calculating the present value of the stream of costs over the first
3 0 years of each facility' s life. The present value was determined as of the first year of operation of each facility. This
present value was then annualized over 30 years to derive the constant equivalent annual value of the stream of future costs.
This calculation used a seven percent discount rate (see formulas in Chapter 6: Facility Compliance Costs, Section 6.3).
EPA estimated expected annual revenues by making assumptions about future electricity sales for each facility. Expected
annual revenues are calculated by multiplying generation capacity by an electricity sales factor and the electricity price. EPA
estimated the average amount of electricity sold per MW of generating capacity using forecasts from EIA' s Annual Energy
Outlook 2001 (U.S. DOE, 2000a). EPA used the national forecast of electricity sales and generating capacity associated with
advanced nuclear facilities to estimate an electricity sales factor for the two nuclear facilities. For the coal facilities, EPA
used the same estimates as were used for the model new coal facilities presented in section 7.1.1. EPA also used the same
price forecasts presented in section 7.1.1.
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Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
Table 7-7 presents the results of the annualized compliance cost to revenue analysis for the six facilities. The table shows that
the cost-to-revenue ratios for the recirculating and once-through nuclear facilities are 0.1 percent and 4.3 percent,
respectively. The cost-to-revenue ratios are almost identical whether the coal facilities install concrete or redwood cooling
towers, with impacts ranging from 2.4 percent to 5.3 percent for concrete towers and 2.4 to 5.2 percent for redwood towers.
Table 7-7: Annualized Compliance Cost to Revenue Measure for Six Additional Facilities
($2000 millions)
Model
Facility Type
Nuclear- 1
Nuclear-2
Coal OT/FW-1
Coal OT/FW-2
Coal OT/FW-3
Coal RL/FW-1
Steam
Electric
Capacity
(MW)
2,708
2,666
63
515
3,564
660
Electricity
Sales
Factor
7,616
7,616
6,803
6,803
6,803
6,803
Annual
Electricity
Sales
(MWh)
20,624,616
20,304,736
428,284
3,503,722
24,246,596
4,490,156
Price
(S/MWh)
$32.62
$32.62
$32.62
$32.62
$32.62
$32.62
Estimated
Annual
Revenues
$673
$662
$14
$114
$791
$146
Annualized
Compl.
Cost
$0.4
$28.2
$0.7
$3.8
$19.2
$4.8
Annualized
Compl. Cost/
Annual
Revenues
0.1%
4.3%
5.3%
3.4%
2.4%
3.3%
Source: U.S. DOE 1999; U.S. DOE, 2000a; U.S. EPA analysis, 2001.
7.5.2 Initial Compliance Cost to Plant Construction Cost Measure
Calculating the initial cost-to-plant construction cost ratio requires initial compliance costs and plant construction costs for
each of the six facilities. The same methodology and data sources as described in section 7.1.2 above were used to calculate
initial compliance costs and plant construction costs for the two nuclear facilities. The four coal facilities have the same
characteristics as the coal model new facilities described in section 7.1.2.
The overnight cost and the learning parameter for associated with advanced nuclear facilities are:
Overnight cost
Learning parameter
$2,246/kW
10.0 percent
7-13
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Section 316(b) EEA Chapter 7 for New Facilities
Economic Impact Analysis
Table 7-8 presents the results of the economic impact analysis for the six facilities. The table shows that the initial cost-to-
plant construction cost ratio for the recirculating and once-through nuclear facilities are 0.04 percent and 3.8 percent,
respectively. The initial cost-to-plant construction cost ratio are slightly higher for the coal facilities installing concrete
cooling towers with impacts ranging from 1.4 percent to 4.6 percent compared to impacts ranging from 0.96 percent to 3.5
percent when installing redwood cooling towers.
Table 7-8: Initial Compliance Cost to Construction Cost Measure for Six Additional Facilities ($2000)
Model Facility
Type
Nuclear- 1
Nuclear-2
CoalOT/FW-1
Coal OT/FW-2
Coal OT/FW-3
CoalRL/FW-1
Steam Electric
Capacity (MW)
2,708
2,666
63
515
3,564
660
Plant
Construction Cost
($/kW)a
$2,021
$2,021
$1,065
$1,065
$1,065
$1,065
Total Plant
Construction Cost
(mill.)
$5,474
$5,390
$67
$549
$3,796
$703
Initial Compl.
Cost (mill.)
$2.4
$204.1
$3.1
$15.9
$53.5
$20.4
Compl. Cost/
Construction Cost
0.04%
3.79%
4.62%
2.90%
1.41%
2.90%
a Plant Construction Cost = Overnight Capital Cost * (1- Learning Parameter).
Source: U.S. DOE, 2000b; U.S. EPA analysis, 2001.
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Section 316(b) EEA Chapter 7 for New Facilities Economic Impact Analysis
REFERENCES
Dun and Bradstreet (D&B). 2001. Data as of August 2001.
Resource Data International (RDI). 2001. NEWGen Database. February 2001.
U.S. Department of Energy (U.S. DOE). 2000a. Energy Information Administration. Annual Energy Outlook 2001 With
Projections to 2020. DOE/EIA-0383(2001). December 2000.
U.S. Department of Energy (U.S. DOE). 2000b. Energy Information Administration. Assumptions to the Annual Energy
Outlook 2001 (AEO2001) With Projections to 2020. DOE/EIA-0554(2001). December 2000.
U.S. Department of Energy (U.S. DOE). 1999. Office of Policy. Supporting Analysis for the Comprehensive Electricity
Competition Act. DOE/PO-0059. May 1999.
U.S. Department of Energy (U.S. DOE). 1995. FormEIA-767. Steam-Electric Plant Operation and Design Report for the
Reporting Period 1995.
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Section 316(b) EEA Chapter 7 for New Facilities Economic Impact Analysis
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Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
Chapter 8: Regulatory Flexibility
Analy
sis
INTRODUCTION
The Regulatory Flexibility Act (RFA) requires EPA to
consider the economic impact a rule will have on small
entities. The RFA requires an agency to prepare a
regulatory flexibility analysis for any notice-and-comment
rule it promulgates, unless the Agency certifies that the rule
"will not, if promulgated, have a significant economic
impact on a substantial number of small entities" (The
Regulatory Flexibility Act, 5 U.S.C. § 605(b)).
CHAPTER CONTENTS
8.1 Number of New In-Scope Facilities Owned by Small
Entities 8-2
8.1.1 Combined-Cycle Facilities 8-2
8.1.2 Coal Facilities 8-5
8.1.3 Manufacturing Facilities 8-9
8.2 Sales Test for Facilities Owned by Small Entities 8-11
8.3 Summary of Results 8-13
References
8-14
For the purposes of assessing the impacts of the section
316(b) New Facility Rule on small entities, EPA has
defined small entity as: (1) a small business according to the Small Business Administration (SBA) size standards; (2) a small
governmental jurisdiction that is a government of a city, county, town, school district, or special district with a population of
less than 50,000; and (3) a small organization that is a not-for-profit enterprise that is independently owned and operated and
is not dominant in its field. The SBA defines small businesses based on Standard Industrial Classification (SIC) codes and
size standards expressed by the number of employees, annual receipts, or electric output (13 CFR §121.20). The small entity
determination is made at the level of the parent entity.
To evaluate the potential impact of this rule on small entities, EPA determined which of the projected new in-scope facilities
would be owned by a small entity. EPA used a "sales test" to determine the potential severity of economic impact on electric
generators and manufacturing facilities owned by small entities. The test calculates annualized compliance cost as a
percentage of total sales revenues. This analysis conducts the sales test at the facility-level.1
EPA's analysis showed that this regulation will not have a significant economic impact on a substantial number of small
entities (SISNOSE). This finding is based on the limited number of small entities expected to incur compliance costs and the
insignificant magnitude of compliance costs as a percentage of sales revenues.
The remainder of this chapter is organized as follows:
*• Section 8.1 presents EPA's analysis of the entity size of the 121 projected new in-scope facilities.
>• Section 8.2 presents the sales tests for all facilities owned by small entities.
*• Section 8.3 summarizes the results of the RFA analysis.
The sales test is equivalent to the cost-to-revenue measure described in Chapter 7: Economic Impact Analysis.
8-1
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Section 316(b) EA Chapter 8 for New Facilities Regulatory Flexibility Analysis
8.1 NUMBER OF NEW IN-SCOPE FACILITIES OWNED BY SMALL ENTITIES
EPA's baseline projection of new facilities identified 83 new electric generators and 38 new manufacturing facilities expected
to incur costs under the final section 316(b) New Facility Rule (see Chapter 5: Baseline Projections of New Facilities). This
section discusses the parent size analysis of new combined-cycle facilities, new coal facilities, and new manufacturing
facilities separately.
8.1.1. Combined-Cycle Facilities
The small entity determination for new in-scope combined-cycle facilities was conducted in two steps:
*• Determine the small entity status of the 57 in-scope NEWGen facilities.
*• Extrapolate small entity information from the 57 in-scope NEWGen facilities to the 69 projected new in-scope
facilities.
a. Small entity status of the 57 in-scope NEWSen facilities
EPA used the NEWGen database to identify the parent entities of the 57 in-scope NEWGen facilities. Several of these
facilities are owned by more than one entity. For these facilities, EPA identified the entity that owns the largest share in the
facility (the "majority owner"). Six of the 57 facilities have more than one majority owner. In addition, several entities own
more than one of the 57 in-scope NEWGen facilities. In total, 38 entities own a majority share in at least one of the 57
facilities.
Table 8-1 shows that all but two parent entities are private businesses. One entity is a municipal marketing authority and one
is a state government. For the purposes of the PJA analysis, states and tribal governments are not small governments (U.S.
EPA, 1999). Table 8-1 also shows the SIC codes of each entity, where available, and the SB A standard for each SIC code (in
terms of employment, sales revenues, or MWh output). The table then compares the SBA standard with the entity's
economic data. The final column lists each entity's size.
EPA used the Dun & Bradstreet (D&B) database to obtain the parent entities' SIC codes, employment, and revenues. For
entities in SIC code 4911, EPA used the Energy Information Administration (EIA) Form 861 database to determine electric
output. Where the SIC code, the relevant employment or revenue data, or the electric output from Form EIA-861 was not
available, EPA determined the entity size based on the projected future electricity generation of new facilities owned by each
entity. EPA used the generating capacity of each new facility owned by the entities (adjusted by the entities' share of
ownership) and multiplied it by the national capacity utilization forecast for combined-cycle facilities (see Chapter 7:
Economic Impact Analysis, Section 7.1.1 for a description of the Projected electricity sales factor used to forecast
generation).2
Table 8-1 shows that of the 38 entities with majority ownership in at least one in-scope NEWGen facility, only seven are
estimated to be small. These seven small entities are highlighted in bold font.
2 EPA estimated future generation solely based on the planned future facilities listed in the NEWGen database. Of the NEWGen
facilities, EPA only included the 199 combined-cycle facilities for which cooling water information was available, because these facilities
are more likely to be built than facilities about which permitting authorities had no information. EPA did not take into account existing
facilities that will continue to operate or new facilities other than the 199 combined-cycle ones. This approach could overstate the number
of small entities, to the extent that some entities would in fact be classified as large based on the size of their existing facilities or their
future facilities that are not combined-cycle. On the other hand, some entities identified as large could in fact turn out to be small if they
have little or no existing capacity and some of their projected capacity is not in fact built. While further research could therefore change
the classification of individual facilities, EPA does not expect that the number of small entities is likely to be larger than estimated here. It
should also be noted that the entity size of none of the higher cost facilities (i.e., facilities with a once-through baseline system) is based on
projected future generation.
8-2
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Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
Table 8-1: Entities with Majority Ownership in at Least One In-Scope NEWSen Facility
Name of Entity
ABB Energy Ventures, Inc.
American Electric Power Co., Inc.b
Besicorp Group, Inc.
Calpine Corp.
Cogentrix Energy, Inc.
Consolidated Edison, Inc.
Constellation Energy Group, Inc.b
Dominion Resources, Inc.
Dow Chemical Co.
Duke Energy Corp.
Dynegy, Inc.
El Paso Energy Corp.
Empire State Newsprint
Energetix
Entergy Corp.b
Exelon Corp.b
Genpower
GenTex Power Corporation
Ls Power
McCorkell & Associates
MidAmerican Energy Holdings Co.
Municipal Electric Authority of Georgia
Newport Generation
PG&E Corp.
Power Development Co.
Power Resource Group
PPG Industries, Inc.
PPL Corp.
Public Service Enterprise Group, Inc.
Smith Cogeneration, Inc.
South Carolina Public Service Authority
Southern Company
TECO Energy, Inc.
Tenaska, Inc.
Tractebel Power, Inc.
Westlake Energy
Wisconsin Energy Corp.b
Xcel Enersv^nc^^
Type
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Municipal Marketing
Authority
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
State Government
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
Private Business
SIC Code
3612
4911
Unknown
4911
4911
4911
4911
4911
2821
4911
4924
4922
Unknown
4911
4911
Unknown
4911
Unknown
Unknown
Unknown
4911
9631
Unknown
4911
Unknown
8748
2851
Unknown
4911
4911
n/a
4911
4911
Unknown
3674
Unknown
4911
4911
SBA Small Entity
Standard
750 Emp.
4 Million MWh
Unknown
4 Million MWh
4 Million MWh
4 Million MWh
4 Million MWh
4 Million MWh
750 Emp.
4 Million MWh
500 Emp.
$5 Million Rev.
Unknown
4 Million MWh
4 Million MWh
Unknown
4 Million MWh
Unknown
Unknown
Unknown
4 Million MWh
n/a
Unknown
4 Million MWh
Unknown
$5 Million Rev.
500 Emp.
Unknown
4 Million MWh
4 Million MWh
4 Million MWh
4 Million MWh
Unknown
500 Emp.
Unknown
4 Million MWh
4 Million MWh
Entity Value3
20,000 Emp.
154,683,011 MWh
1,124,479 MWh
112,462,099 MWh
32,915,807MWh
32,630,506 MWh
34,048,817 MWh
75,568,214 MWh
50,000 Emp.
80,638,873 MWh
5,778 Emp.
$21,950,000,000
1,124,479 MWh
8, 7 90, 3 47 MWh
128,719,019 MWh
50,165,283 MWh
7,881,630 MWh
1,141,603 MWh
5,02 3,0 5 5 MWh
2,739,848 MWh
4,964,149MWh
10,699,564 MWh
7, 306,262 MWh
70,297,085 MWh
1,242,065 MWh
$13,000,000
35,600 Emp.
8, 9 50,1 71 MWh
ll,070,586MWh
2,739,848 MWh
n/a
20,822, 847 MWh
17,965,152 MWh
20,073,956 MWh
515 Emp.
2,374,535 MWh
29,608,736 MWh
fU>8^23^Wh
Entity
Size
Large
Large
Small
Large
Large
Large
Large
Large
Large
Large
Large
Large
Small
Large
Large
Large
Large
Small
Large
Small
Large
Large
Large
Large
Small
Large
Large
Large
Large
Small
n/a
Large
Large
Large
Large
Small
Large
Large
a The values presented in italics are based on the projected future generation of new facilities owned by the entity.
b The electric output for these entities is the output of the regulated utility companies each entity owns. The numbers ignore
unregulated generating plants and may therefore understate total electric output at the holding company level.
Source: D&B Database, 2001; U.S. DOE, 1999; RDI, 2001.
8-3
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Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
The seven small entities identified in Table 8-1 own six of the 57 in-scope NEWGen facilities. Table 8-2 below presents the
seven entities, the six in-scope facilities they own, and their ownership share in the facilities. The table also presents the
facilities' cooling system type, cooling water source, capacity, and the model facility type that represents them (see Chapter
5: Baseline Projection of New Facilities for a detailed discussion of how EPA developed model facilities for the economic
analysis).
The table shows that all six new in-scope NEWGen combined-cycle facilities owned by a small entity withdraw from a
freshwater body. Five of the six facilities have a recirculating system, and one has an unknown system type. Four of the six
facilities have relatively small generating capacities (550 MW or less), one has a medium capacity (600 MW), and one has a
relatively large capacity (1,200 MW).
Table 8-2: In-Scope NEWGen Facilities Owned by Small Entities
Name of Entity
Besicorp Group, Inc.
Empire State Newsprint
GenTex Power
Corporation
McCorkell &
Associates
Power Development
Co.
Smith Cogeneration,
Inc.
Westlake Energy
Share in
Facility
50%
50%
50%
50%
50%
100%
100%
Name of Facility
Empire State
Newsprint
Lost Pines I
Kiamichi Energy
Facility
Meriden Power
Smith Pocola Energy
Project
Kentucky [Westlakel
Cooling System
Type
Recirculating
Recirculating
Unknown3
Recirculating
Recirculating
Recirculating
Water
Body Type
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Capacity
(inMW)
493
500
1,200
544
600
520
Model Facility
Type
CC R/FW-1
CC R/FW-1
CC R/FW-3
CC R/FW-1
CC R/FW-2
CC R/FW-1
a Based on its generating capacity of 1,200 MW and its reported design intake flow of 15.5 MGD, EPA assumed that this facility will
operate a recirculating system.
Source: EDI, 2001; U.S. EPA analysis, 2001.
b. Extrapolation to the 69 projected new facilities
EPA's new facility forecast projected that 69 new in-scope combined-cycle facilities will begin operation between 2001 and
2020. Chapter 5: Baseline Projection of New Facilities presented the six model facility types that represent these 69 facilities
for the costing and economic impact analyses. Table 8-3 below shows these six model facility types, the number of in-scope
NEWGen facilities upon which the model facilities are based (by entity size), and the total projected number of new in-scope
combined-cycle facilities (by entity size).
EPA estimated the entity size of the 69 new in-scope combined-cycle facilities based on the assumption that the share of all
new facilities owned by a small entity is the same as the share of the 57 in-scope NEWGen facilities owned by a small entity.3
This analysis was conducted at the model facility level. For example, of the 15 NEWGen recirculating/freshwater facilities
with relatively small capacities (model facility type CC R/FW-1), 11 are owned by a large entity (73 percent) and four are
owned by a small entity (27 percent). Applying these percentages to the 18 projected new facilities of that model type results
in 13 facilities owned by a large entity and five facilities owned by a small entity. The same methodology was used for the
other model facility types.
3 This assumption is consistent with the model facility approach explained in Chapter 5: Baseline Projection of New Facilities and
used in the costing and economic impact analyses. The model facility approach assumes that the characteristics of the projected new
facilities are the same as those of the "actual" facilities analyzed in support of this regulation.
3-4
-------
Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
EPA projects that seven of the 69 projected new in-scope combined-cycle facilities (or 10.1 percent) will be owned by a small
entity.4
Table 8-3: Combined-Cycle Model Facilities by Parent Entity Size
Model
Facility Type
CC OT/M-1
CCR/M-1
CCR/M-2
CC R/FW-1
CC R/FW-2
CC R/FW-3
Cooling
System Type
Once- Through
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Source
Water
Body
Marine
Marine
Marine
Freshwater
Freshwater
Freshwater
Steam
Electric
Capacity
(MW)
1,031
489
1,030
439
699
1,061
Total Combined-Cycle
Number of In-Scope
NEWGen Facilities
Large
#
4
4
1
11
16
15
51
%
100%
100%
100%
73%
94%
94%
89%
Potentially
Small
#
0
0
0
4
1
1
6
%
0%
0%
0%
27%
6%
6%
11%
Number of Projected New
In-Scope Facilities
Total
5
5
1
18
21
19
69
Large
5
5
1
13
20
18
62
Small
0
0
0
5
1
1
7
Source: U.S. EPA analysis, 2001.
B.I.2 Coal Facilities
The small entity determination for new in-scope coal facilities was conducted using the same two steps as the analysis for
combined-cycle facilities:
>• Determine the small entity status of the 41 existing in-scope coal facilities identified in the section 316(b) Industry
Survey.
>• Extrapolate small entity information from the 41 existing in-scope facilities to the 14 projected new in-scope
facilities.
a. Small entity status of the 41 existing in-scope coal facilities
EPA used publicly available information as well as the section 316(b) Industry Survey to identify the parent entities of the 41
existing in-scope coal facilities. EPA analyzed facilities owned by utilities and nonutilities separately, because different data
are publicly available for the two types of electric generators.
»*» Utilities
Twenty-nine of the 41 facilities are owned by utilities. These 29 facilities are owned by 26 entities. For facilities owned by
investor-owned utilities, cooperatives, or municipal marketing authorities, EPA applied the SBA size standard for SIC code
4911 (4 million MWh of electric output). EPA obtained this information from the 1999 Form EIA-861. For facilities owned
by a municipality, EPA used the size standard for government entities (population of 50,000). In addition, EPA determined
that one of the 29 utility plants has recently been sold to a nonutility. The small entity determination for this firm was also
based on the 4 million MWh threshold. As stated previously, states and tribal governments are not considered small
governments for the purposes of the RFA analysis.
Table 8-4 presents the 26 entities that own one or more of the 29 existing in-scope coal facilities. The table also shows the
type of each entity and the applicable SBA standard (in terms of MWh output or population), and compares the SBA standard
4 This estimate is consistent with the percentage of NEWGen facilities owned by a small entity (six out of 57, or 10.5 percent).
8-5
-------
Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
with the entity's economic data. The final column lists each entity's size. The results in Table 8-4 show that of the 26
entities that own at least one of the 29 coal facilities, only one is estimated to be small. This entity is highlighted in bold font.
Table 8-4: Entities Owning at Least One Existing In-Scope Coal Facility (Utilities)
Name of Entity
AES Corporation
American Mun Power-Ohio, Inc.
Appalachian Power Co.
Carolina Power & Light Co.
Central Power & Light Co.
Cleco Corporation
Entergy Arkansas Inc.
Georgia Power Co.
Grand River Dam Authority
Hoosier Energy R E C Inc.
Indiana Michigan Power Co.
Jacksonville Electric Authority
City of Kansas City
Kansas City Power & Light Co.
LG&E Energy3
MidAmerican Energy Co.
Otter Tail Power Co.
Reliant Energy HL&P
San Antonio Public Service Bd
Seminole Electric Coop Inc.
South Carolina Electric&Gas Co.
South Carolina Pub Serv Auth
Southwestern Electric Power Co.
Texas Municipal Power Agency1"
Virginia Electric & Power Co.
West Texas Utilities Co.
Type
Private Utility Company
Municipal Marketing Authority
Investor-owned Utility
Investor-owned Utility
Investor-owned Utility
Investor-owned Utility
Investor-owned Utility
Investor-owned Utility
State Government
Cooperative
Investor-owned Utility
Municipality
Municipality
Investor-owned Utility
Holding Company
Investor-owned Utility
Investor-owned Utility
Investor-owned Utility
Municipality
Cooperative
Investor-owned Utility
State Government
Investor-owned Utility
Municipal Marketing Authority
Investor-owned Utility
Investor-owned Utility
SBA Small Entity
Standard
4 mill. MWh
4 mill. MWh
4 mill. MWh
4 mill. MWh
4 mill. MWh
4 mill. MWh
4 mill. MWh
4 mill. MWh
n/a
4 mill. MWh
4 mill. MWh
50,000 People
50,000 People
4 mill. MWh
4 mill. MWh
4 mill. MWh
4 mill. MWh
4 mill. MWh
50,000 People
4 mill. MWh
4 mill. MWh
n/a
4 mill. MWh
4 mill. MWh
4 mill. MWh
4 mill. MWh
Entity Value
140,000,000 MWh
6,238,601 MWh
37,737,554 MWh
53,489,444 MWh
23,1 16,191 MWh
8,177,513 MWh
3 1,123,876 MWh
77,509,777 MWh
5,200,178 MWh
10,057,941 MWh
25,920,410 MWh
695,877 People
139,971 People
15,477,138 MWh
40,391, 41 5 MWh
2 1,852,303 MWh
4,616,370 MWh
72,106,898 MWh
1,147,213 People
11,959,412 MWh
20,974,917 MWh
20,285,462 MWh
23,550,221 MWh
3,042,555 MWh
75,568,214 MWh
7,621, 638 MWh
Entity
Size
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
large
small
large
large
a The electric output for this firm is the output of the regulated utility companies the firm owns. The numbers ignore unregulated
generating plants and may therefore understate total electric output at the holding company level.
b This entity might not be classified as small if evaluated on a population served basis.
Source: U.S. EPA, 2000; U.S. DOE, 1999; U.S. Census Bureau, 2001.
The small entity identified in Table 8-4 above owns one of the 29 existing in-scope coal utility plants. This facility operates a
recirculating system with a lake, withdraws water from a freshwater body, and has a generating capacity of 444 MW. Table
8-5 presents the characteristics of this facility and the model facility type that represents the facility.
-------
Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
Table 8-5: In-Scope Coal Facilities (Utilities) Owned by Small Entities
Name of Entity
Texas Municipal Power
Agency
Name of Facility
Gibbons Creek
Cooling System
Type
Recirculating with
Lake
Water Body
Type
Freshwater
Capacity (in
MW)
444
Model Facility
Type
CoalRL/FW-1
Source: U.S. EPA, 2000; U.S. DOE, 1999; U.S. EPA analysis, 2001.
*** Nonutilities
The remaining 12 existing in-scope coal facilities are owned by a nonutility. EPA used data from the section 316(b) Industry
Survey and from the D&B database to determine the size of the entities owning these 12 facilities. Since the survey data are
confidential, this chapter only presents a summary of the entity size determination conducted for this analysis.
For each of the entities that own one of the 12 nonutilities, EPA determined the SIC code, the SB A small entity standard, and
the economic information with which the SB A standard is compared. Table 8-5 below shows the distribution of the 12
facilities by their entity's SIC code and size. The table shows that two of the 12 nonutilities are owned by a small entity.
Table 8-6: Entities Owning at Least One Existing In-Scope Coal Facility (Nonutilities)
Entity SIC Code
1542
4911
4931
4939
4961
SBA Small Entity
Standard
$17,000,000
4,000,000 MWh
$5,000,000
$5,000,000
$9,000,000
Total
Existing In-Scope Facilities
Total
1
7
2
1
1
12
Small
0
1
0
1
0
2
Large
1
6
2
0
1
10
Source: U.S. SBA, 2000; U.S. EPA analysis, 2001.
The two small entities identified in Table 8-6 above each own one of the 12 existing in-scope coal nonutility plants. Both
operate a recirculating system, withdraw water from a freshwater body, and have a generating capacity of less than 450 MW.
Table 8-7 presents the characteristics of these two facilities and the model facility type that represents them.
Table 8-7: In-Scope Coal Facilities (Nonutilities) Owned by Small Entities
Cooling System Type
Recirculating
Recirculating
Water Body Type
Freshwater
Freshwater
Capacity (in MW)
<450
<450
Model Facility Type
CoalR/FW-1
CoalR/FW-1
Source: U.S. EPA, 2000; U.S. EPA analysis, 2001.
b. Extrapolation to the 14 projected new facilities
EPA's new facility forecast projected that 14 new in-scope coal facilities will begin operation between 2001 and 2020.
Chapter 5: Baseline Projection of New Facilities presented the eight model facility types that represent these 14 facilities for
the costing and economic impact analyses. Table 8-8 below shows these eight model facility types, the number of existing in-
8-7
-------
Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
scope coal facilities upon which the model facilities are based (by entity size), and the total projected number of new in-scope
coal facilities (by entity size).
EPA estimated the entity size of the 14 new in-scope coal facilities based on the assumption that the share of all new facilities
owned by a small entity is the same as the share of the 41 existing coal facilities owned by a small entity.5 This analysis was
conducted at the model facility level. For example, of the 10 existing recirculating/freshwater facilities with relatively small
capacities (model facility type Coal R/FW-1), eight are owned by a large entity (80 percent) and two are owned by a small
entity (20 percent). Applying these percentages to the three projected new facilities of that model type results in two facilities
owned by a large entity and one facility owned by a small entity. The same methodology was used for the other model
facility types.
EPA projects that one of the 14 projected new in-scope coal facilities (or 7.1 percent) will be owned by a small entity.6
Table 8-8: Coal Model Facilities by Parent Entity Size
Model
Facility Type
CoalOT/FW-1
Coal OT/FW-2
Coal OT/FW-3
CoalR/M-1
Coal R/FW-1
Coal R/FW-2
Coal R/FW-3
CoalRL/FW-1
Cooling
System Type
Once- Through
Once- Through
Once- Through
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
with Lake
Source
Water
Body
Freshwater
Freshwater
Freshwater
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Steam
Electric
Capacity
(MW)
63
515
3,564
812
173
625
1,564
660
Total Coal
Number of Existing In-Scope Coal
Facilities
Large
#
3
5
1
3
8
7
8
3
38
%
100%
100%
100%
100%
80%
100%
100%
75%
93%
Potentially
Small
#
0
0
0
0
2
0
0
1
3
%
0%
0%
0%
0%
20%
0%
0%
25%
7%
Number of Projected New
In-Scope Facilities
Total
1
1
1
1
3
3
3
1
14
Large
1
1
1
1
2
3
3
1
13
Small
0
0
0
0
1
0
0
0
1
Source: U.S. EPA analysis, 2001.
5 This assumption is consistent with the model facility approach explained in Chapter 5: Baseline Projection of New Facilities and
used in the costing and economic impact analyses. The model facility approach assumes that the characteristics of the projected new
facilities are the same as those of the "actual" facilities analyzed in support of this regulation.
6 This estimate is consistent with the percentage of existing in-scope coal facilities owned by a small entity (three out of 41, or 7.3
percent).
8-8
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Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
8.1.3 Manufacturing Facilities
The small entity determination for new in-scope manufacturing facilities was conducted using the same two steps as the
analyses for combined-cycle and coal facilities:
>• Determine the small entity status of the existing in-scope manufacturing facilities identified in the section 316(b)
Industry Survey.
>• Extrapolate small entity information from the existing in-scope facilities to the 38 projected new in-scope facilities.
a. Small entity status of the existing in-scope manufacturing facilities
EPA used data from the section 316(b) Industry Survey and from the D&B database to determine the size of the entities
owning the existing in-scope manufacturing facilities. Since the survey data are confidential, this chapter only presents a
summary of the entity size determination conducted for this analysis.
Table 8-9 shows each of the 4-digit SIC codes in which EPA projected a new in-scope manufacturing facility, the SIC
description, and the SBA standard for each SIC code. The SB A standards for manufacturers are based on firm employment.
To determine if a facility is owned by a small entity, EPA compared each facility's parent firm employment to its
corresponding SBA threshold presented in table 8-9.
Table $
SIC Code
2621
2812
2819
2821
2834
2869
2873
2911
3312
3316
3317
3353
J-9: SBA Thresholds for Manufacturing SIC Codes
SIC Code Description
Paper Mills
Alkalies and Chlorine
Industrial Inorganic Chemicals, N.E.C.
Plastics Materials, Synthetic Resins, and Nonvulcanizable
Elastomers
Pharmaceutical Preparations
Industrial Organic Chemicals, N.E.C.
Nitrogenous Fertilizers
Petroleum Refining
Steel Works, Blast Furnaces (Including Coke Ovens), and
Rolling Mills
Cold-Rolled Steel Sheet, Strip, and Bars
Steel Pipe and Tubes
Aluminum Sheet, Plate, and Foil
with New Facilities
SBA Small Entity Size
Standard (Employees)
750
1,000
1,000
750
750
1,000
1,000
1,500
1,000
1,000
1,000
750
Source: U.S. SBA, 2000.
b. Extrapolation to the 38 projected new facilities
EPA's new facility forecast projected that 38 new in-scope manufacturing facilities will begin operation between 2001 and
2020. Chapter 5: Baseline Projection of New Facilities presented the 21 model facility types that represent these 38 facilities
forthe costing and economic impact analyses. Table 8-10 below shows these 21 model facility types, the number of existing
in-scope facilities upon which the model facilities are based (by firm size), and the total projected number of new in-scope
manufacturing facilities (by firm size).
8-9
-------
Section 316(b) EA Chapter 8 for New Facilities Regulatory Flexibility Analysis
EPA estimated the firm size of the new in-scope manufacturing facilities based on the assumption that the share of all new
facilities owned by a small firm is the same as the share of the existing facilities owned by a small firm.7 This analysis was
conducted at the model facility level. For example, of the 34 once-through/freshwater facilities in SIC 2869, 30 are owned by
a large firm (88 percent) and four are owned by a small firm (12 percent). Applying these percentages to the seven projected
new facilities of that model type results in six facilities owned by a large firm and one facility owned by a small firm. The
same methodology was used for the other model facility types.
EPA projects that three of the 38 projected new in-scope manufacturing facilities (or 7.9 percent) will be owned by a small
entity.8 The three facilities owned by a small entity are expected to operate in the following industries: Industrial Organic
Chemicals, N.E.C. (SIC code 2869); Steel Works, Blast Furnaces (Including Coke Ovens), and Rolling Mills (SIC code
3312); and Cold-Rolled Steel Sheet, Strip, and Bars (SIC code 3316).
7 This assumption is consistent with the model facility approach explained in Chapter 5: Baseline Projection of New Facilities and
used in the costing and economic impact analyses. The model facility approach assumes that the characteristics of the projected new
facilities are the same as those of the "actual" facilities analyzed in support of this regulation.
8 This estimate is consistent with the percentage of existing in-scope manufacturing facilities owned by a small entity (19 out of 230,
or 8.3 percent).
-------
Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
Table 8-10: Manufacturing Model Facilities by Parent Firm Size
Model Facility
Type
MANOT/F-2621
MANOT/M-2812
MAN OT/F-2812
MANOT/M-2819
MANOT/F-2819
MANOT/F-2821
MAN OT/F-2834
MAN OT/F-2869
MAN RE/F-2869
MAN OT/F-2873
MAN RE/F-2873
MANOT/F-2911
MANRE/F-2911
MANOT/F-3312
MANRE/F-3312
MANOT/F-3316
MANRE/F-3316
MANOT/F-3317
MANRE/F-3317
MAN OT/F-3353
MAN RE/F-3353
SIC
Code
2621
2812
2812
2819
2819
2821
2834
2869
2869
2873
2873
2911
2911
3312
3312
3316
3316
3317
3317
3353
3353
Cooling System Type /
Source Water Body
Once-Through / Freshwater
Once-Through / Marine
Once-Through / Freshwater
Once-Through / Marine
Once-Through / Freshwater
Once-Through / Freshwater
Once-Through / Freshwater
Once-Through / Freshwater
Recirculating / Freshwater
Once-Through / Freshwater
Recirculating / Freshwater
Once-Through / Freshwater
Recirculating / Freshwater
Once-Through / Freshwater
Recirculating / Freshwater
Once-Through / Freshwater
Recirculating / Freshwater
Once-Through / Freshwater
Recirculating / Freshwater
Once-Through / Freshwater
Recirculating / Freshwater
Total Manufacturers
Number of Actual In-Scope Facilities
Large
#
44
5
5
13
16
10
4
30
4
4
4
7
15
25
3
6
0
3
3
3
3
211
%
94%
100%
100%
100%
100%
100%
100%
88%
100%
100%
100%
76%
100%
80%
100%
100%
0%
100%
100%
100%
100%
92%
Potentially Small
#
3
0
0
0
0
0
0
4
0
0
0
2
0
6
0
0
3
0
0
0
0
19
%
6%
0%
0%
0%
0%
0%
0%
12%
0%
0%
0%
24%
0%
20%
0%
0%
100%
0%
0%
0%
0%
8%
Number of Projected
New Facilities
Total
2
1
1
2
2
4
2
7
1
1
1
1
1
5
1
1
1
1
1
1
1
38
Large
2
1
1
2
2
4
2
6
1
1
1
1
1
4
1
1
0
1
1
1
1
35
Small
0
0
0
0
0
0
0
1
0
0
0
0
0
1
0
0
1
0
0
0
0
_J
Source: U.S. EPA, 2000; U.S. EPA analysis, 2001.
8.2 SALES TEST FOR FACILITIES OWNED BY SMALL ENTITIES
Each of the eleven projected new in-scope facilities owned by a small parent entity was further analyzed to evaluate the
economic impact of this regulation. The analysis is based on the ratio of estimated annualized compliance costs to estimated
annual revenues. Sales revenues required for the sales test were not available for all parent entities, so EPA could not
evaluate the economic impact of the rule directly on the parent small entities. Instead, EPA assessed economic impact at the
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Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
facility level.9 EPA concluded that, in all cases, facility revenues are equal to or smaller than the parent entity revenues.
Therefore, this approach will overstate the economic impact of this rule on the parent small entity.10
Table 8-11 lists each model facility type with at least one projected new facility owned by a small entity, the number of
projected new facilities, estimated annual revenues, estimated annual compliance costs, and the ratio of estimated annual
compliance costs to estimated annual revenues. The table shows that there are seven model types with projected facilities
owned by a small entity. These seven model types represent 11 new facilities.
Table 8-11: Economic Impact Condition of Projected New Small Facilities
Model Facility
CC R/FW-1
CC R/FW-2
CC R/FW-3
Coal R/FW-1
MAN OT/F-2869
MANOT/F-3312
MANRE/F-3316
Total
Number of
Actual In-
Scope Facilities
4
1
1
2
4
6
3
21
Number of
Projected New
Facilities Owned
by Small Entities
5
1
1
1
1
1
1
11
Facility Information
Estimated Annual
Revenues
( $2000; mill.)
$65
$104
$158
$38
1,045
$1,076
$362
Estimated Annual
Compliance Cost
($2000; mill.)
$0.17
$0.17
$0.18
$0.17
$0.46
$0.82
$0.19
Ann. Compl.
Cost/ Ann.
Revenues
0.26%
0.17%
0.11%
0.44%
0.04%
0.08%
0.05%
Source: U.S. EPA analysis, 2001.
Table 8-11 shows that the ratio of estimated annual compliance costs to estimated annual revenues for the 11 in-scope
facilities owned by a small entity ranges from 0.04 percent to 0.44 percent. None of these facilities is expected to incur
compliance costs in excess of one percent of revenues. Based on this analysis EPA determined that the parent small entities
in the analyzed industries will not experience significant impacts as a result of complying with this rule.
In developing model facilities, EPA estimated compliance costs and revenues based on an average facility size. These
averages may not reflect the true effects of the final rule on facilities owned by small entities. To test the sensitivity of the
model facility approach used in this analysis, EPA also analyzed data for the actual facilities owned by small entities
(NEWGen facilities or existing survey facilities). EPA compared the revenues and annualized compliance costs specific to
each facility. This analysis was conducted for all 21 facilities owned by a small entity in each of the seven model facility
types listed in Table 8-11.
The results of this analysis showed that impacts for the actual facilities were almost identical to impacts under the model
facility approach. For combined-cycle facilities, impacts of the actual facilities ranged between 0.10 and 0.24 percent
compared to between 0.11 and 0.25 for the model facilities. For coal facilities, impacts of the actual facilities ranged between
0.32 and 0.54 percent compared to 0.44 for the one model coal facility. Only for manufacturing facilities did the sensitivity
analysis show slightly higher impacts: three of the actual facilities owned by a small entity had an impact of over one percent.
9 Facility-level revenues for electric generators were estimated using expected annual electricity generation and expected future
prices of electricity. Compliance costs include the annualized equivalent of all costs incurred during the first 30 years of each facility's
life. Chapter 7: Economic Impact Analysis provides details on the estimation of expected annual compliance costs and expected annual
revenues for this analysis.
10 In addition, the number of facilities owned by small entities may be overstated because it is based on the entity's current
employment. Once the employment of the new facility is added to the entity's employment, the entity may no longer be considered small.
3-12
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Section 316(b) EA Chapter 8 for New Facilities
Regulatory Flexibility Analysis
The other ten facilities had impact ratios of between 0.05 and 0.48 percent. EPA therefore concludes that the model facility
approach provides a reasonable approximation of potential small entity impacts.
Table 8-12 presents the results of this sensitivity analysis.
Table 8-12: Impacts on Small Entities Using Actual Facility Data
Facility Type
Combined-Cycle
Coal
Manufacturers
Number of Actual Facilities Owned by
Small Entities
6
2
13
Annualized Compliance Costs / Annual
Revenues
0.10% to 0.24%
0.32% to 0.54%
0.05% to 1.62%
Source: U.S. EPA analysis, 2001.
8.3 SUMMARY OF RESULTS
The RFA analysis for this final regulation shows that only 11 projected new facilities owned by small entities would be
affected by the final section 316(b) New Facility Rule. Because none of these facilities will experience significant economic
impact as a result of this regulation, EPA concluded that the small entity parents of these facilities will similarly not
experience significant economic impact. Therefore, EPA certifies that the final section 316(b) New Facility Rule will not
have a significant economic impact on a substantial number of small entities.
Table 8-13 summarizes the results of the RFA analysis.
Table 8-13: Projected Number of New Facilities Owned by a Small Entity
SIC Code
n/a
26 - Pulp & Paper
28 - Chemicals
29 - Petroleum
33 -Metals
Total Manufacturing
Total
Facilities Owned by
Small Entities
8
I
0
1
0
2
3
11
Compliance Cost as a
Percent of Revenue
Electric Generators
0.11% to 0.44%
Manufacturing Facilities
n/a
0.04%
n/a
0.05% to 0.08%
0.04% to 0.08%
0.04% to 0.44%
Number of Facilities Owned by a Small
Entity with Significant Impact
0
0
0
0
0
0
0
Source: U.S. EPA analysis, 2001.
-------
Section 316(b) EA Chapter 8 for New Facilities Regulatory Flexibility Analysis
REFERENCES
Dun and Bradstreet (D&B) Database. 2001. Data as of August 2001.
Regulatory Flexibility Act. Pub. L. 96-354, Sept. 19, 1980, 94 Stat. 1164 (Title 5, Sec. 601 et seq.).
Resource Data International (RDI). 2001. NEWGen Database. February 2001.
U.S. Census Bureau. 2001. Place and County Sub division Estimates. Data as of April 2001.
U.S. Department of Energy (U.S. DOE). 1999. FormEIA-861. Annual Electric Utility Report for the Reporting Period
1999.
U.S. Environmental Protection Agency (U.S. EPA). 1999. Revised Interim Guidance for EPA Rulewriters: Regulatory
Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act. March 29, 1999.
U.S. Environmental Protection Agency (U.S. EPA). 2000. Section 316(b) Industry Survey. Detailed Industry
Questionnaire: Phase II Cooling Water Intake Structures and Industry Short Technical Questionnaire: Phase II Cooling
Water Intake Structures, January, 2000 (OMB Control Number 2040-0213). Industry Screener Questionnaire: Phase I
Cooling Water Intake Structures, January, 1999 (OMB Control Number 2040-0203).
U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR §121.201.
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
Chapter 9: Other economic
Analy
ses
INTRODUCTION
This chapter presents several other economic analyses in
support of the final section 316(b) New Facility Rule. These
analyses address the analytic requirements of the following
Acts and Executive Orders:
*• Unfunded Mandates Reform Act (UMRA)
> E.G. 13132 - "Federalism"
*• E.O. 13211- "Actions Concerning Regulations
that Significantly Affect Energy Supply,
Distribution, or Use"
*• Paperwork Reduction Act (PRA)
In addition, this chapter presents the total social costs of the
final rule.
CHAPTER CONTENTS
9.1 The Unfunded Mandates Reform Act
of 1995 9-1
9.1.1 Compliance Costs for Governments . 9-2
9.1.2 Compliance Costs for the Private
Sector 9-10
9.1.3 Summary of the UMRA Analysis . . 9-10
9.2 Executive Order 13132 9-10
9.3 Executive Order 13211 9-11
9.4 The Paperwork Reduction Act of 1995 9-13
9.5 Social Costs of the Final Rule 9-14
References
9-16
9.1 THE UNFUNDED MANDATES REFORM ACT (UMRA) OF 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that Federal agencies assess the effects of their
regulatory actions on state, local, and tribal governments and the private sector. Agencies must prepare a written statement,
including a cost-benefit 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 one year
(Section 202 of UMRA).1
Before promulgating a rule for which a written statement is needed, agencies must identify and consider a reasonable number
of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the
objectives of the rule (Section 205). The provisions of Section 205 do not apply when they are inconsistent with applicable
law. Agencies may adopt an alternative other than the least costly, most cost-effective, or least burdensome alternative if they
publish with the final rule an explanation of why that alternative was not adopted (Section 205). Before establishing any
regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, agencies
must develop a small government agency plan (Section 203). The plan must provide for notifying potentially affected small
governments, enabling 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.
UMRA specifies that a written statement is needed if either (1) the cost of a regulation to state, local, and tribal governments
exceeds $100 million in any one year, or (2) the cost of a regulation to the private sector exceeds $100 million in any one
1 Federal mandates include Federal regulations that impose enforceable duties on state, local, and tribal governments, or on the
private sector, excluding those related to conditions of Federal assistance and participation in voluntary Federal programs.
9-1
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Section 316(b) EA Chapter 9 for New Facilities Other Economic Analyses
year.2 The following two subsections, 9.1.1 and 9.1.2, present the costs of the final section 316(b) New Facility Rule to the
government and the private sector, respectively. Subsection 9.1.3 presents a summary of the results of the UMRA analysis.
9.1.1 Compliance Costs for Governments
Governments may incur two types of costs as a result of the final rule: (1) costs to comply with the rule for in-scope facilities
owned by government entities; and (2) costs to implement the rule, borne by the responsible regulatory authorities. Both
types of costs are discussed below.
a. Compliance costs for government-owned entities
Of the 121 new in-scope facilities subject to the final rule, only four are expected to be owned by a government entity. Two
of these are expected to be state owned, one is projected to be owned by a municipality, and one by a municipal marketing
authority.
EPA determined the number of projected new in-scope facilities owned by a government entity using ownership information
presented in Chapter 8: Regulatory Flexibility Analysis and applying the same model facility approach used to determine the
number of facilities owned by small entities. Using information from Tables 8-1 and 8-4, EPA first determined which of the
existing in-scope facilities, upon which EPA's model facilities are based, are owned by a government entity.3
Table 9-1 below presents the government entities that own one or more of the existing facilities analyzed in support of the
final rule. Table 9-1 also shows the facilities each government entity owns and the model facility type assigned to each
facility. None of the existing in-scope nonutility or manufacturing facilities is owned by a government entity.
2 The $100 million test is applied separately to governments and the private sector. The term "in any one year" refers to the
maximum cost in a single year, not the annualized cost over the analysis period.
3 EPA based the model facilities on facilities identified from the section 316(b) Industry Survey (for coal and manufacturing model
facilities) and on facilities identified in the NEWGen database (for combined-cycle model facilities). While most of the NEWGen
facilities are future planned facilities, this section will refer to in-scope survey facilities and in-scope NEWGen facilities as "existing in-
scope facilities."
9-2
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
Table 9-1: Government Entities Owning at Least One Existing In-Scope Facility
Name of Entity
Municipal Electric Authority of Georgia
South Carolina Public Service Authority
American Mun. Power-Ohio, Inc.
Grand River Dam Authority
Jacksonville Electric Authority
City of Kansas City
San Antonio Public Service Bd.
South Carolina Public Service Authority
Texas Municipal Power Agency
Type
Combined-Cycle Facilities
Municipal Marketing Authority
State Government
Coal Facilities
Municipal Marketing Authority
State Government
Municipality
Municipality
Municipality
State Government
Municipal Marketing Authority
Name of Facility
Wansley (Meag)
John S. Rainey
Generating Station
Richard Gorsuch
GRDA
St. Johns River Power
Nearman Creek
J.K. Spruce
Cross
Gibbons Creek
Model Facility
Type
CC R/FW-1
CC R/FW-1
Coal OT/FW-2
Coal R/FW-3
CoalR/M-1
Coal OT/FW-2
Coal RL/FW-1
Coal R/FW-3
Coal RL/FW-1
Source: U.S. DOE, 1999; U.S. EPA analysis, 2001.
EPA estimated the number of projected new in-scope facilities owned by a government entity based on the assumption that
the share of new in-scope facilities owned by a government entity is the same as the share of the existing in-scope facilities
owned by a government entity.4 This analysis was conducted at the model facility level. For example, of the 15 NEWGen
recirculating/freshwater facilities with relatively small capacities (model facility type CC R/FW-1), 13 are owned by a private
entity (87 percent) and two are owned by a government entity (13 percent). Applying these percentages to the 18 projected
new facilities of that model type results in 16 privately-owned facilities and two government-owned facilities. The same
methodology was used for the other model facility types.
Table 9-2 below shows the 14 electric generator model facility types, the number of existing in-scope facilities upon which
the model facilities are based (by entity type), and the total projected number of new in-scope electric generators (by entity
type). The table shows that two of the 69 projected new in-scope combined-cycle facilities (or 2.9 percent) and two of the 14
projected new in-scope coal facilities (or 14.3 percent) will be owned by a government entity.5
4 This assumption is consistent with the model facility approach explained in Chapter 5: Baseline Projection of New Facilities and
used in the costing and economic impact analyses. The model facility approach assumes that the characteristics of the projected new
facilities are the same as those of the existing facilities analyzed in support of this regulation.
5 This estimate is consistent with the percentage of existing electric generators owned by a government entity (two out of 57
NEWGen combined-cycle facilities, or 3.5 percent, and seven out of 41 survey coal facilities, or 17.1 percent).
9-3
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
Table 9-2: Electric Generators Model New Facilities by Parent Firm Type
Model Facility
Type
CC OT/M-1
CCR/M-1
CCR/M-2
CC R/FW-1
CC R/FW-2
CC R/FW-3
Cooling
System Type
Once- Through
Recirculating
Recirculating
Recirculating
Recirculating
Recirculating
Source
Water
Body
Marine
Marine
Marine
Freshwater
Freshwater
Freshwater
Steam
Electric
Capacity
(MW)
Number of Existing In-Scope Facilities
Privately Owned
#
Combined-Cycle Facil
1,031
489
1,030
439
699
1,061
Total Combined-Cycle Facilities
4
4
1
13
17
16
55
Coal Facilities
CoalR/M-1
CoalOT/FW-1
Coal OT/FW-2
Coal OT/FW-3
Coal R/FW-1
Coal R/FW-2
Coal R/FW-3
CoalRL/FW-1
Recirculating
Once- Through
Once- Through
Once- Through
Recirculating
Recirculating
Recirculating
Recirculating
with Lake
Marine
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
Freshwater
812
63
515
3,564
173
625
1,564
660
Total Coal Facilities
2
3
3
1
10
7
6
2
34
%
ities
100%
100%
100%
87%
100%
100%
96%
67%
100%
60%
100%
100%
100%
75%
50%
83%
Government
Owned
#
0
0
0
2
0
0
2
1
0
2
0
0
0
2
2
7
o/
/o
Number of Projected
New Facilities
Privately
Owned
0%
0%
0%
13%
0%
0%
4%
5
5
1
16
21
19
67
33%
0%
40%
0%
0%
0%
25%
50%
17%
1
1
1
1
3
3
2
0
12
Govern-
ment
Owned
0
0
0
2
0
0
2
0
0
0
0
0
0
1
1
2
Source: U.S. EPA analysis, 2001.
Compliance costs for individual facilities were presented in Chapter 6: Facility Compliance Costs. The two new combined-
cycle facilities are projected to begin operation in 2007 and 2016, respectively; the two new coal facilities are projected to
begin operation in 2005 and 2006, respectively. The maximum aggregate costs for the four government-owned facilities in
any one year is estimated to be $19.1 million in 2005.
b. Implementation costs for regulatory authorities
The requirements of section 316(b) are implemented through the National Pollutant Discharge Elimination System (NPDES)
permit program. Forty-four states and one territory currently have NPDES permitting authority under section 402(b) of the
Clean Water Act (CWA). EPA estimates that states and the one territory will incur four types of costs associated with
implementing the requirements of the final section 316(b) New Facility Rule: (1) start-up activities; (2) issuing an initial
NPDES permit for each new facility; (3) reviewing and reissuing a permit for each new facility every five years; and (4)
9-4
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Section 316(b) EA Chapter 9 for New Facilities Other Economic Analyses
annual activities.6
The start-up costs are incurred only once by each of the 45 regulatory authorities. The initial permitting costs, repermitting
costs, and annual activities are incurred on a per-permit basis. The per-permit costs to the regulatory authorities depend on
the compliance requirements of each facility: permits for facilities that already have a recirculating system in the baseline
("Track I" facilities) will cost less than permits for facilities that are proposed with a once-through system in the baseline
("Track II" facilities). Each state's actual burden associated with the administrative functions required by the final section
316(b) New Facility Rule will depend on the number of new in-scope facilities that will be built in the state during the 20-
year analysis period.
The incremental burden will also depend on the extent of each state's current practices for regulating CWIS. (EPA
recognizes that these States and this territory would be required to implement section 316(b) on a case-by-case basis in the
absence of this rule.) States that currently require relatively modest analysis, monitoring, and reporting of impacts from
CWIS in NPDES permits may require more permitting resources to implement the final rule than are required under their
current programs. For states that are actively implementing section 316(b) requirements now, the final rule may actually
reduce the burden on permit writers, by clarifying key concepts in the rule and by providing easily-applied criteria for some
regulatory determinations.7
»** Start-up activities
All 44 states and the one territory with NPDES permitting authority are expected to undertake start-up activities to prepare for
administering the provisions of the final section 316(b) New Facility Rule. Start-up activities include reading and
understanding the rule, mobilization and planning of the resources required to address the rule's requirements, and training
technical staff on how to review materials submitted by facilities and make determinations on the section 316(b) requirements
for each facility's NPDES permit. In addition, permitting authorities are expected to incur other direct costs, e.g., for copying
and the purchase of supplies. Table 9-3 shows that total start-up costs of $3,564 are expected to be incurred by each of the 44
states and one territory with NPDES permitting authority.
Table 9-3:
Activity
Read and Understand Rule
Mobilization/Planning
Training
Other Direct Costs
Total3
Government Costs of Start-Up Activities (per Regulatory Authority)
Costs
$882
$1,534
$1,098
$50
$3,564
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2001.
6 The unit costs associated with implementing the requirements of the final section 316(b) New Facility Rule are documented in
EPA's Information Collection Request (U.S. EPA, 2001).
7 The available information on current implementation of the section 316(b) requirements by different regulatory authorities is
insufficient to allow EPA to estimate the incremental costs of the final rule to the regulatory authorities with precision. EPA therefore
made the conservative assumption that permitting authorities currently do not incur administrative costs of implementing section 316(b)
requirements and that all costs for new facilities under the final section 316(b) New Facility Rule are incremental costs.
9-5
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
<* Issue initial NPDESpermit
The permitting authorities will have to include the requirements of the final section 316(b) New Facility Rule in the initial
NPDES permit issued to each new in-scope facility. The activities involved in determining section 316(b) requirements
include reviewing submitted documents and supporting materials, verifying data sources, consulting with facilities and the
interested public, determining specific permit requirements, and writing the actual permit.
Table 9-4 below shows the activities that EPA anticipates will be necessary to issue initial permits and the estimated cost of
each activity. Permits that require all of the components listed in Table 9-4 are expected to impose a cost per permit of
$7,028 for Track I facilities and $27,323 for Track II facilities.
Table 9-4: Government Costs of Initial NPDES Permit Issuance (per Permit)0
Activity
Review CWIS Location and Design Data
Determine Compliance with Source Water Body Flow Information
Review Source Water Baseline Biological Characterization Data
Review Design and Construction Technology Plan
Determine Compliance with CWIS Velocity Requirements
Determine Compliance with CWIS Flow Reduction Requirements
Review Comprehensive Demonstration Study Plan
Review Source Water Baseline Biological Characterization Study
Review Evaluation of Potential CWIS Effects
Review Verification Study
Determine Monitoring Frequency
Determine Record Keeping and Reporting Frequency
Considering Public Comments
Issuing Permit
Permit Record Keeping
Other Direct Costs
Total"
Track I
(Recirculating)
$785
$262
$1,470
$1,305
$262
$588
$262
$262
$1,176
$239
$118
$300
$7,028
Track II
(Once-Through)
$785
$262
$1,470
$1,176
$19,355
$1,176
$743
$262
$262
$1,176
$239
$118
$300
$27,323
a Actual per permit costs may be lower than the total cost because some facilities will not have to submit information on all
compliance requirements.
b Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2001.
9-6
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
»** Review and reissue permit every five years
NPDES permits are issued for five years. The permitting authority therefore has to reissue the permits for the new in-scope
facilities every five years following initial permitting. Before reissuing a facility's permit, the regulatory authority must
determine if there have been any change sin the facility's operations or in the physical or biological attributes of the source
water body. Any changes should be evaluated to determine the need for additional, or more stringent, conditions in the
permit.
The final section 316(b) New Facility Rule requires facilities to submit the same type of information for their permit renewal
application as was required for the initial permit. The permitting authorities will therefore have to carry out the same type of
administrative activities as during the initial permitting process. The burden of these activities is expected to be smaller for
permit reissuance, however, because the permitting authority is already familiar with the facility's case and the type of
information the facility will provide. The reduction in costs is expected to vary by the specific repermitting activities.
Table 9-5 shows the activities that EPA anticipates will be necessary to reissue permits and the estimated cost of each
activity. Permits that require all of the components listed in Table 9-5 are expected to impose a cost per permit of $2,318 for
Track I facilities and $6,392 for Track II facilities.
Table 9-5: Government Costs of Repermitting (per Permit)0
Activity
Review CWIS Location and Design Data
Determine Compliance with Source Water Body Flow Information
Review Source Water Baseline Biological Characterization Data
Review Design and Construction Technology Plan
Determine Compliance with CWIS Velocity Requirements
Determine Compliance with CWIS Flow Reduction Requirements
Review Comprehensive Demonstration Study Plan
Review Source Water Baseline Biological Characterization Study
Review Evaluation of Potential CWIS Effects
Determine Monitoring Frequency
Determine Record Keeping and Reporting Frequency
Considering Public Comments
Issuing Permit
Permit Record Keeping
Other Direct Costs
Total"
Track I
(Recirculating)
$236
$79
$441
$391
$79
$176
$79
$79
$353
$72
$35
$300
$2,318
Track II
(Once-Through)
$236
$79
$441
$353
$4,015
$353
$79
$79
$353
$72
$35
$300
$6,392
a Actual per permit costs may be lower than the total cost because some facilities will not have to submit information on all compliance
requirements.
b Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2001.
9-7
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
»** Annual activities
In addition to the start-up and permitting activities discussed above, permitting authorities will have to carry out certain
annual activities to ensure the continued implementation of the requirements of the final section 316(b) New Facility Rule.
These annual activities include reviewing yearly status reports, tracking compliance, determining monitoring scope reduction,
and record keeping.8
Table 9-6 below shows the annual activities that will be necessary for each permit following the year of initial permitting and
the estimated cost of each activity. A total cost of $ 1,720 is estimated for each permit per year.
Table 9-6: Government Costs for Annual Activities (per Permit)
Activity
Review of Yearly Report
Track Compliance
Determine Monitoring Scope Reduction
Keep Records
Other Direct Costs
Total3
Track I (Recirculating)
$613
$524
$409
$124
$50
$1,720
Track n (Once-Through)
$613
$524
$409
$124
$50
$1,720
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2001.
EPA calculated total government costs of implementing the final section 316(b) New Facility Rule by aggregating the unit
costs presented in Tables 9-3 to 9-6 based on the specific permitting requirements for each of the 121 new in-scope facilities.
Table 9-7 presents the rule's estimated government implementation costs for 2001 to 2030. The table shows that the highest
one-year implementation costs, $356,675, will be incurred in 2001, the first year of the final section 316(b) New Facility
Rule. This cost is mainly the result of start-up activities for the 44 states and one territory with NPDES permitting authority,
and initial permitting for seven facilities. The total present value of government implementation costs is estimated to be $2.9
million, or $234,370 per year when annualized over 30 years at a seven percent rate.9
8 Even though EPA assessed a cost to the regulatory authority of determining monitoring scope reduction, to be conservative, EPA
assumed no reduction in monitoring scope when estimating facility compliance costs.
9 Calculation of the present value assumes that costs are incurred at the end of the year.
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Section 316(b) EA Chapter 9 for New Facilities
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Table 9-7: Total Government Implementation Costs by Year and Activity
Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Present Value
@7%
Annualized @7%
Start-Up Activities
$156,816
$146,557
$11,810
Initial Permitting
$191,260
$54,646
$61,674
$144,431
$117,897
$138,192
$96,813
$69,490
$82,757
$144,431
$62,462
$103,052
$62,462
$55,435
$62,462
$68,702
$55,435
$55,435
$35,140
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$994,747
$80,160
Repermitting
$0
$0
$0
$0
$31,960
$12,784
$12,784
$15,103
$37,160
$65,610
$50,507
$39,479
$35,405
$59,218
$102,770
$68,491
$65,610
$53,389
$74,883
$120,754
$85,912
$81,276
$69,054
$86,475
$120,754
$85,912
$81,276
$69,054
$86,475
$120,754
$488,967
$39,400
Annual
Activities
$8,599
$12,039
$15,478
$20,638
$36,116
$55,034
$73,951
$87,710
$99,748
$110,067
$125,545
$135,864
$146,183
$156,502
$165,101
$175,420
$182,299
$190,898
$199,497
$208,096
$208,096
$208,096
$208,096
$208,096
$208,096
$208,096
$208,096
$208,096
$208,096
$208,096
$1,278,078
$103,000
Total Costs
$356,675
$66,685
$77,152
$165,069
$185,973
$206,010
$183,548
$172,303
$219,665
$320,108
$238,514
$278,395
$244,050
$271,155
$330,333
$312,613
$303,344
$299,722
$309,520
$328,850
$294,008
$289,372
$277,150
$294,571
$328,850
$294,008
$289,372
$277,150
$294,571
$328,850
$2,908,349
$234,370
Source: U.S. EPA analysis, 2001.
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Other Economic Analyses
9.1.2 Compliance Costs for the Private Sector
The private sector incurs costs under the final section 316(b) New Facility Rule to comply with the requirements for in-scope
facilities. Of the 121 new in-scope facilities subject to the final rule, 117 are estimated to be owned by a private entity. The
privately-owned facilities include all 38 manufacturing facilities and 79 of the 83 electric generators.
Compliance costs for individual facilities were presented in Chapter 6: Facility Compliance Costs. Total annualized
compliance costs for the 117 privately-owned facilities are estimated to be $43.8 million, discounted at seven percent. The
maximum aggregate costs for all 117 facilities in any one year is estimated to be $71.2 million, incurred in 2005.
9.1.3 Summary of the UMRA Analysis
EPA has determined that the final rule will not contain a Federal mandate that will result in expenditures of $100 million or
more for state, local, and tribal governments, in the aggregate, or for the private sector in any one year.
Table 9-8 summarizes the costs to comply with the rule for the 121 in-scope facilities and the costs to implement the rule,
borne by the responsible regulatory authorities.
Table 9-8: Summary of Total Costs (in mill.)
Sector
Government
Sector
Private Sector
Total Annualized Cost
Facility
Compliance
Costs
$3.8
$43.8
Government
Implementation
Costs
$0.2
n/a
Total3
$4.1
$43.8
Maximum One- Year Cost
Facility
Compliance
Costs
$19.0
$71.2
Government
Implementation
Costs
$0.2
n/a
Total3
$19.2
$71.2
a Individual numbers may not add up to totals due to independent rounding.
Source: U.S. EPA analysis, 2001.
Table 9-8 shows that total annualized costs of the section 316(b) New Facility Rule borne by governments is $4.1 million per
year. The maximum one-year costs that will be incurred by government entities is expected to be $19.2 million ($19.0
million in facility compliance costs and $0.2 million in implementation costs), incurred in 2005. Total annualized costs borne
by the private sector is estimated to be $43.8 million. The maximum one-year cost to the private sector is $71.2 million,
incurred in 2005. Each of the maximum costs are below the $100 million UMRA threshold. EPA therefore concludes that
the final section 316(b) New Facility Rule is not subject to the requirements of Sections 202 and 205 of UMRA.
9.2 EXECUTIVE ORDER 13132
Executive Order 13132 on "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" is 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 of Executive Order 13132, EPA may not issue a regulation that has federalism 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 state and local governments, or EPA consults with state and local
officials early in the process of developing the final regulation. EPA also may not issue a regulation that has federalism
9-10
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Section 316(b) EA Chapter 9 for New Facilities Other Economic Analyses
implications and that preempts state law, unless the Agency consults with state and local officials early in the process of
developing the final regulation.
EPA determined that the final section 316(b) New Facility Rule does not have federalism implications. It will not 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, as specified in Executive Order 13132.
The rule will not impose substantial costs on states and localities. In addition, the rule is authorized by section 316(b) of the
Clean Water Act. For these reasons, the requirements of Section 6 of the Executive Order do not apply to this rule.
9.3 EXECUTIVE ORDER 13211
Executive Order 13132 on "Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use"
requires EPA to prepare a Statement of Energy Effects when undertaking regulatory actions identified as "significant energy
actions." For the purposes of Executive Order 13211, "significant energy action" means (66 FR 28355; May 22, 2001):
"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."
For those regulatory actions identified as "significant energy actions," a Statement of Energy must include a detailed
statement relating to (1) any adverse effects on energy supply, distribution, or use (including a shortfall in supply, price
increases, and increased use of foreign supplies), and (2) reasonable alternatives to the action with adverse energy effects and
the expected effects of such alternatives on energy supply, distribution, and use.
This rule is not a "significant energy action" as defined in Executive Order 13211 because it is not likely to have a significant
adverse effect on the supply, distribution, or use of energy. The final section 316(b) rule could have a significant energy
impact if it discouraged the construction of new electric generating capacity or if it significantly reduced the energy output
from new facilities. EPA's analysis, presented in Chapter 7: Economic Impact Analysis, showed that the final rule is unlikely
to discourage new entry, because compliance costs and economic impacts are expected to be very low. EPA therefore does
not expect this rule to have adverse energy effects.
Track I of the final section 316(b) new facility rule requires facilities to install a recirculating system or other technologies
that would reduce the design intake flow to a level commensurate with that of a recirculating system. For the purposes of this
analysis, EPA assumed that facilities that do not already plan to install a recirculating system in the baseline will install a
recirculating wet cooling tower to achieve compliance with the rule. EPA's analysis showed that five new combined-cycle
facilities and four new coal facilities would be required to install a recirculating system as a result of the final rule (see
analysis in Chapter 5: Baseline Projections of New Facilities).
Installation of a cooling tower imposes an "energy penalty," consisting of two components: (1) a reduction in unit efficiency
due to increased turbine back-pressure, and (2) an increase in auxiliary power requirements to operate the recirculating wet
cooling tower.10 EPA estimates that the mean annual energy penalty for a new combined-cycle facility is 0.40 percent of
generating capacity. For new coal facilities, the mean annual energy penalty is estimated to be 1.65 percent of generating
10 EPA also considered the energy requirements of other compliance technologies, such as rotating screens, but found them
insignificant and thus excluded them from this analysis.
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
capacity (see Technical Development Document for more information on EPA's determination of the energy penalty).11
EPA estimates that the installation of nine recirculating wet cooling towers would reduce available generating capacity by a
maximum of 100 megawatts (MW) nationally. Table 9-9 below presents the model facilities which are assumed to install a
cooling tower to comply with the final rule. The table also presents for each model facility type: the baseline generating
capacity, the energy penalty, the estimated per facility reduction in available capacity as a result of the energy penalty, the
estimated total number of new in-scope facilities; and the estimated national reduction in energy supply.
Table 9-9: New Electric Generator Model Facilities with Cooling Tower Requirements
Model Facility
Type
CC OT/M-1
CoalOT/FW-1
Coal OT/FW-2
Coal OT/FW-3
CoalRL/FW-la
Total
Generating
Capacity (MW)
1,031
63
515
3,564
660
Energy
Penalty
0.40%
1.65%
1.65%
1.65%
1.65%
Estimated Capacity
Reduction (per
Facility, in MW)
4.1
1.0
8.5
58.8
11
Total Number of
Projected New
Facilities
5
1
1
1
1
9
National Capacity
Reduction (in MW)
21
1
8
59
11
100
a For this analysis, recirculating facilities with cooling lakes are assumed to exhibit characteristics like a once-through facility.
Source: U.S. EPA analysis, 2001.
The national capacity reduction of 100 MW presented in Table 9-9 is the maximum reduction as a result of this rule. This
maximum reduction will be reached in 2017, when all nine facilities are estimated to have begun operation (see the Appendix
to Chapter 6: Facility Compliance Costs for information on the on-line years of projected new in-scope facilities). The
average capacity reduction during the 20-year analysis period (taking into account that some of these facilities will begin
operation during the latter part of this period) is 74 MW annually. These estimates may be an overestimate due to the fact
that some facilities may choose to comply with Track II by implementing technologies other than recirculating wet cooling
towers.
EPA believes that the estimated reduction in available energy supply as a result of the final section 316(b) rule does not
constitute a significant energy effect. During the period covered by EPA's new facility projection, 2001 to 2020, the Energy
Information Administration (EIA) forecasts total new capacity additions of 370 gigawatts (GW) (1 GW = 1,000 MW) and an
average available generating capability of 921 GW. Compared to the EIA forecasts, the estimated energy effect of the final
rule is insignificant, comprising only 0.03 percent of total new capacity (100 MW/370 GW) and 0.008 percent of the average
available generating capability (74 MW/921 GW).
»** Potential effects on ratepayers
In addition to estimating the expected reduction in available energy supply, EPA also considered potential effects of the final
section 316(b) New Facility Rule on rate payers. For each model electric generation facility, EPA estimated the annualized
compliance cost per KWh of generation.
Table 9-10 below shows that the maximum increase in electricity prices would be 0.17 cents per KWh for a small coal facility
with a freshwater once-through system. The average price increase (weighted by the number of projected new facilities)
would be 0.015 cents per KWh. This compares to national electricity price forecasts of between 7.4 to 8.0 cents per KWh for
residential customers, 5.9 to 7.5 cents per KWh for commercial customers, 3.8 and 4.6 cents per KWh for industrial
customers, and 4.5 to 5.4 cents per KWh for the transportation sector (DOE, 2000, Table 72). Even if the new facilities
11 EPA estimates an energy penalty of 1.70 percent for new nuclear facilities. However, EPA does not project any new nuclear
facilities to be built during the 20-year analysis period 2001-2020.
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
subject to the final rule could pass on their entire compliance cost to their customers, the average increase in electricity prices
would only be between 0.2 percent for residential customers (0.015 / 8.0) and 0.4 percent for industrial customers
(0.015 73.8). However, it is unlikely that the new projected facilities would be able to pass on all of their compliance costs
since they are few in number and are therefore unlikely to have an effect on electricity prices.
Table 9-10: Potential Effects on Rate Payers
Model Facility
Type
CC OT/M-1
CC R/FW-1
CC R/FW-2
CC R/FW-3
CCR/M-1
CCR/M-2
CoalOT/FW-1
Coal OT/FW-2
Coal OT/FW-3
Coal R/FW-1
Coal R/FW-2
Coal R/FW-3
CoalR/M-1
CoalRL/FW-1
Total Number of
Projected New
Facilities
5
18
21
19
5
1
1
1
1
3
3
3
1
1
Generating
Capacity
(MW)
1,031
439
699
1,061
489
1,030
63
515
3,564
173
625
1,564
812
660
Estimated
Generation
(MWh)
4,709,114
2,002,373
3,193,938
4,846,963
2,234,118
4,703,406
428,284
3,503,722
24,246,596
1,177,021
4,249,202
10,641,153
5,524,323
4,490,156
Annualized
Compliance Costs
$3,172,889
$172,422
$174,442
$176,097
$198,353
$204,111
$732,761
$3,806,286
$19,063,402
$169,857
$179,952
$240,082
$235,244
$4,787,302
Weighted Average
Compliance Costs
(Cents / KWh)
0.067
0.009
0.005
0.004
0.009
0.004
0.171
0.109
0.079
0.014
0.004
0.002
0.004
0.107
0.015 |
Source: U.S. EPA analysis, 2001.
9.4 THE PAPERWORK REDUCTION ACT OF 1995
The Paperwork Reduction Act of 1995 (PRA) (superseding the PRA of 1980) is implemented by the Office of Management
and Budget (OMB) and requires that agencies submit a supporting statement to OMB for any information collection that
solicits the same data from more than nine parties. The PRA seeks to ensure that Federal agencies balance their need to
collect information with the paperwork burden imposed on the public by the collection.
The definition of "information collection" includes activities required by regulations, such as permit development,
monitoring, record keeping, and reporting. The term "burden" refers to the "time, effort, or financial resources" the public
expends to provide information to or for a Federal agency, or to otherwise fulfill statutory or regulatory requirements. PRA
paperwork burden is measured in terms of annual time and financial resources the public devotes to meet one-time and
recurring information requests (44 U.S.C. 3502(2); 5 C.F.R. 1320.3(b)).
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Section 316(b) EA Chapter 9 for New Facilities Other Economic Analyses
Information collection activities may include:
*• reviewing instructions;
*• using technology to collect, process, and disclose information;
*• adjusting existing practices to comply with requirements;
*• searching data sources;
>• completing and reviewing the response; and
>• transmitting or disclosing information.
Agencies must provide information to OMB on the parties affected, the annual reporting burden, the annualized cost of
responding to the information collection, and whether the request significantly impacts a substantial number of small entities.
An agency may not conduct or sponsor, and a person is not required to respond to, an information collection unless it displays
a currently valid OMB control number.
EPA's estimate of the information collection requirements imposed by the final section 316(b) New Facility Rule are
documented in the Information Collection Request (ICR) which accompanies this regulation (U.S. EPA, 2001).
9.5 SOCIAL COSTS OF THE FINAL RULE
The social costs of regulatory actions are the opportunity costs to society of employing scarce resources to reduce
environmental damage. The largest component of economic costs to society generally is the estimated costs incurred by
facilities for the labor, equipment, material, and other economic resources needed to comply with the final rule. Social costs
also include the value of resources used by governments to implement the rule, including the costs of permitting, compliance
monitoring, and enforcement activities. Finally, social costs include lost producers' and consumers' surplus that result when
the quantity of goods and services produced decreases as a result of the rule.
The estimated total social cost of the final section 316(b) New Facility Rule is the sum of three cost components: (1) direct
compliance costs to facilities subject to the regulation; (2) costs to permitting authorities of implementing the rule; and (3)
costs to the federal government of overseeing rule implementation.
> Facility compliance costs are discussed in Chapter 6: Facility Compliance Costs and include technology costs,
operating and maintenance costs, and permitting and monitoring costs.12
* State permitting costs are presented in Section 9.1. l(b) of this chapter and include start-up costs, costs for initial
permit application review and permit development, repermitting costs, and costs for annual activities.
*• Federal costs include the same types of costs as are incurred by states but are associated with reviewing the states'
permitting actions.
Given the small number of new facilities that would incur costs under the final section 316(b) New Facility Rule, EPA
expects only minimal reductions in output in the affected industries due to the final rule (see the discussions in Chapter 7:
Economic Impact Analysis and on Executive Order 13211 in Section 9.3 of this chapter). Therefore, social costs are fully
accounted for by the compliance costs incurred by the regulated facilities and the costs incurred by governments to implement
the rule.
The total estimated social cost of the final section 316(b) New Facility Rule is approximately $47.9 million annually (using a
seven percent discount rate and a 30 year discounting period). Direct facility compliance costs account for $47.7 million, or
99.5 percent, of the total. Annual state and federal implementation costs account for approximately $234,400 and $6,200,
respectively. The present value of total social costs is $594.5 million, with facility compliance costs accounting for $591.5
12 Direct compliance costs to facilities are often calculated differently for the economic impact analysis and the social cost estimation.
Economic impact analyses often take into account the tax deductability of compliance costs to private businesses and differences between
social and private opportunity costs of capital. The facility compliance costs estimated in Chapter 6, however, were not adjusted for tax
effects. In addition, a single discount rate of seven percent is used in all parts of the analysis. Therefore, the costs presented in Chapter 6
represent the value to society of the resources used by facilities in compliance activities.
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Section 316(b) EA Chapter 9 for New Facilities
Other Economic Analyses
million, state implementation costs for $2.9 million, and federal costs for $0.08 million.
Table 9-11: Social Cost of the Final Section 316(b) New Facility Rule ($2000)
Facility Compliance Costs
State Implementation Costs
Federal Costs
Total
Present Value Annualized
$591,542,800
$2,908,300
$77,500
$594,528,600
$47,670,300
$234,400
$6,200
$47,910,900
Source: U.S. EPA analysis, 2001.
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Section 316(b) EA Chapter 9 for New Facilities Other Economic Analyses
REFERENCES
Executive Office of the President. 2001. Executive Order 13211. "Actions Concerning Regulations That Significantly
Affect Energy Supply, Distribution, or Use." 66 FR 28355. May 22, 2001.
Executive Office of the President. 1999. Executive Order 13132. "Federalism." 64 FR 43255. August 10, 1999.
Paperwork Reduction Act (PRA). 44 U.S.C. 3501 et seq.
Unfunded Mandates Reform Act of 1995 (UMRA). Pub. L. 104-4.
U.S. Department of Energy (U.S. DOE). 1999. FormEIA-861. Annual Electric Utility Report for the Reporting Period
1999.
U.S. Environmental Protection Agency (U.S. EPA). 2001. Information Collection Request for Cooling Water Intake
Structures, New Facility Final Rule. October 2001.
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Section 316(b) EA Chapter 10 for New Facilities
Alternative Regulatory Options
Chapter 10: Alternative Regulatory
Opt
ions
INTRODUCTION
EPA defined and evaluated a number of alternative best
technology available (BTA) options for facilities subject to the
final section 316(b) New Facility Rule. This chapter presents
four alternative options that EPA considered for the final
regulation and their costs:
CHAPTER CONTENTS
10.1 Water Body Type Option 10-2
10.2 Dry Cooling Option 10-3
10.3 Industry Two-Track Option 10-4
10.4 Summary of Alternative Regulatory Options . 10-5
References 10-7
*• (1) Water Body Type Option: This option would
establish technology-based performance requirements
based on the type of water body from which the facility withdraws cooling water. Intake capacity limits based on
closed-cycle recirculating wet cooling systems would be required only in estuaries, tidal rivers, the Great Lakes, and
oceans.
*• (2) Dry Cooling Option: This option would establish technology-based performance requirements based on a near-
zero intake level for all electric generators. Manufacturing facilities would have the same requirements as under the
final rule.
*• (3) Industry Two-Track Option: This option is a variation of the two-track approach of the final rule, suggested by
industry representatives. The option would establish technology-based performance requirements different from the
final rule, but employ a similar fast track and a demonstration track approach.
In addition to recirculating requirements, all the options, except for the dry cooling option, would also require:
>• a design through-screen velocity of 0.5 ft/s;
>• location- and capacity-based flow restrictions proportional to the size of the water body (such as a requirement for
streams and rivers allowing no more than five percent withdrawal of the mean annual flow);
*• design and construction technologies to minimize impingement and entrainment and to maximize survival of
impinged organisms;
*• post-operational monitoring of impinged and entrained organisms;
>• monitoring of the through-screen velocity; and
>• periodic visual inspections of the intake structures.
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Section 316(b) EA Chapter 10 for New Facilities
Alternative Regulatory Options
10.1 WATER BODY TYPE OPTION
Under the first alternative regulatory option, EPA would establish requirements for minimizing adverse environmental impact
(AEI) from cooling water intake structures (CWIS) based on the type of water body in which the intake structure is located,
the location of the CWIS in the water body, the volume of water withdrawn, and the design intake velocity. EPA would
establish additional requirements or measures for location, design, construction, or capacity that might be necessary for
minimizing AEI. For intakes located in marine water bodies (i.e., estuaries, tidal rivers, oceans) and the Great Lakes, this
option would require intake flow reduction commensurate with the level that can be achieved using a closed-cycle
recirculating wet cooling system. For all other water body types, the only capacity requirements would be proportional flow
reduction requirements. In all water bodies, velocity limits and a requirement to install design and construction technologies
would apply.
This option would also include a requirement for all new facilities to complete a one-year baseline biological characterization
study prior to submitting an application for a permit. This study would detail the potential design and construction
technologies that would apply to all new facilities. EPA rejected this option primarily because the technology to reduce flow
to a level commensurate with a closed-cycle recirculating wet cooling system is available and is economically practicable
across all water body types.
Table 10-1 shows the estimated compliance costs of the Water Body Type Option. The present value of total compliance
costs is estimated to be $450 million. The 83 electric generators account for $363 million of this total, and the 38
manufacturing facilities for $87 million. Total annualized cost for the 121 facilities is estimated to be $36 million. Of this,
$29 million would be incurred by electric generators and $7 million by manufacturing facilities.
Table 10-1
Industry Category
(Number of
Facilities Affected)
Electric Generators
(83)
Manufacturing
Facilities (38)
Total (121)a
One-T
Capital
Technology
TotQ
$62.3
$26.3
$88.6
Electric Generators
(83)
Manufacturing
Facilities (38)
Total (121)a
$5.0
$2.1
$7.1
National Costs of
me Costs
Initial Permit
Application
Compliance Costs
$1.6
$0.8
$2.4
Compliance of Water Body Type Option
Recurring Costs
O&M Energy Permit
Penalty Renewal
(present value, in millions $200C
$80.2 $175.1 $1.0
$36.0 $0.0 $0.6
$116.2 $175.1 $1.6
Annualized Compliance Costs (in millions $2000)
$0.1
$0.1
$0.2
$6.5 $14.1 $0.1
$2.9 $0.0 $0.0
$9.4 $14.1 $0.1
Monitoring,
Record Keeping
& Reporting
)
$42.8
$23.7
$66.4
Total3
$363.0
$87.4
$450.3
$3.4
$1.9
$5.4
$29.3
$7.0
$36.3
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2001a; U.S. EPA, 2001b; U.S. EPA analysis 2001.
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Section 316(b) EA Chapter 10 for New Facilities
Alternative Regulatory Options
10.2 DRY COOLCNS OPTION
The second alternative option considered by EPA would impose more stringent compliance requirements on the electric
generating segment of the industry. It is based in whole or in part on a zero intake-flow (or nearly zero, extremely low-flow)
requirement commensurate with levels achievable through the use of dry cooling systems. Dry cooling systems use either a
natural or a mechanical air draft to transfer heat from condenser tubes to air. New manufacturing facilities would not be
subject to these stricter requirements but would have to comply with the standards of the final rule.
This option would include very minor permitting requirements and require no baseline biological characterization study prior
to submission of the application for a permit, due to the requirement of near-zero intake. However, it would carry high capital
and operating and maintenance costs, and large energy penalty. While a dry cooling requirement may be appropriate
specific cases, EPA rejected this option as a national requirement because of the large per-facility costs.
; in
Table 10-2 shows the estimated compliance costs under the Dry Cooling Option. The option is the most expensive of the
regulatory alternatives considered by EPA. Under this option, the present value of total compliance costs is estimated to be
approximately $6 billion. Total annualized cost for the 121 facilities is estimated to be $491 million. Manufacturing facilities
would incur the same compliance costs as under the proposed rule, $13 million. The 83 electric generators, however, would
face considerably higher costs with approximately $478 million annually, or $5.8 million per facility.
Table 10-2: National Costs of Compliance of Dry Cooling Option
Industry Category
(Number of
Facilities Affected)
Electric Generators
(83)
Manufacturing
Facilities (38)
Total (121)a
One-Time Costs
Capital
Technology
Tota
$1,403.0
$47.2
$1,450.2
Electric Generators „,
(83) $im
Manufacturing ,,,, „
Facilities (38) *
Total (121)a $116.9
Initial Permit
Application
Compliance Co
$0.2
$16.9
$17.1
Recurring Costs
O&M
>ts (present
$3,617.0
$71.5
$3,688.5
Energy
Penalty
value, in r
$907.4
$0.0
$907.4
Permit
Renewal
nill ions $200C
$0.2
$1.8
$2.0
Monitoring,
Record
Keeping &
Reporting
)
$0.0
$23.8
$23.8
Total3
$5,927.8
$161.1
$6,088.9
Annualized Compliance Costs (in millions $2000)
$0.0 $291.5 $73.1 $0.0 $0.0 $477.7
$1.4 $5.8 $0.0 $0.2 $1.9 $13.0
$1.4 $297.2 $73.1 $0.2 $1.9 $490.7
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2001a; U.S. EPA, 2001b; U.S. EPA analysis 2001.
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Section 316(b) EA Chapter 10 for New Facilities Alternative Regulatory Options
10.3 INDUSTRY Two-TRACK OPTION
EPA also considered a two-track option as suggested by industry. A two-track option provides flexibility to the permittee in
that the facility may choose to comply by meeting the specific technology-based performance requirements defined in the
"fast track" (Track I), or by demonstrating the same level of performance as the Track I requirements under the
"demonstration track" (Track II).
Under this regulatory option, a facility choosing Track I would install "highly protective" technologies in return for expedited
permitting without the need for pre-operational or operational studies. Such fast-track technologies might include
technologies that reduce intake flow to a level commensurate with a wet closed-cycle cooling system and that achieve an
average approach velocity of no more than 0.5 ft/s, or any technologies that achieve a level of protection from impingement
and entrainment within the expected range for a closed-cycle cooling system (with 0.5 ft/s approach velocity). This option
was intended to allow facilities to use standard or new technologies that have been demonstrated to be effective for the
species of concern, type of water body, and flow volume of the cooling water intake structure proposed for their use.
Examples of candidate technologies include:
*• wedgewire screens, where there is constant flow, as in rivers;
*• traveling fine mesh screens with a fish return system designed to minimize impingement and entrainment; and
>• aquatic filter barrier systems, at sites where they would not be rendered ineffective by high flows or fouling.
The operator of a proposed new facility would elect which set of technologies to install and validate its performance as
necessary. In return, the permitting agency would not require additional section 316(b) protective measures for the life of the
facility.
Track II would provide a facility that does not want to commit to any of the above technology options with an opportunity to
demonstrate that site-specific characteristics, including the local biology, would justify another cooling water intake structure
technology, such as once-through cooling. For these situations, the facility could demonstrate to the permitting agency, on
the basis of site-specific studies, either that the proposed intake would not create an appreciable risk of AEI or, if it would
create an appreciable risk of AEI, that the facility would install technology to "minimize" AEI.
EPA rejected the industry two-track approach because EPA prefers a more concrete and objective measure of BTA for
minimizing AEI for the New Facility Rule than does the measure suggested by the industry.
Table 10-3 shows the estimated compliance costs under the Alternative Two-Track Option. Under this option, the present
value of total compliance costs is estimated to be $309 million. The 83 electric generators account for $245 million of this
total, and the 38 manufacturing facilities for $64 million. Total annualized cost for the 121 facilities is estimated to be $25
million. Of this, $20 million will be incurred by electric generators and $5 million by manufacturing facilities.
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Section 316(b) EA Chapter 10 for New Facilities
Alternative Regulatory Options
Table 10-3: National Costs of Compliance of Industry Two-Track Option
Industry Category
(Number of
Facilities Affected)
Electric Generators
(83)
Manufacturing
Facilities (38)
Total (121)a
One-Time Costs
Capital
Technology
Tota
$27.1
$14.4
$41.5
Electric Generators ,.,. .
(83) *2'2
Manufacturing ^ .
Facilities (38) *
Total (121)a $3.4
Initial Permit
Application
Compliance Co
$4.1
$9.0
$13.1
Recurring Costs
O&M
>ts (present
$31.4
$18.7
$50.1
Energy
Penalty
value, in r
$175.1
$0.0
$175.1
Permit
Renewal
nill ions $200C
$1.3
$0.9
$2.2
Monitoring,
Record
Keeping &
Reporting
)
$5.9
$20.7
$26.6
Total3
$244.8
$63.7
$308.5
Annual ized Compliance Costs (in millions $2000)
$0.3 $2.5 $14.1 $0.1 $0.5 $19.7
$0.7 $1.5 $0.0 $0.1 $1.7 $5.1
$1.1 $4.0 $14.1 $0.2 $2.1 $24.9
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA, 2001a; U.S. EPA, 2001b; U.S. EPA analysis 2001.
10.4 SUMMARY OF ALTERNATIVE RESULATORY OPTIONS
Although the Agency considered numerous regulatory options during rule development, three primary regulatory options
were evaluated in detail and costed. Two of the options would be less stringent and less expensive than the final rule; one
option would be considerably more stringent and expensive. The final rule will cost facilities $48 million annually (see
Chapter 6: Facility Compliance Costs). The least expensive option is the two-track option suggested by industry. This
option would cost new electric generator and manufacturing facilities approximately $25 million annually but was rejected
because the measure for minimizing AEI is not very concrete or certain. The other less expensive option is the water body
type option which would require cooling towers for those facilities withdrawing from marine water bodies and the Great
Lakes. This option would cost approximately $36 million annually but was rejected because the best technology available
and economically practicable across all water body types is a closed-cycle recirculating wet cooling system. The dry cooling
option is more stringent than the final rule. It is by far the most expensive option, costing approximately $491 million
annually, and was rejected as a national requirement because of the high per-facility cost.
EPA selected the final rule because it meets the requirement of section 316(b) of the CWA that the location, design,
construction, and capacity of CWIS reflect the BTA for minimizing AEI, and it is economically practicable.
Table 10-4 shows the annualized compliance costs for the electric generators and manufacturers associated with the final rule
and the three other regulatory options discussed in this chapter. The options are presented in order of decreasing cost.
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Section 316(b) EA Chapter 10 for New Facilities
Alternative Regulatory Options
Table 10-4: National Costs of Compliance with Alternative Regulatory Options
Regulatory Option
Dry Cooling Option
Final Rule
Water Body Type Option
Industry Two-Track Option
Annualized Compliance Costs (in millions $2000)
Electric Generators
$477.7
$34.7
$29.3
$19.7
Manufacturing Facilities
$13.0
$13.0
$7.0
$5.1
Total
$490.7
$47.7
$36.3
$24.9
a Individual numbers may not add up to total due to independent rounding.
Source: U.S. EPA analysis, 2001.
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Section 316(b) EA Chapter 10 for New Facilities Alternative Regulatory Options
REFERENCES
U.S. Environmental Protection Agency (U.S. EPA). 2001a. Information Collection Request for Cooling Water Intake
Structures, New Facility Final Rule. October 2001.
U.S. Environmental Protection Agency (U.S. EPA). 200 Ib. Technical Development Document for the Final Regulations
Addressing Cooling Water Intake Structures for New Facilities. EPA-821-R-01-036. November 2001.
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
Chapter 11: CWIS Impingement
& Entrainment (I<&E) Impacts &
Potential Benefits
INTRODUCTION
This chapter presents data reported by existing facilities
that indicate the magnitude of impingement and
entrainment when once-through cooling is used. The
data show that the numbers of organisms impinged and
entrained under once-through cooling are nontrivial.
EPA was unable to conduct a detailed, quantitative
analysis of the potential economic benefits of using
closed-cycle instead of once-through cooling because
much of the information needed to quantify and value
potential reductions in I&E was unavailable. At
present, EPA has only general information about the
location of potential new facilities, and in most cases
details of facility and environmental characteristics are
unknown. To overcome these limitations, this chapter
presents examples of I&E rates and potential regulatory
benefits based on a subset of existing facilities for
which information was readily available. The focus is
on fish species because very large numbers offish are
impinged and entrained compared to other aquatic
organisms such as phytoplankton and benthic
invertebrates.
The data presented are numbers of organisms that are
directly impinged and entrained. While EPA
recognizes that impingement and entrainment losses
may result in indirect effects on populations and other
higher levels of biological organization, this chapter
focuses on impingement and entrainment because these
are the direct biological impacts that result from
withdrawal of cooling water by CWIS. The final
section of the chapter presents information on the
potential benefits of installing technologies to reduce
impingement and entrainment. These benefits may be
illustrative of the benefits that would occur at the estimated
technology (closed-cycle cooling) as a result of this rule.
CHAPTER CONTENTS:
11.1 CWIS Characteristics that Influence the
Magnitude of I&E
11.1.1 Intake Location
11.1.2 Intake Design
11.1.3 Intake Capacity
11.2 Methods for Estimating Potential I&E Losses ..
11.2.1 Development of a Database of I&E Rates
11.2.2 Data Uncertainties and Potential Biases .
11.3 CWIS Impingement and Entrainment
Impacts in Rivers
11.4 CWIS Impingement and Entrainment
Impacts in Lakes and Reservoirs
11.5 CWIS Impingement and Entrainment
Impacts in the Great Lakes
11.6 CWIS Impingement and Entrainment
Impacts in Estuaries
11.7 CWIS Impingement and Entrainment
Impacts in Oceans
11.8 Summary of Impingement and Entrainment Data
11.9 Potential Benefits of Section 316(b) Regulation .
11.9.1 Benefits Concepts, Categories,
and Causal Links
11.9.2 Applicable Economic Benefit Categories
11.9.3 Benefit Category Taxonomies
11.9.4 Direct Use Benefits
11.9.5 Indirect Use Benefits
11.9.6 Nonuse Benefits
11.9.7 Summary of Benefits Categories
11.9.8 Causality: Linking the Section 316(b)
Rule to Beneficial Outcomes
11.10 Empirical Indications of Potential Benefits . .
References
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11-4
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11-19
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nine new facilities that would install the Track I flow reduction
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Section 316b EA Chapter 11 for New Facilities CWIS I&E Impacts and Potential Benefits
The chapter
*• summarizes factors related to intake location, design, and capacity that influence the magnitude of I&E;
*• discusses CWIS I&E impacts for different water body types (rivers, lakes and reservoirs, the Great Lakes, oceans,
and estuaries); and
>• provides results from studies of existing facilities indicating the potential economic benefits of lower intake flows
and other measures taken to reduce impingement and entrainment.
11.1 CWIS CHARACTERISTICS THAT INFLUENCE THE MAGNITUDE OF I&E
11.1.1 Intake Location
Two major components of a CWIS's location that influence the relative magnitude of I&E are (1) the type of water body from
which a CWIS is withdrawing water, and (2) the placement of the CWIS relative to sensitive biological areas within the water
body. EPA's regulatory framework is designed to take both of these factors into account.
Critical physical and chemical factors related to siting of an intake include the direction and rate of water body flow, tidal
influences, currents, salinity, dissolved oxygen levels, thermal stratification, and the presence of pollutants. The withdrawal
of water by an intake can change ambient flows, velocities, and currents within the source water body, which may cause
organisms to concentrate in the vicinity of an intake or reduce their ability to escape a current.
In large rivers, withdrawal of water may have little effect onflows because of the strong, unidirectional nature of ambient
currents. In contrast, lakes and reservoirs have small ambient flows and currents, and therefore a large intake flow can
significantly alter current patterns. In addition, tidal currents in estuaries or tidally-influenced sections of rivers can carry
organisms past intakes multiple times, thereby increasing their probability of entrainment.
Also, species with planktonic (free-floating) early life stages have higher rates of entrainment because they are unable to
actively avoid being drawn into the intake flow.
Considerations in siting an intake to reduce the potential for I&E include intake depth and distance from the shoreline in
relation to the physical, chemical, and biological characteristics of the source water body. In general, intakes located in
nearshore areas (riparian or littoral zones) will have greater ecological impact than intakes located offshore, because
nearshore areas are more biologically productive and have higher concentrations of organisms.
Siting of intake withdrawal in relation to the discharge site is also important because if intake withdrawal and discharge are in
close proximity, entrained organisms released in the discharge can become re-entrained.
The magnitude of I&E in relation to intake location also depends on biological factors such as species' distributions and the
presence of critical habitats within an intake's zone of influence.
11.1.2 Intake Design
Intake design refers to the design and configuration of various components of the intake structure, including screening
systems (trash racks, pumps, pressure washes), passive intake systems, and fish diversion and avoidance technologies (U.S.
EPA, 1976).
Design intake velocity has a significant influence on the potential for impingement (Boreman, 1977). The biological
significance of design intake velocity depends on species-specific characteristics, such as fish swimming ability and
endurance. These characteristics are a function of the size of the organism and the temperature and oxygen levels of water in
the area of the intake (U.S. EPA, 1976). The maximum velocity protecting most small fish is 0.5 ft/s, but lower velocities
will still impinge some fish and entrain eggs and larvae and other small organisms (Boreman, 1977). After entering the
CWIS, water must pass through a screening device before entering the power plant. The screen is designed to prevent debris
from entering and clogging the condenser tubes. Screen mesh size and velocity characteristics are two important design
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Section 316b EA Chapter 11 for New Facilities CWIS I&E Impacts and Potential Benefits
features of the screening system that influence the potential for impingement and entrainment of aquatic organisms that are
withdrawn with the cooling water (U.S. EPA, 1976).
Conventional traveling screens have been modified to improve fish survival of screen impingement and spray wash removal
(Taft, 1999). However, a review of steam electric utilities indicated that these alternative screen technologies are usually not
much more effective at reducing impingement than the conventional vertical traveling screens used by most steam electric
facilities (SAIC, 1994). An exception may be traveling screens modified with fish collection systems (e.g., Ristroph screens).
Studies of improved fish collection baskets at Salem Generating Station showed increased survival of impinged fish
(Ronafalvy et al., 1999).
Passive intake systems (physical exclusion devices) screen out debris and aquatic organisms with minimal mechanical
activity and low withdrawal velocities (Taft, 1999). The most effective passive intake systems are wedge-wire screens and
radial wells (SAIC, 1994). A new technology, the Gunderboom, which consists of polyester fiber strands pressed into a
water-permeable fabric mat, has shown promise in reducing ichthyoplankton entrainment at the Lovett Generating Station on
the Hudson River (Taft, 1999).
Fish diversion/avoidance systems (behavioral barriers) take advantage of natural behavioral characteristics offish to guide
them away from an intake structure or into a bypass system (SAIC, 1994; Taft, 1999). The most effective of these
technologies are velocity caps, which divert fish away from intakes, and underwater strobe lights, which repel some species
(Taft, 1999). Velocity caps are used mostly at offshore facilities and have proven effective in reducing impingement (e.g.,
California's San Onofre Nuclear Generating Station, SONGS).
Another important design consideration is the orientation of the intake in relation to the source water body (U.S. EPA, 1976).
Conventional intake designs include shoreline, offshore, and approach channel intakes. In addition, intake operation can be
modified to reduce the quantity of source water withdrawn or the timing, duration, and frequency of water withdrawal. This
is an important way to reduce entrainment. For example, larval entrainment at the San Onofre facility was reduced by 50%
by rescheduling the timing of high volume water withdrawals (SAIC, 1996).
11.1.3 Intake Capacity
Intake capacity is a measure of the volume or quantity of water withdrawn or flowing through a cooling water intake structure
over a specified period of time. Intake capacity can be expressed as millions or billions of gallons per day (MOD or BGD), or
as cubic feet per second (cfs). Capacity can be measured for the facility as a whole, for all of the intakes used by a single
unit, or for the intake structure alone. In defining an intake's capacity it is important to distinguish between the design intake
flow (the maximum possible) and the actual operational intake flow. For this regulation, EPA is regulating the total design
intake flow of the facility.
The quantity of cooling water needed and the type of cooling system are the most important factors determining the quantity
of intake flow (U.S. EPA, 1976). Once-through cooling systems withdraw water from a natural water body, circulate the
water through condensers, and then discharge it back to the source water body. Closed-cycle cooling systems withdraw water
from a natural water body, circulate the water through the condensers, and then send it to a cooling tower or cooling pond
before recirculating it back through the condensers. Because cooling water is recirculated, closed-cycle systems generally use
only 3.4% to 28.8% of the water used by once-through systems1 (Kaplan, 2000). It is generally assumed that this will result
in a comparable reduction in I&E (Goodyear, 1977). Systems with helper towers reduce water usage much less. Plants with
helper towers can operate in once-through or closed-cycle modes.
Circulating water intakes are used by once-through cooling systems to continuously withdraw water from the cooling water
source. The typical circulating water intake is designed to use 0.03-0.1 mVs (1.06-3.53 cfs, or 500-1500 gallons per minute,
gpm) per megawatt (MW) of electricity generated (U.S. EPA, 1976). Closed-cycle systems use makeup water intakes to
provide water lost by evaporation, blowdown, and drift. Although makeup quantities are only a fraction of the intake flows of
once-through systems, quantities of water withdrawn can still be significant, especially by large facilities (U.S. EPA, 1976).
Assuming that organisms are uniformly distributed in the vicinity of an intake, the proportion of the source water flow
1 The difference in water usage in cooling towers results from differences in source water (salinity) and the temperature rise of the
system.
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
supplied to a CWIS is often used to derive a conservative estimate of the potential for adverse impact (e.g., Goodyear, 1977).
For example, withdrawal of 5% of the source water flow may be expected to result in a loss of 5% of planktonic organisms.
Although the assumption of uniform distribution may not always be met, when data on actual distributions are unavailable,
simple mathematical models based on this assumption provide a conservative and easily applied method for predicting
potential losses (Goodyear, 1977).
In addition to the relative quantity of intake flow, the potential for aquatic organisms to be impinged or entrained also
depends on physical, chemical, and biological characteristics of the surrounding ecosystem and species characteristics that
influence the intensity, time, and spatial extent of contact of aquatic organisms with a facility's CWIS. Table 11-1 lists CWIS
characteristics and ecosystem characteristics that influence when, how, and why aquatic organisms may become exposed to,
and experience adverse effects of, CWIS.
Table 11-1: Partial List of CWIS, Ecosystem, and Species Characteristics Influencing Potential for I&E
CWIS Characteristics3
Ecosystem and Species Characteristics
Location
>• Depth of intake
>• Distance from shoreline
>• Proximity of intake withdrawal and discharge
>• Proximity to other industrial discharges or water withdrawals
>• Proximity to an area of biological concern
Design
>• Type of intake structure (size, shape, configuration, orientation)
>• Design intake velocity
>• Presence/absence of intake control and fish protection technologies
>• Intake Screen Systems
>• Passive Intake Systems
>• Fish Diversion/Avoidance Systems
>• Water temperature in cooling system
>• Temperature change during entrainment
>• Duration of entrainment
>• Use of intake biocides and ice removal technologies
>• Scheduling of timing, duration, frequency, and quantity of water
withdrawal.
Capacity
>• Type of withdrawal — once-through vs. recycled (cooling water volume
and volume per unit time)
>• Ratio of cooling water intake flow to source water flow
Ecosystem Characteristics (abiotic environment)
>• Source water body type
>• Water temperatures
>• Ambient light conditions
>• Salinity levels
>• Dissolved oxygen levels
>• Tides/currents
>• Direction and rate of ambient flows
Species Characteristics (physiology, behavior, life
history)
>• Density in zone of influence of CWIS
>• Spatial and temporal distributions (e.g., daily,
seasonal, annual migrations)
>• Habitat preferences (e.g., depth, substrate)
>• Ability to detect and avoid intake currents
>• Swimming speeds
>• Mobility
>• Body size
>• Age/developmental stage
>• Physiological tolerances (e.g., temperature,
salinity, dissolved oxygen)
>• Feeding habits
>• Reproductive strategy
>• Mode of egg and larval dispersal
>• Generation time
a All of these CWIS characteristics can potentially be controlled to minimize adverse environmental impacts (I&E) of new facilities.
If the quantity of water withdrawn is large relative to the flow of the source water body, a larger number of organisms will
potentially be affected by a facility's CWIS.
11.2 METHODS FOR ESTIMATING POTENTIAL I&E LOSSES
11.2.1 Development of a Database of I&E Rates
To estimate the relative magnitude of I&E for different species and water body types, EPA compiled I&E data from 107
documents representing a variety of sources, including previous section 316(b) studies, critical reviews of section 316(b)
studies, biomonitoring and aquatic ecology studies, and technology implementation studies. In total, data were compiled for
98 steam electric facilities (36 riverine facilities, 9 lake/reservoir facilities, 19 facilities on the Great Lakes, 22 estuarine
facilities, and 12 ocean facilities). Design intake flows at these facilities ranged from a low of 19.7 to a high of 3,315.6
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Section 316b EA Chapter 11 for New Facilities CWIS I&E Impacts and Potential Benefits
MOD.
EPA notes that most of these studies were completed by the facilities in the mid-1970s using methods that are now outmoded.
A number of the methods used at that time probably resulted in an underestimate of losses. For example, many studies did
not adjust I&E sampling data for factors such as collection efficiency. Because of such methodological weaknesses, EPA
used these only to gauge the relative magnitude of impingement and entrainment losses. Any further analysis of the data
should be accompanied by a detailed evaluation of study methods and supplemented with additional data as needed.
In order to understand the potential magnitude of I&E, EPA aggregated the data in the studies in a series of steps to derive
average annual impingement and entrainment rates, on a per facility basis, for different species and water body types.
First, the data for each species were summed across all units of a facility and averaged across years (e.g., 1972 to 1976).
Losses were then averaged by species for all facilities in the database on a given water body type to derive species-specific
and water body-specific mean annual I&E rates. Finally, mean annual I&E rates were ranked, and rates for the top 15 species
were used for the data presented below.
11.2.2 Data Uncertainties and Potential Biases
A number of uncertainties and potential biases are associated with the annual I&E estimates that EPA developed. Most
important, natural environmental variability makes it difficult to detect ecological impacts and identify cause-effect
relationships even in cases where study methods are as accurate and reliable as possible. For example, I&E rates for any
given population will vary with annual changes in environmental conditions. As a result, it can be difficult to determine the
relative role of I&E mortality in population fluctuations.
In addition to the influence of natural variability, data uncertainties result from measurement errors, some of which are
unavoidable. Much of the data presented here does not account for the inefficiency of sampling gear, variations in collection
and analytical methods, or changes in the number of units in operation or technologies in use.
Potential biases were also difficult to control. For example, many studies presented data for only a subset of "representative"
species, which may lead to an underestimation of total I&E. On the other hand, the entrainment estimates obtained from
EPA's database do not take into account the high natural mortality of egg and larval stages and therefore are likely to be
biased upwards. However, this bias was unavoidable because most of the source documents from which the database was
derived did not estimate losses of early life stages as an equivalent number of adults, or provide information for making such
calculations.2 In the absence of information for adjusting egg losses on this basis, EPA chose to include eggs and larvae in
the entrainment estimates to avoid underestimating age 0 losses.
With these caveats in mind, the following sections present the results of EPA's data compilations. The data are grouped by
water body type and are presented in summary tables that indicate the range of losses for the 15 species with the highest I&E
rates based on the limited subset of data available to EPA. I&E losses are expressed as mean annual numbers on a per facility
basis. Because the data do not represent a random sample of I&E losses, it was not appropriate to summarize the data
statistically. It is also important to stress that because the data are not a statistical sample, the data presented here may not
represent the true magnitude of losses. Thus, the data should be viewed only as general indicators of the potential range of
I&E.
11.3 CWIS IMPINSEMENT AND ENTRAINMENT IMPACTS IN RlVERS
Freshwater rivers and streams are free-flowing bodies of water that do not receive significant inflows of water from oceans or
bays. Current is typically highest in the center of a river and rapidly drops toward the edges and at depth because of increased
friction with river banks and the bottom (Hynes, 1970; Allan, 1995). Close to and at the bottom, the current can become
minimal. The range of flow conditions in undammed rivers helps explain why fish with very different habitat requirements
can co-exist within the same stretch of surface water (Matthews, 1998).
2 For species for which sufficient life history information is available, the Equivalent Adult Model (EAM) can be used to predict the
number of individuals that would have survived to adulthood each year if entrainment at egg or larval stages had not occurred (Horst,
1975; Goodyear, C.P., 1978). The resulting estimate is known as the number of "equivalent adults."
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
In general, the shoreline areas along river banks support a high diversity of aquatic life. These are areas where light penetrates
to the bottom and supports the growth of rooted vegetation. Suspended solids tend to settle along shorelines where the
current slows, creating shallow, weedy areas that attract aquatic life. Riparian vegetation, if present, also provides cover and
shade. Such areas represent important feeding, resting, spawning, and nursery habitats for many aquatic species. In
temperate regions, the number of impingeable and entrainable organisms in the littoral zone of rivers increases during the
spring and early summer when most riverine fish species reproduce. This concentration of aquatic organisms along river
shorelines in turn attracts wading birds and other kinds of wildlife.
The data compiled by EPA indicate that fish species such as common carp (Cyprinus
carpio), yellow perch (Percaflavescens), white bass (Morone chrysops), freshwater
drum (Aplodinotus gmnniens), gizzard shad (Dorosoma cepedianum), and alewife are
the main fishes harmed by CWIS located in rivers. Table 11-2 shows, in order of the
greatest to least impact, the annual entrainment of eggs, larvae, and juvenile fish in
rivers. Table 11-3 shows, in order of greatest to least impact, the annual impingement in
the rivers for all age classes. These species occur in nearshore areas and/or have pelagic
early life stages, traits that greatly increase their susceptibility to I&E.
Table 11-2: Annual Entrainment of Eggs, Larvae, and Juvenile Fish in Rivers
Common Name j Scientific Name
common carp i Cyprinus carpio
yellow perch i Percaflavescens
white bass i Morone chrysops
freshwater drum i Aplodinotus grunniens
gizzard shad i Dorosoma cepedianum
shiner i Notropis spp.
channel catfish \Ictaluruspunctatus
bluntnose minnow i Pimephales notatus
black bass i Micropterus spp.
rainbow smelt i Osmerus mordax
minnow i Pimephales spp.
sunfish i Lepomis spp.
emerald shiner i Notropis atherinoides
white sucker i Catostomus commersoni
mimic shiner ! Notropis volucellus
Number of
Facilities
7
4
4
5
4
4
5
1
1
1
1
5
3
5
2
Mean Annual Entrainment
per Facility (fish/year)
20,500,000
13,100,000
12,800,000
12,800,000
7,680,000
3,540,000
3,110,000
2,050,000
1,900,000
1,330,000
1,040,000
976,000
722,000
704,000
406,000
Range
859,000 - 79,400,000
434,000 - 50,400,000
69,400 - 49,600,000
38,200 - 40,500,000
45,800 - 24,700,000
191,000-13,000,000
19,100-14,900,000
._
...
._
...
4,230 - 4,660,000
166,000 - 1,480,000
20,700 - 2,860,000
30,100-781,000
Source: Hicks, 1977; Cole, 1978; Geo-Marine Inc., 1978; Goodyear, C.D., 1978; Potter, 1978; Cincinnati Gas & Electric Company,
1979; Potter etal, 1979a, 1979b, 1979c, 1997d; Cherry and Currie, 1998; Lewis and Seegert, 1998.
11-6
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
Table 11-3: Annual Impingement in the Rivers for All Age Classes Combined
Common Name I Scientific Name
threadfin shad j Dorosoma petenense
gizzard shad j Dorosoma cepedianum
shiner ! Notropis spp.
alewife j Alosa pseudoharengus
white perch j Morone americana
yellow perch ! Percaflavescens
spottail shiner j Notropis hudsonius
freshwater drum ! Aplodinotus grunniens
rainbow smelt ! Osmerus mordax
skipjack herring ! Alosa chrysochons
white bass j Morone chrysops
trout perch j Percopsis omiscomaycus
emerald shiner ! Notropis atherinoides
blue catfish ! Ictalurus furcatus
channel catfish \Ictaluruspunctatus
Number of
Facilities
3
25
4
13
3
18
10
24
11
7
19
13
17
2
23
Mean Annual Impingement per
Facility (fish/year)
1,030,000
248,000
121,000
73,200
66,400
40,600
28,500
19,900
19,700
17,900
11,500
9,100
7,600
5,370
3,130
Range
199-3,050,000
3,080-1,480,000
28 - 486,000
199-237,000
27,100-112,000
13-374,000
10-117,000
8 - 176,000
7-119,000
52 - 89,000
21 - 188,000
38 - 49,800
109-36,100
42 - 10,700
3 - 25,600 1
Source: Benda and Houtcooper, 1977; Freeman and Sharma, 1977; Hicks, 1977; Shartna and Freeman, 1977; Stupka and Sharma, 1977;
Energy Impacts Associates Inc., 1978; Geo-Marine Inc., 1978; Goodyear, C.D., 1978; Potter, 1978; Cincinnati Gas & Electric Company,
1979; Potter etal, 1979a, 1979b, 1979c, 1979d; Van Winkle etal, 1980; EA Science and Technology, 1987; Cherry and Currie, 1998;
Michaud, 1998; Lohner, 1998.
11.4 CWIS IMPINSEMENT AND ENTRAINMENT IMPACTS IN LAKES AND RESERVOIRS
Lakes are inland bodies of open water located in natural depressions (Goldman and Home, 1983). Lakes are fed by rivers,
streams, springs, and/or local precipitation. Water currents in lakes are small or negligible compared to rivers, and are most
noticeable near lake inlets and outlets.
Larger lakes are divided into three general zones — the littoral zone (shoreline areas where light penetrates to the bottom), the
limnetic zone (the surface layer where most photosynthesis takes place), and the profundal zone (relatively deeper and colder
offshore area) (Goldman and Home, 1983). Each zone differs in its biological productivity and species diversity and hence in
the potential magnitude of CWIS I&E impacts. The importance of these zones in relation to potential impacts of CWIS are
discussed below.
The highly productive littoral zone extends farther and deeper in clear lakes than in turbid lakes. In small, shallow lakes, the
littoral zone can be quite extensive and even include the
entire water body. As along river banks, this zone supports
high primary productivity and biological diversity. It is
used by a host of fish species, benthic invertebrates, and
zooplankton for feeding, resting, and reproduction, and as
nursery habitat. Many fish species adapted to living in the
colder profundal zone also move to shallower in-shore areas
to spawn, e.g., lake trout (Salmo namycush) and various
deep water sculpin species (Coitus spp.).
Many fish species spend most of their early development in
and around the littoral zone of lakes. These shallow waters
warm up rapidly in spring and summer, offer a variety of
different habitats (submerged plants, boulders, logs, etc.) in
which to hide or feed, and stay well-oxygenated throughout
11-7
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
the year. Typically, the littoral zone is a major contributor to the total primary productivity of lakes (Goldman and Home,
1983).
The limnetic zone accounts for the vast majority of light that is absorbed by the water column. In contrast to the high
biological activity observed in the nearshore littoral zone, the offshore limnetic zone supports fewer species offish and
invertebrates. However, during certain times of year, some fish and invertebrate species spend the daylight hours hiding on
the bottom and rise to the surface of the limnetic zone at night to feed and reproduce. Adult fish may migrate through the
limnetic zone during seasonal spawning migrations. The juvenile stages of numerous aquatic insects — such as caddisflies,
stoneflies, mayflies, dragonflies, and damselflies — develop in sediments at the bottom of lakes but move through the
limnetic zone to reach the surface and fly away. This activity attracts foraging fish.
The deeper, colder profundal zone of a lake does not support rooted plants because insufficient light penetrates at these
depths. For the same reason, primary productivity by phytoplankton is minimal. However, a well-oxygenated profundal zone
can support a variety of benthic invertebrates or cold-water fish, e.g., brown trout (Salmo tmtta), lake trout, and ciscoes
(Coregonus spp.). With few exceptions (such as cisces or whitefish), these species seek out shallower areas to spawn, either
in littoral areas or in adjacent rivers and streams, where they may become susceptible to CWIS.
Most of the larger rivers in the United States have one or more dams that create artificial lakes or reservoirs. Reservoirs have
some characteristics that mimic those of natural lakes, but large reservoirs differ from most lakes in that they obtain most of
their water from a large river instead of from groundwater recharge or from smaller creeks and streams.
The fish species composition in reservoirs may or may not reflect the native assemblages found in the pre-dammed river.
Dams create two significant changes to the local aquatic ecosystem that can alter the original species composition: (1)
blockages that prevent anadromous species from migrating upstream, and (2) altered riverine habitat that can eliminate
species that cannot readily adapt to the modified hydrologic conditions.
Reservoirs typically support littoral zones, limnetic zones, and profundal zones, and the same concepts outlined above for
lakes apply to these bodies of water. For example, compared to the profundal zone, the littoral zone along the edges of
reservoirs supports greater biological diversity and provides prime habitat for spawning, feeding, resting, and protection for
numerous fish and zooplankton species. However, there are also several differences. Reservoirs often lack extensive shallow
areas along their edges because their banks have been engineered or raised to contain extra water and prevent flooding. In
mountainous areas, the banks of reservoirs may be quite steep and drop off precipitously with little or no littoral zone. As
with lakes and rivers, however, CWIS located in shallower water have a higher probability of entraining or impinging
organisms.
Results of EPA's data compilation indicate that fish species most commonly affected by CWIS located on lakes and
reservoirs are the same as the riverine species that are most susceptible, including alewife (Alosapseudoharengus), drum
(Aplondinotus spp.), and gizzard shad (Dorsoma cepedianum) (Tables 11-4 and 11-5).
Table
Common Name
drum
sunfish
gizzard shad
crappie
alewife
11-4: Annual Entrapment
Scientific Name
i Aplondinotus spp.
i Lepomis spp.
i Dorosoma cepedianum
\ Pomoxis spp.
i Alosa pseudoharengus
of Eggs, Larvae, and Juvenile Fish in Reservoirs and Lakes
(excluding the Great Lakes)
Number of Facilities
1
1
1
1
1
Mean Annual Entrainment per Facility (fish/year)
15,600,000
10,600,000
9,550,000
8,500,000
1,730,000
Source: Michaud, 1998; Spicer etal, 1998.
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
Table 11-5: Annual Impingement in Reservoirs and Lakes (excluding the Great Lakes)
for All Age Classes Combined
Common Name • Scientific Name
threadfin shad j Dorosoma petenense
alewife : Alosa pseudoharengus
skipjack herring 1 Alosa chrysochons
bluegill i Lepomis macrochirus
gizzard shad i Dorosoma cepedianum
warmouth sunfish 1 Lepomis gulosus
yellow perch 1 Percaflavescens
freshwater drum 1 Aplodinotus grunniens
silver chub i Hybopsis storeriana
black bullhead 1 Ictalurus melas
trout perch i Percopsis omiscomaycus
northern pike 1 Esox Indus
blue catfish 1 Ictalurus furcatus
paddlefish 1 Polyodon spathula
inland (tidewater) i Menidia beryllina
silverside i
Number of
Facilities
4
4
1
6
5
4
2
4
1
3
2
2
1
2
1
Mean Annual Impingement
per Facility (fish/year)
678,000
201,000
115,000
48,600
41,100
39,400
38,900
37,500
18,200
10,300
8,750
7,180
3,350
3,160
3,100
Range
203,000-1,370,000
33,100-514,000
...
468 - 277,000
829 - 80,700
31 - 157,000
502-114,000
8-150,000
...
171 - 30,300
691 - 16,800
154-14,200
...
1,940-4,380
1
Source: Tennessee Division of Forestry, Fisheries, and Wildlife Development, 1976; Tennessee Valley Authority, 1976; Benda and
Houtcooper, 1977; Freeman and Sharma, 1977; Shartna and Freeman, 1977; Tennessee Valley Authority, 1977; Spiceretal,
1998; Michaud, 1998.
11.5 CWIS IMPINSEMENT AND ENTRAINMENT IMPACTS IN THE 6REAT LAKES
The Great Lakes were carved out by glaciers during the last ice age (Bailey and Smith, 1981). They contain nearly 20% of
the earth's fresh water, or about 23,000 km3 (5,500 cu. mi.) of water, covering a total area of 244,000 km2 (94,000 sq. mi.).
There are five Great Lakes: Lake Superior, Lake Michigan, Lake Huron, Lake Erie, and Lake Ontario. Although part of a
single system, each lake has distinct characteristics. Lake Superior is the largest by volume, with a retention time of 191
years, followed by Lake Michigan, Lake Huron, Lake Erie, and Lake Ontario.
Water temperatures in the Great Lakes strongly influence the
physiological processes of aquatic organisms, affecting growth,
reproduction, survival, and species temporal and spatial distribution.
During the spring, many fish species inhabit shallow, warmer waters
where temperatures are closer to their thermal optimum. As water
temperatures increase, these species migrate to deeper water. For species
that are near the northern limit of their range, the availability of shallow,
sheltered habitats that warm early in the spring is probably essential for
survival (Lane et al, 1996a). For other species, using warmer littoral
areas increases the growing season and may significantly increase
production.
Some 80% of Great Lakes fish use the littoral zone for at least part of the
year (Lane et al., 1996a). Of 139 Great Lakes fish species reviewed by Lane et al. (1996b), all but the deepwater ciscoes
(Coregonus spp.) and deepwater sculpin (Myxocephalus thompsoni) use waters less than 10 m deep as nursery habitat.
A large number of thermal-electric plants located on the Great Lakes draw their cooling water from the littoral zone, resulting
in high I&E of several fish species of commercial, recreational, and ecological importance, including alewife, gizzard shad,
yellow perch, rainbow smelt, and lake trout (Tables 11-6 to 11-9).
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
Table 11-6: Annual Entrapment of Eggs, Larvae, and Juvenile Fish in the Great Lakes
Common Name I Scientific Name
alewife j Alosa pseudoharengus
rainbow smelt ! Osmerus mordax
lake trout j Salmo namaycush
Number of
Facilities
5
5
1
Mean Annual Entrainment per
Facility (fish/year)
526,000,000
90,500,000
116,000
Range
3,930,000-1,360,000,000
424,000 - 438,000,000
—
Source: Texas Instruments Inc., 1978; Michaud, 1998.
Table 11-7: Annual Entrainment of Larval Fish in
the Great Lakes by Lake
Lake
Erie
Michigan
Ontario
Huron
Superior
Number of
Facilities
16
25
11
6
14
Total Annual Entrainment
(fish/year)
255,348,164
196,307,405
176,285,758
81,462,440
4,256,707
Source: Kelso and Milburn, 1979.
Table 11-8: Annual Impingement of Fish in the Great Lakes for All Age Classes Combined
Common Name I Scientific Name
alewife \Alosapseudoharengus
gizzard shad j Dorosoma cepedianum
rainbow smelt j Osmerus mordax
threespine stickleback j Gasterosteus aculeatus
yellow perch j Percaflavescens
spottail shiner j Notropis hudsonius
freshwater drum j Aplodinotus grunniens
emerald shiner j Notropis atherinoides
trout perch j Percopsis omiscomaycus
bloater j Coregonus hoyi
white bass j Morone chrysops
slimy sculpin j Cottus cognatus
goldfish i Carassius auratus
mottled sculpin j Cottus bairdi
common carp j Cyprinus carpio
pumpkinseed • Lepomis gibbosus
Number of
Facilities
15
6
15
3
9
8
4
4
5
2
1
4
3
3
4
4
Mean Annual Impingement per
Facility (fish/year)
1,470,000
185,000
118,000
60,600
29,900
22,100
18,700
7,250
5,630
4,980
4,820
3,330
2,620
1,970
1,110
1,060
Range
355 - 5,740,000
25 - 946,000
78 - 549,000
23,200 - 86,200
58 - 127,000
5 - 62,000
2 - 74,800
3 - 28,600
30 - 23,900
3,620 - 6,340
—
795 - 5,800
4 - 7,690
625 - 3,450
16-4,180
14 - 3,920
Source: Benda and Houtcooper, 1977; Sharma and Freeman, 1977; Texas Instruments Inc., 1978; Thurber and Jude, 1985; Lawler
Matusky & Shelly Engineers, 1993a; Michaud, 1998.
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
Tat
Lake
Erie
Michigan
Ontario
Huron
Superior
tie 11-9: Annual
in the Great
Number of
Facilities
16
25
11
6
14
Impingement of Fish
Lakes by Lake
Total Annual Impingement
(fish/year)
22,961,915
15,377,339
14,483,271
7,096,053
243,683
Source: Kelso andMilburn, 1979.
The I&E estimates of Kelso and Milburn (1979) presented in Tables 11-7 and 1 1-9 were derived using methods that differed
in a number of ways from EPA's estimation methods, and therefore the data are not strictly comparable. First, the Kelso and
Milburn (1979) data represent total annual losses per lake, whereas EPA's estimates are on a per facility basis. In addition,
the estimates of Kelso and Milburn (1979) are based on extrapolation of losses to facilities for which data were unavailable
using regression equations relating losses to plant size.
Despite the differences in estimation methods, when converted to an annual average per facility, the impingement estimates of
Kelso and Milburn (1979) are within the range of EPA's estimates. For example, the average annual impingement of 675,980
fish per facility based on Kelso and Milburn' s (1979) data is comparable to EPA's high estimate of 1,470,000 for alewife.
On the other hand, EPA's entrainment estimates include eggs and larvae and are therefore substantially larger than those of
Kelso and Milburn (1979), which result from converting eggs and larvae to an equivalent number offish. Because of the high
natural mortality offish eggs and larvae, entrainment losses expressed as the number that would have survived to become fish
are much smaller than the original number of eggs and larvae entrained (Horst, 1975; Goodyear, 1978). Viewed together, the
two types of estimates give an indication of the possible upper and lower bounds of annual entrainment per facility (e.g., an
annual average of 8,018,657 fish based on Kelso and Milburn' s data compared to EPA's highest estimate of 526,000,000
organisms based on the average for alewife).
11.6 CWIS IMPINSEMENT AND ENTRAINMENT IMPACTS IN ESTUARIES
Estuaries are semi-enclosed bodies of water that have an unimpaired natural connection with the open ocean and within
which sea water is diluted with fresh water derived from land. Estuaries are created and sustained by dynamic interactions
among oceanic and freshwater environments, resulting in a rich array of habitats used by both terrestrial and aquatic species
(Day et al., 1989). Because of the high biological productivity and sensitivity of estuaries, adverse environmental impacts are
more likely to occur at CWIS located in estuaries than in other water body types.
Numerous commercially, recreationally, and ecologically important fish and shellfish species spend part or all of their life
cycle within estuaries. Marine fish that spawn offshore take advantage of prevailing inshore currents to transport their eggs,
larvae, or juveniles into estuaries where they hatch or mature. Inshore areas along the edges of estuaries support high rates of
primary productivity and are used by numerous aquatic species for feeding and as nursery habitats. This high level of
biological activity makes these shallow littoral zone habitats highly susceptible to I&E impacts from CWIS.
Estuarine species that show the highest rates of I&E in the studies reviewed by EPA include bay anchovy (Anchoa mitchilli),
tautog (Tautoga onitis), Atlantic menhaden (Brevoortia tyrannus), gulf menhaden (Brevoortia patronus), winter flounder
(Pleuronectes americanus), and weakfish (Cynoscion regalis) (Tables 11-10 and 11-11).
During spring, summer, and fall, various life stages of these and other estuarine fish show considerable migratory activity.
Adults move in from the ocean to spawn in the marine, brackish, or freshwater portions of estuaries or their associated rivers;
the eggs and larvae can be planktonic and move about with prevailing currents or by using selective tidal transport; juveniles
actively move upstream or downstream in search of optimal nursery habitat; and young adult anadromous fish move out into
the ocean to reach sexual maturity. Because of the many complex movements of estuarine-dependent species, a CWIS
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Section 316b EA Chapter 11 for New Facilities
CWIS I&E Impacts and Potential Benefits
located almost anywhere in an estuary can harm both resident and migratory species as well as related freshwater, estuarine,
and marine food webs.
Table 11-10: Annual Entrapment of Eggs, Larvae, and Juvenile Fish in Estuaries
Common Name j Scientific Name
bay anchovy i Anchoa mitchilli
tautog i Tautoga onitis
Atlantic menhaden i Brevoortia tyrannus
winter flounder i Pleuronectes americanus
weakfish i Cynoscion regalis
hogchoker i Trinectes maculatus
Atlantic croaker i Micropogonias undulatus
striped bass i Morone saxatilis
white perch i Morone americana
spot i Leiostomus xanthurus
blueback herring i Alosa aestivalis
alewife i Alosa pseudoharengus
Atlantic tomcod i Microgadus tomcod
American shad • Alosa sapidissima
Number of
Facilities
2
1
2
1
2
1
1
4
4
1
1
1
3
1
Mean Annual Entrainment
per Facility (fish/year)
18,300,000,000
6,100,000,000
3,160,000,000
952,000,000
339,000,000
241,000,000
48,500,000
19,200,000
16,600,000
11,400,000
10,200,000
2,580,000
2,380,000
1,810,000
Range
12,300,000,000 - 24,400,000,000
—
50,400,000 - 6,260,000,000
—
99,100,000 - 579,000,000
—
—
111,000-74,800,000
87,700 - 65,700,000
—
—
—
2,070 - 7,030,000
—
Source: U.S. EPA, 1982; Lawler Matusky & Shelly Engineers, 1983; DeHart, 1994; PSE&G, 1999.
Table 11-11: Annual Impingement in Estuaries for All Age Classes Combined
Common Name i Scientific Name
gulf menhaden \Brevoortiapatronus
smooth flounder j Liopsetta putnami
threespine stickleback j Gasterosteus aculeatus
Atlantic menhaden j Brevoortia tyrannus
rainbow smelt i Osmerus mordax
bay anchovy j Anchoa mitchilli
weakfish i Cynoscion regalis
Atlantic croaker j Micropogonias undulatus
spot i Leiostomus xanthurus
blueback herring j Alosa aestivalis
white perch i Morone americana
threadfin shad i Dorosoma petenense
lake trout i Salmo namaycush
gizzard shad i Dorosoma cepedianum
silvery minnow j Hybognathus nuchalis
Number of
Facilities
2
1
4
12
4
9
4
8
10
7
14
1
1
6
1
Mean Annual Impingement
per Facility (fish/year)
76,000,000
3,320,000
866,000
628,000
510,000
450,000
320,000
311,000
270,000
205,000
200,000
185,000
162,000
125,000
73,400
Range
2,990,000 - 149,000,000
-
123 - 3,460,000
114-4,610,000
737 - 2,000,000
1,700-2,750,000
357-1,210,000
13 - 1,500,000
176 - 647,000
1,170-962,000
287-1,380,000
...
...
2,058-715,000
—
Source: Consolidated Edison Company of New York Inc., 1975; Lawler Matusky & Shelly Engineers, 1975, 1976; Stupka andSharma,
1977; Lawler etal, 1980; Texas Instruments Inc., 1980; Van Winkle etal, 1980; Consolidated Edison Company of New York
Inc. and New York Power Authority, 1983; Normandeau Associates Inc., 1984; EA Science and Technology, 1987; Lawler
Matusky & Skelly Engineers, 1991; Richkus and McLean, 1998; PSE&G, 1999; New York State Department of Environmental
Conservation, No Date.
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Section 316b EA Chapter 11 for New Facilities CWIS I&E Impacts and Potential Benefits
11.7 CWIS IMPINSEMENT AND ENTRAINMENT IMPACTS IN OCEANS
Oceans are marine open coastal waters with salinity greater than or equal to 30 parts per thousand (Ross, 1995). CWIS in
oceans are usually located over the continental shelf, a shallow shelf that slopes gently out from the coastline an average of 74
km (46 miles) to where the sea floor reaches a maximum depth of 200 m (660 ft) (Ross, 1995). The deep ocean extends
beyond this region. The area over the continental shelf is known as the Neritic Province and the area over the deep ocean is
the Oceanic Province (Meadows and Campbell, 1978).
Vertically, the upper, sunlit epipelagic zone over the continental shelf averages about 100 m in depth (Meadows and
Campbell, 1978). This zone has pronounced light and temperature gradients that vary seasonally and influence the temporal
and spatial distribution of marine organisms.
In oceans, the littoral zone encompasses the photic zone of the area over the continental shelf. As in other water body types,
the littoral zone is where most marine organisms concentrate. The littoral zone of oceans is of particular concern in the
context of section 316(b) because this biologically productive zone is also where most coastal utilities withdraw cooling
water.
The morphology of the continental shelf along the U.S. coastline is quite varied (NRC, 1993). Along the Pacific coast of the
United States the continental shelf is relatively narrow, ranging from 5 to 20 km (3 to 12 miles), and is cut by several steep-
sided submarine canyons. As a result, the littoral zone along this coast tends to be narrow, shallow, and steep. In contrast,
along most of the Atlantic coast of the United States, there is a wide, thick, and wedge-shaped shelf that extends as much as
250 km (155 miles) from shore, with the greatest widths generally opposite large rivers. Along the Gulf coast, the shelf
ranges from 20 to 50 km (12 to 31 miles).
The potential for I&E in coastal areas can be quite high, not only because CWIS are located in the productive areas over the
continental shelf where many species reproduce, but also because nearshore areas within bays, estuaries, wetlands, or coastal
rivers provide nursery habitat. In addition, the early life stages of many species are planktonic, and tides and currents can
carry these organisms over large areas. The abundance of plankton in temperate regions is seasonal, with greater numbers in
spring and summer and fewer numbers in winter.
An additional concern for CWIS in coastal areas pertains to the presence of marine mammals and reptiles, including
threatened and endangered species of sea turtles. These species are known to enter submerged offshore CWIS and can drown
once inside the intake tunnel.
In addition to many of the species discussed in the section on estuaries, other fish species found in near coastal waters that are
of commercial, recreational, or ecological importance and are particularly vulnerable to I&E include silver perch (Bairdiella
chrysura), cunner (Tautogolabrus adspersus), several anchovy species, scaled sardine (Harengulajaguana), and queenfish
(Seriphuspolitus) (Tables 11-12 and 11-13).
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Section 316b EA Chapter 11 for New Facilities
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Table 11-12: Annual Entrapment of Eggs, Larvae, and Juvenile Fish in Oceans
Common Name I Scientific Name
bay anchovy ! Anchoa mitchilli
silver perch j Bairdiella chrysura
striped anchovy ! Anchoa hepsetus
cunner i Tautogolabrus adspersus
scaled sardine j Harengula jaguana
tautog i Tautoga onitis
clown goby j Microgobius gulosus
code goby j Gobiosoma robustum
sheepshead j Archosargus probatocephalus
kingfish i Menticirrhus spp.
pigfish i Orthopristis chrysoptera
sand sea trout i Cynoscion arenarius
northern kingfish ! Menticirrhus saxatilis
Atlantic mackerel i Scomber scombrus
Atlantic bumper j Chloroscombrus chrysurus
Number of
Facilities
2
2
1
2
1
2
1
1
1
1
2
1
1
1
1
Mean Annual Entrainment
per Facility (fish/year)
44,300,000,000
26,400,000,000
6,650,000,000
1,620,000,000
1,210,000,000
911,000,000
803,000,000
680,000,000
602,000,000
542,000,000
459,000,000
325,000,000
322,000,000
312,000,000
298,000,000
Range
9,230,000,000 - 79,300,000,000
8,630,000 - 52,800,000,000
...
33,900,000 - 3,200,000,000
...
300,000 - 1,820,000,000
...
...
...
...
755,000 - 918,000,000
...
...
—
Source: Conservation Consultants Inc., 1977; Stone & Webster Engineering Corporation, 1980; Florida Power Corporation, 1985;
Normandeau Associates Inc., 1994; Jacobsen etal, 1998; Northeast Utilities Environmental Laboratory, 1999.
Table 11-13: Annual Impingement in Oceans for All Age Classes Combined
Common Name i Scientific Name
queenfish \Seriphuspolitus
polka-dot batfish j Ogcocephalus radiatus
bay anchovy j Anchoa mitchilli
northern anchovy j Engraulis mordax
deepbody anchovy j Anchoa compressa
spot j Leiostomus xanthurus
American sand lance j Ammodytes americanus
silver perch \Bairdiella chrysura
California grunion j Caranx hippos
topsmelt j Atherinops affinis
alewife j Alosa pseudoharengus
pinfish j Lagodon rhomboides
slough anchovy j Anchoa delicatissima
walleye surfperch j Hyperprosopon argenteum
Atlantic menhaden i Brevoortia tyrannus
Number of
Facilities
2
1
2
2
2
1
2
2
1
2
2
1
3
1
3
Mean Annual Impingement
per Facility (fish/year)
201,000
74,500
49,500
36,900
35,300
28,100
20,700
20,500
18,300
18,200
16,900
15,200
10,900
10,200
7,500
Range
19,800-382,000
—
11,000-87,900
26,600 - 47,200
34,200 - 36,400
—
886 - 40,600
12,000 - 29,000
—
4,320 - 32,300
1,520-32,200
—
2,220 - 27,000
—
861-20,400
Source: Stone & Webster Engineering Corporation, 1977; Stupka and Shartna, 1977; Tetra Tech Inc., 1978; Stone and Webster
Engineering Corporation, 1980; Florida Power Corporation, 1985; Southern California Edison Company, 1987; SAIC, 1993;
EA Engineering, Science and Technology, 1997; Jacobsen etal., 1998.
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11.8 SUMMARY OF IMPINSEMENT AND ENTRAINMENT DATA
The data evaluated by EPA indicate that fish species with free-floating, early life stages are those most susceptible to CWIS
impingement and entrainment impacts. Such planktonic organisms lack the swimming ability to avoid being drawn into
intake flows. Species that spawn in nearshore areas, have planktonic eggs and larvae, and are small as adults experience even
greater impacts because both new recruits and the spawning adults are affected (e.g., bay anchovy in estuaries and oceans).
EPA's data review also indicates that fish species in estuaries and oceans experience the highest rates of I&E. These species
tend to have planktonic eggs and larvae, and tidal currents carry planktonic organisms past intakes multiple times, increasing
the probability of I&E. In addition, fish spawning and nursery areas are located throughout estuaries and near coastal waters,
making it difficult to avoid locating intakes in areas where fish are present.
11.9 POTENTIAL BENEFITS OF SECTION 316(B) REGULATION
11.9.1 Benefits Concepts, Categories, and Causal Links
This section provides a qualitative description of the types of benefits that are expected from the section 316(b) New Facility
Rule. Although valuing the changes in environmental quality that arise from the rule is a principal desired outcome for the
Agency's policy assessment framework, time and data constraints do not permit a quantified assessment of the economic
benefits of the final rule.
As noted in previous sections of this chapter, changes in CWIS design, location, or capacity can reduce I&E rates. These
changes in I&E can potentially yield significant ecosystem improvements in terms of the number offish that avoid premature
mortality. This in turn is expected to increase local and regional fishery populations, and ultimately contribute to the
enhanced environmental functioning of affected water bodies (rivers, lakes, estuaries, and oceans). Finally, the economic
welfare of human populations is expected to increase as a consequence of the improvements in fisheries and associated
aquatic ecosystem functioning. Potential ecological outcomes and related economic benefits from anticipated reductions in
adverse effects of CWIS are identified below along with an explanation of the basic economic concepts applicable to the
economic benefits, including benefit categories and taxonomies, service flows, and market and nonmarket goods and services.
11.9.2 Applicable Economic Benefit Categories
Key challenges in benefits assessment include uncertainties and data gaps, as well as the fact that many of the goods and
services beneficially affected by the change in new facility I&E are not traded in the marketplace. Thus there are numerous
instances — including this final section 316(b) rule for new facilities — when it is not feasible to confidently assign monetary
values to some beneficial outcomes. In such instances, benefits are described and considered qualitatively. This is the case
for the rule for new facility CWIS. At this time, there is only general information about the location of most new facilities,
and in most cases details of facility and environmental characteristics are unknown. As a result, it is not possible to do a
detailed analysis of potential monetary benefits associated with the final regulations.
11.9.3 Benefit Category Taxonomies
The term "economic benefits" here refers to the dollar value associated with all the expected positive impacts of the section
316(b) New Facility Rule. Conceptually, the monetary value of benefits is the sum of the predicted changes in "consumer
and producer surplus." These surplus measures are standard and widely accepted terms of applied welfare economics, and
reflect the degree of well-being derived by economic agents (e.g., people or firms) given different levels of goods and
services, including those associated with environmental quality.3
3 Technically, consumer surplus reflects the difference between the "value" an individual places on a good or service (as reflected by
the individual's "willingness to pay" for that unit of the good or service) and the "cost" incurred by that individual to acquire it (as
reflected by the "price" of a commodity or service, if it is provided in the marketplace). Graphically, this is the area bounded from above
by the demand curve and below by the market clearing price. Producer surplus is a similar concept, reflecting the difference between the
market price a producer can obtain for a good or service and the actual cost of producing that unit of the commodity.
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The economic benefits of activities that improve environmental conditions can be categorized in many different ways. The
various terms and categories offered by different authors can lead to some confusion with semantics. However, the most
critical issue is to try not to omit any relevant benefit, and at the same time avoid potential double counting of benefits.
One common typology for benefits of environmental programs is to divide them into three main categories: (1) economic
welfare (e.g., changes in the well-being of humans who derive use value from market or nonmarket goods and services such
as fisheries); (2) human health (e.g., the value of reducing the risk of premature fatality due to changing exposure to
environmental exposure); and (3) nonuse values (e.g., stewardship values for the desire to preserve threatened and endangered
species). For the section 316(b) New Facility Rule, however, this typology does not convey all the intricacies of how the rule
might generate benefits. Further, human health benefits are not anticipated. Therefore, another categorization may be more
informative.
Figure 11-1 outlines the most prominent categories of benefit values for the section 316(b) New Facility Rule. The four
quadrants are divided by two principles: (1) whether the benefit can be tracked in a market (i.e., market goods and services)
and (2) how the benefit of a nonmarket good is received by human beneficiaries (either from direct use of the resource, from
indirect use, or from nonuse).
Figure 11-1: Section 316(b) Benefit Values
Market
Nonmarket
Nonuse
Vicarious Consumption
BENEFIT VALUES
Nonmarket
Direct Use
Nonmarket Food chain
Indirect Use
Market benefits are best typified by commercial fisheries, where a change in fishery conditions will manifest itself in the
price, quantity, and/or quality offish harvests. The fishery changes thus result in changes in the marketplace, and can be
evaluated based on market exchanges.
Direct use benefits include the value of improved environmental goods and services used and valued by people (whether or
not they are traded in markets). A typical nonmarket direct use would be recreational angling, in which participants enjoy a
welfare gain when the fishery improvement results in a more enjoyable angling experience (e.g., higher catch rates).
Indirect use benefits refer to changes that contribute, through an indirect pathway, to an increase in welfare for users (or
nonusers) of the resource. An example of an indirect benefit would be when the increase in the number of forage fish enables
the population of valued predator species to improve (e.g., when the size and numbers of prized recreational or commercial
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fish increase because their food source has been improved). In such a context, the I&E impacts on a forage species will
indirectly result in welfare gains for recreational or commercial anglers.
Nonuse benefits — also known as passive use values — reflect the values individuals assign to improved ecological
conditions apart from any current, anticipated, or optional use by them. Some economists consider option values to be a part
of nonuse values because the option value is not derived from actual current use, whereas other writers place it in a use
category (because the option value is associated with preserving opportunity for a future use of the resource). For
convenience, we place option value in the nonuse category.
11.9.4 Direct Use Benefits
Direct use benefits are the simplest to envision. The welfare of commercial, recreational, and subsistence fishermen is
improved when fish stocks increase and their catch rates rise. This increase in stocks may be induced by reduced I&E of
species sought by fishermen, or through reduced I&E of forage and bait fish, which leads to increases in populations of
commercial and recreational species. For subsistence fishermen, the increase in fish stocks may reduce the amount of time
spent fishing for their meals or increase the number of meals they are able to catch. For recreational anglers, more fish and
higher catch rates may increase the enjoyment of a fishing trip and may also increase the number of fishing trips taken. For
commercial fishermen, larger fish stocks may lead to increased revenues through increases in total landings and/or increases
in the catch per unit of effort (i.e., lower costs per fish caught). Increases in catch may also lead to growth in related
commercial enterprises, such as commercial fish cleaning/filleting, commercial fish markets, recreational charter fishing, and
fishing equipment sales.
Evidence that these use benefits are valued by society can be seen in the market. For example, in 1996 about 35 million
recreational anglers spent nearly $38 billion on equipment and fishing trip related expenditures (US DOI, 1997) and the 1996
GDP from fishing, forestry, and agricultural services (not including farms) was about $39 billion (BEA, 1998). Clearly, these
data indicate that the fishery resource is very important. Although these baseline values do not give us a sense of how
benefits change with changes in environmental quality such as reduced I&E and increased fish stocks, even a change of 0.1%
would translate into potential benefits of $40 million per year.
Commercial fishermen. The benefits derived from increased landings by commercial fishermen can be valued by looking at
the market in which the fish are sold. The ideal measure of commercial fishing benefits is the producer surplus generated by
the marginal increase in landings, but often the data required to compute the producer surplus are unavailable. In this case,
revenues may be used as a proxy for producer surplus, with some assumptions and an adjustment. The assumptions are that
(1) there will be no change in harvesting behavior or effort, but existing commercial anglers will experience an increase in
landings, and (2) there will be no change in price. Given these assumptions, benefits can be estimated by calculating the
expected increase in the value of commercial landings, and then translating the landed values into estimated increases in
producer surplus. The economic literature (Huppert, 1990) suggests that producer surplus values for commercial fishing have
been estimated to be approximately 90% of total revenue (landings values are a close proxy for producer surplus because the
commercial fishing sector has very high fixed costs relative to its variable costs). Therefore, the marginal benefit from an
increase in commercial landings can be estimated to be approximately 90% of the anticipated change in revenue.
Recreational users. The benefits of recreational use cannot be tracked in the market. However, there is extensive literature
on valuing fishing trips and valuing increased catch rates on fishing trips. While it is likely that nearwater recreational users
will gain benefits, it is unlikely that swimmers would perceive an important effect on their use of the ecosystem. Boaters may
receive recreational value to the degree that enjoyment of their surroundings is an important part of their recreational pleasure
or that fishing is a secondary reason for boating. Passive use values to these and other individuals are discussed below.
Primary studies of sites throughout the United States have shown that anglers value their fishing trips and that catch rates are
one of the most important attributes contributing the quality of their trips.
Higher catch rates may translate into two components of recreational angling benefits: an increase in the value of existing
recreational fishing trips, and an increase in recreational angling participation. The most promising approaches for
quantifying and monetizing these two benefits components are benefits transfer (as a secondary method) and random utility
modeling or RUM (as a primary research method).
To estimate the value of an improved recreational fishing experience, it is necessary to estimate the existing number of
angling trips or days that are expected to be improved by reducing I&E. As with the commercial fishing benefits, it is
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important to identify the appropriate geographic scope when estimating these numbers. Once the existing angling numbers
have been estimated, the economic value of an improvement (consumer surplus) can be estimated. The specific approach for
estimating the value will depend on the economic literature that is most relevant to the specific characteristics of the study
site. For example, some economic studies in the literature can be used to infer a factor (percentage increase) that can be
applied to the baseline value of the fishery for specific changes in fishery conditions. Other primary studies simply provide
an estimate of the incremental value attributable to an improvement in catch rate.
In some cases it may be reasonable to assume that increases in fish abundance (attributable to reducing I&E) will lead to an
increase in recreational fishing participation. This would be particularly relevant in a location that has experienced such a
severe impact to the fishery that the site is no longer an attractive location for recreational activity. Estimates of potential
recreational activity post-regulation can be made based on similar sites with healthy fishery populations, on conservative
estimates of the potential increase in participation (e.g., a 5% increase), or on recreational planning standards (densities or
level of use per acre or stream mile). A participation model (as in a RUM application) could also be used to predict changes
in the net addition to user levels from the improvement at an impacted site. The economic benefit of the increase in angling
days then can be estimated using values from the economic literature for a similar type of fishery and angling experience.
Subsistence anglers. Subsistence use of fishery resources can be an important issue in areas where socioeconomic conditions
(e.g., the number of low income households) or the mix of ethnic backgrounds make such angling economically or culturally
important to a component of the community. In cases of Native American use of impacted fisheries, the value of an
improvement can sometimes be inferred from settlements in similar legal cases (including natural resource damage
assessments, or compensation agreements between impacted tribes and various government or other institutions in cases of
resource acquisitions or resource use restrictions). For more general populations, the value of improved subsistence fisheries
may be estimated from the costs saved in acquiring alternative food sources (assuming the meals are replaced rather than
foregone).
11.9.5 Indirect Use Benefits
Indirect use benefits refer to welfare improvements that arise for those individuals whose activities are enhanced as an
indirect consequence of the fishery or habitat improvements generated by the final new facility standards for CWIS. For
example, the rule's positive impacts on local fisheries may, through the intricate linkages in ecologic systems, generate an
improvement in the population levels and/or diversity of bird species in an area. This might occur, for example, if the
impacted fishery is a desired source of food for an avian species of interest. Avid bird watchers might thus obtain greater
enjoyment from their outings, as they are more likely to see a wider mix or greater numbers of birds. The increased welfare
of the bird watchers is thus a legitimate but indirect consequence of the final rule's initial impact on fish.
There are many forms of potential indirect benefits. For example, a rule-induced improvement in the population of a forage
fish species may not be of any direct consequence to recreational or commercial anglers. However, the increased presence of
forage fish may well have an indirect affect on commercial and recreational fishing values because it enhances an important
part of the food chain. Thus, direct improvements in forage species populations may well result in a greater number (and/or
greater individual size) of those fish that are targeted by recreational or commercial anglers. In such an instance, the relevant
recreational and commercial fishery benefits would be an indirect consequence of the final rule's initial impacts on lower
levels of the aquatic ecosystem.
The data and methods available for estimating indirect use benefits depend on the specific activity that is enhanced. For
example, an indirect improvement to recreational anglers would be measured in essentially the same manner discussed under
the preceding discussion on direct use benefits (e.g., using a RUM model). However, the analysis requires one additional
critical step — that of indicating the link between the direct impact of the final rule (e.g., improvements in forage species
populations) and the indirect use that is ultimately enhanced (e.g., the recreationally targeted fish). Therefore, what is
typically required for estimating indirect use benefits is ecologic modeling that captures the key linkages between the initial
impact of the rule and its ultimate (albeit indirect) effect on use values. In the example of forage species, the change in forage
fish populations would need to be analyzed in a manner that ultimately yields information on responses in recreationally
targeted species (e.g., that can be linked to a RUM analysis).
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11.9.6 Nonuse Benefits
Nonuse (passive use) benefits arise when individuals value improved environmental quality apart from any past, present, or
anticipated future use of the resource in question. Such passive use values have been categorized in several ways in the
economic literature, typically embracing the concepts of existence (stewardship) and bequest (intergenerational equity)
motives. Passive use values also may include the concept that some ecological services are valuable apart from any human
uses or motives. Examples of these ecological services may include improved reproductive success for aquatic and terrestrial
wildlife, increased diversity of aquatic and terrestrial wildlife, and improved conditions for recovery of threatened and
endangered species.
Passive values can only be estimated in primary research through the use of direct valuation techniques such as contingent
valuation method (CVM) surveys and related techniques (e.g., conjoint analysis using surveys). In the case of the final
section 316(b) New Facility Rule, no primary research was feasible within the constraints faced by the Agency. If estimates
were to be developed, EPA would need to rely on benefits transfer, with appropriate care and caveats clearly recognized.
One typical approach for estimating passive values is to apply a ratio between certain use-related benefits estimates and the
passive use values anticipated for the same site and resource change. Freeman (1979) applied a rule of thumb in which he
inferred that national-level passive benefits of water quality improvements were 50% of the estimated recreational fishing
benefits. This was based on his review of the literature in those instances where nonuse and use values had been estimated
for the same resource and policy change. Fisher and Raucher (1984) undertook a more in-depth and expansive review of the
literature, found a comparable relationship between recreational angling benefits and nonuse values, and concluded that since
nonuse values were likely to be positive, applying the 50% "rule of thumb" was preferred over omitting nonuse values from a
benefits analysis entirely.
The 50% rule has since been applied frequently in EPA water quality benefits analyses (e.g., effluent guidelines RIAs for the
iron and steel and pulp and paper sectors, and the RIA for the Great Lakes Water Quality Guidance). At times the rule has
been extended to ratios higher than 50% (based on specific studies in the literature). However, the overall reliability and
credibility of this type of approach is, as for any benefits transfer approach, dependent on the credibility of the underlying
study and the comparability in resources and changes in conditions between the research survey and the section 316(b) New
Facility Rule's impacts at selected sites. The credibility of the nonuse value estimate also is contingent on the reliability of
the recreational angling estimates to which the 50% rule is applied.
A second potential approach to deriving estimates for section 316(b) passive use values is to use benefits transfer to apply an
annual willingness-to-pay estimate per nonuser household (e.g., Mitchell and Carson, 1986; Carson and Mitchell, 1993) to all
the households with passive use motives for the impacted water body. The challenges in this approach include defining the
appropriate "market" for the impacted site (e.g., what are the boundaries for defining how many households apply), as well as
matching the primary research scenario (e.g., "beatable to fishable") to the predicted improvements at the section
316(b)-impacted site.
For specific species, some nonuse valuation may be deduced using restoration-based costs as a proxy for the value of the
change in stocks (or for threatened and endangered species the value of preserving the species). Where a measure of the
approximate cost per individual can be deduced, and the number of individuals spared via BTA can be estimated, this may be
a viable approach.
11.9.7 Summary of Benefits Categories
Table 11-14 displays the types of benefits categories expected to be affected by the section 316(b) New Facility Rule and the
various data needs, data sources, and estimation approaches associated with each category. As described in sections 11.9.4 to
11.9.6, economic benefits can be broadly defined according to three categories: (1) direct use, (2) indirect use, and (3) nonuse
(passive use) benefits. These benefits can be further categorized according to whether or not they are traded in the market.
As indicated in Table 11-14, "direct use" benefits include both "marketed" and "nonmarketed" goods, whereas "nonuse" and
"indirect use" benefits include only "nonmarketed" goods.
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Table 11-14: Summary of Benefit Categories, Data Needs, Potential Data Sources, and Approaches
Benefits Category
Increased commercial landings
(fishing, shellfishing, and
aquaculture)
Improved value of a recreational
fishing experience
Increase in recreational fishing
participation
Increase in subsistence fishing
Increase in indirect values
Increase in passive use values
Basic Data Needs
Direct Use, Marketed Goods
+ Estimated change in landings
>• Estimated producer surplus
Direct Use, Nonmarketed Goods
*• Estimated number of affected anglers
*• Value of an improvement in catch rate, and
possibly, value of an angling day
>• Estimated number of affected anglers or estimate of
potential anglers
>• Value of an angling day
*• Estimated number of affected anglers or estimate of
potential anglers
*• Value of an angling day
Nonuse and Indirect Use, Nonmarketed
+ Estimated changes in ecological services (e.g.,
reproductive success of aquatic species)
>• Restoration based on costs
*• Apply stated preference approach, or benefits
transfer
Potential Data Sources/Approaches
>• Based on ecological modeling
>• Based on available literature or 50%
rule
*• Site-specific studies, national or
statewide surveys
*• Based on available literature
>• Site-specific studies, national or
statewide surveys
>• Based on available literature
*• Site-specific studies, national or
statewide surveys
*• Based on available literature
>• Based on ecological modeling
>• Site-specific studies, national or
statewide surveys
*• Site-specific studies, national or
statewide stated preference surveys
11.9.8 Causality: Linking the Section 316(b) Rule to Beneficial Outcomes
Understanding the anticipated economic benefits arising from changes in I&E requires understanding a series of physical and
socioeconomic relationships linking the installation of Best Technology Available (BTA) to changes in human behavior and
values. As shown in Figure 11-2, these relationships span a broad spectrum, including institutional relationships to define
BTA (from policy making to field implementation), the technical performance of BTA, the population dynamics of the
aquatic ecosystems affected, and the human responses and values associated with these changes.
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Figure 11-2: Causal Linkages in the Benefits Analysis
§316(b)
Benefits
Analysis
for New
Sources
Causal Linkages
Benefits Analyses
1. EPA Publication of Rule
2.Implementation through
NPDES Permit Process
3. Changes in Cooling Water Intake
Practices and/or Technologies
(implementation of BTA)
Determine BTA Options
and Environmental Impact
4. Reductions in Impingement
and Entrainment
Present Environmental
Impact of the
Implemented BTA
5. Change in Aquatic Ecosystem
(e.g., increased fish abundance and
diversity)
Assessment of Environmental
Impacts of Reduced I&E
6. Change in Level of Demand for Aquatic
Ecosystem Services (e.g., recreational,
commercial, and other benefits categories)
I Quantification
[e.g., participation
modeling)
7. Change in Economic Values (monetized
changes in welfare)
The first two steps in Figure 11-2 reflect the institutional aspects of implementing the section 316(b) New Facility Rule. In
step 3, the anticipated applications of BTA (or a range of BTA options) must be determined for the regulated entities. This
technology forms the basis for estimating the cost of compliance, and provides the basis for the initial physical impact of the
rule (step 4). Hence, the analysis must predict how implementation of BTAs (as predicted in step 3) translates into changes in
I&E at the regulated CWIS (step 4). These changes in I&E then serve as input for the ecosystem modeling (step 5).
In moving from step 4 to step 5, the selected ecosystem model (or models) are used to assess the change in the aquatic
ecosystem from the preregulatory baseline (e.g., losses of aquatic organisms before BTA) to the postregulatory conditions
(e.g., losses after BTA implementation). The potential output from these steps includes estimates of reductions in I&E rates,
and changes in the abundance and diversity of aquatic organisms of commercial, recreational, ecological, or cultural value,
including threatened and endangered species.
In step 6, the analysis involves estimating how the changes in the aquatic ecosystem (estimated in step 5) translate into
changes in level of demand for goods and services. For example, the analysis needs to establish links between improved
fishery abundance, potential increases in catch rates, and enhanced participation. Then, in step 7, as an example, the value of
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the increased enjoyment realized by recreational anglers is estimated. These last two steps typically are the focal points of the
economic benefits portion of the analysis. However, because of data and time constraints, this benefits analysis is limited to
only the first four steps of the process.
11.10 EMPIRICAL INDICATIONS OF POTENTIAL BENEFITS
The following discussion provides examples from existing facilities that offer some indication of the relative magnitude of
monetary benefits that may be expected to result from the final new facility regulations.
The potential benefits of lower intake flows and 100% recirculation of flow are illustrated by comparisons of once-through
and closed-cycle cooling (e.g., Brayton Point and Hudson River facilities). The potential benefits of additional requirements
defined by regional permit directors are demonstrated by operational changes implemented to reduce impingement and
entrainment (e.g., Pittsburg and Contra Costa facilities). The potential benefits of reducing losses of forage species are
demonstrated by analysis of the biological and economic relationships among forage species and commercial and recreational
fishery species (e.g., Ludington facility on Lake Michigan). Finally, the potential benefits of implementing additional
technologies to increase survival of organisms impinged or entrained are illustrated by the application of modified intake
screens and fish return systems (e.g., Salem Nuclear Generating Facility). These cases are discussed below.
An example of the potential benefits of minimizing intake flow is provided by data for the Brayton Point facility, located on
Mt. Hope Bay in Massachusetts (NEPMRI, 1981, 1995; U.S. EPA, 1982). In the mid-1980s, the operation of Unit 4 at
Brayton Point was changed from closed-cycle to once-through cooling, increasing flow by 48% from an average of 703 MOD
before conversion to an average of 1045 MOD for the first 6 years post-conversion (Lawler, Matusky, and Skelly Engineers,
1993b). Although conversion to once-through cooling increased coolant flow and the associated heat load to Mt. Hope Bay,
the facility requested the change because of electrical problems associated with Unit 4's saltwater spray cooling system (U.S.
EPA, 1982). An analysis of fisheries data by the Rhode Island Division of Fish and Wildlife using a time series-intervention
model indicated that there was an 87% reduction in finfish abundance in Mt. Hope Bay coincident with the Unit 4
modification (Gibson, 1996). The analysis also indicated that, in contrast, species abundance trends have been relatively
stable in adjacent coastal areas and portions of Narragansett Bay that are not influenced by the operation of Brayton Pt.
Another example of the potential benefits of low intake flow is provided by an analysis of I&E losses at five Hudson River
power plants. Estimated fishery losses under once-through compared to closed-cycle cooling indicated that an average
reduction in intake flow of about 95% at the three facilities responsible for the greatest impacts would result in a 30-80%
reduction in fish losses, depending on the species involved (Boreman and Goodyear, 1988). An economic analysis estimated
monetary damages under once-through cooling based on the assumption that annual percent reductions in year classes of fish
result in proportional reductions in fish stocks and harvest rates (Rowe et al., 1995). A low estimate of per facility damages
was based on losses at all five facilities and a high estimate was based on losses at the three facilities that account for most of
the impacts. Damage estimates under once-through cooling ranged from about $1.3 million to $6.1 million annually in 1999
dollars.
A third example demonstrates how I&E losses of forage species can lead to reductions in economically valued species. Jones
and Sung (1993) applied a RUM to estimate fishery impacts of I&E by the Ludington Pumped-Storage plant on Lake
Michigan. This method estimates changes in demand as a function of changes in catch rates. The Ludington facility is
responsible for the loss of about 1-3% of the total Lake Michigan production of alewives, a forage species that supports
valuable trout and salmon fisheries. Jones and Sung (1993) estimated that losses of alewife result in a loss of nearly 6% of
the angler catch of trout and salmon each year. Based on RUM analysis, they estimated that if Ludington operations ceased,
catch rates of trout and salmon species would increase by 3.3 to 13.7% annually, amounting to an estimated recreational
angling benefit of $0.95 million per year (in 1999 dollars) for these species alone.
A fourth example indicates the potential benefits of operational BTA that might be required by regional permit Directors.
Two plants in the San Francisco Bay/Delta, Pittsburg and Contra Costa, have made changes to their intake operations to
reduce impingement and entrainment of striped bass (Morone saxatilis). These operational changes have also reduced
incidental take of several threatened and endangered fish species, including the delta smelt (Hypomesus transpacificus) and
several runs of chinook salmon (Oncorhynchus tshawytschd) and steelhead trout (Oncorhynchus mykiss). According to
technical reports by the facilities, operational BTA reduced striped bass losses by 78% to 94%, representing an increase in
striped bass recreational landings averaging about 100,000 fish each year (PG&E, 1996, 1997, 1998, 1999; Southern Energy
California, 2000). A local study estimated that the consumer surplus of an additional striped bass caught by a recreational
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Section 316b EA Chapter 11 for New Facilities CWIS I&E Impacts and Potential Benefits
angler is $8.87 to $13.77 (Huppert, 1989). This implies a benefit to the recreational fishery, from reduced impingement and
entrainment of striped bass alone, in the range of $887,000 to $1,377,000 annually. The monetary benefit of reduced
impingement and entrainment of threatened and endangered species might be substantially greater.
The final example indicates the benefits of technologies that can be applied to maximize survival. In their 1999 permit
renewal application, the Salem Nuclear Generating Station in the Delaware Estuary evaluated the potential benefits of dual-
flow, fine-mesh traveling screens designed to achieve an approach velocity of 0.5 fps (PSEG, 1999). The facility estimated
that use of this technology would have a total economic benefit of $3.64 million in 2000 dollars (Appendix F, Section IX,
Table 12).
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Section 316b EA Chapter 11 for New Facilities CWIS I&E Impacts and Potential Benefits
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