Economic Analysis of Effluent Limitations Guidelines and Standards for the Centralized Waste Treatment Industry

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             Economic Analysis of
Effluent Limitation Guidelines and Standards
for the Centralized Waste Treatment Industry
                   William Wheeler
          Economic and Statistical Analysis Branch
            Engineering and Analysis Division
            Office of Science and Technology
           U.S. Environmental Protection Agency
                Washington, DC 20460

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The author wishes to thank Jan Matuszko for her knowledge, cooperation, and leadership as
project officer. The author also thanks Tim Connor, Charles Tamulonis, Maria Smith, and
other members of the Centralized Waste Treatment team for their knowledge and cooperation
in the preparation of this report.

The author also thanks Research Triangle Institute for then- assistance and support in
performing the underlying analyses supporting the conclusions described in this report.  Their
analysis was performed under contract number 68-C4-0060, under a subcontract to Abt
Associates. Particular thanks are given to Katherine Heller, George Van Houtven, Tyler Fox,
Jean Domanico, Sheryl Kelly, and Laura Bloch.
                                         in

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IV

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                                   CONTENTS
Section
          EXECUTIVE SUMMARY ........................................ 1-1

          1.1    Introduction . . . ........................................... 1-1

          1.2    Sources of Data  ........................................... 1-2

          1.3    Profile of the Industry  ................. ..................... 1-3

          1.4    Annualized Costs of Compliance .............................. 1-5

          1.5    Facility Impacts  ........................................... 1-7

          1 .6    Firm Impacts  ................................. • ........... 1-8
1.7
                 Community Impacts .............................. • ......... 1-9
          1.8    Initial Regulatory Flexibility Analysis  ........................ 1-10

          1.9    Cost-Benefit Analysis ................................ ..... 1-11

          DATA SOURCES  .... ................ ...................... ..... 2-1

          2.1    Data from the Waste Treatment Industry Questionnaire ............ 2-1
                 2.1.1  Data Modifications and Corrections ..................... 2-2
                 2. 1 .2  Additions to Data Since Original Proposal (NOA Facilities)  . . 2-4

          2.2    Data Sources for Demand Characterization ...................... 2-4

          2.3    Data Sources for Market Characterization ....................... 2-5

          2.4    Data Sources Used for Company Analysis ...................... 2-5

          2.5    References  ............................................... 2-5

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                  CONTENTS (CONTINUED)
                                                                     Page
BASELINE CONDITIONS AND INDUSTRY PROFILE	3-1

3.1    Industry Profile 	3-1
       3.1.1  Overview of the CWT Industry	3-1
             3.1.1.1   Services Provided	3-3
             3.1.1.2   Subcategories 	3-3
       3.1.2  Demand for CWT Services  	3-4
             3.1.2.1   Industries Demanding CWT Services	3-5
             3.1.2.2   Trends in the Demand for CWT Services (TRI)	3-5
       3.1.3  Description of Suppliers of CWT Services	3-6
             3.1.3.1   Commercial Status  	3-7
             3.1.3.2   Industry Classification by SIC Code	3-9
             3.1.3.3   Location of CWT Facilities  	3-11
             3.1.3.4   Facility Size  	3-13
             3.1.3.5   Facilities Permitted Under RCRA  	3-15
       3.1.4  Baseline Facility Conditions	3-16
             3.1.4.1   Baseline Quantities of Waste Treated	3-16
             3.1.4.2   Baseline Costs of CWT Operations 	3-16
             3.1.4.3   Baseline Revenues for CWT Operations  	3-18
             3.1.4.4   Baseline Profitability for CWT Facilities	3-19
             3.1.4.5   Baseline Conditions for Noncommercial
                      Facilities	3-20
       3.1.5  Baseline Market Conditions	3-21
             3.1.5.1   Defining Regional Markets	3-21
             3.1.5.2   Defining Markets for Specific CWT Services 	3-23
             3.1.5.3   Defining Market Structure 	3-24
             3.1.5.4   Substitutes for CWT Services	3-28
             3.1.5.5   Baseline Market Prices and Quantities of CWT
                      Services	3-29
       3.1.6  Company Financial Profile  	3-29

3.2    Baseline Environmental Impacts of The CWT Industry	3-36
       3.2.1  Pollutants Discharged  	3-36
       3.2.2  Affected Streams and Reaches	3-45

3.3    References  	3-47
                               VI

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Section
                           CONTENTS (CONTINUED)
Page
   4     DESCRIPTION OF THE CWT EFFLUENT LIMITATIONS GUIDELINES
         AND STANDARDS AND COMPLIANCE COST ANALYSIS	.4-1

   4.1    Controls for Each Subcategory of the CWT Industry	4-1
         4.1.1  Metals Subcategory	4-2
         4.1.2  Oils Subcategory	4-3
         4.1.3  Organics Subcategory  	4-4

   4.2    Costs of Controls	4-5
         4.2.1  Computing the Annualized Cost of Compliance	4-5
               4.2.1.1 Purpose of Cost Annualization  	4-6
               4.2.1.2 Depreciation and Taxes	4-6
         4.2.2  Costs for Facilities with Both Commercial and Noncommercial
               Operations	4-9
         4.2.3  Compliance Costs Associated with RCRA Permit Modification .....  4-9
         4.2.4  Compliance Costs for the Control Options 	4-10
         4.2.5  Compliance Costs of Combined Regulatory Option	.'	4-15

   4.3    References	4-16

   5     ECONOMIC IMPACT ANALYSIS METHODOLOGY	5-1

         5.1   Overview of Analytic Methodology 	5-3

         5.2   Modeling Market and Facility Impacts	5-5
               5.2.1   Defining the Markets for CWT Services	5-5
               5.2.2   Modeling Facility Baseline Conditions	5-7
               5.2.3   Adjustments in Response to the Variable Costs of
                      Complying with the Effluent Limitations Guidelines
                      and Standards	5-11

         5.3 .  Measures of Economic  Impacts	5-12
               5.3.1   Changes hi Market Prices and Quantities  	5-12
               5.3.2   Facility Impacts	5-13
               5.3.3   Inputs to the Company-Level Analysis	5-14
               5.3.4  Inputs into the Community Impacts Analysis	5-14

         5.4   References 	5-15
                                      VII

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Section
                           CONTENTS (CONTINUED)
Page
   6     ESTIMATED ECONOMIC IMPACTS OF THE CWT EFFLUENT
         LIMITATIONS GUIDELINES AND STANDARDS  	6-1

         6.1    Results of the Market Analysis  	6-1
                6.1.1  Market Impacts 	6-1
                6.1.2  Facility Impacts	6-3
                6.1.3  Employment Impacts	6-6
                6.1.4  Financial Impacts on Companies Owning CWT Facilities .... 6-7

         6.2    Summary 	6-12

   7     OTHERIMPACTS 	7-1

         7.1    Community Impacts	7-1
                7.1.1  Direct Employment Changes	7-2
                      7.1.1.1   Facility-Specific Changes in Employment
                              Resulting from Market Adjustments	7-3
                7.1.2  Community Employment Impacts	7-4
                7.1.3  Measuring the Significance of the Community
                      Employment Impacts	7-7

         7.2    Distributional Impacts and Environmental Justice 	7-8
                7.2.1  Baseline Characterization of Communities in which
                      CWT Facilities are Located	7-9
                      7.2.1.1   Minority Population	7-9
                      7.2.1.2   Percent of Population with Incomes Below
                              the Poverty Level	7-10
                7.2.2  Distributional Impacts of the CWT Effluent Limitations
                      Guidelines and Standards	7-13
                7.2.3  Environmental Justice Implications of the CWT Effluent
                      Limitations  Guidelines and Standards	7-14

         7.3    Indirect Impacts on Customers and Suppliers	7-15

         7.4    Impacts on Inflation	7-16

         7.5    References	7-16
                                      vin

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                        CONTENTS (CONTINUED)
8
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INITIAL REGULATORY FLEXIBILITY ANALYSIS	8-1
       8.1    The Regulatory Flexibility Act (RFA) as Amended by the Small
             Business Regulatory Enforcement Fairness Act (SBREFA)	8-1

       8.2    Initial Assessment 	8-2

       8.3    The Initial Regulatory Flexibility Analysis	8-3
             8.3.1   Reason EPA is Considering the Proposed Rule	8-3
             8.3.2   Objectives and Legal Basis for the Proposed Rule  	8-3
             8.3.3   Description and Estimation of Number of Small Entities to
                   Which the Regulation Will Apply	8-4
             8.3.4   Description of the Proposed Reporting, Recordkeeping,
                   and Other Compliance Requirements 	8-4
             8.3.5   Identification of Relevant Federal Rules that May
                   Duplicate, Overlap, or Conflict with the Proposed Rule	8-5
             8.3.6   Significant Regulatory Alternatives	8-5

       8.4    Impacts on Small Businesses	8-7

             8.4.1   Estimated Small Business Impacts of the Combined
                   Regulatory Option	8-8
             8.4.2   Impacts of the Small Business Relief Regulatory Options	8-9

       8.5    References 	8-13

9      COSTS AND BENEFITS OF THE  CWT EFFLUENT LIMITATIONS
       GUIDELINES AND STANDARDS	9-1

       9.1    Introduction	9-1
             9.1.1   Requirements of Executive Order 12866	9-2
             9.1.2   Need for the Regulation	9-3

       9.2    Social Cost of the Rule 	9-4
             9.2.1   Aggregate Costs to Consumers and Producers 	9-5
             9.2.2   Government's Share  of Costs 	9-9
                                   IX

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Section
                            CONTENTS (CONTINUED)
Page
          9.3    Pollutant Reductions  	9-11

          9.4    Benefits Assessment  	9-11
                9.4.1   Overview of Benefits Assessment Methodology	9-12
                       9.4.1.1   A Benefits Analysis Paradigm for Water Quality
                               Improvements	9-12
                       9.4.1.2   Other Benefits: Cost Savings for POTWs	9-17
                9.4.2   Impacts of Proposed CWT Effluent Limitations
                       Guidelines and Standards	9-18
                       9.4.2.1   Impacts on Ambient Water Quality and Related
                               Ecosystems	9-18
                       9.4.2.2   Affected Populations and Activities	9-21
                       9.4.2.3   Impacts on Humans	9-24

                9.4.3   Valuation of Surface Water Quality Improvements 	9-51
                       9.4.3.1   Health Benefits	.'	9-51
                       9.4.3.2   Recreation Benefits	9-57
                9.4.4   POTW Sludge Disposal Cost Savings	 9-63
                       9.4.4.1   Overview of Benefits to POTWs from the
                               Proposed Regulation	9-64
                       9.4.4.2   Monetization of One of the Primary Benefits
                               to POTWs	9-66

          9.5    Comparison of Benefits and Costs	9-74
                9.5.1   Uncertainties and Limitations of Analysis of Social Costs ... 9-75
                9.5.2   Uncertainties and Limitations of Analysis of Benefits  	9-76

          9.6    Conclusions	9-78

          9.7    References	9-78

Appendix A:     Copy of Part B of the Waste Treatment Industry Questionnaire	  A-l
Appendix B:     Waste Generation by SIC Code	B-l
Appendix C:     SIC Code Definitions	C-l
Appendix D:     Detailed Description of the Economic Impact Analysis Model  	  D-l
Appendix E:     Detailed Demand Elasticity Discussion	E-l

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Section
                               LIST OF FIGURES
Page
   5-1    Integrated Facility-Market Economic Model	5-8
   5-2a   Effects of Compliance on Imperfectly Competitive Markets  	5-9
   5-2b   Effects of Compliance on Competitive Supplier	5-10
   5-3    Market Adjustments in Response to the CWT Effluent Limitations
          Guidelines and Standards			5-12

   7-1    Non-caucasian Share of Community Population Compared to State  	7-12
   7-2    Poverty Share of Community Population Compared to State	•... 7-13

   9-1    Social Cost Computed as Changes in Social Surplus  	9-6
   9-2    Social Cost of the Regulation 	9-10
   9-3    Conceptual Framework for Benefits Analysis	9-13
   9-4    Steps for Assessing Annual Cancer Incidence from Fish Consumption	9-38
                                       XI

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                                 LIST OF TABLES
Number
Page
    1-1    Baseline Number of CWT Facilities and Baseline Quantities of Waste
          for Commercial CWTs, 1995	1-4
    1-2    Costs of Complying with the Combined Regulatory Option	1-7
    1-3    Process and Facility Closures at CWT Facilities, by Discharge Status	1-8
    1-4    Estimated Aggregate Cost to Consumers and Producers	1-12
    1-5    Annual Benefits of the Proposed Effluent Limitations Guidelines and
          Standards	1-13

    3-1    CWT Facilities by Subcategory and CWT Service	3-4
    3-2    Trends in Demand for Off-Site Waste Management Services	 3-7
    3-3    Commercial Status of CWT Facilities		3-9
    3-4    SIC Codes Describing CWT Facilities' Primary Operations 	3-10
    3-5    Number of Facilities Performing CWT Services	3-12
    3-6    Facility Size Categories Based on Quantity of Commercial
          Wastewater Treated, by Discharge Category	3-14
    3-7    Size Distribution of Commercial CWT Facilities by Number of CWT
          Employees	 3-15
    3-8    Quantity of Waste Treated by Commercial Facilities, by Subcategory	3-17
    3-9    Baseline Waste Treatment Costs at Commercial CWT Facilities	3-17
    3-10   Baseline Treatment and Recovery Revenues at Commercial CWT
          Facilities	3-18
    3-11   Baseline Profits at Commercial CWT Facilities  	3-19
    3-12   Baseline Conditions in Regional Markets for CWT.Services	3-25
    3-13   Size Distribution of Potentially Affected Companies	3-32
    3-14   Baseline Company Financial Profile, by Company Size	3-35
    3-15   Categorization of CWT Industry Pollutants  	3-37
    3-16   Characteristics of Reaches Receiving Discharges from CWT Facilities	3-46

    4-1    Compliance Costs for the Metals Subcategory	4-11
    4-2    Compliance Costs for the Oils Subcategory  	4-12
    4-3    Compliance Costs for the Organics Subcategory  	4-12
    4-4    RCRA Permit Modification Costs	4-13
    4-5    Costs of Complying with the Combined Regulatory Option	4-15
                                        XII

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                         LIST OF TABLES (CONTINUED)
Number
Page
   6-1    Market Impacts of BPT/BAT and PSES Controls	6-2
   6-2    Process Closures at CWT Facilities, by Discharge Status	6-5
   6-3    Facility Closures of CWT Facilities, by Discharge Status  	6-5
   6-4    Job Losses Resulting from Market Adjustments, by Discharge Status	6-7
   6-5    Changes in Company Profit Margins, by Company Size Category	6-9
   6-6    Estimated Median Profit Margin by Size Category	6-9
   6-7    Change in Median Return on Investment 	6-11
   6-8    Change in Median Return on Assets	6-11

   7-1    Changes in CWT Employment Resulting from Market Adjustments at
          CWT Facilities	7-3
   7-2    Direct-Effect Regional Multipliers for States in Which CWT Facilities
          Are Located	7-5
   7-3    Changes in Community Employment Resulting from Market
          Adjustments at CWT Facilities	7-6
   7-4    Community Employment Impacts	7-8
   7-5    Frequency Distribution:  Percent Minority Population in CWT
          Communities  	7-11
   7-6    Frequency Distribution of Percent of Population Falling Below Poverty .... 7-12


   8-1    Compliance Cost-to-Sales Screening Analysis for Regulatory
          Scenarios Designed to Provide Relief to Small Companies 	8-11
   8-2    Impacts on Facilities Owned by Small Businesses	8-12

   9-1    Estimated Aggregate Cost to Consumers and Producers	9-8
   9-2    Government's Share of Costs  	9-10
   9-3    Human Systems/Activities Affected by Surface Water Quality	9-16
   9-4    Impacts on Humans	9-17
   9-5'    Exceedances of Ambient Water Quality Criteria for Aquatic Life	9-20
   9-6    Characterization of Carcinogenic Substances in CWT Effluent	 9-27
   9-7    Characterization of Noncancer Effects from Substances hi CWT Effluent... 9-28
   9-8    Quantified and Unquantified Health Effects of Lead  	9-34
   9-9    Number of Reaches with AWQC Exceedances for Human Health	9-36
   9-10   Cancer Risks for Anglers and Their Families	9-40
   9-11   Baseline Annual Cancer Incidence (Fish Consumption by Anglers) 	9-41
   9-12   Annual Cancer Incidence Reduction (Fish Consumption by Anglers)	9-41

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                        LIST OF TABLES (CONTINUED)

Number                                                                   Hags'

   9-13   Populations at Risk for Noncancer Health Effects Through Fish
          Consumption	9-43
   9-14   Reductions in Lead-Related Health Effects	9-45
   9-15   Annual Benefits from Reduction in Cancer Incidence from Fish
          Consumption	9-54
   9-16   Annual Benefits from Reduction in Lead-Related Health Effects from
          Fish Consumption	9-56
   9-17   Number of Reaches with Exceedances of at Least One of the
          Four AWQCs	9-59
   9-18   Annual Recreation Value of Reducing AWQC Exceedances	 9-61
   9-19   Annual Cost Savings from Shifts in Sludge Use or Disposal Practices 	9-70
   9-20   Shifts in POTW Disposal Practice and Annual Cost Savings (Reductions
          in Sludge Disposal  Costs)  	9-73
                                       xiv

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                                    SECTION 1
                             EXECUTIVE SUMMARY

1.1    INTRODUCTION

       This report estimates the economic and financial effects and the benefits of
compliance with the proposed effluent limitations guidelines and standards for the
Centralized Waste Treatment (CWT) industry. The Environmental Protection Agency (EPA)
has measured these impacts in terms of changes in the profitability of waste treatment
operations at CWT facilities, changes in market prices of CWT services, and changes in the
quantities of waste managed at CWT facilities in six geographic regions.  EPA has also
examined the impacts on companies owning CWT facilities (including impacts on small
entities), on communities in which CWT facilities are located, and on environmental justice.

       EPA examined the benefits to society of the CWT effluent limitations guidelines and
standards by examining cancer and non-cancer health effects of the regulation, recreational
benefits, and cost savings to publicly owned treatment works (POTWs) to which indirect-
discharging CWT facilities send their wastewater.

       EPA also conducted an analysis of the cost-effectiveness of the regulatory options,
which was published separately in a report entitled,  "Cost-Effectiveness of Proposed Effluent
Limitations Guidelines and Standards for the Centralized Waste Treatment Industry."

       The effluent limitations guidelines and standards will directly impact the costs and
pollutant discharges of CWT facilities that discharge wastewater directly or indirectly to
surface water. To estimate these impacts, EPA gathered data on CWT facilities, the
companies that own them, the communities in which they are located, the waterbodies into
                                         1-1

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which they discharge, and the populations exposed to their effluent. Section 1.2 describes the
data used for the analysis.

1.2 SOURCES OF DATA

In 1990, EPA distributed a questionnaire to a census of 452 CWT facilities under the
authority of Section 308 of the Clean Water Act. The questionnaire requested both technical
and economic information from the CWT facilities. Technical data collected by the
questionnaire characterized the quantities of waste accepted off-site into the waste treatment
and recovery operations at each facility, the treatment technologies in place at baseline, and
the baseline pollutant releases. The economic and financial section of the questionnaire
(shown in Appendix A) characterized the facility CWT costs, revenues, and profits, RCRA
permitting costs, commercial status, employment, and company ownership. Based on the
responses to the questionnaire, EPA proposed effluent limitations guidelines and standards
for the industry in 1995. Comments on the proposed rule led the Agency to reexamine the
scope of the regulation and to consider several additional control technologies. Of critical
importance was the identification of a large number of oil recovery facilities that EPA
believed should be in scope of the regulation. Thus, EPA modeled their oil recovery
operations and estimated the impacts on these facilities of complying with the 1995 proposal.
This information was published in the Federal Register in a Notice of Data Availability in
1996. Comments on the NOA, together with the comments on the proposed rule, led EPA to
decide to repropose effluent limitations guidelines and standards. This report analyzes the
costs, impacts, and benefits of the reproposed rule. The analysis is based on data for 145
CWT facilities that provided data, and is scaled up to reflect the estimated universe of
205 CWT facilities.
To conduct these analyses, EPA employed the questionnaire data for facilities
included in the 1995 proposal, modeled facility data as amended to reflect the comments
received on the NOA for the newly included oil recovery facilities, together with publicly
available information on the companies owning CWT facilities, the populations and
demographic characteristics of the communities in which they are located, the characteristics

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of the waterbodies into which their effluent is discharged, and the characteristics of
populations exposed to their effluent.

1.3 PROFILE OF THE INDUSTRY

EPA estimates that hi 1995, there were 205 CWT facilities that accepted waste from
off-site generators for treatment or recovery. The wastes sent to CWT facilities tend to be
concentrated and difficult to treat, and include process residuals, process wastewater, and
process wastewater treatment residuals such as treatment sludges. CWT facilities discharge
high concentrations of some pollutants either into surface water or to POTWs. Of these 205,
all but four accept at least some waste on a commercial basis. Fifty-nine facilities accept
metals waste for treatment or recovery, 164 accept oily waste for treatment or recovery, and
25 accept organic waste for treatment or recovery. Of the 205 facilities, 14 are direct
dischargers, 147 are indirect dischargers, and 44 are zero dischargers.

The demand for CWT services comes from manufacturing plants in many industries,
whose manufacturing activities produce not only output but also waste. Much of this demand
has resulted from increasingly stringent environmental regulations affecting the generator
facilities. Rather than develop the waste management expertise themselves, many generators
have chosen to rely on the services of waste management professionals. In recent years, the
emphasis on waste minimization and pollution prevention has resulted in an overall decrease
in the quantity of waste sent off-site for treatment and/or recovery, according to data from
EPA's Toxics Release Inventory. Because for CWT services are limited, EPA assumes
elasticities of demand that range from -0.5 to -1.5.

Table 1-1 shows the baseline quantities of waste managed in each of the five types of
commercial CWT operations analyzed by EPA. The largest number of facilities and the
largest quantities of waste managed are in the oils subcategory. Overall, EPA estimates that
CWT facilities accepted approximately 2.2 billion gallons of waste from off-site in 1995.
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TABLE 1-1. BASELINE NUMBER OF CWT FACILITIES AND BASELINE
QUANTITIES OF WASTE FOR COMMERCIAL CWTS, 1995

Metals Recovery
Metals Treatment
Oils Recovery
Oils Treatment
Organics Treatment or Recovery
Number of Facilities
7
53
152
145
25
Total Quantity
(103 gal/yr)
11,112
554,413
746,081
756,296
95,267
Commercial CWT facilities are located throughout the U.S. Based on the
characteristics of wastewater, and information provided by CWTs about the location of their
customers, EPA assumed markets for CWT services were regional, and defined markets in
six geographic regions which are assumed in the model to be completely independent. The
markets are further subdivided by baseline waste treatment costs, assuming that treatment
cost differences reflect differences in the types of waste being treated or recovered. The
number of CWT facilities offering a particular type of CWT service in a region varies from
zero to 31. Depending on the number of CWT facilities in a specific waste treatment or
recovery market, market structure is modeled as monopoly, duopoly, or perfect competition.

Company data are available for 100 of the 145 facilities providing data. These
100 facilities are owned by 73 companies. For the remaining 43 CWT facilities, EPA
assumed that company revenues and costs are equal to the revenues and costs from their
CWT operations. These 43 CWT facilities are owned by 40 companies. The company-level
analysis is based on 113 companies. After scaling up, EPA estimates that the 205 CWT
facilities are owned by 164 companies. Of these, half (62) have revenues less than
$6 million, and are therefore characterized as small businesses. It should be noted that the
assumption that company revenues are equivalent to CWT revenues for the 40 companies
without company data may understate their revenues and therefore overstate the number of
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small businesses. At baseline, companies owning CWTs are generally profitable, although
14 companies are unprofitable.

EPA also examined the baseline environmental impacts of the CWT industry. Over
120 hazardous chemical compounds have been detected in the discharges from the 119 CWT
facilities whose discharges were modeled. The pollutants include metals such as arsenic,
chromium, and lead, and organic compounds such as benzene and toluene. Of the
128 pollutants detected at baseline, four are known human carcinogens and another 17 are
considered probable or possible carcinogens. Almost half of the pollutants are systemic
toxicants for humans, and nearly all are considered hazardous to aquatic life.

To analyze water quality impacts, EPA characterized the reaches into which CWT
pollutants are discharged. Of 83 reaches modeled, 78 are in urban areas, and 22 have fish
consumption advisories in effect.

1.4 ANNUALIZED COSTS OF COMPLIANCE
EPA is proposing effluent limitations guidelines and standards for direct discharging
CWT facilities based on Best Practicable Control Technology Currently Available (BPT),
Best Conventional Pollutant Control Technology (BCT), Best Available Technology that is
Economically Achievable (BAT), New Source Performance Standards (NSPS) based on the
best available control technology that can be demonstrated. For indirect dischargers, EPA is
proposing Pretreatment Standards for Existing Sources (PSES) and Pretreatment Standards
for New Sources (PSNS). EPA examined three control options to reduce the discharge of
pollutants from the metals subcategory of the CWT industry, which are referred to as Metals
Options 2, 3, and 4. Option 4, which includes batch precipitation, liquid-solid separation,
secondary precipitation, and sand filtration, is being proposed as BPT. EPA also examined
three control options for cyanide destruction, and EPA is proposing Cyanide Option 2
(alkaline chlorination at specific operating conditions). EPA examined four control options
to reduce the discharge of pollutants from the oils subcategory. EPA is proposing BPT,
BCT, PSNS, NSPS, and BAT controls based on Oils Option 9, secondary gravity separation
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and dissolved air flotation (DAF). For indirect dischargers in the Oils subcategory, EPA is
proposing PSES based on Oils Option 8, dissolved air flotation, because it is less costly than
Option 9 and results in fewer adverse economic impacts. EPA examined two control options
to reduce the discharge of pollutants from the organics subcategory, and is proposing controls
based on Organics Option 4, equalization and biological treatment, for the organics
subcategory.

       Complying with the proposed regulation will increase the costs of CWT facilities.
EPA estimated lump-sum capital, land, and RCRA permit modification costs and annual
operating, maintenance, monitoring, and record-keeping costs. Table 1-2 shows the costs of
complying with the proposed regulatory option. Annualized costs are show both before and
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TABLE 1-2. COSTS OF COMPLYING WITH THE COMBINED REGULATORY
OPTION (106 S1997)a
Total Lump- Total Annualized Costs Total After-Tax
Costs Sum Costs Before-Tax Savings Annualized Costs"
BPT/BAT Costs
PSES Costs
Total Costs
4.56
40.3
44.9
3.56
24.3
27.9
2.2
13.4
15.6
a Costs are scaled up to reflect the estimated universe of CWT facilities.
BCosts include the cost of modifying RCRA permit where appropriate.
after accounting for tax savings associated with investments in capital equipment and
operating costs.

1.5 FACILITY IMPACTS

EPA analyzed the impacts of these costs on affected CWT facilities using a
mathematical model of the facilities and regional CWT markets. Complying with the
proposed regulatory option increases the cost of direct and indirect discharging CWT
facilities. They respond by increasing the prices at which they accept waste. Overall, the
prices of CWT services increase and the quantity of waste accepted by CWTs decreases. The
increased prices for CWT services results in higher revenues for CWT facilities. EPA
computed the profitability of each CWT operation based on the estimated increases in CWT
costs and revenues. Operations for which estimated with-regulation costs exceed estimated
with-regulation revenues are unprofitable, and are assumed to shut down. If all the affected
CWT operations at a facility are estimated to shut down, EPA considers this a facility
closure. Table 1-3 shows the estimated process and facility closures by discharge status.
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TABLE 1-3. PROCESS AND FACILITY CLOSURES AT CWT FACILITIES, BY
DISCHARGE STATUS"
Discharge Status
Direct Dischargers
Indirect Dischargers
Zero Dischargers
Process
Closures
1
15
0
Percentage
4.17%
5.55%
0.0%
Facility
Closures
2
13
0
Percentage
18.2%
8.9%
0.0%
a Data are scaled up to account for the entire universe of CWT facilities.

EPA estimates that nationwide, 338 jobs will be lost at CWT facilities experiencing
reductions in CWT operations or closures of processes or facilities. This reduction in
employment is expected to be partially offset by the increases in employment required to
operate the controls at affected CWTs. EPA estimates that 97 full-time equivalent employees
will be required to operate the controls, which would offset more than a third of the projected
job losses from market adjustments.

1.6 FIRM IMPACTS

EPA analyzed impacts on firms owning CWT facilities by analyzing changes in
company profits and return on investment. For 64 companies, profit margins declined as a
result of the regulation. Thirty-four of the companies experiencing lower profit margins are
small firms. For 42 companies, profit margins increased, because their revenues are
projected to increase by more than their costs. Twenty of the 42 companies projected to
experience increased profit margins are small firms. Finally, three companies are projected
to experience no change in their profit margins due to the regulation.
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1.7 COMMUNITY IMPACTS

EPA measures impacts on communities in which CWT facilities are located by
estimating the change in community employment that is projected to result from the
regulation. CWT facilities that reduce the quantity of waste they treat, close processes, or
close CWT operations completely, are estimated to experience reduced employment. This
reduction in employment is projected to result in additional employment losses in the
community as the displaced CWT employees reduce their spending, and this generates
additional job losses. EPA made the most conservative assumption, that all job losses would
occur within the community where the CWT is located. Seventy-two communities are
projected to experience no change in employment or an increase in employment. Thirty-
seven communities are projected to experience a decline in employment of less than
0.2 percent. No community is projected to experience a loss in employment of more than
0.9 percent of baseline employment.

EPA also examined the demographic characteristics of the communities in which
CWT facilities were located, to assess the distributional and environmental justice impacts of
the regulation. Perhaps because many CWTs are located in industrial urban areas,
populations in the communities in which they are located have, on average, higher
proportions of low income residents and people of color than the states in which they are
located or the country as a whole. EPA examined community employment impacts to ensure
that communities of color and relatively low-income communities are not experiencing
disproportionately high impacts. Of the 42 communities experiencing more than one job
loss, 30 are predominantly low-income or minority. However, the employment losses are at
most 0.51 percent of baseline employment, so EPA does not believe that significant adverse
employment impacts will occur in communities of color or communities with a relatively
large share of poor residents.
To assess the environmental justice impacts of the CWT regulation, EPA examined
the benefits experienced by communities adjacent to the surface water bodies into which
CWT facilities discharge their wastewater. These are largely, but not entirely, the same as

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the communities in which the CWT facilities are located. EPA assumed that all the benefits
of the regulation are experienced by residents of the counties adjacent to the reaches
projected to be less polluted due to the regulation. Seventeen of the 32 communities with
relatively high minority or low income populations are projected to experience quantified
benefits due to the regulation. Thus, the CWT effluent limitations guidelines and standards
are projected to improve environmental justice, by reducing the exposure of these
communities' populations to pollutants discharged by CWTs.

1.8 INITIAL REGULATORY FLEXIBILITY ANALYSIS

EPA's initial assessment of the possible impact of options being considered on small
CWT companies showed that some options might have significant impacts on some small
CWT companies. Thus, EPA performed an initial regulatory flexibility analysis (IRFA) and
convened a Small Business Advocacy Review (SB AR) panel to collect the advice and
recommendation of small entity representatives (SERs) of CWT businesses that would be
affected by the proposal. EPA estimates that 82 companies owning CWTs have revenues
less than 56 million per year, and are considered small companies for this analysis. Of these,
63 own discharging CWT facilities and may incur increased costs due to the regulation. EPA
has evidence that the number of affected small businesses may be overstated, because of
trends in the CWT industry since the data were collected. However, these data are the most
complete available for these companies and are consistent with the technical and economic
characterization used hi the analysis.
'EPA considered a number of measures to mitigate the impact of the proposed rule on
small businesses, including relief from monitoring requirements and other regulatory relief
for oily waste treaters, and a less stringent NSPS for the metals subcategory. In addition,
EPA considered three general options that would mitigate the impacts of the regulation on
small entities. First, EPA proposed regulatory options that were in the form of effluent
limitations guidelines and standards, not specific requirements for design, equipment, work
practice, or operational standards. Second, the Agency considered less stringent control
options for each of the treatment subcategories than were originally proposed in 1995. Third,

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EPA selected a technology basis for pretreatment standards for the oils subcategory that
generally provides less stringent standards than the technology basis for the proposed BAT
limitations.

Of the 56 small companies for which EPA has reliable data on baseline profits, 42
own indirect discharging facilities. Ten of these are projected to experience increasing profit
margins as a result of the proposed regulatory option, and 32 are projected to experience
decreased profit margins. Overall, small companies are projected to fare better than either
medium sized or large companies. EPA also examined the potential impacts of the
regulatory relief options, and concludes that the analysis does not support the need for a
limitation. EPA is concerned that, by limiting the scope of the proposed rule based on one of
the regulatory relief scenarios, EPA might actually be encouraging ineffective treatment at
the expense of effective treatment. Thus, despite considering a variety of potential
limitations to mitigate small business impacts while still preserving the benefits of the rule,
EPA was unable to identify a single effective solution to incorporate into the proposal.

1.9 COST-BENEFIT ANALYSIS

EPA examined the costs and benefits to society of the proposed effluent limitations
guidelines and standards. The social costs are defined as the change in consumer and
producer surplus as a result of the regulation. Table 1-4 summarizes the estimated social
costs of the regulation. It should be noted that "consumer" in this case actually means
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TABLE 1-4. ESTIMATED AGGREGATE COST TO CONSUMERS AND
PRODUCERS
Social Cost Component
Change in Value
($1031997)
Change in Consumer Surplus
Change in Producer Surplus
Sum of Changes in Consumer and Producer Surplus
-$24,743
$4,654
-$20.089
customer, because CWT services are intermediate goods, sold to producers of other goods
and services.

The Agency estimates that, overall, producers and consumers of CWT services will
lose approximately $20 million in social welfare as a result of the proposed regulation.
EPA's analysis indicates that, overall, the industry will experience increased profits as a
result of the regulation, but that this will be more than offset by the increased costs incurred
by customers, due to the increased prices charged for CWT services.

Because the market model analyzes impacts based on after-tax costs of compliance,
the above values do not include all of the social costs of the proposed rule. In particular, they
do not include the costs to government. EPA estimates government's share of the costs of
the proposed rule to be approximately $12 million. Thus, the total cost of the proposed rule
is estimated to be approximately $32 million.

The proposed effluent limitations guidelines and standards for the CWT industry
would reduce pollutant discharges to surface water by approximately 14.3 million pounds per
year of conventional pollutants and 4.1 million pounds per year of toxic and nonconventional
pollutants. This reduction in pollutant loadings will lead to improvements in both the
instream water quality and the health of ecological systems in the affected waterbodies. In
addition, POTWs are expected to experience reductions in sludge disposal costs.
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       To estimate the benefits of the proposed effluent limitations guidelines and standards,
EPA first estimated the changes in ambient water quality and related ecosystems that would
result from the reduction in releases. Then, EPA estimated and valued reductions in cancer
and non-cancer health effects, improvements in recreational fishing, and cost savings for
POTWs. Table 1-5 summarizes the EPA's benefits estimates.
        TABLE 1-5. ANNUAL BENEFITS OF THE PROPOSED EFFLUENT
                 LIMITATIONS GUIDELINES AND STANDARDS
                  Benefits Category
Estimated Range of Benefits
        ($1031997)
 Reduction in Cancer Incidence from Fish Consumption
 Reduction in Lead-Related Health Effects from Fish
 Consumption
 Recreation Value of Reducing AWQC Exceedances
 Reductions in Sludge Disposal Costs
  $1,492,000-$8,043,000
  $2,999,000 - $5,242,000

   $414,000-$1,177,000
    $149,400-$928,100
 Sum of These Benefits Categories
  $5,054,400-$15,390,100
       There are uncertainties and limitations inherent in both the estimated costs and
benefits, which may have led to either underestimating or overestimating their values. More
important than these uncertainties for the benefits estimation is the fact that data limitations
prevented EPA from quantifying or valuing many other categories of benefits, including
benefits to near-stream recreation, commercial fishing, and diversionary users of affected
waterbodies, as well as nonuse benefits. The Agency is certain that the benefits estimates in
Table 1-5 are only a subset of total benefits. Thus, EPA is confident that the benefits of the
proposed regulation justify its costs.
                                        1-13

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SECTION 2
DATA SOURCES

EPA collected the data used to profile the CWT industry and to analyze the impacts
of the effluent limitations guidelines and standards from a variety of sources. These include a
census of the industry conducted in 1991, comments on the original proposal and the Notice
of Data Availability (NOA), the Toxics Release Inventory (TRI) database (EPA, 1991-1995),
and publicly available information, such as financial databases. This section describes the
data sources and how they were combined to provide a baseline characterization of the CWT
industry and markets. Appendix A provides additional detail about the data sources.

2.1 DATA FROM THE WASTE TREATMENT INDUSTRY QUESTIONNAIRE

In 1991, EPA collected data from facilities believed to be in the CWT industry
through the Waste Treatment Industry Questionnaire (henceforth to be referred to as the
questionnaire) (EPA, 1991).1 The questionnaire collected technical information for 1989 and
economic information for 1987, 1988, and 1989 under authority of Section 308 of the Clean
Water Act (CWA). Of the 452 facilities receiving the questionnaire, EPA determined that
363 did not treat or recover materials from industrial waste received from off-site. Of the
89 that did treat or recover materials from industrial waste received from off-site, four
facilities were considered out of scope because they received off-site waste only through a
pipeline from adjacent facilities. The remaining 85 facilities were ultimately determined to
be within the scope of the proposed effluent limitations guidelines and standards.
'Appendix A of EPA (1995) contained a copy of the questionnaire instrument. It is also included in Appendix
A of this report, along with a copy of the Facility Information Sheet provided to each NOA facility with
EPA's estimated data for that facility.
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       Technical data collected from these facilities included the quantities of waste they
received from off-site for management in various CWT operations, current treatment
technologies, and current releases.

       Economic and financial data collected from these facilities included

       •  prices for wastewater treatment of different waste types,
       •  facility employment,
       •  costs and revenues for each CWT operation,
       •  information on commercial status of CWT operations at the facility,
       •  Resource Conservation and Recovery Act (RCRA) permit modification costs, and
       •  limited financial information for the companies owning the CWT facilities.

Most respondents provided data for the years requested:  1987,1988, and 1989. However,
some facilities had not been in operation during a part of that period, so they provided data
for other years.  The Agency conducted a careful review of the responses to ensure that the
data used to develop the effluent limitations guidelines and standards were as complete and
accurate as possible.

2.1.1   Data Modifications and Corrections

       The Agency's quality assurance/quality control for the questionnaire data involved
several discrete steps:  reviewing the questionnaire responses for completeness and internal
consistency, contacting the facilities for additional information or clarification, comparing
responses from the technical and economic sections of the questionnaire, and adjusting the
data to make the economic and financial data consistent with the technical data.

       The Agency reviewed the individual questionnaire responses to ensure that they were
complete and internally consistent.  EPA contacted facilities to verify and correct responses
                                         2-2

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that were either incomplete or appeared incorrect. After completing this quality assurance/
quality control procedure, the Agency made further adjustments to correct for remaining
discrepancies in the data. These adjustments required

• matching the time period for the technical data and the time period for the
economic data as closely as possible;
• reassigning costs and revenues for waste treatment operations so that they
matched the waste treatment operations reported in the technical section of the
questionnaire; and
• adjusting economic data reported to the base year of the analysis, using the
producers price index.

In addition, five facilities did not respond to the economic and financial section of the
questionnaire. Cost data were generated for these facilities, based on a simple statistical
analysis of data for facilities that had responded. Revenues were generated by multiplying
the price of the services offered times the quantities they reported in the technical sections of
their questionnaires.

Since proposal, EPA has made substantial changes to the scope of the regulation.
Section IV of the preamble to the proposed rule discusses these changes. The Agency has
determined that several other facilities that were considered in scope for the 1995 proposal
are no longer in scope, because they no longer conduct CWT operations. These were
removed from the analytical database.

When these adjustments were complete, the Agency had a database of information for
76 facilities that included quantities and flows of waste within the CWTs from the technical
section of the 1991 questionnaire and associated costs, revenues, and employment at the
CWTs from the economic questionnaire.
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 2.1.2  Additions to Data Since Original Proposal (NOA Facilities)

       Comments on the proposed rule indicated that a large number of oil recovery
 facilities, which had been considered out of scope for the proposal, were in fact subject to the
 regulation. To analyze the impacts of the proposed regulation on these facilities, the Agency
 developed baseline data for these facilities using the following data: publicly available
 facility employment data, data for similar facilities from the questionnaire, and information
 provided by the National Association of Oil Recyclers (NORA), an industry trade
 association. The Agency estimated waste flows at the facilities, baseline costs and revenues
 for oil recovery and oily wastewater treatment, and costs to comply with the effluent
 limitations guidelines and standards and then analyzed the economic impacts of the proposed
 rule on these facilities. The results of these analyses were published in the Federal Register
 in a NOA (EPA, 1996).  To ensure that all the subject facilities were aware of the information
 and had the opportunity to comment on the data (and correct any errors), the Agency
 prepared Facility Information Sheets describing the data used for each facility and sent them
 to the oil recycling facilities.2 Many of the facilities responded to the NOA with comments
 and corrections. Based on the data received, the Agency identified 69  oil recovery facilities
 that were subject to the regulation! For these, the Agency has data on the quantity of oily
 waste and oily wastewater accepted from off-site, quantity of oil recovered, quantity of
 wastewater discharged, facility operating costs and revenues, and employment. The data
 used are those generated to analyze the economic impacts of the proposed effluent limitations
 guidelines and standards for the NOA, as amended by commenters.

2.2    DATA SOURCES FOR DEMAND CHARACTERIZATION
       Data to characterize the demand for CWT services come primarily from the TRI, an
annual EPA data collection effort that reports quantities of toxic chemicals released by
manufacturing facilities. Among other types of releases, the generating facilities are asked to
report quantities of waste sent off-site for treatment or recovery.
2Appendfat A of this document contains a copy of the Facility Information Sheet form mailed to each facility to
   inform them of the NOA and the data being used to characterize their facility.

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2.3 DATA SOURCES FOR MARKET CHARACTERIZATION

Data used for the market characterization comprise the data from the 1991 Waste
Treatment Industry Questionnaire and data from the NOA database. Facilities were assigned
to markets based on their locations, the types of CWT operations on-site, and the per-gallon
costs of treatment or recovery for those operations. Depending on the number of facilities in
each market, the markets were characterized as monopolistic (one CWT service provider),
duopolistic (two CWT service providers), or perfectly competitive (three or more CWT
service providers).

2.4 DATA SOURCES FOR COMPANY ANALYSIS

Data were collected from several sources to profile the companies owning the CWT
facilities. These sources included the Waste Treatment Industry Questionnaire; data
developed for the NOA, as corrected by comments on the NOA data; Dun and Bradstreet's
Dun's Market Identifiers (1997) on-line database; the Securities and Exchange Commission's
EDGAR database (SEC, 1997); and other financial databases.

2.5 REFERENCES
Dun and Bradstreet. 1997. Dun's Market Identifiers Online Database. Accessed through the
EPA National Computation Center Computer, FINDS data system.
Securities and Exchange Commission. 1997. EDGAR Database: . Bethesda,MD: Lexis/Nexis.
U.S. Environmental Protection Agency. 1991 Waste Treatment Industry Questionnaire.
Washington, DC: U.S. Environmental Protection Agency.
U.S. Environmental Protection Agency. 1996. Notice of Availability Facility Information
Sheets. Washington, DC: U.S. Environmental Protection Agency.
U.S. Environmental Protection Agency. 1995. Economic Impact Analysis of Proposed
Effluent Guidelines and Standards for the Centralized Waste Treatment Industry.
Washington, DC: U.S. Environmental Protection Agency.
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                                    SECTION 3
               BASELINE CONDITIONS AND INDUSTRY PROFILE

       This section describes the conditions affecting the CWT industry in the absence of
regulation.  The industry profile section provides an overall description of the CWT industry
and the markets for CWT services. Following the industry profile is a discussion of the
environmental impacts of the CWT industry at baseline.
3.1
INDUSTRY PROFILE
       This section profiles the CWT industry by describing the baseline conditions
characterizing facilities supplying CWT services, the companies that own CWT facilities, the
demand for CWT services, and the markets for CWT services. The baseline represents the
conditions in the CWT industry in the absence of the regulation. Thus, baseline conditions
form the basis for comparison with the projected conditions for these entities if the regulation
is promulgated as proposed.

3.1.1   Overview of the CWT Industry

       The CWT industry developed primarily in response to environmental legislation.  A
more complete description of the development of the CWT industry is found in the preamble
to the proposed rule.

       In 1995, there were 205 CWT facilities that accepted waste from off-site sources for
treatment or recovery. The wastes sent to CWT facilities tend to be concentrated and
difficult to treat and include process residuals, process wastewater, and process wastewater
                                        3-1

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treatment residuals such as treatment sludges. Because of the toxicity of wastes accepted and
the limited treatment provided at CWT facilities, CWT facilities discharge high
concentrations of some pollutants either into surface water or to publicly owned treatment
works (POTWs).

CWT facilities are specialists in waste treatment and may have different relationships
with the facilities generating the waste they treat, hi terms of these relationships, CWT
facilities fall into three main categories:

• commercial: facilities that accept waste only from off-site generators not under
the same ownership as their facility.
• noncommercial: facilities that accept waste only from off-site generators under
the same ownership as their facility or that accept waste on a contract basis from a
small number of adjacent facilities.
• mixed commercial and noncommercial: facilities that treat waste generated by
other facilities under the same ownership as their facility and also accept waste
from off-site generators not owned by the same company.

In developing the proposed guidelines and standards, EPA looked at facilities that
accept waste on a commercial basis and those that accept waste on a noncommercial basis.
EPA data show that 201 CWT facilities accept waste on a commercial basis, managing it for
a fee. They operate either on a strictly commercial basis or are mixed commercial/
noncommercial facilities. These facilities manage wastes from their own company and also
accept some waste from other companies for a fee. The commercial CWT operations plus
the commercial share of the mixed CWT facilities constitute the supply of marketed CWT
services. The remaining four facilities are classified as noncommercial. Demand for these
CWT services comes from waste generators that do not have the capability to completely
treat the waste they generate on-site.

Detailed questionnaire data are available for 76 of these facilities, and limited data
from notice comments are available on 69 additional facilities. Weights have been computed
3-2

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and assigned to these 145 facilities to scale up the results to the entire known universe of
205 CWT facilities.

3.1.1.1 Services Provided

       CWT facilities provide waste treatment services performed at waste treatment
facilities that accept waste from off-site for treatment. CWT services include the treatment
and recovery of metal and oil-bearing wastewater and the treatment of organic wastewater.
CWT facilities may also transport, incinerate, or otherwise dispose of waste and process
residuals.

3.1.1.2 Subcategories

       EPA has divided the industry into three subcategories—metals, oils, and
organics—based on the types of waste treated or recovered:

       •  metals subcategory: facilities that accept metal-bearing waste from off-site for
          treatment or recovery.
       •  oils subcategory: facilities that accept oily waste from off-site for treatment or
          recovery.
       •  organics subcategory: facilities that accept organic waste from off-site for
          treatment or recovery.

       Table 3-1 shows the number of commercial facilities in each industry subcategory
offering  each type of waste treatment or recovery service.  Many CWT facilities offer more
than one of the above services and thus fall under more than one industry subcategory.
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TABLE 3-1. CWT FACILITIES BY SUBCATEGORY AND CWT SERVICE""

Subcategory
Metals

Total in Subcategory
Oils

Total in Subcategory
Organics

CWT Service
Recovery
Treatment

Recovery
Treatment

Treatment
Number
Commercial
7
53
56
152
147
164
23
of Facilities
Noncommercial

0
2

Total

164
25
Facilities are counted as commercial if they treat any waste on a commercial basis. Because many CWT
facilities fall under more than one subcategory, the numbers do not add to the total number, 205 facilities, in
the CWT industry. Similarly, because more facilities performing metals or oils recovery also perform
treatment, the total number of facilities in those categories does not equal the sum of facilities performing
recovery and treatment.

Data are scaled up to account for the entire universe of CWT facilities.

3.1.2 Demand for CWT Services

Producing goods and services almost always involves the simultaneous production of

waste materials. During the process of manufacturing goods or providing services, the

material inputs that are not embodied in the products become waste. Environmental

regulations require that these wastes, once generated, be recycled, treated, or disposed of in

accordance with regulatory requirements.
The demand for waste management services arises from the generation of waste as a

by-product of manufacturing or other production activities. This means that the demand for

CWT services is derived from and depends on the demand for the goods and services whose

production generates the waste. For example, the higher the demand for plastics, the greater

quantity of plastics produced and, in turn, the greater the quantity of by-products of plastic

manufacturing that must be treated and disposed of.
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Producers generating waste have three choices when they determine how to treat the
waste properly. First, they may invest in capital equipment and hire labor to manage the
waste on-site, that is, at the site where it is generated. For large volumes of waste, this is
often the least expensive way to manage the waste because producers can avoid the cost of
transporting it. Some generators may choose to treat waste on-site, because they believe that
it will help them control their ultimate liability under environmental laws. Alternatively,
producers may choose partially to treat waste on-site and then to send it off-site for ultimate
treatment and disposal. This choice is referred to as on-site/off-site hi this report. Finally,
producers may choose to send waste they generate directly to a CWT facility, a method that
is called off-site waste management.

The producers of waste who choose either the on-site/off-site or the off-site method
create the demand for CWT services. The proposed guidelines and standards under analysis
apply to all facilities accepting waste from off-site for treatment or recovery.

3.1.2.1 Industries Demanding CWT Services

This report used data from the TRJ to characterize the generators of hazardous waste
by industry and to profile the types of waste treated. A wide variety of manufacturing
industries generate waste. Appendix B shows the four-digit Standard Industrial
Classification (SIC) codes and the quantities of waste those industries transferred off-site for
either treatment or recycling in 1995. A list of the definitions for SIC codes is provided in
Appendix C. The industries transferring the largest amounts of waste off-site for treatment or
recycling are blast furnaces and steel mills (3312), storage batteries (3691), nonferrous wire
drawing and insulating (3357), plastics materials and resins (2821), motor vehicle parts and
accessories (3714), and industrial organic chemicals (2869).

3.1.2.2 Trends in the Demand for CWT Services (TRI)
The data described above reflect the demand for off-site hazardous waste
management in 1995. They demonstrate that the demanders of CWT services are diverse and

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include most manufacturing and many service sectors.  The TRI data provide a time series of
data on releases of materials. Table 3-2 quantifies the changes in the quantity of wastes
transferred off-site for treatment and recycling from 1991 to 1995, based on TRI data over
that time period. Waste transferred off-site for recycling increased a total of 41 percent from
1991 to 1995.  In contrast, the amount of waste transferred off-site for treatment decreased a
total of 3 percent over that time period, although a sudden drop-off from 1991 to 1992 is
being offset by more recent increases.

3.1.3  Description  of Suppliers of CWT Services

       As explained previously, CWT facilities accept waste from off-site for treatment. The
generating facility may or may not be owned by the same company as the CWT facility.
Suppliers are characterized by commercial status and types of services performed, SIC code,
location, size, and RCRA permit status.
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   TABLE 3-2. TRENDS IN DEMAND FOR OFF-SITE WASTE MANAGEMENT
                                    SERVICES
Waste Transferred Waste Transferred
Off-Site for Off-Site for
Recovery Percentage Treatment Percentage
Year (106lbs) Change (106lbs) Change
1991
1992
1993
1994
1995
1.517
1.886
1.940
2.170
2.142
—
24.33%
2.84%
11.85%
-1.27%
244.6
215.3
210.3
219.1
237.3
—
-11.99%
-2.31% .
4.20%
8.31%
Source: U.S. Environmental Protection Agency. Toxics Release Inventory, 1991-1995.

3.1.3.1 Commercial Status

       As mentioned earlier, CWT facilities have a variety of relationships with the facilities
generating the waste they treat. They fall into three main categories:

       •   commercial,
       •   noncommerical, and
       •   mixed commercial/noncommercial.

       Information about commercial status is available from several parts of the Waste
Treatment Industry Questionnaire. A copy of this questionnaire can be found in Appendix A
of the Economic Impact Analysis report prepared for the earlier proposal (EPA, 1995).
Question A35 in the technical section of the questionnaire asks facilities about their overall
commercial status.
       The part of the questionnaire where the facility reports its costs and revenues
indicates its commercial status. In Section N, in the economics section of the questionnaire,
facilities were asked to list their commercial waste treatment revenues and costs separately
                                         3-7

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from their noncommercial. Data on commercial revenues were listed in Questions N27
through N29 and noncommercial revenues were listed in Questions N30 through N32.
Purely noncommercial facilities reported their costs in Questions N30 through N32, while
commercial and mixed facilities reported their costs in Questions N27 through N29. Finally,
in Section O, facilities were asked in Question O4 to report the quantities of aqueous liquid
waste, sludge, and wastewater they treat that is received from off-site facilities not under the
same ownership, that is received from off-site facilities under the same ownership, and that is
generated on-site.

Information from Sections N and O forms the primary basis for determining a
facility's commercial status. When no data were available, or when the data in Sections N
and O conflicted, information from Question A35 was used. Table 3-3 provides the
commercial status of the 205 CWT facilities. The characterization of facilities' commercial
status in this report refers only to the operations subject to the effluent limitations guidelines
and standards. Facilities classified in this analysis as purely commercial may conduct some
operations not subject to this proposal on a noncommercial basis. Similarly, facilities
classified as noncommercial in this analysis may conduct some operations not subject to this
proposal on a commercial basis. The noncommercial category includes four facilities that
accept waste from off-site but do not market their CWT services. Included in this category
are a facility owned by the federal government and a facility contracted to accept waste from
an adjacent generator.
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TABLE 3-3. COMMERCIAL STATUS OF CWT FACILITIES"
Commercial Status
Number of Faculties
Commercial
Noncommercial
201
4
2 Data are weighted to account for entire universe of CWT facilities.
Sources: U.S. Environmental Protection Agency. 1991 Waste Treatment Industry Questionnaire. Washington,
DC: U.S. Environmental Protection Agency.
U.S. Environmental Protection Agency. Notice of Availability Facility Information Sheets.
Washington, DC: U.S. Environmental Protection Agency.

3.1.3.2 Industry Classification by SIC Code

In the questionnaire, facilities were asked to report the SIC code that best represents
the facility's main operation. Table 3-4 shows the SIC codes reported by respondents. EPA
assigned all of the Notice of Availability facilities to SIC 4953. The responses give one
indication of the relative importance of CWT operations at the facility. No SIC code
properly describes CWT services. Facilities that listed 4953, Refuse Systems, as their SIC
code are indicating that they are primarily waste treaters. Of the facilities responding to the
questionnaire, 51 of 76 indicated that SIC 4953 best described facility operations. SIC
code 4953, Refuse Systems, is primarily for municipal waste disposal services, so the
majority of facilities in that SIC code are not CWTs but trash haulers and municipal solid
waste management facilities.

Facilities that listed other SIC codes are indicating that they are primarily
manufacturing facilities that also do some waste management. Three facilities reported 2869,
Organic Chemicals not elsewhere classified, and four additional facilities reported other SIC
codes in the 2800s, indicating that they are chemicals manufacturers. Four facilities reported
SICs in the 3300s, indicating that they are primarily metals manufacturing facilities.
3-9

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      TABLE 3-4. SIC CODES DESCRIBING CWT FACILITIES' PRIMARY
                               OPERATIONS'
SIC Code Reported
2819
2821
2834
2869
2879
2911
3312
3321
3341
3356
3483
3499
3523
3633
3679
3724
3761
4226
4953
5090
5170
5171
9661
.9711
Total
Number of Facilities
1
1
1
3
1
1
1
1
1
1
1
1
1
1
1
1 •
1
1
51
1
1
1
1
1
76
* Data refer only to facilities responding to the 308 questionnaire.
                                    3-10

-------
Therefore, EPA data show that a majority of the facilities expected to be affected by
the effluent limitations guidelines and standards are primarily waste management facilities.
The rest, although they have CWT services on-site, are primarily manufacturing or service
facilities.

It should be mentioned that the North American Industrial Classification System
(NAICS) is replacing the existing SIC system. NAICS industries will be identified by a
six-digit code, in contrast to the four-digit SIC code, increasing the number of sectors
described and therefore increasing the level of detail possible in the industry characterization.
SIC 4953, Refuse Systems, is being subdivided into eight new industries. This division will
allow differentiation between hazardous waste treatment and disposal (NAICS 562211) and
recovering materials (NAICS 56292).

3.1.3.3 Location of CWT Facilities

There are 145 facilities that provided data to EPA through the questionnaire or Notice
of Availability. These facilities are located in 38 states. The states with the highest number
of waste management facilities are Texas with 13, Ohio with 12, and California with 12.
Table 3-5 shows the number of facilities in each state. Because not all CWT facilities offer
the same set of services, facilities located near one another may not be in the same markets.
Likewise, a CWT facility may compete with facilities located a longer distance away if the
services offered are similar. However, questionnaire responses indicated that most CWTs'
customers are located within the same state as the CWT or within a few adjacent states.
Thus, most of a CWT's competitors will be located relatively close to it.
3-11

-------
     TABLE 3-5. NUMBER OF FACILITIES PERFORMING CWT SERVICES"
State
AL
AZ
CA.
CO
CT
DE
FL
GA
HI
IA
IL
IN
KS
KY
LA
MA
MD
ME
MI
MN
Number of Facilities
3
1
12
2
5
1
8
3
1
1
6
4
2
2
3
1
2
1
10
2
State
MO
MS
MT
NC
NJ
NV
NY
OH
OK
OR
PA
RI
SC
TN
TX
VA
WA
WI
WV
Total
Number of Facilities
1
1
1
1
6
1
4
12
2
2
7
1
2
5
14
5
8
4
1
145
4 Data are not scaled up to account for the entire universe of CWT facilities. These data reflect only the
  facilities for which data are available.
                                         3-12

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3.1.3.4 Facility Size

Facility size may be defined in terms of total quantity of waste accepted for treatment
or recovery, number of employees, or total revenues and costs. This section examines
facility size using quantity of waste accepted and number of employees. Section 3.1.4
discusses facility revenues and costs.

Table 3-6 shows the quantities of wastewater treated by facility size category and
discharge status. CWT facilities may

• discharge wastewater, treated or untreated, directly to surface water (direct
dischargers);
• discharge wastewater, treated or untreated, indirectly to the sewer system, then to
a POTW (indirect dischargers); or
• not discharge their wastewater at all (zero dischargers).

Zero discharge facilities may dispose of their wastewater by pumping it down underground
injection wells, evaporating it, applying it to land, selling it or recycling it, or sending it
off-site to another CWT facility for treatment.

Facility size can also be defined in terms of employment. Nationwide, EPA estimates
that approximately 3,660 full-time equivalent employees (FTEs) work in CWT operations at
the CWT facilities. Employment in CWT operations at CWT facilities ranges from 1 FTE to
more than 100, with a median of 18 FTEs. The Agency is interested in facility-level
employment because, if production falls at a facility as a result of a regulation, some share of
the people employed there may become unemployed. This reduction hi employment may be
magnified throughout the community as facilities that produce goods and services previously
demanded by the now unemployed residents experience decreased demand for their goods
3-13

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      TABLE 3-6. FACILITY SIZE CATEGORIES BASED ON QUANTITY OF
    COMMERCIAL WASTEWATER TREATED, BY DISCHARGE CATEGORY3

                                                                           Organics
                                  Metals    Metals      Oils        Oils    Treatment or
                                 Recovery  Treatment  Recovery  Treatment    Recovery
Direct dischargers
< 5 million gallons
5 million to 10 million gallons
10 million to 50 million gallons
50 to 100 million gallons
Over 100 million gallons

1
0
0
0
0

2
0
2
1
1

2
3
0
0
0

3
2
0
0
4

2
0
1
0
0
    Total
Indirect dischargers
< 5 million gallons
5 million to 10 million gallons
10 million to 50 million gallons
50 to 100 million gallons
Over 100 million gallons

4
1
0
0
0

25
4
10
0
0

69
28
18
0
0

64
14
15
0
22 '

11
2
2
0
0
    Total
39
114
115
15
Zero dischargers
< 5 million gallons
5 million to 10 million gallons
10 million to 50 million gallons
50 to 100 million gallons
Over 100 million gallons
Total

1
0
0
0
0
1

7
0
1
0
0
8

31
0
2
0
0
33

17
2
0
0
4
23

4
1
0
0
0
5
1 Data are scaled up to account for entire universe of CWT facilities. Counts do not include four facilities that
  do not treat wastewater commercially.

                                        3-14

-------
and services. Table 3-7 shows the number of commercial CWT facilities with various
numbers of employees in their CWT operations.
TABLE 3-7. SIZE DISTRIBUTION OF COMMERCIAL CWT FACILITIES BY
NUMBER OF CWT EMPLOYEES
Total Number of Employees
No data
Ito9
10 to 19
20 to 29
30 to 49
50 to 100
More than 100

Number of Facilities
60
43
33
31
17
13
4
201
Percentage
33.3%
20.9%
15.9%
14.9%
9.0%
5.9%
3.0%
100.0%a
1 Does not sum to 100 percent because of rounding.
5.1.3.5 Facilities Permitted Under RCRA
Some CWT facilities may manage hazardous wastes in operations that are permitted
under RCRA. Of the 145 CWT facilities providing data, 79 do not have a RCRA Part B
permit, and 66 have a RCRA Part B permit. This distinction is important hi part because of
what it indicates about the types of wastes the facilities manage and the types of operations
they have on-site. All facilities treating hazardous waste are required to have a RCRA
permit. Facilities engaged hi recycling and recovery operations, such as metals recovery and
oils recovery, may or may not have a RCRA permit.

Of direct concern for estimating the impacts of the proposed rule is the fact that
facilities having RCRA permits are required to file a modification of their permits whenever
their operations change (e.g., when new waste management equipment is installed). Thus, in
addition to the costs of purchasing, installing, and operating additional capital equipment to
3-15

-------
comply with the effluent limitations guidelines and standards, RCRA-permitted facilities will
incur the expense of modifying their RCRA permit to reflect these changes.

3.1.4 Baseline Facility Conditions

As described above, this study analyzes the estimated 205 facilities in the CWT
industry. Of these, 201 are commercial and four are noncommercial. In this analysis, the
Agency accepts the definition of "facility" used by responding CWT facilities. In some
cases, the facility is defined as only the waste management part of a plant site. In other cases,
the facility is defined as encompassing the entire plant site, including non-CWT operations.

3.1.4.1 Baseline Quantities of Waste Treated

Table 3-8 shows baseline quantities of waste treated by commercial facilities by
subcategory. The largest number of facilities and the largest quantities are related to oils
treatment and oils recovery. When the responses are weighted to account for nonresponse,
915 million gallons of waste were accepted from off-site recovery of oil. Nine hundred
twelve gallons were accepted from off-site for oil treatment.

3.1.4.2 Baseline Costs of CWT Operations

Table 3-9 shows a frequency distribution for the baseline cost of treating waste. The
proposed effluent limitations guidelines and standards, if adopted, are expected to increase
the cost of treating waste at most CWT facilities. This cost increase, in turn, will increase the
3-16

-------
TABLE 3-8.  QUANTITY OF WASTE TREATED BY COMMERCIAL FACILITIES,
                        BY SUBCATEGORY (103 gal/yr)
Number of
Facilities
Metals Recovery
Metals Treatment
Oils Recovery
Oils Treatment
Organics Treatment or
Recovery
7
53
152
145
23
Total
Quantity
(103 gal/yr)
11,112
554,413
746,081
756,296
95,267
Average
Quantity
(103 gal/yr)
1,587
10,461
4,895
5,211
4,142
Minimum
Quantity
(103 gal/yr)
25.9
0.1
17.9
0.1
1.4
Maximum
Quantity
(103 gal/yr)
5,833
129,340
47,155
131,000
23,309
    TABLE 3-9. BASELINE WASTE TREATMENT COSTS AT COMMERCIAL
                              CWT FACILITIES3
Operating Costs ($1997)
<$0.1 million
$0.1 to $1 million
$1 to $2 million
$2 to $5 million
Over $5 million
No data
Total
Number of Facilities
16
59
33
26
7
60
201
Percentage
8.0%
29.3%
16.4%
12.9%
3.5%
29.9%
100.0%
a Data are scaled up to account for entire universe of commercial CWT facilities.


cost of recovery processes because those processes generate wastewater and sludge that must

also be treated. These baseline waste treatment cost figures form a basis for comparing the

costs of compliance, described in Section 4. Baseline in-scope waste treatment costs at
                                     3-17

-------
commercial facilities range from $3,500 to $25 million per facility and total $231 million
across all 201 commercial facilities. They average $1.6 million across all commercial
facilities.

3.1.4.3 Baseline Revenues for CWT Operations

       A frequency distribution of treatment and recovery revenues for commercial CWT
facilities is provided in Table 3-10. Treatment and recovery revenues at commercial CWT
facilities range from $4,938 to $89.7 million. The average revenue at commercial facilities is
$4.4 million.
    TABLE 3-10. BASELINE TREATMENT AND RECOVERY REVENUES AT
                       COMMERCIAL CWT FACILITIES"'1'
Revenues ($1997) Number of Facilities
< $0.1 million 10
$0.1 to $1 million 39
$1 to $2 million 24
$2 to $5 million 39
Over $5 million 29
No data 60
Total 201
Percentage
5.0%
19.4%
11.9%
19.4%
14.4%
29.9%
100.0%c
* Includes CWT revenue and revenue from sales of recovered product.
Data are scaled up to account for entire universe of commercial CWT facilities.
" Does not sum to 100 percent because of rounding.
                                       3-18

-------
3.1.4.4 Baseline Profitability for CWT Facilities

       Profitability is not a relevant measure for noncommercial facilities, which are
assumed to be treated as cost centers by their companies. EPA's analysis assumes that
noncommercial CWT operations are not expected to make a profit, any more than a
centralized accounting or legal department is expected to make a profit.  Impacts associated
with compliance costs for noncommercial facilities will be incurred at the company level.
Thus, a company-level financial analysis was performed for these facilities, including an
examination of the impacts on company profits. The baseline profits from CWT operations
for commercial facilities are described in a frequency distribution in Table 3-11.  These
profits range from a loss of $6.5 million to a profit of $360 million.

   TABLE 3-11.  BASELINE PROFITS AT COMMERCIAL CWT FACILITIES3'"
Profits
< $0.1 million
$0.1 to $1 million
$1 to $2 million
$2 to $5 million
Over $5 million
No data
Total
Number of Facilities
38
52
17
16
18
60
201
Percentage
18.9%
25.9%
8.4%
8.0%
9.0%
29.9%
100.0%c
a Profits are total revenues minus total costs.
 Data are scaled up to account for entire universe .of commercial CWT facilities.
c Does not sum to 100 percent because of rounding.
                                        3-19

-------
3.1.4.5 Baseline Conditions for Noncommercial Facilities

Four CWT facilities are classified as being strictly noncommercial or contract
noncommercial. Although they accept waste from off-site for treatment or recovery, they do
not market their CWT sendees to generators. Instead, then- customers are very narrowly
defined. The strictly noncommercial facilities accept waste only from facilities owned by the
same company as then- CWT facility. The contract noncommercial facilities accept waste
from a very limited number of adjacent facilities, which they were created to serve. One
facility that accepts some waste from off-site on a commercial basis is being considered
noncommercial for this report, because it is owned by the federal government. For the
purposes of this report, the crucial difference between these facilities and the commercial
facilities is how they are assumed to respond to the costs of complying with the CWT
effluent limitations guidelines and standards.

The noncommercial facilities are expected to continue to treat whatever waste their .
customers (whether inside their company or contract customers) generate and to pass the
costs of compliance along to their customers. Because strictly noncommercial CWT
facilities are generally regarded by their owner companies as providing a service to the rest of
the company, the analysis does not assess impacts at the facility level for them. Rather, the
analysis assumes that added costs will be borne by the company as a whole. The impacts of
the CWT effluent limitations guidelines and standards on strictly noncommercial facilities
are assessed at the company level. For the companies owning strictly noncommercial
facilities, this will mean that then- costs increase by the amount of the costs of compliance
and that their revenues do not increase.
Noncommercial CWT operations typically are treated as a cost center for the
company and may or may not receive explicit revenues or cross-charges in return for their
services. Most frequently, the facilities reported that the facility performed CWT services "at
cost" so that revenues from treatment exactly equaled cost. Other facilities reported
receiving no revenue for their services. Total cost accounting, which attributes to a •
production process all the costs associated with that process, would trace the waste treatment

3-20

-------
costs back to the production processes where the waste was generated. Most companies,
however, have made very little progress in adapting their accounting systems to this
approach.

For the contract noncommercial facilities, the customers are not owned by the same
company. Instead, generating companies have created the CWT specifically to treat the
waste they generate. Like the strictly noncommercial facilities, contract noncommercial
CWT facilities treat the waste they receive "at cost" and pass additional costs along to their
customers. Because the customers are different companies, the costs and revenues of
contract noncommercial facilities are both assumed to increase by the amount of the
compliance costs.

At baseline, four CWT facilities are classified as noncommercial. Based on the data
available, EPA has identified one of the facilities as contract noncommercial facilities and
two as strictly noncommercial, plus one federal facility. Among them, the noncommercial
facilities accept 92 million gallons of metal-bearing wastewater per year for treatment and
72 million gallons of organics-bearing wastewater. The companies owning the CWT
facilities have annual sales ranging from $6.0 million to $553 million. For the companies
owning nonfederal noncommercial facilities for which data are available, the median yearly
sales is $ 177 million.

3.1.5 Baseline Market Conditions

This report characterizes the markets for CWT services using questionnaire data and
information gathered in follow-up conversations with facilities and during site visits at
several facilities.

3.1.5.1 Defining Regional Markets

For modeling the impacts of the regulation on markets for CWT services, this study
divided the contiguous.U.S. into six regional CWT markets. In their questionnaire responses,
3-21

-------
 the facilities indicated that, in general, their customers are located within their own state or in
 a few adjacent states. This pattern is consistent with predictions of economic geography or
 "location theory," which state that heavy, bulky, or fragile materials or materials otherwise
 difficult to transport will be traded in localized markets. Wastewater and concentrated oily or
 metal-bearing wastes are extremely heavy and bulky. Generators therefore want to transport
 waste as short a distance as possible for treatment and are likely to choose a local CWT
 facility rather than one located a long distance away, assuming that they offer equivalent
 services.

       As discussed previously, CWT facilities are widely distributed across the country; for
 modeling purposes, the contiguous 48 states were divided into six regions:

       •   Northeast: CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT
       •   Northwest: WA, OR, ID, MT, WY
       •   Southeast: AL, FL, GA, KY, MS, NC, SC,  TN, VA, WV
       •   Southwest: AZ, CA,  CO, NM, NV, UT
       •   Upper Midwest: IA, IL, IN, MM, MI, NE, ND, OH, SD, WI
       •   Lower Midwest: AR, KS, LA, MO, OK, TX

       This definition of regional markets is a simplification of actual markets.  Obviously,
facilities located along the borders of the "regions" designated in this study may compete
with facilities in adjoining regions in addition to competing with facilities in their own
region. The regions were modeled as if they were independent. The presence of other
facilities offering the same CWT services in nearby regions would, however, in reality affect
the structure of the region's markets for CWT services.

       In reality, there are exceptions to the regional pattern. Highly specialized types of
waste treatment services,  such as precious metals recovery, are offered by only a few
                                        3-22

-------
facilities nationwide. Markets for these services may be national. In general, however,
markets for CWT services are regional.

3.1.5.2 Defining Markets for Specific CWT Services

In the market model, facilities are identified as offering one or more of five broad
categories of CWT services:
• metals recovery,
• oils recovery,
• treatment of metal-bearing waste,
• treatment of oily waste, and
• treatment of organic waste.

The first two types of CWT services may result in the production of a salable product. They
also result in the generation of wastewater. Under the general category of wastewater
treatment, facilities may treat any or all of the following: metal-bearing wastewater, oily
wastewater, or organics-bearing wastewater. These three types of wastewater treatment
require different treatment processes and have different prices. Thus, these services are
traded in separate markets.

As noted above, within the broad types of treatment, considerable variation exists
depending on the specific characteristics of the wastes being treated. Wastes with differing
characteristics may require more treatment chemicals, for example, or more steps in the
treatment process, although the basic overall type of treatment is the same. To reflect the
complexity of these markets, each overall type of treatment or recovery can be broken into as
many as three submarkets, based on the per-gallon cost of treatment. This is based on the
assumption that different per-gallon costs of treatment reflect the different treatments
required by differing waste characteristics. Thus, facilities with similar per-gallon treatment
costs are assumed to treat similar wastes. The modeling approach assumes that each facility
3-23

-------
treats waste of a single type within each broad treatment category with a uniform per-gallon
cost of treatment. This modeling approach is a simplification.  In fact, different batches of
wastes treated at a single facility vary in type and therefore in cost of treatment.  As modeled,
each facility offers at most only a single cost level of each broad treatment category.  Data
did not permit further detail in the delineation of the types of CWT services offered and their
associated costs at each facility.

       As the markets are defined, the number of facilities competing in each market varies.
considerably. Table 3-12 presents the number of facilities offering each type of CWT service
by region.

3.1.5.3 Defining Market Structure

       Markets in the model are defined as monopoly, duopoly (two sellers), or perfect
competition, depending on the number of sellers. Competitive  markets are characterized by
large numbers of suppliers, none of which are able to exert substantial market power.  In a
perfectly competitive market, suppliers would decide the most profitable quantity of waste to
                                        3-24

-------
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3-25

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                                        3-27

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treat based on the given market price. Because of the large numbers of CWTs in the oils
recovery and oily wastewater treatment markets, these markets are likely to be perfectly
competitive. Thus, the model was designed so that it would allow either a perfectly
competitive market structure or imperfect competition. In this modeling approach, any
market with more than three sellers is defined as perfectly competitive. In reality, in markets
with fewer than eight or ten sellers, suppliers are probably able to exert some influence on the
outcomes of market negotiations and to consider their rivals' behavior in forming their
decisions related to price and quantity. However, the current modeling approach does not
allow that market structure.

3.1.5.4 Substitutes for CWT Services

The existence of substitutes for CWT services influences the responsiveness of the
demand for CWT services to changes in their price. Non-CWT facilities also produce goods
and services that may be substitutes for the goods and services produced by CWT facilities.
For example, waste-generating facilities may decide to construct treatment units on-site; thus,
on-site waste treatment would be substituted for CWT. Underground injection wells and
other activities that would not be subject to these effluent limitations guidelines and standards
can be substituted for regulated types of CWT. In most of these cases, the non-CWT goods
and services are not perfect substitutes for the goods and services produced by CWT
facilities. Nevertheless, when the cost of CWT-produced commodities increases, some
consumers of these goods and services may choose to substitute the other goods and-services,
which are now relatively cheaper.

The increased cost of waste treatment may also induce some demanders of CWT
services to choose another type of substitution. They may modify their processes, essentially
substituting additional capital equipment, materials, and labor upstream in their production
processes for waste treatment. In other words, some generators may employ pollution
prevention to reduce their demand for CWT services. This type of substitution would result
in smaller quantities of waste being generated per unit of the primary product produced. As
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reported in Section 3.1.2, the declining quantity of waste sent off-site for treatment suggests
that pollution prevention is already reducing the demand for CWT services.

3.7.5.5 Baseline Market Prices and Quantities of CWT Services

Table 3-12 also shows the baseline market prices and quantities of CWT services as
defined by the model. As described above, facilities offering CWT services within a region
were grouped into markets according to the type of service offered and the cost of treatment.
For each market, a baseline price was determined. In practice, some facilities price each
batch treated based on laboratory tests on the waste hi the batch, but the model assumes that
all batches treated by a facility in a given subcategory are similar and would have a single
price. The baseline price depends on the demand elasticity assumed for the market and on
information from the questionnaire, plus comments on the proposal and NO A. The baseline
market quantities are the summed facility quantities as reported hi the technical part of the
questionnaire, plus comments on the proposal and NOA.

3.1.6 Company Financial Profile

New effluent limitations guidelines and standards for CWT facilities will potentially
affect the companies that own the regulated facilities. The CWT facilities described in
Section 3.1.3 are the location for physical changes in treatment processes. They are the sites
with plant buildings and equipment where inputs (materials, energy, and labor) are combined
to produce outputs (waste treatment services, recovered metals, organics or oils, and
treatment residuals). Companies that own the CWT facilities are legal business entities that
have the capacity to conduct business transactions and make business decisions that affect the
facility. It is the owners of the companies that will experience the financial impacts of the
regulation.

Potentially affected companies include entities owning facilities that accept waste
from off-site for treatment in CWT processes and that generate wastewater in their waste
treatment process. These facilities are classified as indirect, direct, or zero dischargers.

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Frequently, the immediate facilities are in turn subsidiaries of larger companies that generate
much of the waste they receive from off-site. The Agency has determined that the
appropriate context for assessing the potential financial impact of the regulation is at the
highest level of corporate ownership.

Questionnaire and NOA comment data were submitted for only 145 of the estimated
205 CWT facilities. The company-level financial profile is based on the companies owning
these 145 facilities, and scaled up to represent the universe of companies owning CWT
facilities. These 145 facilities are owned by 114 individual companies and the federal
government. Company-level information is available for 100 of the 145 CWT facilities for
which the Agency has data. For facilities that responded to the Waste Treatment Industry
Questionnaire, company data are based on then- responses to Section M of the questionnaire,
adjusted to 1997 dollars using the producers price index. For facilities identified in the NOA,
company data represent either data provided in comments on the NOA or data EPA
developed from public financial databases. Four of the 145 facilities are noncommercial,
including a government-owned facility administered by the U.S. Navy. Discussion of the
government-owned facility is omitted from this section. Also omitted is a noncommercial
facility for which no facility or company financial data are available. The 100 facilities with
reliable company data are owned by 74 companies.

For the remaining 43 facilities, for which no reliable company data are available,
EPA, for purposes of this analysis, assumed that company revenues equal the revenues of the
CWT facilities owned by the company. This assumption has several possible consequences
for the analysis, which are described below. These 43 facilities are owned by 40 companies.
Thus, the financial analysis is based on 114 companies.

To obtain an estimate of the universe of companies owning CWT facilities, EPA has
scaled up the responses of the 114 companies for which it has data, using the scaling factors
developed for the NOA data. Companies owning facilities that submitted 308 questionnaires,
and companies owning both NOA and questionnaire facilities, receive a scaling factor of 1.
Companies owning only direct discharging NOA facilities receive a scaling factor of 2.

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Companies owning only indirect discharging NOA facilities receive a scaling factor of
1.877551. Companies owning only zero discharge NOA facilities receive a scaling factor of
1.833333. A few companies own both zero and indirect discharging NOA facilities. These
companies receive the scaling factor for the indirect discharging category. Applying these
scaling factors, EPA estimates that 164 companies own the estimated 205 CWT facilities.

Table 3-13 presents a size distribution of potentially affected companies and
highlights the effect of assuming company revenues equal CWT revenues for the
40 companies for which no reliable company data are available. The table clearly shows that
the companies with assigned revenues tend to be smaller on average than companies for
which data are available. This may in part be the case because smaller companies are less
likely to be found in published financial databases. It is also possible that some of the
40 companies have sources of revenue beyond their CWT revenues, but the Agency has not
been able to identify those sources or estimate their revenues. Thus, for the 40 companies for
which CWT revenues are assumed to be equal to company revenues, there may be some
underestimation of company revenues.

The assumption that these 40 companies have company revenue equal to facility
revenue may have several consequences. This assumption may understate company revenues
because they may have other revenues for which EPA has no information. If company
revenues are understated, then some of the companies that EPA has classified as small may
be misclassified (as shown hi Table 3-13, 27 of the companies that EPA has assumed to have
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 TABLE 3-13. SIZE DISTRIBUTION OF POTENTIALLY AFFECTED COMPANIES
Company Revenues
Minimum Maximum
Number of Median Revenues Revenues
Companies Revenue (106$1997) (106$1997)
a. Size distribution of companies for which the Agency has reliable data
$6 million or less
$6 to $20 million
$20 to $50 million
$50 to $500 million
Over $500 million
24
15
10
12
12
b. Sales distribution of all companies,
assumed to equal CWT revenues
$6 million or less
$6 to $20 million
$20 to $50 million
$50 to $500 million
Over $500 million
c. Sales distribution of all
owning CWT facilities
$6 million or less
$6 to $20 million
$20 to $50 million
$50 to $500 million
Over $500 million
51
26
10
14
12
companies,
82
35
13
19
15
2.5
12.8
37.5
169.2
2,216.1
including those for which
2.0
12.6
37.5
156.9
2,216.1
0.2
6.5
23.1
74.3
657.2
5.6
19.0
45.6
426.0
40,411.2
company revenues are
<0.1
6.2
23.1
61.7
657.2
scaled up to reflect the universe
2.0
12.1
37.4
168.3
1,785.0
0.1
6.2
23.1
61.7
657.2
5.6
20.0
45.6
426.0
40,411.2
of companies
5.6
20.0
45.6
426.0
40,411.2
Note: Does not include one facility owned by the federal government, and another for which no financial data
     are available.
                                     3-32

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company revenues equal to facility revenues have revenues of $6 million or less). Finally,
some of the economic impacts of the proposal may be overstated. However, EPA has
concluded that its assumption, although conservative, is the most reasonable one to make.
As described above, the Agency scaled up the information on the companies owning
NO A facilities to represent the entire universe of companies owning CWT facilities, using
scaling factors developed to scale up facility-level data from the NO A. While the Agency
recognizes that the scaling is based on facility information and that scaling up the company
data may not be entirely accurate, the Agency believes that the companies owning CWT
facilities with data provide the best source of information about the characteristics of the
companies owning CWT facilities without data. After scaling up, the Agency estimates that
the 205 CWT facilities are owned by 164 companies. Table 3-13 also shows the scaled up
number of companies owning CWTs by baseline revenue categories. It is evident from
comparing the scaled up counts in Table 13-3(c) with the unsealed counts hi Table 13-3(b)
that the companies owning NO A facilities, which are scaled up, are generally smaller than
the questionnaire companies, which are not scaled up. Scaling up the company data increases
the estimated number of small companies by 61 percent, from 51 to 82, while scaling up only
increases the estimated number of companies in the largest size category by 31 percent. The
following discussion uses scaled-up company counts.

Potentially affected companies range in size from companies with less than $ 100,000
in revenues to companies with nearly $40 billion in revenues. Eighty-two of 164 companies
analyzed have sales less than $6 million per year. While EPA is concerned about economic
impacts to all companies owning CWT facilities, impacts to these small companies are of
particular concern. Under the Regulatory Flexibility Act, EPA must prepare an initial
regulatory flexibility analysis if a proposal will have a significant impact on a substantial
number of small companies. While the number of small companies affected by the CWT
effluent limitations guidelines and standards is relatively small in absolute terms (EPA
estimates fewer than 70 small companies owning direct and indirect dischargers will be
affected by the rule), impacts on individual companies owning CWT facilities may be
sizeable.
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The two ratios examined in this analysis to determine companies' financial status are
profit margin and return on assets (ROA). They are defined as follows:
Profit Margin =
ROA
Profit/Revenues
Profit/Assets
The profit margin shows what percentage of every sales dollar the firm was able to convert
into net income. This shows how profitable the companies' current operations are. Return
on investment relates net income to total assets, measuring how profitably a firm has used its
assets. Generally, profit data are available for many of the companies owning CWT
facilities, but asset data are not available for the NOA facilities. Thus, the ROA more
accurately reflects baseline company financial performance for the companies owning
questionnaire CWT facilities.

Table 3-14 shows the baseline financial condition of companies owning CWT
facilities. At baseline, companies owning CWT facilities are generally profitable. However,
a total of 14 companies are unprofitable at baseline, and they include companies in all size
categories except the largest one. Overall profitability appears highest for the smallest and
largest companies; the median profit margin for small companies is 18 percent, and the
largest size category of companies has a median baseline profit margin of approximately
10 percent. For companies ranging in size from $20 million to $500 million, baseline median
profit margins are in the 3 percent range.
3-34

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Median return on assets (ROA) is highest for the largest size category, approximately
18 percent. Like profit margin, the ROA varies across size categories, but in this case, the
three smallest size categories, which cover companies up to $50 million hi sales, have median
ROAs in the 10 percent range. Among companies with sales ranging from $50 to
$500 million, the baseline ROA is only 3.5 percent.

3.2 BASELINE ENVIRONMENTAL IMPACTS OF THE CWT INDUSTRY

This section focuses on the specific pollutants that originate from CWT facility
effluents and the waterbodies affected by these pollutants. We characterize these pollutants
and the affected streams reaches.

3.2.1 Pollutants Discharged

Over 100 hazardous chemical compounds have been detected hi the discharges from
the 119 modeled CWT facilities. These compounds include inorganic compounds such as
arsenic, chromium, and lead, as well as organic compounds such as benzene and toluene.
Table 3-15 lists each of the 128 detected chemicals and provides information about their
toxicity. Four of the chemicals are known to be human carcinogens and another 17 are
considered probable or possible carcinogens. Almost half of the chemicals are considered
systemic toxicants for humans. That is, evidence shows that above certain thresholds of
exposure they have the potential to damage human health, including neurological,
immunological, circulatory, or respiratory effects. These exposure thresholds are represented
by the reference dose (RfD) values reported hi Table 3-15. Section 9.4.2.3 provides more
details on the human health effects of these chemicals.
3-36