Abt Associates Inc., June 18, 2008 Adjusting the Phase 4 Facility Weights for the Cost Analysis 1 

## Environment and Resources 55 Wheeler Street, Cambridge, MA  Tel: 617 492-7100  www.abtassociates.com

Date June 18, 2008

To Erik Helm and Josh Hall, U.S. EPA

From Matt LaPenta, Tatiana Melnikova, and Michael Fisher, Abt Associates Inc.
Subject Adjusting the Phase 4 Facility Weights for the Cost Analysis

This memorandum proposes revised weights to be used for estimating the cost and economic impacts of with the 316(b) Phase II Remand Rule ( P2RR weights ). Abt Associates’ May 7, 2008 memorandum stated that we would like the cost analysis weights to pr ovide accurate estimates – based on the full set of 543 DQ/STQ facilities and using the previous Phase II STQ weights – for the following control variables:

1. Generating capacity 2. Number of facilities 3. Design intake capacity.

and according to the following classification variables:

1. NERC region 2. Capacity type (coal steam, combined cycle, etc.) 3. Ownership (investor-owned, nonutility, etc.).

These classification variables become the candida tes for use in either a raking process or poststratification analysis for development of adjusted weights in accordance with a given control variable.

1 Developing the Revised Weights We generated the proposed weights (P2RR weights) using a standard post-stratification approach:

1. The set of strata are defined

2. The weights are calculated so that the weighted estimates are equal to the control totals for each stratum (where the control totals are calculate d using the original combined DQ/STQ sample weights (P2F-STQ)).
We limited the weights development effort to fac ilities without an in-place cooling water recirculating system. Although facilities with a recirculating system may incur certain administrative costs under a regulatory option, they will not incur technology cost s. As a result, the administrative costs to these facilities should be able to estimated and applied at the level of the individual DQ or STQ facility, and the weights that would be used with these recirculating system in-place facilities would be the DQ/STQ sample weights used in the Phase II Final Regulation analysis. 

# memorandumAbt Associates Inc., June 18, 2008 Adjusting the Phase 4 Facility Weights for the Cost Analysis 2 In developing the revised weights for the cost and economic impact analysis, we faced several questions:
3⁄4 Whether a single set of weights would provide sufficiently accurate estimates for each of the control variables
3⁄4 Whether all of the classification concepts coul d be reasonably accounted for in developing the weights
3⁄4 Whether to include information from the origin al Phase II Final DQ weights in the revised weights
We discuss each of these questions below.

Single set of weights would provide sufficiently accurate estimates for each of the control variables In developing the revised weights, we initially sought to develop a single set of weights that would be applicable for all three of the control variables listed above and according to the three classification variables. However, as we expected might occur, desi gning a single set of weights to meet adequately all of the above requirements proved not possible.
As a possible approach to developing the “single” set of weights, we first developed weights for each of the three control variables and then looked to co mbine the weights in a way that would work “well enough” for all three control variables, at once. E ach of the weight sets developed according to an individual control variable (e.g., generating capacity) perfo rms well for that particular control variable but suffers deficiencies in the quality of estimates for the other control variables (e.g., design intake capacity). Our efforts to combine the individual weight sets (e.g., by averaging or other combination algorithm) to achieve a single set that performs well for all three of the control variables did not succeed. Specifically, we were able to develop combination weights that provide good estimates for generating capacity and number of facilities according to the NERC region cl assification variable; however, the population-level estimates for design intake capacity were substantia lly below the STQ weights-based estimates for that variable. Given the importance of design intake capacity in estimating some elements of compliance cost, we were concerned that the combination weights might not perform sufficiently well in the cost and impact analysis.
Faced with this finding, we c onsulted again on the weights development possibilities with the Abt Associates statistics specialists, who recommended that multiple weight sets, developed according to the individual control variables, would be the best practical approach – if we believe it is important that the estimates for each of the cont rol variables be “accurate.” These separate weights would be used to estimate specifically the values for the given control variable on which the weight set was developed, or for other variables that are linked closely in concep t to a specific control variable. The obvious downside of the multiple weights approach is greater complication of the analysis.

Whether all of the classification concepts could be reasonably accounted for in developing the weights During this process, we also observed that we woul d face difficulty in defining weights to account for more than one of the classification variables. Speci fically, when we set up the multiple criteria cells, a number of the cells contained no DQ observations but did contain STQ observations that would need to be “represented” in the weighting framework. We firs t worked to combine cells in a rational way that would avoid the missing DQ observations, but eventually decided that we would need to compromise on the extent to which the revised weights would account for the proposed classification variables.Abt Associates Inc., June 18, 2008 Adjusting the Phase 4 Facility Weights for the Cost Analysis 3 Specifically, based on the classification preferences we outlined in our May 7, 2008 memorandum, we decided to focus on the NERC region classifi cation as the concept for stratification.

Whether to include information from the original Phase II Final DQ weights in the revised weights In developing the adjusted cost weights, we bega n by scaling the original DQ weights so that the new weighted estimate for a given control variable equals the population estimates (using the P2F-STQ weights) within each stratum. This approach retain ed the differential weigh ting information underlying the stratification framework for the original DQ we ights. However, in some instances, this method produced anomalous weights – i.e., sample weight s less than one – for one or more of the DQ observations in a stratum. Given this observation, we reviewed the stratification framework underlying the original DQ weights as documented by Ba ttelle in its memorandum of March 26, 2008 1 to assess the importance of retaining the original stratification in formation in developing new weights. According to the Battelle memorandum, traditional steam electric u tilities were stratified by flow volume, SBA size, system type, and waterbody type. Steam electric nonu tility power producers were stratified into three groups: (1) nonutility industrial; (2) nonutility nonindustrial; and (3 ) nonutility small. The first two nonutility strata were further stratified on the basis of flow volume. From this review, we judged that development of new weights without starting from the original weights would not result in substantial loss of information that would be important in th e cost and economic impact analysis. Our judgments with respect to each stratification concept are as follows:
3⁄4 Flow volume. Flow volume is an important concept in estimating compliance cost. However, we are explicitly capturing this concept in developing a set of weights that is based on design intake flow as a control variable. Moreover, from the Battelle memorandum, the definition of “flow volume” is not clear and may differ from design intake flow , which is the flow-related variable used in estimating some categories of complian ce cost. Thus, the new weights should improve in capturing this cost-related information in the analysis.
3⁄4 SBA size. The SBA size determination of facilities is a moving concept because of the change in ownership and entity size status of parent entiti es over time. Thus, the entity size information in the original DQ weights may now be incorrect for a number of facilities. In addition, we are dealing this concept explicitly and more appropriate ly in the firm impact analysis by developing firm-level weights that account for the known entity size classification of entities owning only STQ facilities (and thus are not captured in the DQ facility-based analysis)and entities that own at least one DQ facility (and thus are captured in th e DQ facility-based analysis). Hence, we judged loss of this information in the building new DQ facility weights as not material.
3⁄4 System type. Cooling water system type in-place is an important factor in determining the level and character of technology required for complia nce with a regulatory option, and thus would appear important as a stratification concept. Howe ver, as we understand the original stratification, this variable was broken into only three classes: (1) recirculating system, (2) once-through system, and (3) “other.” We looked for, but couldn’t find, a clear definition for “other,” so we are not certain what information is capture by th at classification. The proposed weights scheme will capture the important distinction between recirculating system in-place and once-through system in-place, because (1) we developed revised wei ghts only for facilities without a recirculating system in-place and (2) we propose to use the Phase II Final DQ/STQ sample weights with DQ and STQ facilities that have a recirculating system in-place.

1 EPA Contract No. EP-C-05-030, Work Assignment No. 2-14: 316b Survey: Survey Weights Related to Costing and Benefits , memorandum to Marla Smith dated March 26, 2008.Abt Associates Inc., June 18, 2008 Adjusting the Phase 4 Facility Weights for the Cost Analysis 4 3⁄4 Waterbody type. Waterbody type can be a factor in determining compliance requirements, depending on the specifications for a given regulat ory option. At this time, we are not accounting for waterbody type in the new weights, so this c oncept is the only previous stratification concept that we believe is of potential consequence in the analysis that is not being accounted for in the new weights

. 3⁄4 Business classification – utility vs. non-utility. Like the entity-size classification, this concept is subject to change over time. In addition, we vi ew this concept of relatively low importance in assessing the cost and economic impact of the Remand Rule regulatory options.
On balance, although we lose some information in developing the revised weights without consideration of the previous DQ weights, we view the revised weights as substantial improvements over the previous DQ weights, as demonstrated in the following section.

2 Review of Estimates Based on P2RR Weights The following tables compare the population estimates, by NERC region, using the revised weights – the P2RR weights, by control variable – with the estim ates based on the Phase II Final DQ weights (the P2FDQ weights). Each table reports the estimates for the specific control variable on which the particular P2RR weight set is based. In each table, the P2RR-b ased estimates are identical to the population-level estimates based on the combination of DQ and STQ facilities with the P2F-STQ weights, and substantially improve over the estimates based on the P2F-DQ weights.
Table 1 presents the estimated number of facilities using the DQ-Only weights (P2F-DQ) and Facility Count-Based P2RR weights. The P2RR weights are assigne d so that the weighted estimate of the number of facilities is equal to the control total number of facilities by NERC region

. Table 1: Number of Facilities by NE RC Region: P2F-DQ and Facility CountBased P2RR estimates (also equal to Facility Count Control Total) Number of Facilities Using NERC Region P2F-DQ Facility Count-Based P2RR ECAR 93 83 ERCOT 44 36 FRCC 24 20 HICC 5 3 MAAC 51 39 MAIN 43 45 MRO 40 41 NPCC 58 60 SERC 95 87 SPP 15 19 WECC 22 28 Total 489 462Abt Associates Inc., June 18, 2008 Adjusting the Phase 4 Facility Weights for the Cost Analysis 5 Table 2 presents the estimated steam generating capacity using the P2F-DQ and Capacity-Based P2RR weights, where the weights are assigned so that the weighted estimate of the steam generating capacity is equal to the control total for steam generating capacity. Table 2: Steam Generating Capacity by NERC Region: P2F-DQ, and Capacity-Based P2RR Estimates (also equal to Generating Capacity Control Total) Steam Generating Capacity Using NERC Region P2F-DQ Capacity-Based P2RR ECAR 69,160 59,343 ERCOT 39,577 31,293 FRCC 29,755 19,973 HICC 1,123 1,086 MAAC 32,682 27,305 MAIN 33,835 31,127 MRO 19,353 16,060 NPCC 40,569 42,042 SERC 111,136 100,328 SPP 9,961 9,874 WECC 10,651 24,931 Total 397,802 363,361

Table 3 presents the estimated total design flow us ing the P2F-DQ and DIF-Based P2RR weights, where the weights are assigned so that the weighted estimate of the design flow is equal to the control total for design flow. Table 3: Design Flow by NERC Region: P2F-STQ, P2F-DQ, and DIF-Based P2RR Estimates (also equal to Design Flow Control Total) Design Flow Using NERC Region P2F-DQ DIF-Based P2RR ECAR 47,170,546,533 46,380,822,156 ERCOT 39,208,628,064 28,588,275,746 FRCC 22,678,886,534 18,203,990,663 HICC 1,803,183,030 1,866,563,147 MAAC 30,868,106,045 32,457,176,162 MAIN 25,624,917,080 25,832,144,652 MRO 14,114,904,604 15,293,644,526 NPCC 25,316,081,421 43,728,623,136 SERC 77,677,563,759 79,874,546,396 SPP 5,350,950,001 9,161,351,687 WECC 8,846,605,973 21,048,734,339 Total 298,660,373,045 322,435,872,610