### MEMORANDUM

TO: Record

FROM: Karen Milam , U.S. EPA, Office of Water (OW)

DATE: June 10th , 2016

SUBJECT: Summary of EPA Economics and Cost Approach for the Pretreatment

Standards for Unconventional Oil and Gas Extraction Wastewater ( SGE01356)

.

Generally, with a n Effluent Limitation Guideline and Standards r ulemaking, a comprehensive

cost analysis document (usually called a regulatory impact analysis document) accompanies the rule and preamble. As explained below , there is no need for such a comprehensive cost analysis
document here . However, EPA finds it appropriate to document the considerations that EPA
used to conclude that this a zero discharge standard for this rulemaking is economic ally
achievab le . Therefore, this memo summarizes EPA’s economic analysis for the Pretreatment
Standards for Unconventional Oil and Gas Extraction wastewater.

EPA cost analys is for Pretreatment Standards for Existing Sources ( PSES ) :

The CWA section 301(b)(2)(A) requires that the technology basis for Best Available Technology ( BAT ) be “economically achievable,” among other factors. Categorical pretreatment standards for existing sources are technology

- based and are analogous to Best Practicable Control Technology ( BPT ) and BAT effluent limitations guideline s, and thus the Agency typically considers the same factors in promulgating Pretreatment Standards for Existing Sources ( PSES )
for toxic and non

- conventional pollutants as it considers in promulgating BPT or BAT. See Natural Resources Defense Council v. EP A, 790 F.2d 289, 292 (3 rd Cir. 1986). Because these sources discharge toxic and nonconventional pollutants and are thus subject to BAT

- based limits
under CWA section 301 (b)(2)(A) , EPA considered the appropriate BAT factors

– including
economic achievabili ty

– in establishing PSES in this final rule.

The first step in determining whether a technology basis is economically achievable is an
estimate of the incremental costs associated with applying that technology basis throughout the industry. I ncremental costs are the costs for the regulation or policy action that constitute a change from the current world absent the proposed regulation or policy action (i.e., baseline)

. According to EPA’s Dec ember , 2010, Guidelines For Preparing Economic Analyses , section 5.1, “A baseline is defined as the best assessment of the world absent the propos ed regulation or policy action.” Based on this description, the demarcation between the baseline and future state is the ‘regulation or policy action’ for which the economic analysis is being conducted.

Based on the information reviewed as part of this rulemaking, the current world absent the regulation is that UOG operators do not send wastewater to POTWs. The regulation establishes a zero discharge standard (prohibiting di scharge of pollutants in UOG wastewater to POTWs)

.Memorandum

June 10 , 2016 Page 2 Therefore, because industry does not currently discharge UOG wastewaters to POTWs, and the final rule is a zero discharge standard, the incremental cost for the final rulemaking is $0.

Accordingly, because industry is already meeting this requirement, no facilities will incur incremental costs for compliance with the promulgated PSES and, therefore, the promulgated PSES is economically achievable.

EPA cost analys is for Pretreatment Standards for New Sources (P S NS):

I n establishing Pretreatment Standards for New Sources ( PSNS ) , the Agency typically considers the same factors as it considers in promulgating New Source Performance Standards ( NSPS ),

which are based on Best Available Dem onstrated Control Technology (BADCT) , analogously to considering BPT and BAT in setting PSES

. In establishing NSPS, EPA is required to “take into consideration” the cost of achieving effluent reductions. CWA Section 306(b)(1)(B).

EPA has no data to sugges t that the zero discharge requirement will be a barrier to entry for unconventional oil and gas producers . As explained in the preamble, there are multiple management alternatives to achieve zero discharge of pollutants in UOG wastewater and EPA

has no data in the record, including comments, indicating that these alternatives would not

continue to be available in the future. Although some commenters have suggested that zero discharge alternatives may not be available in the future, they did not provide a ny specific data supporting such statements. Such unsupported conjecture is not sufficient to refute EPA’s considered findings that

– in light of the multiple options currently available for meeting zero discharge requirements, and factors suggesting the contin ued availability of such options across the industry

– even if a particular zero discharge option was limited in a particular location or at a particular time for a particular facility

, new sources would continue to have options available for meeting zero discharge requirements in the future. There is certainly no data in the record to suggest that all current zero discharge options would somehow be curtailed for new sources in

the future. In addition, EPA has no data in the record, including comments, that future costs

would be different. In addition

, given that existing facilities already meet the zero discharge

standard

, new facilities would likewise be able to meet this standard at no c ost disadvantage to existing facilities. EPA therefore determined that the final rule would not present a barrier to entry for new sources.

Cost information in EPA’s record:

Although the previous sections explain how EPA determined that a zero discharge s tandard has an incremental cost of $0, this does not mean that EPA did not collect cost information, only that a comprehensive cost analysis was not needed to determine economic achievability. EPA’s
record does co ntain cost figures for technologies and zero discharge wastewater management alternatives (e.g., underground injection control) . Most of these cost numbers are collected in the Treatment Technology Report (DCN SGE01186). The se costs consist of values reported by vendors, UOG operators, CWT opera tors, and in the literature. The costs are sometimes reported as a ball park number; may include a company’s amortization of capital costs with O&M added on (where the amortization rate or amortization period are not reported); and may be reported asMemorandum

June 10 , 2016 Page 3

a ren tal cost which may or may not include the full capital costs of the technology. These costs

are not be comparable since there are regional differences and the data represents differing timeframes from 2005 through 2011. More details on the cost data collec ted by EPA is provided
in the report and in the original sources , all of which are in the record for the rule

.

UOG Industry Profile Consideration:

EPA is aware of the two

- year decrease in the price of oil and the 8

- year decrease in the price of natural ga s (based on the peak in price of natural gas in 2008) and the negative impact the depressed prices has had on the financial picture of oil and gas extraction (OGE) firms in general, and UOG firms, more specifically (see Industry Profile DCN SGE01277). Howe ver, because of data indicating that all UOG facilities are using wastewater management techniques other than sending their wastewater to a POTW even in these times of depressed prices, EPA reasonably concluded that these zero dis charge management practice s are economically

achievable even at these times

. Also note that no industry commenter’s suggested they could not afford to comply with the pretreatment standard or that the zero discharge standard is not economically achievable. EPA asked for comment on whether or not there are any existing

onshore UOG extraction facilities that currently discharge UOG extraction wastewater to POTWs in the U.S. As well, EPA asked for comment on costs and benefits to POTWs, states, and localities associated with the proposed rule. With respect to both reque s ts , EPA receiv ed no data in comments providing evidence of a facility that is currently sending its wastewater to

POTWs. Therefore, EPA determined that if a facility is currently meet ing the zero discharge

standard

, there is no additional cost that EPA is imposing , and the technology is economically

achievable.