OHIO RIVER WATER QUALITY TRADING PILOT PROGRAM:

Business Case for Power Company Participation

EPRI Contract No. 125935.4411

Shaw Project Number: 125935

February 20, 2014

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Electric Power Research Institute

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Prepared by:

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Ohio River Water Quality Trading Pilot Program: ES Business Case for Power Company Participation -1
Executive Summary

A preliminary feasibility analysis presents a strong business case for power company 

participation in the development and promotion of a Water Quality Trading (WQT) program in 

the Ohio River Basin. This business case has been prepared for the use and consideration of the 

Electric Power Research Institute (EPRI) and the EPRI Water Quality Advisory Group. The use 

of WQT can be shown to yield substantial benefits for management of nitrogen discharges 

associated with more restrictive wastewater discharge permit limits anticipated within the next 

five years in this basin. Specifically, the business case identifies potential opportunities for 

reducing costs associated with National Pollutant Discharge Elimination System (NPDES) 

permit compliance. 

An Ohio River WQT pilot project was selected following a review of three potential candidate 

locations including the Ohio River, the Chesapeake Bay and the Catawba River Basin (in North 

Carolina and South Carolina). The three pilot opportunities were presented to EPRI and the 

Water Quality Advisory Work Group at their meeting in Ashville, NC on June 27, 2007. Based 

on a consensus opinion, the Ohio River presented the greatest opportunity for a WQT pilot 

program involving power companies. However, meeting participants emphasized the need for a 

clear assessment of the business case for power company involvement in the more detailed 

review and feasibility assessment embodied by this document. With several American Electric 

Power (AEP) and Duke Energy power facilities in the basin, a particular focus on WQT benefits 

for these Ohio River facilities was made in this analysis.

Historically in the Ohio River Basin, as in most other water bodies of the United States, effluent 

limits for nitrogen have not been included in power company permits, or have been largely 

unrestrictive. Most nitrogen related effluent limits have typically been specified for ammonia as 

related to dissolved oxygen and aquatic toxicity in receiving waters. Moreover, nitrogen 

discharges from power plants were generally quite low in the past. However, these conditions are 

changing. Nitrogen discharges to surface waters from power plants are increasing as 

technologies such as selective catalytic reduction (SCR) units, electrostatic precipitators and flue 

gas desulfurization (FGD) systems are installed to comply with more stringent air emission 

requirements. The nitrogen generated by these processes is being transferred to surface water 

discharges. Concurrently, water quality impairments by nitrogen, new instream nutrient criteria 

and anticipated effluent limitations on total nitrogen (TN) discharges are now actively being 

pursued by regulatory agencies. Although only a few power plant NPDES permits reviewed 

during this feasibility assessment contain nitrogen limits (or monitoring requirements), 

promulgation of nutrient criteria, (which will be followed by effluent limitations), is anticipated 

for Ohio in 2008, Kentucky and along the main stem of the Ohio River by 2010 and for West 

Virginia by 2011.

Ohio River Water Quality Trading Pilot Program: ES Business Case for Power Company Participation -2
This combination of stricter permit limitations on nitrogen and increasing nitrogen 

concentrations in power plant discharges will ultimately translate to increased wastewater 

treatment costs for most power companies. For example, AEP must install SCR units and FGD 

systems in many of their plants within the project area. Of the ten AEP facilities in the pilot 

project area, five already have FGD systems installed on at least one unit, and by 2010 five AEP 

plants will be installing additional FGD systems on one or more units. In addition, five AEP and 

two Duke Energy plants within the pilot project area will be installing SCRs within the next five 

years. The Amos, Mountaineer and Muskingum plants will begin operating SCRs year-round. 

The reductions in air emissions will result in greater nitrogen loadings in wastewater discharges 

coincident with forecasted establishment of nutrient criteria in the region. Ironically, with 

nitrogen criteria only a few years away, the potential regulatory and compliance issues associated 

with nitrogen in power plant discharges are just emerging for some companies.

Under the current regulatory conditions, the only option power companies on the main stem of 

the Ohio River have for complying with stricter water discharge limitations will be investment in 

on-site treatment capacity. WQT offers another option; purchasing wastewater effluent discharge 

offsets to maintain NPDES permit compliance. This involves making equivalent or greater 

discharge reductions at another location to offset the plant’s discharges that are in excess of their 

water quality based permit limits. 

As with other “make vs. buy decisions” for business, the potential gains to a power company by 

purchasing credits via a WQT program rather than investing in treatment capacity will depend on 

relative costs and risks. A WQT program must provide assurances for a reliable supply of costeffective credits. The potential uncertainty in a WQT program regarding credit supply may be 

considered too risky for a power company to depend on WQT for compliance. Thus, whether a 

power company will benefit from WQT depends on their wastewater treatment discharge 

restrictions, in-house wastewater treatment costs, the expected cost of WQT offsets and 

supporting conditions of the WQT market.

This report presents preliminary findings that support the business case for power companies to 

promote the development of WQT because of the potential to reduce costs of complying with 

water discharge restrictions. The five key scenarios identified in this analysis that encourage 

power companies to participate in WQT program development and its use are based on providing 

cost-savings and flexible compliance options. These five scenarios include:

1. Long-term Participation in WQT – A power facility could engage in long-term 

compliance options using the WQT option when the cost is significantly less than up 

treatment upgrades.

2. Short-term Participation in WQT – A power company could choose to participate 

in WQT for a short duration to provide permit compliance schedule fulfillment for 

Ohio River Water Quality Trading Pilot Program: ES Business Case for Power Company Participation -3
sites when upgrade facility planning and construction schedules are longer than 

otherwise might be stipulated in a NPDES compliance schedule.

3. Partial Compliance Use of WQT – A WQT program provides the opportunity to 

avoid upgrading a power facility for permit compliance when only maximum 

concentrations are discharged, despite average effluent concentration discharges 

being in compliance.

4. TMDL Allocations – A WQT program can provide allocation capacity for new or 

expanding power facilities in areas with fully allocated TMDLs for nitrogen that 

would otherwise preclude the permitting of new loads.

5. Generating Credits – A WQT program can provide economic opportunities for 

selling surplus nitrogen reductions when a power company’s facility provides 

nitrogen treatment beyond permit requirements.

Treatment Cost Differences in the Ohio River Basin

The actual discharges of nine power plants within the project area, plus a base case (representing 

average nitrogen discharges from a facility with FGD and SCR) were used to estimate future 

treatment costs associated with NPDES permit compliance. The estimated unit cost (dollars per 

pound) for some power companies to remove nitrogen from their discharges at concentration 

limits of 5 milligrams per liter (mg/L) and then 8 mg/L (at typical discharge volumes), is much 

higher than equivalent treatment costs for non-point sources (NPSs) and wastewater treatment 

plants (WWTPs) (Figure E-1).

From a treatment cost perspective, Figure E-1 suggests that power plants would benefit from 

purchasing discharge credits from NPS dischargers that can make equivalent discharge 

reductions for $4 per pound. Assuming a 2:1 trading ratio in a potential WQT program, credits 

selling for $8 per pound are still more cost-effective than a power facility minimally spending 

$14.41 per pound via in-house treatment upgrades. A potential savings of $6.41 per pound of 

nitrogen could be realized even with these relatively conservative (i.e., high) costs of NPS 

credits. Other administrative costs associated with executing a trade will reduce such savings, 

however, this is a good first approximation of the potential savings from trading between NPSs 

and power facilities.

The limitations with this first conservative approximation of power company benefits will be 

critically influenced by decisions made over the initial years of WQT program development 

regarding: the units of exchange; the geographic range where trading can occur; who is allowed 

to trade; and, how transaction costs, trade risks and liabilities are allocated among buyers and 

sellers. Notably, power companies are not the only point sources to potentially benefit from a 

WQT program in the Ohio River Basin (Figure E-1). Municipal wastewater treatment plants will 

also benefit, representing a much larger potential market demand than power companies, and 

Ohio River Water Quality Trading Pilot Program: ES Business Case for Power Company Participation -4
especially considering that WWTPs will be faced with significant effluent limitations for both 

nitrogen and phosphorus.

Figure E-1

Overview of Potential Power Facility Cost Savings from WQT in the Ohio River Pilot 

Project Area

NP1 Estimated Ohio River Agricultural NPS Credit at a 2:1 trading ratio 

NP2 Conservative Ohio River Agricultural NPS credit cost

NP3 Actual GMR Agricultural NPS credit cost based on the Miami Conservancy District (MCD) WQT program 

results in the Great Miami River (GMR) watershed (for a combined TN+TP credit)

WT1 Estimated Average Unit TN treatment cost for WWTP below 0.1 million gallons per day (mgd) in the GMR

WT2 Estimated Average Unit TN treatment cost for WWTP between 0.1 and 1 mgd in the GMR

WT3 Estimated Average Unit TN treatment cost for WWTP between 1 and 10 mgd in the GMR

EP1 Estimated Average Unit TN treatment cost for Base Case power plant

EP2 Estimated Average Unit TN treatment cost for AEP Muskingum River Plant

EP3 Estimated Average Unit TN treatment cost for AEP Mitchell Power Plant

EP4 Estimated Average Unit TN treatment cost for AEP Mountaineer Power Plant

Regulatory Flexibility and Risk Management

Regulatory flexibility associated with WQT offers a NPDES discharger cost saving and risk 

management options. Often, the most cost-effective timing to participate in WQT is the period 

Ohio River Water Quality Trading Pilot Program: ES Business Case for Power Company Participation -5
just prior to implementing fixed cost treatment upgrades. Long-term controls through on-site 

treatment are an attractive risk management option. However, even when upgrading there 

sometimes exist economic advantages in providing for longer upgrade periods than regulatory 

upgrade compliance schedules might dictate. Typical compliance schedules establish limits 

within the first five years of a new permit cycle (most often during the third year of the permit). 

For facilities planning to upgrade but needing more time to accommodate capital development, 

design and installation, WQT can be used as an interim compliance mechanism. WQT can also 

be used for short-term compliance for facilities with scheduled upgrades for other purposes.

Similarly, costly upgrades can potentially be avoided using WQT in partial fulfillment of a 

permit condition to provide relief only during the period when the facilities discharge at a 

maximum concentration. When maximum discharge concentrations are above an effluent limit, 

and atypical for average operating conditions within compliance, it may be more cost-effective to 

purchase offset credits than to upgrade. To assess these potential conditions, average and 

maximum discharges were compared to four, progressively more stringent discharge 

concentration limits for TN: 10, 8, 5, and 3 mg/L. As shown in Table E-1, average TN discharges 

of many facilities are below one or more of the discharge concentration limits evaluated. 

However, maximum discharges of most facilities are above even the highest limit. Without 

trading, facilities would need to invest in treatment to manage these maximum discharges. 

Alternatively, if a facility does upgrade, they may have the capacity to produce surplus credits 

(reductions in excess of their permit limitations and beyond a previous level of discharge) that 

could be used for intra-plant compliance or sold to other facilities.

Ohio River Water Quality Trading Pilot Program: ES Business Case for Power Company Participation -6
Table E-1

Current Discharges from Select Power Plants in the Ohio River WQT Pilot Project Area

Facility NPDES Permit 

Number

Calculated 

Average TN 

Concentration 

(mg/L)

Calculated 

Maximum TN 

Concentration 

(mg/L)

Actual 

Discharge 

(mgd)

Size vs. Base 

Case

Base Case Not Applicable 47.65 97.3 0.5 N/A

FirstEnergy RE Burger Plant OH0011592 1.85 5.60 6.89 13.8

AEP Muskingum River Plant OH0006149 5.38 15.00 4.93 9.9

Orrville Municipal Power Plant OH0064025 25.05 38.57 0.27 0.5

Orion Power Midwest LP Niles Plant OH0011533 3.73 16.00 3.73 7.5

AEP – Gavin OH0028762 1.39 6.47 8.19 16.4

Pleasants Willow Island Power 

Stations 

WV0000761 2.77 41.30 0.0005 N/A

AEP - Kammer WV0005291 2.30 14.90 0.007 N/A

AEP - Mitchell WV0005304 5.35 48.00 26.006 52.0

AEP - Mountaineer WV0048500 6.60 10.00 3.32 6.6

Source: US Environmental Protection Agency (USEPA) Permit Compliance System Discharge data, downloaded into USEPA’s BASINS 

(Better Assessment Science Integrating Point and Nonpoint Sources) platform.

Early Participation of Power Companies in WQT Development and Use

If the provisions of a WQT system in the Ohio River Basin are determined primarily by a 

combination of credit sellers (e.g., agricultural interests) and the largest potential buyers of 

credits (e.g., WWTPs), a trading framework may be developed that is not favorable to power 

companies absent their involvement. The influence that the power companies could assert as a 

participant in early WQT program development will shape the companies collective abilities to 

benefit from trading in all five of the key trading scenarios identified in this analysis. 

Additionally, the power industry should engage in the development of WQT now to ensure 

credits are available if and when they decide to exercise the option to buy.

Active participation in WQT program development while the Ohio River Valley Water 

Sanitation Commission (ORSANCO), Ohio, West Virginia, and Kentucky are developing 

discharge concentration limits for TN, will also enable power companies to potentially influence 

regulatory decisions. Resulting benefits could include greater flexibility in implementation 

schedules and compliance options.

Potential cost-savings, reduced compliance risks and increased compliance flexibility all justify 

the relatively low cost of pursuing a WQT strategy in the Ohio River Basin. Without investment 

in its development now, the power industry is allowing others, including sellers and regulators, 

Ohio River Water Quality Trading Pilot Program: ES Business Case for Power Company Participation -7
to develop WQT rules. The resulting program is less likely to favor the power industry, making it 

less likely for individual power companies to garner potential benefits with trading.

Stakeholder Readiness and Adequate Credit Supply

Successful development of a functioning WQT program in the Ohio River Basin will hinge upon 

the willingness of buyer, seller and regulatory participation. A preliminary analysis of 

stakeholder readiness revealed that WWTPs, agricultural representatives, regulatory authorities 

(including ORSANCO and several states), as well as other non-profit organizations are both 

willing and able to support program development and actively participate in such an effort. A 

preliminary credit supply analysis targeting low cost reductions generated by agriculture 

suggests ample credits would be available for all power facilities facing future nitrogen permit 

limitations in the pilot project area. Credits generated from just ten percent of agricultural lands 

in select watersheds in the pilot area (assuming conservative safety factors addressing NPS 

loading uncertainty) would be sufficient to meet even the additional demand of certain municipal 

and industrial facilities also seeking to use WQT for NPDES compliance.

In total, there appears to be substantial benefits and rationale for power company participation in 

an Ohio River WQT pilot program. There is robust and diverse stakeholder interest and 

willingness to participate in program development. High demand for WQT credits is anticipated 

from several sectors of NPDES dischargers including the power companies with the forthcoming 

nutrient criteria. An ample supply of low cost credits appears achievable. Other existing WQT 

successes at the local scale in the basin portend immediate opportunities to move forward with 

regional trading as most of the traditional roadblocks to trading have been overcome. Regulatory 

agencies find trading attractive for informing key decision-making processes in the next five 

years, along with the ability to achieve water quality goals through flexible permitting options. 

These attributes are the necessary and foundational elements for advancing a regional WQT 

program in the Ohio River Basin.

Ohio River Water Quality Trading Pilot Program: ES Business Case for Power Company Participation -8
Table of Contents________________________________________________

List of Figures .............................................................................................................................................1-1

List of Tables ..............................................................................................................................................1-2

List of Appendices ......................................................................................................................................1-2

Executive Summary....................................................................................................................................... 2

1.0 Introduction .....................................................................................................................................1-1

1.1 Overview of the WQT Pilot Setting .......................................................................................1-3

1.1.1 Water Quality Issues in the Pilot Project Area.........................................................1-6

1.1.2 Nutrient Criteria as a Regulatory Driver for WQT ....................................................1-7

1.1.3 Regional Interest in WQT ........................................................................................1-8

1.1.4 Power Plants in the Pilot Project Area.....................................................................1-9

1.1.5 Potential Implications of Nutrient Criteria on Power Plants.................................... 1-10

2.0 Economic Case for Power Companies to Promote and Develop WQT...........................................2-1

2.1 Potential Cost Savings with WQT.........................................................................................2-1

2.1.1 Marginal Cost Curves..............................................................................................2-3

2.2 Summary of Likely Scenarios for Power Plant Participation in WQT....................................2-8

2.2.1 Scenario 1 – Long-term participation in WQT..........................................................2-8

2.2.2 Scenario 2 – Short-term participation in WQT.........................................................2-8

2.2.3 Scenario 3 – Partial Compliance Use of WQT.........................................................2-9

2.2.4 Scenario 4 – Total Maximum Daily Load Allocations............................................. 2-11

2.2.5 Scenario 5 – Generating Credits ........................................................................... 2-11

2.3 Projected Demand for other WWTPs in the Great Miami and Muskingum Basins ............. 2-11

3.0 Non-point Source Credit Generation Potential................................................................................3-1

4.0 Stakeholder Readiness in the Ohio River Basin .............................................................................4-1

4.1 Agricultural Interests.............................................................................................................4-1

4.2 Regulatory Agencies ............................................................................................................4-1

4.3 Point Sources .......................................................................................................................4-2

5.0 Summary and Conclusions .............................................................................................................5-1

5.1 Conclusions..........................................................................................................................5-3

5.2 Next Steps For Developing a WQT Program........................................................................5-4

6.0 References .....................................................................................................................................6-1

List of Figures __________________________________________________

Figure 1-1 Ohio River Basin WQT Pilot Project Focus Area ...............................................................1-3

Figure 1-2 Nitrogen Loading from Various Sources within the Ohio River Basin ................................1-5

Figure 1-3 Ohio River Basin WQT Pilot Project Focus Area ...............................................................1-6

Figure 2-1 Treatment Costs for Various Sources of Nitrogen in the Ohio River Pilot Project Area.........2-2

Figure 2-2 Overview of Potential Power Facility Cost Savings from WQT in the Ohio River

Pilot Project Area ...............................................................................................................2-3

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -1
List of Tables ___________________________________________________

Table 1-1 Anticipated Timeline for Development of Nutrient Criteria in the Ohio River Basin ............1-7

Table 1-2 Power Plants in the Pilot Project Area ............................................................................. 1-10

Table 2-1 Current Discharges for a Base Case and from Select Power Plants in the

Ohio River WQT Pilot Project Area....................................................................................2-4

Table 2-2 Current Discharges from Select Power Plants in the Ohio River WQT

Pilot Project Area ...............................................................................................................2-5

Table 2-3 Analysis of TN Credit Demand and Potential Savings with a 8 or 5 mg/L TN Limit............2-7

Table 2-4 Magnitude of Excursions Above Set Nutrient Criteria ...................................................... 2-10

Table 2-5 Anticipated WQT Demand Associated with Different Trading Ratios for

WWTP Discharges........................................................................................................... 2-14

Table 3-1 Estimated Total Load Reductions (pounds per year) from Agricultural

BMP Implementation on 10% and 25% of Cultivated Croplands .......................................3-2

Table 3-2 Number of Credits Available Considering a 35% Loss Due to Fate and Transport............3-2

Table 3-3 Number of Credits Available Considering a 50% Loss Due to Fate and Transport............3-3

List of Appendices_______________________________________________

Appendix A Linear Diagram of Relevant Ohio River Main Stem Features

Appendix B Implications of Nutrient Criteria on Duke and AEP Power Plants and Treatment Cost 

Analysis

Appendix C Preliminary Non-point Source Modeling in Select Watersheds of the Ohio River Basin for 

Assessment of Potential Agricultural Credit Supply

Appendix D Stakeholder Readiness Assessment

Appendix E Pilot Project Development Strategy

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -2
List of Acronyms ________________________________________________

AEP American Electric Power

BASINS Better Assessment Science Integrating Point and Nonpoint Sources

BMP best management practice

BNR biological nutrient removal

EPRI Electric Power Research Institute

FGD flue gas desulfurization

GMR Great Miami River

MCD Miami Conservancy District

mg/L milligram(s) per liter

mgd millions gallons per day

NPDES National Pollutant Discharge Elimination System

NPS non-point source

O&M operation and maintenance

ORSANCO Ohio River Valley Water Sanitation Commission

PS point source

SCR selective catalytic reduction

Shaw Team Shaw Environmental, Inc.; Kieser & Associates, LLC; King and 

Associates; and Siegel Environmental Dynamics, LLC

Shaw Shaw Environmental, Inc.

TKN total Kjeldahl nitrogen

TMDL Total Maximum Daily Load

TN total nitrogen

TP total phosphorus

USDOJ United States Department of Justice

USEPA United States Environmental Protection Agency

WQT water quality trading

WWTP wastewater treatment plant

Ohio River Water Quality Trading Pilot Program:

Business Case for Power Company Participation i
1.0 Introduction

The Electric Power Research Institute (EPRI) is examining water quality trading (WQT) as a 

compliance tool for permitted surface water discharges of nitrogen by the power industry. Coalfired power facilities will be facing more stringent discharge compliance limits as regulatory 

agencies adopt new criteria for nutrients, particularly nitrogen. Where power facilities already 

have nitrogen limits for surface water discharges, most appear to be in compliance with the 

current, less stringent (or non-existent) limits and find no immediate need for WQT. However, 

as regulations and permit conditions for power company emissions to air and water become more 

restrictive, treatment costs will rise. This will result in the need to examine significant cost 

tradeoffs as the preferred options for reducing one type of emission (e.g., flue gas desulfurization 

[FGD] for air) can increase other types of discharges (e.g., FGD water). The research described 

in this report addresses how power facilities can manage costs and risks associated with 

anticipated changes in nutrient discharge restrictions through WQT.

The Shaw Team, comprised of Shaw Environmental, Inc. (Shaw), Kieser and Associates, LLC, 

King and Associates, and Siegel Environmental Dynamics, LLC, was contracted by EPRI to 

identify and research the feasibility of a WQT pilot program for the power industry. The analysis 

was to include at least one electric power company as either a credit buyer or seller to determine 

how power industry participants in a pilot project might benefit from WQT. A mid-project 

decision was made to select a pilot area that included multiple power companies, other point 

source (PS), and non-point source (NPS) nutrient dischargers (primarily agricultural) to examine 

both PS to PS and PS to NPS trading.

The objective of this research was to focus on the benefits for power company participation in a 

self-sustaining, robust WQT pilot program rather than in a trading demonstration involving a 

single bi-lateral trade. A WQT program that sustains itself in a given region has inherent 

advantages. Such advantages include: cost-savings with distributing administrative overhead of 

market-related educational and support needs across many credit buyers and sellers; marketbased competition among credit generators; and, minimizing compliance risks by optimizing 

market opportunities for access to multiple sellers (ensuring ample credit availability). Bi-lateral 

trades, sometimes referred to as, “regulator approved offsets,” will have varied outcomes 

regarding cost-effectiveness of engaging in an individual National Pollutant Discharge 

Elimination System (NPDES) permit-based water quality trade. Costs of an individual PS to NPS 

trade, for example, will depend heavily on local environmental conditions at the credit 

generating site, and the final effluent restrictions on the buyer. In addition, a small number of 

WQT credits exchanged typically increases the administrative overhead per credit. Thus, water 

quality trades on a permit-by-permit basis are typically more expensive than trading programs 

with multiple buyers and sellers.

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -1
With the possibility of stricter water discharge restrictions, limited compliance options currently 

available to power companies will likely dictate in-house discharge treatment facility upgrades. 

WQT offers a cost-effective alternative with the purchase of wastewater effluent discharge offset 

credits. This would involve the power company paying another discharger to make an equivalent 

or greater reduction to offset the plant’s discharged load that is in excess of their water quality 

based permit limit.

Results from localized WQT programs in the Ohio River Basin suggest that typically, there are 

numerous sources of low cost water discharge credits that could supply necessary offsets for 

power companies (or other buyers) in a WQT program. Adequate supply of low cost credits 

would further suggest there is a potential to reduce power company compliance costs. The ability 

to meet discharge restrictions with WQT instead of in-house treatment upgrades provides a 

potentially useful basis for power companies to flexibly manage regulatory compliance risk in 

deciding when to invest in treatment capacity upgrades.

As with other “make vs. buy decisions” for businesses, the financial benefits of power companies 

purchasing credits via a WQT program rather than investing in additional in-house treatment, 

depend on relative costs and risks. A power company may prefer to meet permit obligations by 

engaging in WQT if it is less expensive than expanding in-house treatment capacity. However, 

the WQT program must provide assurances for a reliable supply of cost-effective credits. The 

potential uncertainty in a WQT program regarding credit supply may be considered too risky for 

a power company to depend on WQT for compliance. Thus, whether a power company will 

benefit from WQT depends on their wastewater treatment discharge restrictions, in-house 

wastewater treatment costs, the expected cost of WQT offsets and supporting conditions of the 

WQT market.

Following a review of three potential pilot opportunities focused on development of a robust 

WQT program (Shaw, 2007), a pilot project in the Ohio River Basin was selected for this 

feasibility assessment. This assessment therefore focuses on:

• The feasibility of a regional WQT program; and

• A business case for power company participation in promoting the development and 

participation in such a program.

Drawing from established WQT programs and the Project Team’s cost-benefit analyses, this 

report argues the business case by examination of:

• Reduced costs of complying with wastewater discharge restrictions;

• Reduced risk in compliance excursions; and

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -2
• Increased flexibility in terms of deciding when and how to invest in additional inhouse treatment capacity.

1.1 Overview of the WQT Pilot Setting

The proposed WQT pilot project focuses on sections of the Ohio River Basin including segments 

that form a border between Ohio, West Virginia and Kentucky, stretching from the Pennsylvania 

border in the east to the Indiana border in the west (see Figure 1-1). The decision to pursue this 

geographic area stems from a previous analysis of WQT opportunities (Shaw, 2007).

Figure 1-1

Ohio River Basin WQT Pilot Project Focus Area

The focus area for the Ohio River Basin WQT Pilot project is outlined in red. The watersheds outlined in white are 

watersheds identified for more detailed analysis through WARMF modeling, which is being completed as a separate 

EPRI project.

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -3
The primary factors considered by the Shaw Team when selecting the focus area for this pilot 

project included:

• High nutrient loading where pending regulatory programs will create potential WQT 

credit demand

• The presence of multiple types and sources of discharged nitrogen

• A regulatory climate favorable to WQT

• The presence and distribution of numerous coal-fired power plants

Nitrogen loading and nutrient inputs from various sources provide an indication of the dynamics 

of nitrogen in the system and the relative balance of inputs among various sources. This balance 

will dictate the viability of PS to PS or PS to NPS trading programs. Along the reach of the Ohio 

River selected for this pilot project, nitrogen loading continues to build in concentration. Despite 

high nitrogen inputs to the river from Indiana tributaries, the river system starts losing nitrogen 

east of the border between Ohio and Indiana. The schematic provided in Appendix A shows the 

location of monitoring stations, power plants and major tributaries in relation to available water 

quality data for total nitrogen (TN) in these regards.

Most reaches in this segment of the river show TN concentrations at or above 1.5 milligrams per 

liter (mg/L). Figure 1-2 illustrates the relative nitrogen inputs of various sources (PSs, 

agriculture, urban, etc.) within the study area. These maps show that the second highest nitrogen 

load from agriculture occurs in Ohio (Indiana is the highest), while loading from PSs and urban 

areas is relatively evenly distributed throughout the basin.

Based on this information, the pilot project efforts have focused on the following areas of the 

Ohio River Basin for a more robust analysis of a regional WQT program:

• Ohio River main stem including a wide range of power company facilities (see 

Appendix A and Section 2.0)

• Two major tributaries to the Ohio River including the Great Miami and Muskingum 

Rivers to additionally examine potential WQT credit demand from other types of 

nutrient dischargers (primarily municipal wastewater treatment plants[WWTP]) (see 

Section 3.0)

• Four major tributaries including the Licking River (Kentucky), and the Great Miami, 

Scioto, and Muskingum Rivers in Ohio to assess potential WQT credit availability 

generated by agriculture (see Appendices C and D)

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -4
Figure 1-2

Nitrogen Loading from Various Sources within the Ohio River Basin

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -5
1.1.1 Water Quality Issues in the Pilot Project Area

Potential drivers for trading include both localized and systemic water quality issues. On the 

local level, water quality issues in various reaches of the Ohio River and its major tributaries 

include local eutrophication (related to phosphorus), algal blooms (taste and odor problems), 

ammonia (local toxicity), bacteria (localized Combined Sewer Overflow discharges and 

background NPSs), temperature (aquatic life and ammonia), flow (urban stormwater, 

hydraulics), and acid mine drainage (US Environmental Protection Agency [USEPA], 2004; 

Kentucky Division of Water, 2006).

On a systemic level, the Ohio River is a considerable source of flow to the Mississippi River and 

contributor to Gulf of Mexico hypoxia issues related to nitrates, total Kjeldahl nitrogen (TKN) 

and total phosphorus (TP) loading (Ohio River Valley Water Sanitation Commission

[ORSANCO], 2003). Both nitrogen and phosphorus are parameters that are readily traded in 

WQT programs. Figure 1-3 shows the location and type of water quality impairments within the 

project area.

Figure 1-3

Ohio River Basin WQT Pilot Project Focus Area

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -6
1.1.2 Nutrient Criteria as a Regulatory Driver for WQT

The primary water quality issues that will drive regional WQT within the Ohio River Basin are 

development of instream nutrient criteria for Gulf of Mexico Hypoxia and protection of aquatic 

life in local reaches. Both issues will involve setting nitrogen and phosphorus reduction goals 

that will direct impact regulated (permitted) PS discharges with more stringent effluent limits.

Current considerations by the USEPA Science Advisory Board indicate the need for greater 

nitrogen reductions, and now phosphorus reductions, than in past Gulf Hypoxia nutrient loading 

projections. Also introduced is an emphasis on PS load reductions of both nutrients and on 

atmospheric deposition of nitrogen (Tennant, 2007; USEPA, 2004). These new reduction goals 

will translate to more stringent permit restrictions via promulgation of nutrient standards and 

thus, represent a primary driver for WQT.

The congressionally designated interstate compact, ORSANCO, coordinates activities for the 

Ohio River Basin to implement an action plan to reduce the extent of Gulf Hypoxia and address 

localized main stem impairments. This will largely be accomplished with ORSANCO’s 

development of nutrient criteria. ORSANCO will be developing these criteria for the main stem 

of the Ohio River by 2008/2009 with incorporation into NPDES permits likely within five years 

(Table 1-1). Efforts to establish nutrient criteria are underway within all states covered by 

ORSANCO except Illinois. Both local and interstate opportunities may therefore exist for PS to 

PS and PS to NPS trading within the pilot project area.

Table 1-1

Anticipated Timeline for Development of Nutrient Criteria in the Ohio River Basin

Milestones for Ohio River Nutrient Criteria Development (Expected)

Authority/ Coverage 2007 2008 2009 2010 2011

ORSANCO Ohio River Nitrogen driver gulf hypoxia

Illinois Tributaries Not currently embracing USEPA criteria approach

Indiana Tributaries On track

Kentucky Tributaries Already underway; desire more data

Ohio Tributaries On track

Pennsylvania Tributaries Already underway; desire more data

West Virginia Tributaries In early stages

Of particular note in forecasting potential nitrogen criteria, the USEPA (2000) has established 

guidance for developing nutrient criteria whereby a frequency distribution approach is 

recommended. In highly altered settings such as the Midwest, an upper percentile would be used 

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -7
to set numeric criteria. This approach is desirable since some of the streams in a random 

selection process are degraded. USEPA guidance also recommends that the percentile be set 

somewhere between the 5th and 25th percentile of all streams randomly selected in a stream class. 

For the Ohio River, this could potentially result in a 1.2 mg/L TN instream standard. Most 

reaches of the Ohio River within the Pilot Project area show a TN concentration ranging from 

1.5 to 3.0 mg/L with a few tributaries having concentrations above these values (see Appendix 

A). If ORSANCO were to follow USEPA guidance, the instream standards for TN could be 

approximately 1.2 mg/L. While NPDES effluent limits may still be higher than instream nutrient 

standards, these data are a strong indication that lower, single-digit TN effluent limitations are 

likely.

1.1.3 Regional Interest in WQT

A successful climate for WQT requires willing buyers, willing sellers and a willing regulatory 

community. There is a history of WQT within the region which provides a reasonable setting for 

an Ohio River Basin pilot project. The state of Ohio is home to one of the most robust WQT 

programs for nitrogen and phosphorus in the United States (i.e., the Great Miami River [GMR] 

program). In addition, promulgated trading rules in Ohio, trading policy in Pennsylvania and 

trading pilot projects in West Virginia provide a template upon which a regional pilot program 

can be constructed in the Ohio River Basin.

Another strength for this potential pilot project is that public, private and environmental/ 

conservation groups have participated in WQT as buyers, sellers and aggregators. Specifically, 

there has been participation in WQT by public sector buyers in Ohio and Pennsylvania; private 

sector buyers in Illinois and Pennsylvania; and, WQT aggregators/brokers in Illinois, Ohio, and 

Pennsylvania. PS to NPS trades have occurred in Illinois, Ohio, West Virginia and Pennsylvania, 

while PS to PS trades have occurred in Pennsylvania. The agricultural sector has been involved 

in generating credits in Ohio, West Virginia and Pennsylvania. West Virginia University and 

Ohio State University agricultural departments are directly engaged in WQT pilot projects. 

Although Kentucky has not participated in WQT to date, their has been strong interest from state 

regulatory personnel to do so. Moreover, ORSANCO has expressed interest in a program that 

involves potential interstate trades in advance of standards.

The background and experience with trading within these states and among these stakeholders 

would benefit a regional program in the Ohio River Basin. Typically, it takes significant time 

and resources to educate participants and stakeholders on WQT. A program in the Ohio River 

Basin would be able to build on an already well-developed foundation.

Additional support for the development of an Ohio River pilot project comes with the 2008 Draft 

Gulf Hypoxia Action Plan released on November 9, 2007. In this updated plan, current progress 

and next steps are outlined for correcting Mississippi River eutrophication impacts on the Gulf of 

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -8
Mexico. A current nutrient loading assessment estimated PSs contributing 22 percent of the 

nitrogen and 34 percent of the phosphorus loads to the Gulf. NPSs, which include atmospheric 

deposition, are estimated at 78 percent phosphorus and 66 percent nitrogen. Approximately 54 

percent of the nitrogen from NPSs is attributed to fertilizer practices in the basin. The report 

outlines a high level strategy to achieve an approximate 45 percent reduction in both nutrients.

The plan acknowledges that the Science Advisory Board no longer believes that reduction goals 

are obtainable by 2015; instead the Board stresses using an adaptive management 

implementation strategy and strengthening existing programs. The plan combines voluntary and 

existing regulatory approaches.

The Action Plan identifies six principles as guidance to reach the three major goals of the plan. 

One in particular is germane to an Ohio River WQT pilot project: “Identify opportunities for, and 

barriers to, innovative and market-based solutions”. As an example of implementing progress 

now by using existing programs, the report goes on to state that:

“..., under the purview of USEPA, [efforts] may involve the adoption of numeric water quality standards. 

Numeric water quality standards for nitrogen and phosphorus are essential for achieving the necessary 

reductions in nitrogen and phosphorus loading in the basin. Water quality standards provide the formulation 

for development of NPDES permit limits, TMDLs, and trading.”

This report repeatedly stresses the need for innovative and adaptive applications of existing and 

new government programs to fully address the hypoxia issue. It provides a strong regulatory 

underpinning for a regional WQT pilot program in the Ohio River Basin.

1.1.4 Power Plants in the Pilot Project Area

The Ohio River Basin pilot project area includes several coal-fired power plants (Table 1-2). The 

linear diagram presented in Appendix A illustrates the relative position of these power plants 

along the main stem of the river. Most are located within proximity of the four major tributaries 

examined in this report for NPS potential credit generation. This is relevant to WQT 

considerations whereby pollutant loads will likely be offset by credits generated either upstream 

or within reasonable downstream proximity of the buyer. Although the Wabash River, which 

joins the Ohio River near the Indiana-Illinois border, contributes a substantial nutrient load to the 

Ohio River from agriculture, there are few power plants and no Duke or American Electric 

Power (AEP) facilities along this segment of the main stem. Thus, NPS loading reductions in the 

Wabash would not likely be saleable to power companies on the main stem. Other WWTPs 

within the Wabash or on the main stem below its confluence with the Ohio, could potentially 

engage in such trades. Since such opportunities are beyond the scope of this effort, they are not 

considered here.

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -9
Table 1-2

Power Plants in the Pilot Project Area

AEP Facilities (on main stem):

1. Cardinal

2. Krammer

3. Mitchell (scrubber already)

4. Philip Sporn

5. Mountaineer (scrubber already)

6. Gavin (scrubber already)

7. Kyger Creek

AEP Facilities (off main stem):

8. Conesville

9. Muskingum

10. Amos

Duke Facilities:

• W.C. Beckjord

• Miami Fort

• Zimmer

Allegheny Facilities:

• Pleasants

• Willows

1.1.5 Potential Implications of Nutrient Criteria on Power Plants

There are three primary sources of nitrogen in wastewater discharges from coal-fired power 

plants: selective catalytic reduction (SCR) units; electrostatic precipitators; and, FGD systems 

(EPRI, 2006). As more attention is paid to nitrogen in power plant discharges, it is also likely 

that other sources may be identified. For example, TKN may be present in the chlorine purge 

stream (Lohner, 2007). An analysis of FGD wastewater treatment by CH2M Hill (2005), 

including analysis of the actual wastewater discharged by eight different FGD systems, found 

TN concentrations between 2.0 mg/L and 97.3 mg/L. Discharge rate from FGD depends on 

chlorine content in coal, and the concentration of inert materials in limestone. A flow rate of 100-

500 gallons per minute is typical (Pariseau, 2007).

As more stringent air emissions control requirements are applied to the power industry, more air 

pollution control systems will likely be installed. In particular, AEP will be required to install 

SCRs and FGD systems in many of their plants within the project area. They will also be 

required to comply with a system-wide cap on nitrogen oxides and sulfur dioxide emissions. 

These will become more restrictive following rulings by the District Court for the Southern 

District of Ohio Eastern Division [USDOJ], 2007).

Based on information provided by representatives from AEP and Duke Energy, the number of 

plants in the project area with SCRs and FGD systems will increase over the next five to seven 

years. Currently, five of the ten AEP power plants operate FGD systems on at least one unit. 

Seventy percent of AEP plants and 67 percent of Duke Energy plants have installed SCRs on at 

least one unit. Five additional AEP plants will be installing FGD systems on one or more units, 

the bulk of which will be operational by 2010. In addition, five AEP and two Duke Energy plants 

will be installing SCRs within the next five years and the Amos, Mountaineer and Muskingum 

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -10
plants will begin operating SCRs year round. (Appendix B includes additional details on the 

AEP and Duke facilities within the pilot project area).

Given the air pollution control technology currently operating and planned for AEP and Duke 

Energy plants, nitrogen discharges from these power plants alone will increase on approximately 

the same timeline as the schedule for Ohio, West Virginia, Kentucky and ORSANCO’s instream 

nutrient criteria development (Table 1-1). To date, ammonia in power plant discharges has 

received more attention from individual plants and regulators than TN discharges. Ammonia 

monitoring requirements and discharge limits are geared towards aquatic toxicity rather than 

eutrophication issues. However, permits from several facilities refer to nitrogen requirements 

that can be expected in the next permit cycle. The NPDES permits of three AEP facilities and 

one Duke Energy facility, for example, contain TN limits or monitoring requirements. In light of 

nitrogen criteria only a few years away, it is noteworthy that potential regulatory issues 

associated with nitrogen in power plant surface water discharges are not yet seen as compliance 

priorities for some companies. For an industry that depends on managing operational risk, some 

companies may be faced with very limited surface water compliance options that carry a high 

price.

Ohio River Water Quality Trading Pilot Program: 1 Business Case for Power Company Participation -11
2.0 Economic Case for Power Companies to Promote and Develop WQT

A preliminary economic analysis for a WQT program in the Ohio River Basin for power 

facilities has been completed for the cumulative number of plant discharges in the pilot project 

area. A detailed business case for individual facilities to participate as buyers or sellers of water 

quality credits was not possible. This would have required disclosure of confidential and detailed 

cost information regarding the facilities of interest, or broad speculation due to the variability 

between characteristics with individual plant needs. Based on the more generalized economic 

analysis, a strong case can still be made for power company participation (specifically AEP and 

Duke Energy) in promoting and participating in the development of an Ohio River Basin WQT 

program. In this chapter, potential cost savings and opportunities for risk management as 

examined in this regard. Risk management opportunities considered herein range from 

compliance alternatives to market positioning and community relations. Appendix B provides 

greater details and the methodology for the economic analysis presented herein.

2.1 Potential Cost Savings with WQT

Identifying potential treatment costs in a WQT market is essential for determining the potential 

value and viability of a trading program. In this section, treatment costs for several types of 

dischargers are described for electric power facilities in the pilot study area as well as for typical 

wastewater treatment facilities. These treatment costs are compared to NPS nitrogen reduction 

costs in Figure 2-1. Point source treatment costs are based on assumed discharge concentration 

limits ranging from 5 to 8 mg/L of TN, and typical volumes of discharge water treated for the 

various PSs shown. Cost differentials here suggest there is merit in specifically examining how 

each group may benefit from WQT, either as a buyers or sellers.

If opportunities to benefit from trading are based purely on cost differentials, Figure 2-1 

indicates that agricultural NPS dischargers, (who can reduce nitrogen discharges for $4 to $8 per 

pound, assuming a 2:1 trading ratio), would benefit from selling credits. Power facilities may

spend at least $14.41 per pound to reduce their discharges with end of pipe treatment, and would 

likely benefit from purchasing even the more expensive NPS WQT credits yielding potential 

savings of $6.41 per pound.

In a functioning WQT program, transaction costs and other administrative fees related to 

verifying the basis of credit trades and managing trade risks, can be expected to absorb some of 

these potential gains. At this time, however, it is reasonable to assume that such costs would not 

necessarily eliminate all the potential gains from trading between NPSs and power facilities. The 

portion of these potential gains that will accrue to power company buyers and NPS sellers will 

also depend on the rules of the WQT program, suggesting that power company participation in 

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -1
early program development would be vital to assuring they can maximize their benefits through 

trading.

Figure 2-1

Treatment Costs for Various Sources of Nitrogen in the Ohio River Pilot Project Area

NP1 Estimated Ohio River Agricultural NPS Credit at a 2:1 trading ratio 

NP2 Conservative Ohio River Agricultural NPS credit cost

NP3 Actual GMR Agricultural NPS credit cost based on the Miami Conservancy District (MCD) WQT program 

results in the Great Miami River (GMR) watershed (for a combined TN+TP credit)

WT1 Estimated Average Unit TN treatment cost for WWTP below 0.1 million gallons per day (mgd) in the GMR

WT2 Estimated Average Unit TN treatment cost for WWTP between 0.1 and 1 mgd in the GMR

WT3 Estimated Average Unit TN treatment cost for WWTP between 1 and 10 mgd in the GMR

EP1 Estimated Average Unit TN treatment cost for Base Case power plant

EP2 Estimated Average Unit TN treatment cost for AEP Muskingum River Plant

EP3 Estimated Average Unit TN treatment cost for AEP Mitchell Power Plant

EP4 Estimated Average Unit TN treatment cost for AEP Mountaineer Power Plant

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -2
2.1.1 Marginal Cost Curves

Another way to examine potential cost savings for power companies from WQT is illustrated in 

Figure 2-2. The cost curve for power industry compliance with increasing nitrogen discharge 

limitations in NPDES permits reflects increases in incremental power facility wastewater 

treatment costs in dollars per pound for a “Base Case” power facility. The Base Case assumes 

that a facility is operating an FGD system and SCR unit as allowable discharge concentration 

limits are tightened from 10 mg/L to 3 mg/L. Also shown on Figure 2-2 is a hypothetical credit 

price of $8 per pound, reflecting actual NPS nitrogen reduction costs multiplied by a factor of 

two to account for a 2:1 trading ratio. Similar trading ratios are used in many other U.S. trading 

programs to address uncertainty and provide net environmental benefits.

Figure 2-2

Overview of Potential Power Facility Cost Savings from WQT in the Ohio River Pilot 

Project Area

The incremental cost of reducing nutrient discharges for power companies increases as a facility 

attempts to meet stricter nutrient discharge targets. Stricter nutrient discharge restrictions 

increase the potential for a facility to gain from paying into a WQT program rather than treating 

discharge water. The numerous other factors considered when a facility evaluates whether to 

participate in trading or treat discharges in-house, will influence compliance strategies. These 

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -3
will include a variety of risk factors. However, given that the characteristics of these factors are 

largely facility-dependant, and are also related to specific WQT program design elements, the 

analysis presented here focuses solely on cost differentials and potential demand based on 

current and potential future power company discharges.

Treatment cost estimates for complying with five different levels of potential nutrient criteria 

were developed for an average facility Base Case, and for current actual discharges from nine 

facilities within the pilot project area. These facilities were selected based on the availability of 

monitoring data for TN in the Permit Compliance System database (which stores monitoring data 

that facilities submit as part of NPDES permit compliance reporting). Table 2-1 provides a 

summary of the average and maximum TN discharge concentrations and flow rates of these 

facilities used for the economic analysis.

Table 2-1

Current Discharges for a Base Case and from Select Power Plants in the Ohio River WQT 

Pilot Project Area

Facility

NPDES 

Permit 

Number

Calculated 

Average TN 

(mg/L)

Calculated 

Maximum TN 

(mg/L)

Average 

Discharge

(mgd)

Size vs. Base 

Case

Base Case N/A 47.65 97.3 0.5 N/A

FirstEnergy RE Burger Plant OH0011592 1.85 5.60 6.89 13.8

AEP Muskingum River Plant OH0006149 5.38 15.00 4.93 9.9

Orrville Municipal Power Plant OH0064025 25.05 38.57 0.27 0.5

Orion Power Midwest LP Niles Plant OH0011533 3.73 16.00 3.73 7.5

AEP - Gavin OH0028762 1.39 6.47 8.19 16.4

Pleasants Willow Island Power Stations WV0000761 2.77 41.30 0.0005 N/A

AEP - Kammer WV0005291 2.30 14.90 0.007 N/A

AEP - Mitchell WV0005304 5.35 48.00 26.006 52.0

AEP - Mountaineer WV0048500 6.60 10.00 3.32 6.6

Source: USEPA Permit Compliance System discharge data, downloaded into USEPA’s BASINS (Better Assessment Science 

Integrating Point and Nonpoint Sources) platform.

The Base Case was developed in consultation with internal Shaw wastewater treatment experts 

and a study on treating wastewater from FGD systems by CH2M Hill (2005). Wastewater of 

eight operating FGD systems was averaged from TN concentrations that ranged from less than 

2.0 mg/L to 97.3 mg/L (CH2M Hill, 2005).

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -4
The first critical and informative cost analysis based on more detailed annual operating treatment 

cost differentials from Appendix B is presented in Table 2-2. This analysis assumes that capital 

investments and annual operating costs do not change regardless of the daily discharge rate. 

According to Shaw wastewater treatment system design experts, capital and annual operating 

costs generally increase by 7/10 as discharge rates increase. Thus, if the discharge rate doubles, 

the capital and operating costs will increase 70 percent. This constitutes a very conservative 

assumption given that the key objective of this analysis is to determine whether WQT offers 

power companies the opportunity to reduce costs. This assumption likely results in an 

underestimate of cost savings. Despite this conservative assumption, it is apparent that Duke and 

AEP could realize substantial cost savings by opting for WQT. It is also important to note that 

AEP experience with biological treatment to remove selenium from FGD wastewater requires an 

additional step to reduce the selenite to elemental selenium. This adds additional costs not 

reflected here.

Table 2-2

Current Discharges from Select Power Plants in the Ohio River WQT Pilot Project Area

TN Treatment Levels (effluent limits) (mg/L)

10 8 5 3

Base Case

Capital costs $4,569,455 $5,180,258 $6,096,463 $9,903,536

Total annual operating and debt $769,235 $835,914 $935,933 $1,441,961

Total annual nitrogen removed (pounds) 57,352 60,398 64,968 68,015

Cost per pound nitrogen removed ($/pound) $13.41 $13.84 $14.41 $21.20

1. FirstEnergy RE Burger Plant

Total annual operating and debt $769,235 $835,914 $935,933 $1,441,961

Total annual nitrogen removed (pounds)

Note a

Cost per pound nitrogen removed ($/pound)

2. AEP Muskingum River Plant

Total annual operating and debt $769,235 $835,914 $935,933 $1,441,961

Total annual nitrogen removed (pounds) Note a5,707.49 35,746.91

Cost per pound nitrogen removed ($/pound) $163.98 $40.34

3. Orrville Municipal Power Plant

Total annual operating and debt $769,235 $835,914 $935,933 $1,441,961

Total annual nitrogen removed (pounds) 12,379.83 14,025.00 16,492.74 18,137.90

Cost per pound nitrogen removed ($/pound) $62.14 $59.60 $56.75 $79.50

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -5
TN Treatment Levels (effluent limits) (mg/L)

10 8 5 3

4. Orion Power Midwest LP Niles Plant

Total annual operating and debt $769,235 $835,914 $935,933 $1,441,961

Total annual nitrogen removed (pounds) Note a8,295.57

Cost per pound nitrogen removed ($/pound) $173.82

5. AEP – Gavin

Total annual operating and debt $769,235 $835,914 $935,933 $1,441,961

Total annual nitrogen removed (pounds) Note a

Cost per pound nitrogen removed ($/pound)

6. Pleasants Willow Island Power Stations

Total annual operating and debt Low-flow or passive treatment option may be possible.

Total annual nitrogen removed (pounds) Note a

Cost per pound nitrogen removed ($/pound)

7. AEP – Kammer

Total annual operating and debt Low-flow or passive treatment option may be possible.

Total annual nitrogen removed (pounds) Note a

Cost per pound nitrogen removed ($/pound)

8. AEP – Mitchell

Total annual operating and debt $769,235 $835,914 $935,933 $1,441,961

Total annual nitrogen removed (pounds) Note a27,730.40 186,189.85

Cost per pound nitrogen removed ($/pound) $33.75 $7.74

9. AEP – Mountaineer

Total annual operating and debt $769,235 $835,914 $935,933 $1,441,961

Total annual nitrogen removed (pounds)

Note a

16,183.51 36,412.89

Cost per pound nitrogen removed ($/pound) $57.83 $39.60

Note:

Sizing: as discharges increase, facility and treatment costs generally increase by 7/10.

Average and maximum TN concentrations and flow rates are based on monthly monitoring data submitted to the applicable permitting 

agency.

a If nitrogen criteria fall into this range, average discharges from this facility are below this limit. However, facility would need to invest 

in treatment or make other arrangements to offset discharges above nutrient criteria because maximum discharges are above the

potential criteria evaluated here.

The variation in treatment cost per pound of TN removal clearly illustrates how discharge rates 

and initial concentrations affect unit treatment costs. The lower the discharge rates and initial 

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -6
concentrations, the higher the per pound treatment costs. For facilities such as Muskingum and 

Mountaineer, the ability to participate in WQT could provide a great cost advantage. It would 

also be more cost-effective for a facility that is similar to the Base Case to participate in WQT 

than to invest in on-site treatment.

The experience from the Miami Conservancy District (MCD) WQT program in the GMR basin 

in southern Ohio has been that the average cost per pound for a combined TN and TP credit 

generated by agricultural best management practices (BMP) has been about $2. (Payment to a 

farmer for BMP implementation yields both TN and TP reductions. Since both reductions are 

needed by municipal WWTP buyers, a combined TN/TP credit is calculated in the MCD 

program. Surplus credits, however, can be disaggregated and sold separately.) Trades in the 

MCD program require a trading ratio of 1:1, 2:1 or 3:1. The increasing trade ratio is dependent 

on: a) if the participant is a founding participant of the WQT program; b) WQT is to comply with 

a TMDL; and, c) is a facility entering the WQT program after the program is up and running.

It is conservatively assumed here that TN credit costs are double (i.e., $4 per pound) those in the 

MCD program. Even with a conservative 2:1 trading ratio (making TN credits $8 per pound), it 

would still be more cost-effective for Base Case facilities and the Orrville plants to engage in 

trading if the nutrient criteria were 8 mg/L. Here the Orville Plant would save over 

$700,000/year. As shown in Table 2-3, the benefits and savings from trading would rise with 

more stringent nutrient criteria.

Table 2-3

Analysis of TN Credit Demand and Potential Savings with a 8 or 5 mg/L TN Limit

Concentration Limits - Based on Actual Flows

Facility

8 mg/L TN 5 mg/L TN 

Unit Cost Pounds 

Reduced 

Potential 

Annual 

Savings 

Unit Cost Pounds 

Reduced 

Potential 

Annual 

Savings 

TN ($/pound) TN TN ($/pound) TN

Base Case $ 13.84 603,989 $352,724.76 $14.41 64,969 $416,184.07 

1. FirstEnergy RE 

Burger Plant N/A 0.0 N/A 0.0

2. AEP Muskingum 

River Plant N/A 0.0 $ 163.98 5,708 $890,273.09 

3. Orrville Municipal 

Power Plant $ 59.60 14,025 $723,714.61 $ 56.75 16,493 $803,991.11 

4. Orion Power 

Midwest LP Niles 

Plant 

N/A 

0.0

N/A 

0.0

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -7
Concentration Limits - Based on Actual Flows

5. AEP - Gavin N/A 0.0 N/A 0.0

8. AEP - Mitchell N/A 0.0 $ 33.75 27,730 $714,089.78 

9. AEP - Mountaineer N/A 0.0 $ 57.83 16,183 $806,464.95 

Resulting Demand for 

Credits 74,424 credits 131,083 Credits

Assuming a $4.00 per pound TN reduction cost credit and a 2:1 Trading Ratio.

Those facilities with average discharges below one or all of the potential nitrogen criteria 

considered in this analysis, (but with maximum discharge concentrations above the criteria) 

would still need to make arrangements to treat their discharges to avoid periodically violating 

NPDES permit limits. Without WQT, these facilities would have little choice but to install 

additional treatment systems at a high unit treatment cost.

2.2 Summary of Likely Scenarios for Power Plant Participation in WQT

Based on the cost analysis presented above, there are five key scenarios that support power plant 

participation in WQT. These are presented as follows. One or more are likely to apply to Ohio 

River dischargers pending development and implementation of nutrient criteria.

2.2.1 Scenario 1 – Long-term participation in WQT

In this scenario, a facility could opt to participate in WQT as their long-term method of 

complying with nutrient criteria. High cost upgrades and effluent nitrogen concentrations that are 

low, but still above the nutrient criteria, would result in high unit treatment costs. In this instance, 

a facility could opt to enter into long-term credit purchase agreements and avoid investment and 

installation of additional wastewater treatment. Program design factors would weigh heavily in a 

facility’s decision to employ this strategy. Other factors such as fully allocated TMDLs with no 

room for future growth for new or expanding facilities, or very restrictive effluent limits would 

also likely be decision factors. 

2.2.2 Scenario 2 – Short-term participation in WQT

In this scenario, a facility could choose to participate in WQT for a limited duration 

corresponding with facility planning, construction schedules, or other pending scheduled 

upgrades at a later date. The long-term control by onsite treatment is an attractive risk 

management option, however, even when upgrading there sometimes exist economic advantages 

in providing for slightly longer periods then NPDES typical compliance schedules allow. Typical 

compliance schedule requirements set effluent limit compliance dates within the first five years 

of a new permit cycle (most often during the third year of the permit). WQT could allow a 

facility to remain in compliance while addressing short-term delays in wastewater treatment 

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -8
upgrades. For instance, at older facilities there may be conditions that provide easier technology 

implementation in sequence with other planned upgrades for different purposes. These facilities 

may have planning processes in place that may involve a delay not in sync with a NPDES 

compliance schedule for the newly imposed and stricter nutrient effluent limits. This would be 

the case where such facilities may in the long run, wish to construct in-house treatment capacity.

2.2.3 Scenario 3 – Partial Compliance Use of WQT

A WQT program provides the opportunity to avoid upgrading a power facility when the average 

effluent concentration is well within permit effluent limit compliance but it is necessary for 

compliance at the maximum concentrations discharged. As shown in Table 2-3, current 

discharges from the AEP Muskingum, Gavin and Mitchell plants are below one or more of the 

potential TN criteria evaluated in this analysis. However, their maximum discharges are above 

some or all of the potential criteria. Some of these exceedances are substantial as shown in Table 

2-4. This table characterizes potential excursions of wastewater discharge concentrations in the 

upper 50th and upper 75th percentiles (over a one-day period at average discharge rates). For 

these facilities, the treatment cost per pound for in-house treatment would be very high, and 

without treatment, they would be at risk of violation or administrative penalties for each 

exceedance. This risk would run counter to corporate compliance goals (Lohner, personal 

communication, 2007). A WQT program would provide facilities with a relief mechanism to 

ensure compliance. They could assess the projected frequency and duration of excursions and 

purchase credits in advance of the need to offset such excursions. By purchasing WQT credits 

for risk management (even at a conservative 2:1 trading ratio), power facility managers can 

avoid costs associated with upgrading treatment on the order of millions of dollars.

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -9
Table 2-4

Magnitude of Excursions Above Set Nutrient Criteria

Starting Concentrations

Calculated Mean TN (mg/L) Calculated Max TN (mg/L)Actual Discharge (mgd)

Pounds TN After 1 Day of Exceeding Nutrient Criteria 

with Discharges at the 50th Percentile Above the Mean 

Pounds TN After 1 Day of Exceeding Nutrient Criteria 

with Discharges at the 75th Percentile Above the Mean 

Upper 50th

percentile

Nutrient Criteria (TN mg/L) Upper 75th

percentile

Nutrient Criteria (TN mg/L)

10 8 5 4 3 4 10 8 5 3

Base Case 47.65 97.3 0.50 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

1. FirstEnergy RE Burger Plant 1.85 5.60 6.89 3.73 N/A N/A N/A N/A 42 5 38 N/A N/A N/A 96

2. AEP Muskingum River Plant 5.38 15.00 4.93 10.19 8 90 214 255 296 13 354 8 90 214 395

3. Orrville Municipal Power 

Plant 25.05 38.57 0.27 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

4. Orion Power Midwest LP 

Niles Plant 3.73 16.00 3.73 9.87 N/A 58 151 183 214 13 278 N/A 58 151 309

5. AEP - Gavin 1.39 6.47 8.19 3.93 N/A N/A N/A N/A 64 5 N/A N/A N/A N/A 150

6. Pleasants Willow Island 

Power Stations 2.77 41.30 0.0005 22.04 0.05 0.1 0.1 0.1 0.1 32 0.1 0.1 0.1 0.1 0.1

7. AEP – Kammer 2.30 14.90 0.007 8.60 N/A <0.1 0.2 0.3 0.3 12 0.5 N/A <0.1 0.2 0.5

8. AEP - Mitchell 5.35 48.00 26.01 26.68 3,620 4,054 4,705 4,922 5,139 37 7,237 5,934 6,368 7,019 7,454

9. AEP - Mountaineer 6.60 10.00 3.32 8.30 N/A 8 91 119 147 9 143 N/A 32 115 170

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -10
2.2.4 Scenario 4 – Total Maximum Daily Load Allocations

A WQT program can provide allocation capacity for new or expanding power facilities in waters 

with fully allocated Total Maximum Daily Loads (TMDL). As more TMDLs are completed, 

these constraints will only increase. Fully allocated receiving waters with no room for future 

growth, or very restrictive effluent limits will become significant factors in business decisions. 

There are examples of facilities in other settings that have or may soon enter into long-term 

credit purchase arrangements in order to address these issues. For example, power plants in the 

Chesapeake Bay watershed in Maryland will be required to offset 100 percent of their nitrogen 

discharges. The Rahr Malting bilateral PS/NPS WQT trade in Minnesota is an instance of a 

facility that used WQT to fully offset a new wastewater discharge into a fully allocated receiving 

water.

2.2.5 Scenario 5 – Generating Credits

Some facilities may have opportunities to upgrade in-house treatment capacity in ways that 

reduce the incremental cost of treatment to the point where their reduced discharges are below 

their permitted discharge limits. With surplus reductions, these sources could become credit 

sellers. This could also allow companies such as AEP or Duke with multiple facilities in the pilot 

project area to develop intra- or inter-company trades as long as the facilities are within a 

reasonable geographic distance. Rules for the WQT program will dictate geographic and other 

trading restrictions.

2.3 Projected Demand for other WWTPs in the Great Miami and Muskingum Basins

Potential demand by other wastewater sources for WQT credits was evaluated to ascertain the 

possible robustness of a broad scale trading program in Ohio River watersheds not restricted to 

power company demand for TN credits. A robust WQT market will yield administrative cost 

savings and greater water quality benefits (assuming trading ratios greater that 1:1). For facilities 

discharging treated domestic sewage and organic wastes (similar to domestic sewage), both 

phosphorus and nitrogen effluent limitations are considered here as these will be added to future 

NPDES permits.

Treatment technologies such as biological nutrient removal (BNR) are capable of achieving the 

nutrient discharge levels of 1 mg/L TP and 6 to 8 mg/L TN (Metcalf & Eddy, Inc., 2003) that 

will likely appear in WWTP permits once nutrient criteria are promulgated. In order for WQT to 

be of value to WWTPs, the cost of BNR must exceed the cost of buying the number of WQT 

credits necessary for NPDES compliance. A preliminary analysis in this regard focused on the 

GMR and the Muskingum River 8-digit HUC code watersheds. The current wastewater load for 

each facility that would use BNR was compared with the loading goal (i.e., the reduced mass 

discharge of nutrients) equivalent to effluent limits of 1 mg/L TP and 8 mg/L TN. Any additional 

treatment required beyond these capabilities of BNR would most likely necessitate the use of 

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -11
chemical treatment. Though not included in this preliminary analysis, the use of chemical 

treatment substantially increases the cost of both capital upgrades and operation and maintenance 

(O&M), thus increasing the potential utility of WQT.

All continuously discharging facilities, small and large, were considered in the GMR based on 

previously compiled data (Kieser & Associates [K&A], 2004). Within the limited scope of this 

current effort, only data from facilities with at least 1 mgd capacity were considered in the 

Muskingum River watershed. Cost ranges are typically higher for smaller facilities lacking the 

advantage of economies of scale as plant performance often requires chemical backup. There are 

likely several small facilities in the Muskingum River watershed not considered in this 

evaluation that would therefore add to potential credit demand. Also not specifically estimated 

are the industrial sectors where BNR technology may not apply. A detailed description of the 

analysis conducted here is included in a Technical Memorandum provided to EPRI by the Shaw 

Team (in process, 2007).

Wastewater treatment plant discharge data were downloaded into USEPA’s BASINS platform 

for each Muskingum facility. These included current flow values and concentrations of nitrogen 

and phosphorus species for each outfall and month spanning the period 1998 through 2007. 

GMR discharge data were taken from K&A (2004). Average discharge concentrations were 

computed for each primary WWTP outfall. Projected load reductions are calculated under 

different effluent limit scenarios in the Technical Memorandum (Shaw, in process, 2007). 

Current mass loadings used here assume effluent limits of 1 mg/L TP and 8 mg/L TN. 

Associated load reductions in the GMR using this approach are 400,030 pounds TP and 

3,110,210 of TN. In the Muskingum, these reductions are estimated to be 656,801 pounds of TP 

and 804,881 of TN. 

These reductions are associated with a wide range of wastewater treatment plants. As such, unit 

cost per pound of reduction associated with BNR will vary. To assess WQT potential, BNR costs 

must be compared to the price of WQT credits to determine which facilities may participate. The 

potential volume of credits needed by participating WWTPs will be dictated by associated load 

reductions required to meet effluent limits. BNR cost estimations are therefore calculated for 

units of pounds TN, TP, or both.

BNR costs were derived using a combination of two empirical methodologies, both of which are 

based on flow equations that account for economies of scale at each facility. Costs were first 

estimated according to Doran (1997), as cited by both K&A (2004) and Faeth (2000). Doran 

(1997) specifies the capital and O&M costs based on the design flow for facilities above 0.2 

mgd. For facilities at or below 0.2 mgd, a fixed annual cost estimate was used to calculate total 

costs per flow. Annualized capital costs and present worth value assume a 20-year investment at 

a 3.65 percent annual interest rate.

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -12
A second set of equations, summarized by USEPA (2007), considers the capital and O&M costs 

for small facilities of less than 100,000 gallons per day (Foess, 1998). For facilities larger than 

0.1 mgd, actual costs for facilities are summarized by the Maryland Department of the 

Environment (2006) and the Connecticut Department of Environmental Protection (2007). To 

estimate the range of costs in like terms, small facility costs were converted to total costs per 

flow. 

The derived costs for BNR used here are an average of the two empirical cost estimation 

methods. The unit cost of upgrading to BNR will vary by facility based on flow as described 

above. Unit costs will also vary based on current loading levels compared to new permit limits 

for phosphorus, nitrogen or both. To provide a more conservative estimate of demand for WQT, 

limits most likely to be achieved by BNR technology were selected; i.e., 1 mg/L TP and 8 mg/L 

TN. Unit cost of dollars per pound of nutrient reduced were therefore calculated with BNR 

upgrades based on the number of pounds required for each WWTP in the Great Miami River 

watershed and the larger facilities in the Muskingum River watershed. 

Resultant cost estimates for all facilities considering only the phosphorus limit ranged from 

$1.47 to $469 per pound. Likewise for facilities needing only to reduce nitrogen, the unit costs 

ranged from $1.05 to $134 per pound. When considering facilities needing reductions for both 

nutrients, unit costs ranged from $0.92 to $104 for combined pounds. 

Comparisons between the unit costs per pound of nutrient(s) reduced via a BNR upgrade to those 

of WQT in Table 2-5 allows for an assessment of WQT benefits in lieu of treatment upgrades. 

Variable unit BMP costs and trading ratios were used to test the sensitivity of the WQT credit 

value and thus, market potential. Higher trading ratios reflect potential program design 

variations while the increase in BMP cost reflects potential program inefficiencies. 

Preliminary estimates of WWTP credit demand in Table 2-5 suggest that many facilities, other 

than the power industry, could benefit from WQT thereby increasing the potential support for a 

regional program in the Ohio River Basin. The demand represented in this table is only from 

those WWTPs whose BNR costs are higher than the WQT credit costs used in this example 

comparison. Concentration-based limits are more conservative in terms of estimating demand so 

WQT credit demand in Table 2-5 is only a fraction of the overall anticipated loading reductions 

that may need to occur amongst all permitted WWTPs with more stringent effluent limits. 

Smaller facilities (i.e., less than 1 mgd) represent a more likely source of constant credit demand, 

particularly if additional chemical treatment is needed to meet more stringent discharge 

restrictions. Facilities larger than 1 mgd will have greater credit demand when WQT is more 

cost-effective than BNR. This would be achieved by program efficiencies that reduce the 

effective WQT credit unit cost potentially below BNR unit costs. 

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -13
These preliminary results support the premise that there will be robust demand for WQT in the 

Muskingum and GMR watersheds. Accordingly, just as for power companies, WQT will offer 

WWTPs potential benefits such as: flexibility in the timing of plant upgrades; the ability to 

manage compliance deviations; and, accommodating future growth that may otherwise be 

hindered by stringent effluent limits or a cap on new loads under a TMDL.

Table 2-5

Anticipated WQT Demand Associated with Different Trading Ratios for WWTP Discharges

Pounds of Potential WWTP Demand with Concentration-Based Goals

GMR Muskingum

Under 100,000 gallons per day BMP = $2/pounda BMP = $4/poundb BMP = $2/pounda BMP = $4/poundb

TP pounds 1,187 1,187

TN pounds 5,540 5,540

TN+TP pounds 6,727 6,727

Between 0.1 and 1 mgd

TP pounds 26,557 26,557

TN pounds 185,897 185,897

TN+TP pounds 212,454 212,454

Between 1 and 10 mgd

TP pounds 209,245 209,245 304,203 199,364

TN pounds 505,321 55,295 273,047 63,497

TN+TP pounds 278,173 33,024 278,897 51,631

Over 10 mgd

TP pounds 163,040 163,040 192,996 144,290

TN pounds 162,133 27,275 0 0

TN+TP pounds 31,172 31,172 0 0

a Cost per credit assuming a 1:1 trading ratio.

b Cost per credit assuming a 2:1 trading ratio.

Ohio River Water Quality Trading Pilot Program: 2 Business Case for Power Company Participation -14
3.0 Non-point Source Credit Generation Potential

Agriculture in the Ohio River Basin will be a likely source of low-cost nitrogen and phosphorus 

credits within any trading program. The baseline performance requirements which agricultural 

sources must satisfy before they are eligible to generate credits will affect cost and availability. 

Pennsylvania and Maryland, for example, have nutrient management requirements for 

agricultural NPSs in the Chesapeake Bay watershed. These requirements set high standards that 

must be satisfied before nutrient credits may be generated. As a result, one of the more 

successful methods for generating credits in Pennsylvania has been manure export to the Ohio 

River Basin and, consequently, NPS credit prices are relatively high (approximately $9 per 

pound TP) compared to $2/pound in the MCD program.

To assess the potential demand identified previously in this section for power companies on the 

Ohio River main stem, as well as for WWTPs in the Great Miami and Muskingum River 

watersheds, a rudimentary assessment of potential agricultural credit generation was conducted 

(see Appendix C). Annual nutrient loads for TN and TP were first preliminarily estimated for the 

Licking, Great Miami, Scioto and Muskingum River watersheds using an empirical loading 

calculation method. This method calculates pollutant loads using event mean concentrations and 

imperviousness percent coverage values per land use category. The method provides a very 

coarse estimate of nutrient loads delivered by surface runoff for each land use category in a 

watershed. These calculated loads do not consider fate and transport channel processes and are 

therefore considered coarse estimates of TN and TP delivered to the Ohio River by each 

tributary.

Two simple scenarios were applied to agricultural load predictions to estimate potential WQT 

credit volume from agricultural BMP implementation (Table 3-1). It was assumed for the 

purposes of this analysis that BMPs (or a suite of BMPs) with a 50 percent load reduction 

efficiency were applied to 10 percent (Scenario A) and 25 percent (Scenario B) of the cultivated 

agricultural land area from each watershed. The associated TP load reduction was calculated 

using simple proportions. The TN load reduction calculation used the P:N ratio of 1:2.6 

calculated from MCD WQT program BMP implementation projects in the Great Miami River.

Ohio River Water Quality Trading Pilot Program: 3 Business Case for Power Company Participation -1
Table 3-1

Estimated Total Load Reductions (pounds per year) from Agricultural BMP 

Implementation on 10% and 25% of Cultivated Croplands

Watershed

Scenario A Scenario B

TN TP TN TP

Licking 67,823 26,086 169,558 65,215

GMR 501,717 192,968 1,254,292 482,420

Scioto 729,174 280,452 1,822,934 701,129

Muskingum 395,282 152,032 988,205 380,079

Scenario A: BMPs are applied to 10% of the agricultural land area.

Scenario B: BMPs are applied to 25% of the agricultural land area.

Factors to estimate loading reductions attributed to fate and transport losses are often included in 

trading ratios. These ratios can also account for uncertainty, net environmental benefits to the 

river and pollutant equivalency. Until an Ohio River trading program is developed, it is 

speculative to assume any one particular trading ratio here. Alternatively, to calculate the volume 

of potentially available credits for purchase, two separate fate and transport loss factors were 

applied to loads from Table 3-1. These are presented in Table 3-2 and Table 3-3 under 

assumptions of 35 percent and 50 percent fate and transport losses from the point of the BMP 

reduction to the point of credit use (i.e., buyer’s discharge location), respectively. Though no 

baseline performance expectation was assumed here, this approach yields relatively conservative 

estimates for the number of potentially available NPS credits from agriculture. Higher trading 

ratios (i.e., >2:1), will likely account for these fate and transport losses in a trading program.

Table 3-2

Number of Credits Available Considering a 35% Loss Due to Fate and Transport

Watershed

Scenario A Scenario B

TN TP TN TP

Licking 44,085 16,956 110,213 42,390

Greater Miami River 326,116 125,429 815,290 313,573

Scioto 473,963 182,293 1,184,907 455,734

Muskingum 256,933 98,820 642,333 247,051

Ohio River Water Quality Trading Pilot Program: 3 Business Case for Power Company Participation -2
Table 3-3

Number of Credits Available Considering a 50% Loss Due to Fate and Transport

Watershed

Scenario A Scenario B

TN TP TN TP

Licking 33,912 13,043 84,779 32,607

GMR 250,859 96,484 627,146 241,210

Scioto 364,587 140,226 911,467 350,564

Muskingum 197,641 76,016 494,102 190,039

These preliminary credit availability estimates suggest there would be ample credits for the 

projected power company demand in Table 2-3 even assuming only 10 percent agricultural 

participation and 50 percent fate and transport losses within these watersheds. This most 

conservative projection of credit supply will also fully cover the additional TN demand from 

WWTPs in the Great Miami and Muskingum Rivers based on Table 2-5 projections for these 

dischargers. Associated costs of credits projected in Appendix C to be supplied by agriculture in 

these analysis are consistent with those used in Tables 2-3 and 2-5. Thus, it would appear there 

would be an ample supply of cost-effective credits for power company use in an Ohio River 

WQT program.

Ohio River Water Quality Trading Pilot Program: 3 Business Case for Power Company Participation -3
4.0 Stakeholder Readiness in the Ohio River Basin

It has been the experience of many developing trading programs that demand for WQT credits is 

often ill-defined and/or very limited in their early stages. This shortcoming often results in 

narrowly defined conditions for trading, which become very constraining when the scope and 

scale of these efforts grow with interest or need. In the Ohio River Basin, it will be prudent to 

consider large-scale attributes for a robust trading program from initial development stages. This 

requires participation from a broad range of interests. As such, a preliminary assessment of 

stakeholder readiness has focused on: 1) agricultural considerations in the four pilot watersheds 

discharging to the proposed pilot project area in the Ohio River Basin; and, 2) generalized 

stakeholder/buyer interest and participation in the Ohio River Basin. Targeted agricultural 

watersheds were identified previously for their NPS credit production potential. Details of this 

assessment are included in Appendix D. A summary of this analysis is provided here.

4.1 Agricultural Interests

Agricultural participation in WQT programs is typically based on two primary conditions: 1) the 

ability of agriculture to generate cost-effective credits in watershed areas with credit buyers; and, 

2) their willingness to engage in a trading program. Because agricultural participation in trading 

programs is voluntary, significant efforts are typically expended in early program development 

to actively engage farmers. Concerted and intentional efforts to understand agricultural 

perspectives are vital to their participation.

Agriculture in targeted Ohio River Basin watersheds appears poised to: 1) engage in the 

development of a trading framework through agricultural agency participation; 2) implement 

BMPs to generate WQT credits; and, 3) build upon existing watershed or producer programs that 

would be enhanced by the development of a regional WQT program. The famed participation by 

agricultural agencies and producers in the MCD trading program of the GMR watershed has 

identified and addressed most barriers likely to be encountered by agricultural participants. Some 

of these concerns include fear of regulation, transferred NPDES permit liability, and inequities 

associated with WQT programs targeting only “low-hanging fruit” (i.e., producers with substandard farming practices). Applications for WQT credit-generating projects (with highly 

competitive pricing) in the GMR that far exceed credit demand are a clear indication that these 

traditional hurdles with agricultural participation in WQT have largely been addressed. 

4.2 Regulatory Agencies

The need and opportunity for pursuing a broad scale WQT approach is evidenced by the 

potential credit demand reported earlier. As such, several regulatory and/or administering 

agencies, as well as PS representatives will need to be intimately involved in regional trading 

Ohio River Water Quality Trading Pilot Program: 4 Business Case for Power Company Participation -1
program development. In the Ohio River, this would particularly include stakeholders with 

relevant jurisdiction, prior trading experience or familiarity, and substantial need for the 

compliance flexibility offered by WQT.

A developing program in the Ohio River will also need to align with current national, regional 

and/or local initiatives, especially considering multi-state trading options and existing trading 

rules or policy. This would necessitate the involvement of ORSANCO, the multi-state compact 

charged with developing nutrient criteria for the Ohio River main stem. Representatives from 

ORSANCO were actively engaged in discussions for a regional trading scheme during this 

feasibility analysis. Key feedback included:

• ORSANCO has interest in interstate trading in advance of nutrient criteria that they 

will be developing to provide technical feedback and input regarding implementability 

and feasibility of attainment.

• There is enthusiastic support for the trading framework development and 

implementation efforts in the MCD WQT program.

• ORSANCO has previously examined WQT opportunities in the basin but did not 

pursue these due to a lack of funding and uncertainty with nutrient criteria 

development.

• There is in-house staff trading experience.

• Water chemistry along the main stem is routinely monitored through existing 

programs.

• ORSANCO envisions direct participation in WQT program development and has 

identified specific contacts in state regulatory agencies that would also directly 

participate.

• Applying existing collateral, i.e., excess nitrogen credits owned by WWTP buyers in 

the Great Miami, to foster early trades in the main stem of the Ohio River would be an 

incentive to bring buyers into the program development process.

• MCD trading representatives should also be involved. Ongoing discussions with MCD 

have confirmed interest in such participation whereby the regional program could 

leverage first-hand experience and testimonials.

4.3 Point Sources

Point sources in the basin will likely wish to participate in a regional program to be wellinformed of opportunities as well as shape policy to:

• Address longer compliance schedules and variance procedures

Ohio River Water Quality Trading Pilot Program: 4 Business Case for Power Company Participation -2
• Include provisions for implementation timing and application of NPDES program 

transition periods for compliance schedules, and

• Ensure there are economic alternatives for growth and expansion issues.

Point source now actively involved in credit purchases in the MCD WQT program were 

intimately involved in local program development. Absent their explicit participation and input, 

the program would not likely have resulted is the current “buyer’s market” they now enjoy. 

These PSs have been broadly and openly supportive of trading. Substantial cost-savings, coupled 

with ease of program entry have kept some of the largest municipal WWTPs actively promoting 

the program. ORSANCO has also indicated that participating WWTPs in the MCD WQT 

program would be instrumental in convincing other regulated facilities to participate in regional 

trading program development.

In total, there appears to be substantial stakeholder interest and willingness to participate in an 

Ohio River WQT pilot program. Sufficient demand, ample credit supply, existing WQT trading 

successes at the local scale, regulatory interest, and willing stakeholders appear to be present in 

this setting. These will be foundational elements for advancing a regional program.

Ohio River Water Quality Trading Pilot Program: 4 Business Case for Power Company Participation -3
5.0 Summary and Conclusions

A preliminary feasibility analysis was conducted to assess the business case for power company 

participation in the development and promotion of a WQT pilot program for nitrogen in the Ohio 

River Basin. The analysis was prepared for the use and consideration of EPRI and the EPRI 

WQT Advisory Group. The study targeted WQT as a means to address surface water discharge

compliance options associated with increased nitrogen in wastewater discharges resulting from 

implementation of air emissions technologies such as FGD systems and SCRs. As water 

discharge restrictions are expected to become more restrictive over the next few years in the 

Ohio River Basin, coal-fired power facilities can expect to face more complicated management 

decisions as they attempt to meet permit requirements related to both air and water emissions, as 

well as manage compliance risks and costs. 

Currently, the only option power facilities have for meeting stricter water discharge limits is 

investing in more on-site wastewater treatment capacity. Because of their location and physical 

constraints, some power facilities may not be able to expand wastewater treatment capacity or 

may face high costs to do so. It may also be costly for some to expand in-house treatment 

capacity without including it as part of scheduled plant upgrades. Such upgrades may not 

coincide with increases in wastewater discharge capacity that would be required to meet permit 

limits.

This study has shown that the use of WQT may yield substantial benefits for management of 

nitrogen discharges associated with tightening wastewater discharge restrictions. The business 

case identified potential opportunities for reducing costs associated with power company NPDES 

permit compliance under several conditions. These conditions included:

• Long-term Participation in WQT -- A power facility could engage in long-term 

compliance options using WQT when costs are significantly less than upgrading inhouse treatment operations. 

• Short-term Participation in WQT -- A power company could choose to participate 

in WQT for a short duration to provide permit compliance schedule fulfillment at 

locations where upgrade facility planning and construction schedules are longer than 

otherwise might be stipulated in a NPDES compliance schedule.

• Partial Compliance Use of WQT – A WQT program provides the opportunity to 

avoid upgrading power facility treatment capacity when it is necessary for permit 

compliance associated with maximum discharge concentration compliance excursions 

despite average effluent concentrations remaing in compliance.

Ohio River Water Quality Trading Pilot Program: 5 Business Case for Power Company Participation -1
• TMDL Allocations – A WQT program provides allocation capacity for new or 

expanding power facilities in areas with fully allocated TMDLs for nitrogen that 

would otherwise preclude the permitting of new loads.

• Generating Credits – A WQT program can provide economic opportunities for 

selling surplus nitrogen reductions when a power company’s facility provides nitrogen 

treatment beyond permit requirements. 

WQT would provide an option for power facilities to meet their permit obligations by purchasing 

discharge offset credits instead of investing in more in-house treatment capacity. Besides 

offering potential cost-savings, trading would also provide compliance flexibility and more 

capacity to manage compliance risks with the purchase of credits. Even on a temporary basis, 

WQT would allow for integration of investments for in-house capacity into routine equipment 

upgrade schedules. Opportunities to purchase offset credits would additionally provide a basis 

for power facilities to manage compliance risks and costs in cases where there was a need to shut 

down or reduce in-house wastewater treatment operations in order to maintain or repair 

equipment. 

Preliminary cost comparisons indicate that power facilities facing a range of discharge 

concentration limits, could have in-house wastewater treatment costs ranging from $14 to $136 

per pound of TN. These are approximately 58 to 90 percent higher than municipal wastewater 

treatment facilities discharging at a 5 mg/L treatment limit, and 71 to 97 percent higher than 

agricultural source reduction costs. This suggests that power facilities may have the potential to 

benefit from participating in a WQT market as regular or occasional buyers of discharge offset 

credits. 

These differences in discharge treatment costs provide only a first approximation of potential 

benefits to power facilities from WQT. Their ability to engage in trading and garner such 

benefits will depend on decisions made over the next few years regarding: the rules and units of 

exchange that will govern WQT; the geographic range where trading can occur; who is allowed 

to trade; and, how transaction and administrative costs, trade risks and liabilities are allocated 

among buyers and sellers. More facility-specific cost analyses will need to be performed to 

determine how and if individual power facilities would benefit from the development of a WQT 

program in the Ohio River Basin. However, it is clear that the range of potential benefits to 

power facilities with trading will depend upon how a WQT program is constructed. 

If the provisions of a WQT pilot program in the Ohio River Basin are determined primarily by 

likely sellers of credits (e.g., agricultural interests), and other potential buyers of credits (e.g., 

WWTPs) without active involvement of the power industry, the program is likely to favor 

primary participants. Latecomers to the WQT program could also be disadvantaged in terms of 

trading ratios applied to trades and the type of credits available for purchase; the least expensive 

Ohio River Water Quality Trading Pilot Program: 5 Business Case for Power Company Participation -2
credits having been bought first. It is therefore in the best interest of the power industry to 

engage in the development of WQT now to protect its interests and reduce the risks associated 

with trade rules that will give the industry a competitive disadvantage. Furthermore, the WQT 

demand analysis indicates there would likely be a robust demand for trading credits by other 

buyers (i.e., municipal WWTPs). An analysis of potential low-cost credit supply (provided by 

agriculture) suggests ample supply in an early market. Thus, early involvement by power 

companies could help to ensure cost-effective credits are available if and when power companies 

decide to exercise the option to buy.

While it may be premature to develop a facility-by-facility business case, it is not too soon to 

more broadly assert that the power industry should promote and engage in the development of 

WQT in order to ensure optimal benefits. The relatively low costs of pursuing this strategy, as 

opposed to waiting for others to develop the rules that will govern trading in the region, seem to 

be justified by the benefits associated with reducing compliance risks, increasing compliance 

flexibility and protecting potential cost savings.

Working with other key stakeholders that appear ready for a regional trading program will also 

reduce political or institutional risks. This will yield dividends to the power industry in terms of 

goodwill, public relations, and active participation in development of nutrient criteria 

implementation plans by ORSANCO and state agencies. True to most PS/NPS WQT 

opportunities, NPS credit generation will also generate ancillary environmental benefits such as 

reductions in other pollutant loads (e.g., sediments), habitat improvements, and carbon 

sequestration. As active investors in WQT credit generation projects, the industry will also be 

able to tap into value of the ancillary benefits as other environmental markets develop.

5.1 Conclusions

The necessary elements for a regional WQT pilot program in the Ohio River Basin have been 

identified. There are willing buyers and sellers at the local scale (as evidenced by other smaller 

scale watershed trading efforts), and interest by key stakeholders for a broader regional trading 

effort. Supporting evidence from this report suggests there will be at least some power facilities 

that will realize substantial economic benefits from participation in WQT. Estimated costs to the 

power industry for supporting and engaging in the development of WQT are relatively low in 

relation to future compliance costs without trading. Potential benefits to power companies in 

terms of reducing and controlling costs and risks, as well as generating goodwill within their 

local service areas may be substantial.

The potential benefits of WQT will vary from one power company to another. Benefits will 

ultimately depend on how the rules and units of exchange (credits) are established, and on what 

economic incentives are built into the program that promote trading. Power facility managers are 

likely to benefit from a properly constructed WQT program. Thus, there is an economic 

Ohio River Water Quality Trading Pilot Program: 5 Business Case for Power Company Participation -3
incentive for the power companies to protect their interests through WQT by actively 

participating in the development of the regulatory framework and administrative structures that 

will govern trading. The magnitude of potential benefits will be heavily influenced by early and 

consistent power company support for an Ohio River regional WQT pilot program.

5.2 Next Steps For Developing a WQT Program

If a trading program in the Ohio River Basin is pursued, multiple stakeholders and trading 

partners will need to be involved. Trading partners would likely include power companies, other 

buyers (e.g., WWTPs), regulators and NPSs. Other key stakeholders will include, but not be 

limited to conservation and environmental organizations as well as constituent interest groups.

Program design will require intensive stakeholder involvement over three to five years. Critical 

design considerations for a properly constructed program will involve crafting a wide range of 

elements that govern all aspects of program administration, execution of transactions between 

credit buyers, credit sellers, third-party aggregators and interactions of all parties with regulators. 

The design of the trading framework will be shaped by several attributes that will constrain the 

overall program. These will include consistency with EPA policy, avoiding hot spots, and 

developing trading ratios or other factors to account for the position of the buyers and sellers 

over a large project area as well as for pollutant equivalency. In addition, arrangements will need 

to be made between states and ORSANCO to address whether and how interstate trading may 

occur. Development of trading zones (or districts) and rules governing where buyers may 

purchase credits are two possible methods that will need to be developed to account for 

geographic scale. The design of the Ohio River Pilot program will also need to consider existing 

Ohio trading rules, Pennsylvania trading policy the MCD WQT program in the GMR watershed. 

Interactions and interrelationships between these programs will need to be carefully developed 

and established.

The immediate next steps to develop and institute a viable trading program in the Ohio River 

Basin should include two primary efforts: 1) engagement of high level regional, state and 

selected local participants to identify and secure support for a regional trading scheme; and, 2) a 

broader regional trading analysis of supply and demand in the basin focusing on both nitrogen 

and phosphorus. These two steps will not address all of the necessary efforts to develop such a 

trading program, but will serve to solidify the need for trading and secure high level 

commitments necessary at the buyer, seller and regulator levels. These preliminary efforts would 

be conducted over a 10-month period of time.

With buy-in from key constituents (including power companies), subsequent and substantial 

efforts with broader stakeholder involvement would be undertaken. These steps would focus on 

program design elements that would take two to four years to develop. They would primarily 

Ohio River Water Quality Trading Pilot Program: 5 Business Case for Power Company Participation -4
include: broad stakeholder program promotion; development of trading framework elements; 

and, construction of trading program infrastructure to facilitate trades.

As with most trading programs in the U.S., funds for pilot program development will likely come 

from a variety of sources including contributions from potential buyers, non-profits, foundations, 

non-governmental organizations, in-kind contributions and potential state or federal grants. It is 

unlikely that any one source will be sufficient to fund the entire development and start-up of an 

Ohio River trading program. It will be useful, however, to identify one recipient and/or fiduciary 

agent to manage and distribute funds to construct the program. It is envisioned that the core 

group of stakeholders established in the recommended immediate next steps will guide the 

overall process. This supports the needs for and benefits of early power company participation.

Ohio River Water Quality Trading Pilot Program: 5 Business Case for Power Company Participation -5
6.0 References

CH2M Hill, 2005, Analysis of FGD Wastewater Treatment: Lessons Learned, Higgins, Givens, 

and Sandy, May 31.

Connecticut Department of Environmental Protection, 2007, Nitrogen Removal Projects 

Financed by the CWF through 2006, Provided by Iliana Ayala, June 13.

Doran, M.D., 1997, POTW Phosphorus Control Costs. Unpublished memorandum, Madison, 

WI, Strand Associates, April 27.

Electric Power Research Institute (EPRI), 2006, Water Quality Trading Opportunities for 

Electric Power Companies, EPRI White Paper, January.

Faeth, P., 2000, Fertile Ground: Nutrient Trading’s Potential to Cost-Effectively Improve Water 

Quality, World Resources Institute, Washington, D.C.

Foess, G.W., P. Steinbrecher, K. Williams, G.S. Garrett, 1998, Cost and Performance Evaluation 

of BNR Processes, Florida Water Resources Journal: December.

Jeyanayagam, Sam, 2005, True Confessions of the Biological Nutrient Removal Process, Florida 

Water Resources Journal: January.

Kentucky Division of Water, 2006, Draft 2006 Integrated Report to Congress on the Condition 

of Water Resources in Kentucky, Volume II, 303(d) List of Surface Waters, Kentucky 

Environmental and Public Protection Cabinet Division of Water, Kentucky Division of Water, 

November.

Kieser & Associates (K&A), 2004, Preliminary Economic Analysis of Water Quality Trading 

Opportunities in the Great Miami River Watershed, Ohio, Prepared for the Miami Conservancy 

District, Dayton, Ohio. 

Lohner, T., 2007, Personal Communication, American Electric Power, Columbus, Ohio.

Maryland Department of the Environment, 2006, BNR Costs and Status BNR Project Costs 

Eligible for State Funding, Provided by Elaine Dietz on October 31.

Metcalf & Eddy, Inc., 2003, Wastewater Engineering: Treatment and Reuse, 4th ed., New York, 

NY: McGraw-Hill.

Mississippi River/Gulf of Mexico Watershed Nutrient Task Force, 2008, Gulf Hypoxia Action 

Plan for Reducing, Mitigating, and Controlling Hypoxia in the Northern Gulf of Mexico and 

Improving Water Quality in the Mississippi Basin, November 9.

ORSANCO, 2003, Assessment of Overland Runoff Nonpoint Source Pollution: Impacts on the 

Ohio River including a Ranking of Major Tributaries by NPS Pollutant Contribution.

Ohio River Water Quality Trading Pilot Program: 6 Business Case for Power Company Participation -1
Pariseau, Richard, 2007, telephone interviews with Shaw between July 15 and October 13.

SHAW ENVIRONMENTAL, INC., 2007, Water Quality Trading Pilot Programs: 

Review of Catawba River Basin, Chesapeake Bay, and Ohio River Pilot Projects, EPRI Contract 

No. 125935.4411, July 13.

Shaw Team, 2007, Technical Memorandum: Point Source WQT Credit Demand Analysis for 

WWTPs in the Great Miami and Muskingum River Watersheds under EPRI Contract No. 

125935.4411, In Process.

Tennant, Peter, 2007, Report of the Ohio River Sub Basin Committee, June.

U.S. Environmental Protection Agency Region 4, 2004, Evaluation of the Role of Nitrogen and 

Phosphorus in Causing or Contributing to Hypoxia in the Northern Gulf, August.

USEPA, 2007, Biological Nutrient Removal and Costs, EPA-823-R-07-002.

USEPA. 2000. Nutrient Criteria Technical Guidance Manual Rivers and Streams, United States 

Office of Water EPA-822-B-00-002. Environmental Protection Office of Science and 

Technology July 2000 Agency Washington, DC 20460 www.epa.gov

National Pollutant Discharge Effluent System Permits:

Indiana NPDES permits: IN0002160, IN0051845.

North Carolina NPDES permits: NC0004979, NC0004987, NC0024937, NC0024945, 

NC0030210, and NC0036277.

Ohio NPDES permits: 0IB00003*ND, 0IB00005*LD, 0IB00006*HD, 0IB00006*ID, 

0IB00009*OD, 0IB00013*KD, 0IB00022*ED, 0IB00027*BD, 0IB00028*CD, 0IB00032*CD, 

0IB00049*LD, 0PD00027*FD, 0PQ00000*LD, 1IB00000*JD, 1IB00004*ID.

West Virginia permits: WV0001058, WV0005291, WV0005304, WV048500.

Ohio River Water Quality Trading Pilot Program: 6 Business Case for Power Company Participation -2
Appendix A

Linear Diagram of Relevant Ohio River Main Stem Features

Ohio River Water Quality Trading Pilot Program:

Business Case for Power Company Participation
Appendix B

Implications of Nutrient Criteria on Duke and AEP Power

Plants and Treatment Cost Analysis

Ohio River Water Quality Trading Pilot Program:

Business Case for Power Company Participation
Appendix C

Preliminary Non-point Source Modeling in Select Watersheds

of the Ohio River Basin for Assessment of Potential

Agricultural Credit Supply

Ohio River Water Quality Trading Pilot Program:

Business Case for Power Company Participation
Appendix D

Stakeholder Readiness Assessment

Ohio River Water Quality Trading Pilot Program:

Business Case for Power Company Participation
Appendix E

Pilot Project Development Strategy

Ohio River Water Quality Trading Pilot Program:

Business Case for Power Company Participation