United States 

Environmental Protection 

Agency 

Economic and Benefits Analysis 

for the Final Section 316(b) 

Phase III Existing Facilities Rule 

June 1, 2006
 

U.S. Environmental Protection Agency 

Office of Water (4303T) 

1200 Pennsylvania Avenue, NW 

Washington, DC 20460 

EPA-821-R-06-001 
ACKNOWLEDGMENTS AND DISCLAIMER 

This document was prepared by the Office of Water staff. The following contractors provided assistance and 

support in performing the underlying analysis supporting the conclusions detailed in this document. 

Abt Associates Inc. (Parts A, C, D, and E) 

Eastern Research Group, Inc. (Part B) 

and 

ICF Consulting 

Science Applications International Corporation 

Stratus Consulting Inc. 

Tetra Tech, Inc. 

The Office of Water has reviewed and approved this document for publication. The Office of Science and 

Technology directed, managed, and reviewed the work of the contractors in preparing this document. Neither the 

United States Government nor any of its employees, contractors, subcontractors, or their employees makes any 

warranty, expressed or implied, or assumes any legal liability or responsibility for any third party’s use of or the 

results of such use of any information, apparatus, product, or process discussed in this document, or represents 

that its use by such party would not infringe on privately owned rights. 
§ 316(b) Final Rule: Phase III – Economic Analysis Table of Contents 

Table of Contents 
 

PART A: BACKGROUND INFORMATION 

CHAPTER A1: INTRODUCTION 

Introduction.......................................................................................................................................................... A1-1
 

A1-1 Overview of Potentially Regulated Sectors and Facilities ............................................................... A1-1
 

A1-1.1 New Offshore Oil and Gas Extraction Facilities ....................................................................... A1-1
 

A1-1.2 Existing Phase III Facilities and Sectors.................................................................................... A1-2
 

A1-2 Summary of the Final Rule ............................................................................................................ A1-10
 

A1-2.1 New Offshore Oil and Gas Extraction Facilities ..................................................................... A1-10
 

A1-2.2 Existing Facilities .................................................................................................................... A1-11
 

A1-3 Summary of Economic Analysis Results ....................................................................................... A1-11
 

A1-4 Organization of the EA Report....................................................................................................... A1-19
 

References ........................................................................................................................................................ A1-21
 

CHAPTER A2: CONSIDERATIONS IN ASSESSING THE NEED FOR PHASE III REGULATION 

Introduction.......................................................................................................................................................... A2-1
 

A2-1 Description of Environmental Impacts from CWIS ......................................................................... A2-1
 

A2-2 Levels of Protection at Phase III Facilities....................................................................................... A2-2
 

A2-2.1 Phase III New Facilities ............................................................................................................. A2-2
 

A2-2.2 Potential Phase III Existing Facilities ........................................................................................ A2-3
 

A2-3 Addressing Market Imperfections .................................................................................................... A2-3
 

References .......................................................................................................................................................... A2-4
 

PART B: ECONOMIC ANALYSIS FOR PHASE III NEW OFFSHORE OIL AND GAS 

EXTRACTION FACILITIES 

CHAPTER B1: SUMMARY OF COST CATEGORIES AND KEY ANALYSIS ELEMENTS FOR NEW OFFSHORE 

OIL AND GAS EXTRACTION FACILITIES 

Introduction.......................................................................................................................................................... B1-1
 

B1-1 Cost Categories................................................................................................................................. B1-1
 

B1-1.1 Cost of Installing and Operating Compliance Technology........................................................ B1-2
 

B1-1.2 Administrative Costs for Complying Facilities ......................................................................... B1-3
 

B1-2 Key Elements of the Economic Analysis For New Offshore Oil and Gas Extraction Facilities...... B1-7 

B1-2.1 Compliance Schedule ................................................................................................................ B1-8 

B1-2.2 Adjusting Monetary Values to a Common Time Period of Analysis ........................................ B1-8 

B1-2.3 Discounting and Annualization – Costs to Society or Social Costs .......................................... B1-9 

B1-2.4 Discounting and Annualization – Costs to Complying Facilities ............................................ B1-11 

References ........................................................................................................................................................ B1-13
 

CHAPTER B2: PROFILE OF THE OFFSHORE OIL AND GAS EXTRACTION INDUSTRY 

Introduction.......................................................................................................................................................... B2-1
 

B2-1 Mobile Offshore Drilling Units (MODUs)....................................................................................... B2-2
 

B2-1.1 Overview.................................................................................................................................... B2-2
 

B2-1.2 Existing MODUs and Their Associated Firms .......................................................................... B2-3
 

B2-1.3 Existing MODUs with Intake Rates Meeting Proposed Rule Criteria..................................... B2-10
 

B2-2 Oil and Gas Production Platforms .................................................................................................. B2-12
 

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B2-2.1 Overview.................................................................................................................................. B2-12 

B2-2.2 Existing Platforms/Structures and Their Associated Firms ..................................................... B2-13 

B2-2.3 Existing Platforms/Structures with Intake Rates Meeting Proposed Rule Criteria.................. B2-19 

B2-3 Total New Oil and Gas Operations ................................................................................................ B2-23
 

References ........................................................................................................................................................ B2-24
 

CHAPTER B3: ECONOMIC IMPACT ANALYSIS FOR THE OFFSHORE OIL AND GAS EXTRACTION 

INDUSTRY 

Introduction.......................................................................................................................................................... B3-1
 

B3-1 MODU Analyses .............................................................................................................................. B3-2
 

B3-1.1 Aggregate National After-tax Compliance Cost Analysis ......................................................... B3-2
 

B3-1.2 Vessel-Level Compliance Costs ................................................................................................ B3-3
 

B3-1.3 Impact Analysis ......................................................................................................................... B3-4
 

B3-2 Economic Impact Analysis for Oil and Gas Production Platforms .................................................. B3-9
 

B3-2.1 Aggregate National After-tax Compliance Costs .................................................................... B3-10
 

B3-2.2 Platform-Level Compliance Costs ........................................................................................... B3-11
 

B3-2.3 Impact Analysis ....................................................................................................................... B3-12
 

B3-3 Total Costs and Impacts Among All Affected Oil and Gas Industry Entities................................ B3-16
 

B3-4 Total Costs to Government Entities and Social Costs of the 316(b) Phase III Rulemaking .......... B3-16
 

B3-4.1 Total Costs to Government Entities ......................................................................................... B3-16
 

B3-4.2 Total Social Costs .................................................................................................................... B3-17
 

References ........................................................................................................................................................ B3-18
 

PART C: ECONOMIC ANALYSIS FOR PHASE III EXISTING FACILITIES 

CHAPTER C1: SUMMARY OF COST CATEGORIES AND KEY ANALYSIS ELEMENTS 

Introduction.......................................................................................................................................................... C1-1
 

C1-1 Cost Categories................................................................................................................................. C1-1
 

C1-1.1 Costs of Installing and Operating Compliance Technology ...................................................... C1-1
 

C1-1.2 Net Income Loss from Installation Downtime........................................................................... C1-2
 

C1-1.3 Administrative Costs for Complying Facilities ......................................................................... C1-3
 

C1-1.4 Administrative Costs for Permitting Authorities and the Federal Government......................... C1-9
 

C1-2 Key Elements of the Economic Analysis For Phase III Existing Facilities ................................... C1-10
 

C1-2.1 Compliance Schedule............................................................................................................... C1-10
 

C1-2.2 Adjusting Monetary Values to a Common Time Period of Analysis ...................................... C1-11
 

C1-2.3 Discounting and Annualization – Costs to Society or Social Costs......................................... C1-12
 

C1-2.4 Discounting and Annualization – Costs to Complying Facilities ............................................ C1-14
 

References ........................................................................................................................................................ C1-17
 

CHAPTER C2: PROFILE OF MANUFACTURERS 

Introduction.......................................................................................................................................................... C2-1
 

CHAPTER C2A: PAPER AND ALLIED PRODUCTS (SIC 26) 

Introduction....................................................................................................................................................... C2A-1
 

C2A-1 Summary Insights from this Profile .............................................................................................. C2A-3 
 

C2A-2 Domestic Production ..................................................................................................................... C2A-4
 

C2A-2.1 Output ..................................................................................................................................... C2A-5
 

C2A-2.2 Prices....................................................................................................................................... C2A-8
 

C2A-2.3 Number of facilities and firms ................................................................................................ C2A-9
 

C2A-2.4 Employment and productivity............................................................................................... C2A-11
 

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C2A-2.5 Capital expenditures ............................................................................................................. C2A-13
 

C2A-2.6 Capacity utilization ............................................................................................................... C2A-14
 

C2A-3 Structure and Competitiveness .................................................................................................... C2A-15
 

C2A-3.1 Firm size ............................................................................................................................... C2A-16
 

C2A-3.2 Concentration ratios .............................................................................................................. C2A-16
 

C2A-3.3 Foreign trade ......................................................................................................................... C2A-18
 

C2A-4 Financial Condition and Performance ......................................................................................... C2A-21
 

C2A-5 Facilities Operating Cooling Water Intake Structures................................................................. C2A-22
 

C2A-5.1 Waterbody and Cooling System Type .................................................................................. C2A-23
 

C2A-5.2 Facility Size .......................................................................................................................... C2A-24
 

C2A-5.3 Firm Size............................................................................................................................... C2A-26
 

References ..................................................................................................................................................... C2A-28
 

CHAPTER C2B: CHEMICALS AND ALLIED PRODUCTS (SIC 28) 

Introduction........................................................................................................................................................C2B-1
 

C2B-1 Summary Insights from this Profile ...............................................................................................C2B-4
 

C2B-2 Domestic Production ......................................................................................................................C2B-5
 

C2B-2.1 Output ......................................................................................................................................C2B-6
 

C2B-2.2 Prices........................................................................................................................................C2B-8
 

C2B-2.3 Number of Facilities and Firms .............................................................................................C2B-10
 

C2B-2.4 Employment and Productivity ...............................................................................................C2B-12
 

C2B-2.5 Capital Expenditures..............................................................................................................C2B-14
 

C2B-2.6 Capacity Utilization ...............................................................................................................C2B-15
 

C2B-3 Structure and Competitiveness .....................................................................................................C2B-18
 

C2B-3.1 Firm Size................................................................................................................................C2B-18
 

C2B-3.2 Concentration Ratios..............................................................................................................C2B-19
 

C2B-3.3 Foreign Trade.........................................................................................................................C2B-21
 

C2B-4 Financial Condition and Performance ..........................................................................................C2B-26
 

C2B-5 Facilities Operating Cooling Water Intake Structures..................................................................C2B-28
 

C2B-5.1 Waterbody and Cooling System Type ...................................................................................C2B-29
 

C2B-5.2 Facility Size ...........................................................................................................................C2B-31
 

C2B-5.3 Firm Size................................................................................................................................C2B-33
 

References ......................................................................................................................................................C2B-36
 

CHAPTER C2C: PETROLEUM REFINING (SIC 2911) 

Introduction........................................................................................................................................................C2C-1
 

C2C-1 Summary Insights from this Profile ...............................................................................................C2C-2
 

C2C-2 Domestic Production ......................................................................................................................C2C-3
 

C2C-2.1 Output ......................................................................................................................................C2C-4
 

C2C-2.2 Prices........................................................................................................................................C2C-7
 

C2C-2.3 Number of Facilities and Firms ...............................................................................................C2C-7
 

C2C-2.4 Employment and Productivity .................................................................................................C2C-8
 

C2C-2.5 Capital Expenditures..............................................................................................................C2C-10
 

C2C-2.6 Capacity Utilization ...............................................................................................................C2C-11
 

C2C-3 Structure and Competitiveness .....................................................................................................C2C-12
 

C2C-3.1 Firm Size................................................................................................................................C2C-13
 

C2C-3.2 Concentration Ratios..............................................................................................................C2C-13
 

C2C-3.3 Foreign Trade.........................................................................................................................C2C-14
 

C2C-4 Financial Condition and Performance ..........................................................................................C2C-17
 

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C2C-5 Facilities Operating Cooling Water Intake Structures..................................................................C2C-18
 

C2C-5.1 Waterbody and Cooling System Type ...................................................................................C2C-19
 

C2C-5.2 Facility Size ...........................................................................................................................C2C-20
 

C2C-5.3 Firm Size................................................................................................................................C2C-22
 

References ......................................................................................................................................................C2C-23
 

CHAPTER C2D: STEEL (SIC 331) 

Introduction....................................................................................................................................................... C2D-1
 

C2D-1 Summary Insights from this Profile .............................................................................................. C2D-3 
 

C2D-2 Domestic Production ..................................................................................................................... C2D-4
 

C2D-2.1 Output ..................................................................................................................................... C2D-5
 

C2D-2.2 Employment and Productivity .............................................................................................. C2D-11
 

C2D-2.3 Capital Expenditures ............................................................................................................. C2D-13
 

C2D-2.4 Capacity Utilization .............................................................................................................. C2D-14
 

C2D-3 Structure and Competitiveness .................................................................................................... C2D-15
 

C2D-3.1 Firm Size............................................................................................................................... C2D-15
 

C2D-3.2 Concentration Ratios............................................................................................................. C2D-16
 

C2D-3.3 Foreign Trade........................................................................................................................ C2D-17
 

C2D-4 Financial Condition and Performance ......................................................................................... C2D-19
 

C2D-5 Facilities Operating Cooling Water Intake Structures................................................................. C2D-21
 

C2D-5.1 Waterbody and Cooling System Type .................................................................................. C2D-22
 

C2D-5.2 Facility Size .......................................................................................................................... C2D-23
 

C2D-5.3 Firm Size............................................................................................................................... C2D-25
 

References ..................................................................................................................................................... C2D-27
 

CHAPTER C2E: ALUMINUM (SIC 333/5) 

Introduction........................................................................................................................................................C2E-1
 

C2E-1 Summary Insights from this Profile ...............................................................................................C2E-2
 

C2E-2 Domestic Production ......................................................................................................................C2E-3
 

C2E-2.1 Output ......................................................................................................................................C2E-4
 

C2E-2.2 Prices........................................................................................................................................C2E-7
 

C2E-2.3 Number of Facilities and Firms ...............................................................................................C2E-8
 

C2E-2.4 Employment and Productivity ...............................................................................................C2E-10
 

C2E-2.5 Capital Expenditures ..............................................................................................................C2E-12
 

C2E-2.6 Capacity Utilization ...............................................................................................................C2E-13
 

C2E-3 Structure and Competitiveness .....................................................................................................C2E-14
 

C2E-3.1 Firm Size................................................................................................................................C2E-14
 

C2E-3.2 Concentration Ratios..............................................................................................................C2E-15
 

C2E-3.3 Foreign Trade.........................................................................................................................C2E-16
 

C2E-4 Financial Condition and Performance ..........................................................................................C2E-19
 

C2E-5 Facilities Operating Cooling Water Intake Structures..................................................................C2E-21
 

C2E-5.1 Waterbody and Cooling System Type ...................................................................................C2E-22
 

C2E-5.2 Facility Size ...........................................................................................................................C2E-23
 

C2E-5.3 Firm Size................................................................................................................................C2E-25
 

References ......................................................................................................................................................C2E-27
 

CHAPTER C2F: FOOD AND KINDRED PRODUCTS (SIC 20) 

Introduction........................................................................................................................................................ C2F-1
 

C2F-1 Summary Insights from this Profile ............................................................................................... C2F-3
 

C2F-2 Domestic Production ...................................................................................................................... C2F-4
 

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C2F -2.1 Output ...................................................................................................................................... C2F-4
 

C2F -2.2 Number of Facilities and Firms ............................................................................................... C2F-8
 

C2F -2.3 Employment and Productivity ............................................................................................... C2F-10
 

C2F -2.4 Capital Expenditures.............................................................................................................. C2F-12
 

C2F -2.5 Capacity Utilization ............................................................................................................... C2F-13
 

C2F-3 Structure and Competitiveness ..................................................................................................... C2F-14
 

C2F -3.1 Firm and Facility Size............................................................................................................ C2F-15
 

C2F -3.2 Concentration Ratios.............................................................................................................. C2F-16
 

C2F -3.3 Foreign trade .......................................................................................................................... C2F-17
 

C2F-4 Financial Condition and Performance .......................................................................................... C2F-19
 

C2F-5 Facilities Operating Cooling Water Intake Structures.................................................................. C2F-23
 

C2F -5.1 Waterbody and Cooling System Type ................................................................................... C2F-24
 

C2F -5.2 Facility Size ........................................................................................................................... C2F-24
 

C2F -5.3 Firm Size................................................................................................................................ C2F-26
 

References ...................................................................................................................................................... C2F-28
 

CHAPTER C2G: FACILITIES IN OTHER INDUSTRIES (VARIOUS SICS) 

Introduction....................................................................................................................................................... C2G-1
 

C2G-1 Facilities Operating Cooling Water Intake Structures................................................................... C2G-2
 

C2G-1.1 Waterbody and Cooling System Types................................................................................... C2G-2
 

C2G-1.2 Facility Size ............................................................................................................................ C2G-3
 

C2G-1.3 Firm Size................................................................................................................................. C2G-5
 

References ....................................................................................................................................................... C2G-6
 

CHAPTER C2 GLOSSARY ..........................................................................................................................C2Glos-1
 

CHAPTER C3: ECONOMIC IMPACT ANALYSIS FOR MANUFACTURERS 

Introduction.......................................................................................................................................................... C3-1
 

C3-1 Data Sources..................................................................................................................................... C3-3
 

C3-2 Methodology .................................................................................................................................... C3-3
 

C3-2.1 Market-Level Impacts................................................................................................................ C3-5
 

C3-2.2 Impact Measures ........................................................................................................................ C3-5
 

C3-3 Results ............................................................................................................................................ C3-15
 

C3-3.1 Baseline Closures..................................................................................................................... C3-16 

C3-3.2 Number of Facilities with Regulatory Requirements .............................................................. C3-16 

C3-3.3 Post-Compliance Impacts ........................................................................................................ C3-17 

C3-3.4 Compliance Costs .................................................................................................................... C3-17 

C3-3.5 Summary of Facility Impacts................................................................................................... C3-18 

C3-3.6 Firm Impacts ............................................................................................................................ C3-19 

Glossary ........................................................................................................................................................ C3-21
 

Abbreviations ..................................................................................................................................................... C3-22
 

References ........................................................................................................................................................ C3-23
 

Appendices to Chapter C3 ................................................................................................................................. C3-24
 

APPENDIX C3A1: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Introduction..................................................................................................................................................... C3A1-1
 

C3A1-1 Number of Facilities with Regulatory Requirements .................................................................. C3A1-1
 

C3A1-2 Post-Compliance Closures .......................................................................................................... C3A1-2
 

C3A1-3 Moderate Impacts ........................................................................................................................ C3A1-2
 

C3A1-4 After-Tax Compliance Costs....................................................................................................... C3A1-2
 

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C3A1-5 Overview of Impacts ................................................................................................................... C3A1-3
 

C3A1-6 Firm Impacts................................................................................................................................ C3A1-4
 

APPENDIX C3A2: CALCULATION OF INSTALLATION DOWNTIME COST 

Introduction..................................................................................................................................................... C3A2-1
 

C3A2-1 Estimated Shut-Down Period for Installing Compliance Equipment.......................................... C3A2-1 

C3A2-2 Calculating the Impact of Installation Downtime on Complying Facilities ................................ C3A2-2 

C3A2-3 Calculating the Cost to Society of Installation Downtime .......................................................... C3A2-4 

APPENDIX C3A3: COST PASS-THROUGH ANALYSIS 

Introduction..................................................................................................................................................... C3A3-1
 

C3A3-1 The Choice of Firm-Specific versus Sector-Specific CPT Coefficients ..................................... C3A3-1
 

C3A3-2 Market Structure Analysis ........................................................................................................... C3A3-3
 

C3A3-2.1 Industry Concentration.......................................................................................................... C3A3-4
 

C3A3-2.2 Import Competition............................................................................................................... C3A3-6
 

C3A3-2.3 Export Competition............................................................................................................... C3A3-7
 

C3A3-2.4 Long-Term Industry Growth................................................................................................. C3A3-8
 

C3A3-2.5 Conclusions........................................................................................................................... C3A3-9
 

References ................................................................................................................................................... C3A3-11
 

APPENDIX C3A4: ADJUSTING BASELINE FACILITY CASH FLOW 

Introduction..................................................................................................................................................... C3A4-1
 

C3A4-1 Background: Review of Overall Business Conditions ................................................................ C3A4-2
 

C3A4-2 Framing and Executing the Analysis........................................................................................... C3A4-5
 

C3A4-2.1 Identifying the Financial Data Concept to Be Analyzed ...................................................... C3A4-5
 

C3A4-2.2 Selecting Appropriate Data................................................................................................... C3A4-5
 

C3A4-2.3 Selecting Industry Groups and Firms for Use in the Analysis.............................................. C3A4-7
 

C3A4-2.4 Structuring the Analysis........................................................................................................ C3A4-9
 

C3A4-3 Summary of Findings ................................................................................................................ C3A4-11
 

C3A4-3.1 Comparison of Findings for Proposed and Final Rule Analysis......................................... C3A4-17
 

C3A4-4 Developing an Adjustment Concept.......................................................................................... C3A4-18
 

References ................................................................................................................................................... C3A4-21
 

APPENDIX C3A5: ESTIMATING CAPITAL OUTLAYS FOR SECTION 316(B) PHASE III MANUFACTURING 

SECTORS DISCOUNTED CASH FLOW ANALYSES 

C3A5-1 Analytic Concepts Underlying Analysis of Capital Outlays ....................................................... C3A5-2
 

C3A5-2 Specifying Variables for the Analysis ......................................................................................... C3A5-4
 

C3A5-3 Selecting the Regression Analysis Dataset.................................................................................. C3A5-7
 

C3A5-4 Specification of Models to be Tested .......................................................................................... C3A5-9
 

C3A5-5 Model Validation....................................................................................................................... C3A5-13
 

Attachment C3A5.A: Bibliography of Literature Reviewed for this Analysis ............................................ C3A5-21
 

Attachment C3A5.B: Historical Variables Contained in the Value Line Investment Survey Dataset......... C3A5-22
 

APPENDIX C3A6: SUMMARY OF MODERATE IMPACT THRESHOLD VALUES BY INDUSTRY 

Introduction..................................................................................................................................................... C3A6-1
 

C3A6-1 Developing Threshold Values for Pre-Tax Return on Assets (PTRA)........................................ C3A6-2
 

C3A6-2 Developing Threshold Values for Interest Coverage Ratio (ICR) .............................................. C3A6-2
 

C3A6-3 Summary of Results .................................................................................................................... C3A6-3
 

References ..................................................................................................................................................... C3A6-5
 

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APPENDIX C3A7: ANALYSIS OF BASELINE CLOSURE RATES 

Introduction..................................................................................................................................................... C3A7-1
 

C3A7-1 Annual Establishment Closures................................................................................................... C3A7-1
 

References ..................................................................................................................................................... C3A7-2
 

APPENDIX C3A8: ANALYSIS OF OTHER REGULATIONS 

Introduction..................................................................................................................................................... C3A8-1
 

C3A8-1 Methodology ............................................................................................................................... C3A8-3
 

C3A8-2 Results ......................................................................................................................................... C3A8-6
 

References ..................................................................................................................................................... C3A8-7
 

PART D: ADDITIONAL ECONOMIC ANALYSES FOR EXISTING AND NEW FACILITIES 

CHAPTER D1: REGULATORY FLEXIBILITY ANALYSIS 

Introduction.......................................................................................................................................................... D1-1
 

D1-1 Analysis of New Offshore Oil and Gas Extraction Facilities........................................................... D1-2 
 

D1-1.1 Small Entity Determination ....................................................................................................... D1-2
 

D1-1.2 Percentage of Small Entities Regulated ..................................................................................... D1-4
 

D1-1.3 Sales Test for Small Entities ...................................................................................................... D1-4
 

D1-2 Analysis of Manufacturers ............................................................................................................... D1-4
 

D1-2.1 Small Entity Determination ....................................................................................................... D1-5
 

D1-2.2 Percentage of Small Entities Regulated ................................................................................... D1-10
 

D1-2.3 Sales Test for Small Entities .................................................................................................... D1-10
 

D1-3 Summary of Regulatory Flexibility Analysis................................................................................. D1-10
 

References ........................................................................................................................................................ D1-12
 

APPENDIX D1A: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Introduction....................................................................................................................................................... D1A-1
 

D1A-1 Summary of Results ...................................................................................................................... D1A-1
 

CHAPTER D2: UMRA ANALYSIS 

Introduction.......................................................................................................................................................... D2-1
 

D2-1 Analysis of Impacts on Government Entities ................................................................................... D2-2
 

D2-1.1 Compliance Costs for Government-Owned Facilities ............................................................... D2-3
 

D2-1.2 Administrative Costs for New Offshore Oil and Gas Extraction Facilities ............................... D2-3
 

D2-1.3 Administrative Costs for Existing Facilities .............................................................................. D2-5
 

D2-1.4 Impacts on Small Governments ............................................................................................... D2-10
 

D2-2 Compliance Costs for the Private Sector........................................................................................ D2-10
 

D2-3 Summary of UMRA Analysis ........................................................................................................ D2-10
 

References ........................................................................................................................................................ D2-12
 

APPENDIX D2A: SUMMARY RESULTS FOR SUPPLEMENTAL OPTIONS 

Introduction....................................................................................................................................................... D2A-1
 

D2A-1 Summary of Results ...................................................................................................................... D2A-1 
 

CHAPTER D3: OTHER ADMINISTRATIVE REQUIREMENTS 

Introduction.......................................................................................................................................................... D3-1
 

D3-1 Executive Order 12866: Regulatory Planning and Review.............................................................. D3-1 
 

D3-2 Paperwork Reduction Act of 1995 ................................................................................................... D3-1 
 

D3-3 Executive Order 13132: Federalism ................................................................................................. D3-2 
 

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D3-4 Executive Order 13175: Consultation and Coordination With Indian Tribal Governments ............ D3-3 

D3-5 Executive Order 13045: Protection of Children from Environmental Health Risks and 

Safety Risks ...................................................................................................................................... D3-4 

D3-6 Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, 

Distribution, or Use .......................................................................................................................... D3-4 

D3-6.1 Existing Manufacturing Facilities.............................................................................................. D3-5 
 

D3-6.2 New Offshore Oil and Gas Extraction Facilities ....................................................................... D3-5 

D3-7 National Technology Transfer and Advancement Act of 1995........................................................ D3-6 

D3-8 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations 

and Low-Income Populations........................................................................................................... D3-6
 

D3-9 Executive Order 13158: Marine Protected Areas............................................................................. D3-6
 

References .......................................................................................................................................................... D3-8
 

PART E: SOCIAL COSTS, BENEFITS, AND BENEFIT-COST ANALYSIS FOR EXISTING AND 

NEW FACILITIES 

CHAPTER E1: SUMMARY OF SOCIAL COSTS 

Introduction.......................................................................................................................................................... E1-1
 

E1-1 Costs of Compliance by Regulated Industry Segment ..................................................................... E1-2
 

E1-2 State and Federal Administrative Costs ........................................................................................... E1-4
 

E1-3 Total Social Cost .............................................................................................................................. E1-5
 

E1-4 Limitations and Uncertainties......................................................................................................... E1-10
 

Glossary ........................................................................................................................................................ E1-11
 

References ........................................................................................................................................................ E1-12
 

APPENDIX E1A: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Introduction........................................................................................................................................................E1A-1
 

E1A-1 Costs of Compliance by Regulated Industry Segment ...................................................................E1A-1
 

E1A-2 State and Federal Administrative Costs .........................................................................................E1A-2
 

E1A-3 Total Social Cost ............................................................................................................................E1A-3
 

CHAPTER E2: SUMMARY OF BENEFITS 

Introduction.......................................................................................................................................................... E2-1
 

E2-1 Calculating Losses and Benefits....................................................................................................... E2-1
 

E2-2 Summary of Baseline Losses and Expected Reductions in I&E ...................................................... E2-1
 

E2-3 Time Profile of Benefits ................................................................................................................... E2-3
 

E2-4 Total Annualized Monetary Value of Losses and Benefits .............................................................. E2-9
 

References ........................................................................................................................................................ E2-14
 

APPENDIX E2A: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Introduction........................................................................................................................................................E2A-1 
 

E2A-1 Summary of Expected Reductions in I&E .....................................................................................E2A-1
 

E2A-2 Time Profile of Benefits .................................................................................................................E2A-3
 

E2A-3 Total Annualized Monetary Value of Benefits.............................................................................E2A-12
 

CHAPTER E3: COMPARISON OF BENEFITS AND SOCIAL COSTS 

Introduction.......................................................................................................................................................... E3-1
 

E3-1 Comparison of Benefits and Social Costs by Option ....................................................................... E3-1
 

E3-2 Incremental Analysis of Benefits and Social Costs.......................................................................... E3-6
 

E3-3 Break-Even Analysis of Potential Non-Use Benefits....................................................................... E3-7
 

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Glossary ........................................................................................................................................................ E3-11
 

References ........................................................................................................................................................ E3-12 
 

APPENDIX E3A: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Introduction........................................................................................................................................................E3A-1 
 

E3A-1 Comparison of Benefits and Social Costs by Option .....................................................................E3A-2 

E3A-2 Incremental Analysis of Benefits and Social Costs........................................................................E3A-8 

E3A-3 Break-Even Analysis of Potential Non-Use Benefits.....................................................................E3A-8 

References ......................................................................................................................................................E3A-14 
 

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LIST OF TABLES 

CHAPTER A1: INTRODUCTION 

Table A1-1: Performance Standards for the Regulatory Options Considered ..................................................... A1-4 

Table A1-2: Cooling Water Intake by Sector ...................................................................................................... A1-7 

Table A1-3: Summary Economic Data for Major Industry Sectors Potentially Subject to §316(b) Regulation: 

Facilities, Employment, Value of Shipments, and Payroll............................................................... A1-7
 

Table A1-4: Estimated Cooling Water Intake by Sector and Analysis Option (Sample Weighted) - EPA SurveyA1-9
 

Table A1-5: Existing Manufacturers Facilities by Applicability Threshold and Waterbody Type ................... A1-10
 

Table A1-6: Phase III Existing Facility Counts, by Industry Segment and Option ........................................... A1-12
 

Table A1-7: Summary of Small Entity Impact Ratio Ranges For New OOGE Facilities ................................. A1-14
 

Table A1-8: Summary of UMRA Costs (millions, $2004)................................................................................ A1-15
 

Table A1-9: Social Cost for New Facilities (annualized, millions, $2004) ....................................................... A1-16
 

Table A1-10: Social Cost for Existing Facilities (annualized, millions, $2004) ............................................... A1-17
 

Table A1-11: Total Social Cost for New and Existing Facilities (annualized, millions, $2004)....................... A1-18
 

Table A1-12: Summary of Benefits and Social Costs for Existing Facilities (millions, $2004) ....................... A1-19
 

CHAPTER B1: SUMMARY OF COST CATEGORIES AND KEY ANALYSIS ELEMENTS FOR NEW OFFSHORE 

OIL AND GAS EXTRACTION FACILITIES 

Table B1-1: Technologies for Implementing 316(b) Requirements for New Offshore Oil and Gas Extraction 

Facilities ........................................................................................................................................... B1-2
 

Table B1-2: Cost of Initial Post-Promulgation NPDES General Permit Application Activities ......................... B1-5
 

Table B1-3: Cost of Subsequent NPDES General Permit Application Activities (Per Facility, 2004$) ............. B1-6
 

Table B1-4: Cost of Monitoring Activities (Per Facility, 2004$) ........................................................................ B1-6
 

Table B1-5: Construction Cost Index .................................................................................................................. B1-9
 

Table B1-6: GDP Deflator Series ........................................................................................................................ B1-9
 

CHAPTER B2: PROFILE OF THE OFFSHORE OIL AND GAS EXTRACTION INDUSTRY 

Table B2-1: Owners of MODUs Currently Operating in GOM and Parent Company ........................................ B2-4
 

Table B2-2: Number of Existing MODUs and Parent Firms.............................................................................. B2-6
 

Table B2-3: NAICS Classification of MODU Parent Companies ...................................................................... B2-7 
 

Table B2-4: Financial Condition of MODU Parent Companies (2002-2005) .................................................... B2-8
 

Table B2-5: GOM Deepwater Platforms Constructed between 2003-2005t .................................................... B2-14
 

Table B2-6: Operators and Parent Companies of GOM Deepwater Structures................................................ B2-15
 

Table B2-7: Count of Firms by SIC and NAICS Code..................................................................................... B2-16
 

Table B2-8: Financial Condition of Platform/Structure Parent Companies (2002 – 2005) .............................. B2-17
 

Table B2-9: Number of Existing and Future Offshore Oil and Gas Extraction Facilities Estimated or Assumed To 
 

Meet Final Phase III Rule Criteria over a 20-Year Analysis Time Frame ..................................... B2-23
 

CHAPTER B3: ECONOMIC IMPACT ANALYSIS FOR THE OFFSHORE OIL AND GAS EXTRACTION 

INDUSTRY 

Table B3-1: Total Aggregate National After-tax Compliance Costs for MODUs ($2004)................................. B3-3
 

Table B3-2: Per-Vessel Annualized Pre-Tax Cost of Compliance ($2004) ........................................................ B3-4
 

Table B3-3: Revenue Test for MODU Owners ................................................................................................... B3-9
 

Table B3-4: Total National Aggregate After-tax Compliance Costs for Platforms ($2004) ............................. B3-11
 

Table B3-5: Per-Platform Annualized Pre-Tax Cost of Compliance ($2004) ................................................... B3-12
 

Table B3-6: Revenue Test for Platform Owners................................................................................................ B3-15
 

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Table B3-7: Total National Aggregate Annualized After-tax Compliance Costs and Impacts for the Oil and Gas 

Industry ($2004) ............................................................................................................................. B3-16
 

Table B3-8: Total Costs to Government Entities ($2004) ................................................................................. B3-16
 

Table B3-9: Total Social Costs of the Final Rulemaking for Oil and Gas Industries........................................ B3-17
 

CHAPTER C1: SUMMARY OF COST CATEGORIES AND KEY ANALYSIS ELEMENTS 

Table C1-1: Estimated Average Downtime for Technology Modules ................................................................ C1-2
 

Table C1-2: Cost of Initial Post-Promulgation NPDES Permit Application Activities ($2004) ......................... C1-6
 

Table C1-3: Cost of NPDES Repermit Application Activitiesa ($2004) ............................................................. C1-8
 

Table C1-4: Cost of Annual Monitoring, Record Keeping, and Reporting Activities ($2004) ........................... C1-9
 

Table C1-5: Construction Cost Index ................................................................................................................ C1-11
 

Table C1-6: GDP Deflator Series ...................................................................................................................... C1-12 
 

CHAPTER C2A: PAPER AND ALLIED PRODUCTS (SIC 26) 

Table C2A-1: Phase III Facilities in the Paper and Allied Products Industry (SIC 26).................................... C2A-2 

Table C2A-2: Relationship between SIC and NAICS Codes for the Paper and Allied Products Industry (2002a) 

 ....................................................................................................................................................... C2A-3 

Table C2A-3: U.S. Pulp and Paper Industry Industrial Production Index (Annual Averages)......................... C2A-8 

Table C2A-4: Number of Facilities Owned by Firms in the Profiled Paper and Allied Products Segments.. C2A-10 

Table C2A-5: Number of Firms in the Profiled Paper and Allied Products Segments................................... C2A-11 

Table C2A-6: Productivity Trends for Profiled Paper and Allied Products Segments ($2005) ..................... C2A-13 

Table C2A-7: Capital Expenditures for Profiled Paper and Allied Products Segments (millions, $2005)..... C2A-14 

Table C2A-8: Number of Firms and Facilities by Size Category for Profiled Paper and Allied Products Segments 

in 2003a

........................................................................................................................................ C2A-16 

Table C2A-9: Selected Ratios for Profiled Paper and Allied Products Segments, 1987, 1992, and 1997 ..... C2A-17 

Table C2A-10: Trade Statistics for Profiled Paper and Allied Products Segments (millions, $2005) ........... C2A-19 

Table C2A-11: Number of Facilities Estimated Subject to the 50 MGD All Option by Waterbody Type and 

Cooling System for the Profiled Paper and Allied Products Segments....................................... C2A-23 

Table C2A-12: Number of Facilities Estimated Subject to the 200 MGD All Option by Waterbody Type and 

Cooling System for the Profiled Paper and Allied Products Segments....................................... C2A-24 

Table C2A-13: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Waterbody Type and 

Cooling System for the Profiled Paper and Allied Products Segments....................................... C2A-24 

Table C2A-14: Number of Facilities Estimated Subject to the 50 MGD All Option in Profiled Paper and Allied 

Products Segments by Firm Size ................................................................................................. C2A-26 

Table C2A-15: Number of Facilities Estimated Subject to the 200 MGD All Option in Profiled Paper and Allied 

Products Segments by Firm Size ................................................................................................. C2A-27 

Table C2A-16: Number of Facilities Estimated Subject to the 100 MGD CWB Option in Profiled Paper and 

Allied Products Segments by Firm Size ...................................................................................... C2A-27
 

CHAPTER C2B: CHEMICALS AND ALLIED PRODUCTS (SIC 28) 

Table C2B-1: Phase III Facilities in the Chemicals and Allied Products Industry (SIC 28) .............................C2B-2 

Table C2B-2: Relationship between SIC and NAICS Codes for the Chemicals and Allied Products Industry 

(2002) .............................................................................................................................................C2B-4 
 

Table C2B-3: Chemicals Industry Industrial Production Index (Annual Averages) .........................................C2B-8 
 

Table C2B-4: Number of Facilities for Profiled Chemical Segmentsa............................................................C2B-11 
 

Table C2B-5: Number of Firms for Profiled Chemical Segmentsa .................................................................C2B-12 
 

Table C2B-6: Productivity Trends for Profiled Chemical Segments ($2005) .................................................C2B-14 
 

Table C2B-7: Capital Expenditures for Profiled Chemical Segments (in millions, $2005) ............................C2B-15 
 

Table C2B-8: Number of Firms and Facilities by Firm Size Category for Profiled Chemical Segments, 2003a 
 

......................................................................................................................................................C2B-19 
 

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Table C2B-9: Selected Ratios for SIC and NAICS Codes Within The Profiled Chemical Segments in 1987, 1992, 

and 1997a .....................................................................................................................................C2B-20 

Table C2B-10: Trade Statistics for Profiled Chemical Segments....................................................................C2B-23 

Table C2B-11: Number of Facilities Estimated Subject to the 50 MGD All Option by Waterbody Type and 

Cooling System for the Profiled Chemical Segments ..................................................................C2B-30 

Table C2B-12: Number of Facilities Estimated Subject to the 200 MGD All Option by Waterbody Type and 

Cooling System for the Profiled Chemical Segments ..................................................................C2B-30 

Table C2B-13: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Waterbody Type and 

Cooling System for the Profiled Chemical Segments ..................................................................C2B-31 

Table C2B-14: Number of Facilities Estimated Subject to the 50 MGD All Option by Firm Size for Profiled 

Chemical Segments ......................................................................................................................C2B-34 

Table C2B-15: Number of Facilities Estimated Subject to the 200 MGD All Option by Firm Size for Profiled 

Chemical Segments ......................................................................................................................C2B-34 

Table C2B-16: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Firm Size for Profiled 

Chemical Segments ......................................................................................................................C2B-35 

CHAPTER C2C: PETROLEUM REFINING (SIC 2911) 

Table C2C-1: Phase III Facilities in the Petroleum Refining Industry (SIC 29) ...............................................C2C-2 

Table C2C-2: Relationship between SIC and NAICS Codes for the Petroleum Refining Industry (2002a)......C2C-2 

Table C2C-3: U.S. Petroleum Refinery Product Production (million barrels per day)......................................C2C-5 

Table C2C-4: Number of Firms and Facilities for Petroleum Refineries ..........................................................C2C-8 

Table C2C-5: Productivity Trends for Petroleum Refineries ($2005) .............................................................C2C-10 

Table C2C-6: Capital Expenditures for Petroleum Refineries ($2005) ...........................................................C2C-11 

Table C2C-7: Number of Firms and Establishments for Petroleum Refineries by Firm Employment Size Category, 

2003 ..............................................................................................................................................C2C-13 

Table C2C-8: Selected Ratios for Petroleum Refineries..................................................................................C2C-14 

Table C2C-9: Foreign Trade Statistics for Petroleum Refining ($2005) .........................................................C2C-15 

Table C2C-10: Number of Facilities Estimated Subject to the 50 MGD All Option by Waterbody Type and 

Cooling System for the Petroleum Refining Segment..................................................................C2C-20 

Table C2C-11: Number of Facilities Estimated Subject to the 200 MGD All Option by Waterbody Type and 

Cooling System for the Petroleum Refining Segment..................................................................C2C-20 

Table C2C-12: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Waterbody Type and 

Cooling System for the Petroleum Refining Segment..................................................................C2C-20 

Table C2C-13: Number of Facilities Estimated Subject to the 50 MGD All Option by Firm Size for the Petroleum 

Refinery Segment .........................................................................................................................C2C-22 

Table C2C-14: Number of Facilities Estimated Subject to the 200 MGD All Option by Firm Size for the 

Petroleum Refinery Segment........................................................................................................C2C-22 

Table C2C-15: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Firm Size for the 

Petroleum Refinery Segment........................................................................................................C2C-22 

CHAPTER C2D: STEEL (SIC 331) 

Table C2D-1: Phase III Facilities in the Steel Industry (SIC 331).................................................................... C2D-2
 

Table C2D-2: Relationships between SIC and NAICS Codes for the Steel Industries (2002)......................... C2D-3
 

Table C2D-3: U.S. Steel Production by Type of Producer ............................................................................... C2D-6
 

Table C2D-4: Number of Facilities in the Profiled Steel Industry Segments ................................................. C2D-10
 

Table C2D-5: Number of Firms in the Profiled Steel Industry Segments ...................................................... C2D-11
 

Table C2D-6: Productivity Trends for the Profiled Steel Industry Segments ($2005) ................................... C2D-13
 

Table C2D-7: Capital Expenditures for the Profiled Steel Industry Segments (millions, $2005) .................. C2D-14
 

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Table C2D-8: Number of Firms and Facilities by Employment Size Category in the Profiled Steel Industry 

Segments, 2003a .......................................................................................................................... C2D-16 

Table C2D-9: Selected Ratios for the Profiled Steel Industry Segments........................................................ C2D-17 

Table C2D-10: Import Penetration and Export Dependence: Steel Mill Products ($2005)............................ C2D-19 

Table C2D-11: Number of Facilities Estimated Subject to the 50 MGD All Option by Waterbody Type and 

Cooling System for the Profiled Steel Industry Segments .......................................................... C2D-22 

Table C2D-12: Number of Facilities Estimated Subject to the 200 MGD All Option by Waterbody Type and 

Cooling System for the Profiled Steel Industry Segments .......................................................... C2D-23 

Table C2D-13: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Waterbody Type and 

Cooling System for the Profiled Steel Industry Segments .......................................................... C2D-23 

Table C2D-14: Number of Facilities Estimated Subject to the 50 MGD All Option by Firm Size for the Profiled 

Steel Segments ............................................................................................................................ C2D-25 

Table C2D-15: Number of Facilities Estimated Subject to the 200 MGD All Option by Firm Size for the Profiled 

Steel Segments ............................................................................................................................ C2D-26 

Table C2D-16: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Firm Size for the 

Profiled Steel Segments............................................................................................................... C2D-26 

CHAPTER C2E: ALUMINUM (SIC 333/5) 

Table C2E-1: Phase III Facilities in the Aluminum Industries (SIC 333/335) ..................................................C2E-1 

Table C2E-2: Relationships between SIC and NAICS Codes for the Aluminum Industries (2002a)................C2E-2 

Table C2E-3: U.S. Aluminum Production .........................................................................................................C2E-5 

Table C2E-4: Primary Aluminum Production - Number of Companies and Plants ..........................................C2E-8 

Table C2E-5: Number of Facilities for Profiled Aluminum Industry Segments ...............................................C2E-9 

Table C2E-6: Number of Firms for Profiled Aluminum Industry Segments...................................................C2E-10 

Table C2E-7: Productivity Trends for Profiled Aluminum Segments ($2005) ...............................................C2E-12 

Table C2E-8: Capital Expenditures for Profiled Aluminum Segments (millions, $2005) ..............................C2E-13 

Table C2E-9: Number of Firms and Facilities by Employment Size Category for the Profiled Aluminum Industry 

Segments, 2003a ...........................................................................................................................C2E-15 

Table C2E-10: Selected Ratios for the Profiled Aluminum Segments, 1987, 1992, and 1997 .......................C2E-16 

Table C2E-11: Import Share and Export Dependence for the Profiled Aluminum Segments ($2005) ...........C2E-18 

Table C2E-12: Trade Statistics for Aluminum and Semi-fabricated Aluminum Products..............................C2E-19 

Table C2E-13: Number of Facilities Estimated Subject to the 50 MGD All Option by Waterbody Type and 

Cooling System for the Profiled Aluminum Segments ................................................................C2E-22 

Table C2E-14: Number of Facilities Estimated Subject to the 200 MGD All Option by Waterbody Type and 

Cooling System for the Profiled Aluminum Segments ................................................................C2E-23 

Table C2E-15: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Waterbody Type and 

Cooling System for the Profiled Aluminum Segments ................................................................C2E-23 

Table C2E-16 Number of Facilities Estimated Subject to the 50 MGD All Option by Firm Size for the Profiled 

Aluminum Segments ....................................................................................................................C2E-25 

Table C2E-17: Number of Facilities Estimated Subject to the 200 MGD All Option by Firm Size for the Profiled 

Aluminum Segments ....................................................................................................................C2E-25 

Table C2E-18: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Firm Size for the 

Profiled Aluminum Segments ......................................................................................................C2E-26 

CHAPTER C2F: FOOD AND KINDRED PRODUCTS (SIC 20) 

Table C2F-1: Phase III Facilities in the Food and Kindred Products Industry (SIC 20) ................................... C2F-2 

Table C2F-2: Relationship between SIC and NAICS Codes for the Food Manufacturing and Beverage 

Manufacturing Segments (2002a

)................................................................................................... C2F-3 

Table C2F-3: U.S. Food and Beverage Manufacturing Industry Industrial Production Index .......................... C2F-7 

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Table C2F-4: Number of Facilities Owned by Firms in the Food and Beverage Manufacturing Segments ..... C2F-9 

Table C2F-5: Number of Firms in the Food and Beverage Manufacturing Segments .................................... C2F-10 

Table C2F-6: Productivity Trends for Food and Beverage Manufacturing Segments ($2005) ....................... C2F-12 

Table C2F-7: Capital Expenditures for Food and Beverage Manufacturing Segments (millions, $2005) ..... C2F-13 

Table C2F-8: Number of Firms and Facilities by Size Category for Food and Beverage Manufacturing Segments, 

2003a

............................................................................................................................................. C2F-16 

Table C2F-9: Selected Concentration Ratios for Food Manufacturing and Beverage Manufacturing Segments, 

1997a

............................................................................................................................................. C2F-17 

Table C2F-10: Trade Statistics for Combined Food and Beverage Manufacturing Segments ........................ C2F-18 

Table C2F-11: Number of Food and Kindred Products Facilities Estimated Subject to the 50 MGD All Option by 

Waterbody Type and Cooling System.......................................................................................... C2F-24 

Table C2F-12: Number of Food and Kindred Products Facilities Estimated Subject to the 200 MGD All Option by 

Waterbody Type and Cooling System.......................................................................................... C2F-24 

Table C2F-13: Number of Food and Kindred Products Facilities Estimated Subject to the 100 MGD CWB Option 

by Waterbody Type and Cooling System..................................................................................... C2F-24 

Table C2F-14: Number of Facilities Estimated Subject to the 50 MGD All Option by Firm Size for the Food and 

Kindred Products Industry............................................................................................................ C2F-26 

Table C2F-15: Number of Facilities Estimated Subject to the 200 MGD All Option by Firm Size for the Food and 

Kindred Products Industry............................................................................................................ C2F-26 

Table C2F-16: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Firm Size for the Food 

and Kindred Products Industry ..................................................................................................... C2F-26
 

CHAPTER C2G: FACILITIES IN OTHER INDUSTRIES (VARIOUS SICS) 

Table C2G-1: Facilities in Other Industries by 2-digit SIC code Estimated Subject to Regulation Under the 

Primary Analysis Options ............................................................................................................. C2G-2 

Table C2G-2: Other Industries Facilities Estimated Subject to the 50 MGD All Option by Water Body and 

Cooling System Type .................................................................................................................... C2G-3 

Table C2G-3: Other Industries Facilities Estimated Subject to the 200 MGD All Option by Water Body and 

Cooling System Type .................................................................................................................... C2G-3 

Table C2G-4: Other Industries Facilities Estimated Subject to the 100 MGD CWB Option by Water Body and 

Cooling System Type .................................................................................................................... C2G-3 

Table C2G-5: Other Industries Facilities Estimated Subject to the 50 MGD All Option by Firm Size ........... C2G-5 

Table C2G-6: Other Industries Facilities Estimated Subject to the 200 MGD All Option by Firm Size ......... C2G-5 

Table C2G-7: Other Industries Facilities Estimated Subject to the 100 MGD CWB Option by Firm Size ..... C2G-5 

CHAPTER C3: ECONOMIC IMPACT ANALYSIS FOR MANUFACTURERS 

Table C3-1: Summary of Baseline Closures by Sector...................................................................................... C3-16
 

Table C3-2: Number of Facilities with Regulatory Requirements by Sector and Option ................................. C3-17
 

Table C3-3: Total Annualized Facility Compliance Costa

 by Sector and Regulatory Option ........................... C3-18
 

Table C3-4: Regulatory Impacts for All Facilities by Option, National Estimates ........................................... C3-19
 

Table C3-5: Firm-Level After-Tax Annual Compliance Costs as a Percentage of Annual Revenue ................ C3-20
 

APPENDIX C3A1: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Table C3A1-1: Number of Facilities with Regulatory Requirements by Sector and Option.......................... C3A1-1
 

Table C3A1-2: Number of Facilities Estimated as Post-Compliance Closures by Option............................. C3A1-2
 

Table C3A1-3: Number of Facilities Estimated as Moderate Impacts by Option .......................................... C3A1-2
 

Table C3A1-4: Total Annualized Facilitya

 After-Tax Compliance Cost by Option (millions, $2004) .......... C3A1-2
 

Table C3A1-5: Regulatory Impacts for All Facilities by Option, National Estimates.................................... C3A1-3
 

Table C3A1-6: Firm-level After-Tax Annual Compliance Costs as a Percentage of Annual Revenue ......... C3A1-4
 

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APPENDIX C3A2: CALCULATION OF INSTALLATION DOWNTIME COST 

Table C3A2-1: Estimated Average Cooling Water System Downtime by Technology Module ................... C3A2-2
 

APPENDIX C3A3: COST PASS-THROUGH ANALYSIS 

Table C3A3-1: Proportion of Value of Shipments Potentially Subject to Compliance-Related Costs Associated 

with the Phase III Regulation ($2004)......................................................................................... C3A3-3
 

Table C3A3-2: Herfindahl-Hirschman Index for Four-Digit SIC .................................................................. C3A3-5
 

Table C3A3-3: Herfindahl-Hirschman Index by Industry .............................................................................. C3A3-6
 

Table C3A3-4: Import Penetration by Industry ($2004)................................................................................. C3A3-7
 

Table C3A3-5: Export Dependence by Industry ($2004) ............................................................................... C3A3-8
 

Table C3A3-6: Average Annual Growth Rates by Industry ........................................................................... C3A3-9
 

APPENDIX C3A4: ADJUSTING BASELINE FACILITY CASH FLOW 

Table C3A4-1: Value Line Industry Groups Selected for Analysis................................................................ C3A4-9
 

Table C3A4-2: Key Results from Analysis of After-Tax Cash Flow Trends by 316(b) Industry for 1992-2005 .......

 ................................................................................................................................................... C3A4-12 

Table C3A4-3: Estimated Relationship Between Actual ATCF at Survey Period and Trend Predicted Values at 

Survey Period and End of Analysis Period ............................................................................... C3A4-16 

Table C3A4-4: Comparison of Key Results from Analyses for the Proposed and Final 316(b) Rule Analysis 

Periods ....................................................................................................................................... C3A4-18
 

Table C3A4-5: Using After-Tax Cash Flow Adjustment Factors in the Facility Closure Analysis ............. C3A4-20
 

APPENDIX C3A5: ESTIMATING CAPITAL OUTLAYS FOR SECTION 316(B) PHASE III MANUFACTURING 

SECTORS DISCOUNTED CASH FLOW ANALYSES 

Table C3A5-1: Summary of Factors Influencing Capital Outlays.................................................................. C3A5-3
 

Table C3A5-2: Variables For Capital Expenditure Modeling Analysis ........................................................ C3A5-6
 

Table C3A5-3: Number of Firms by Industry Classifications ........................................................................ C3A5-9
 

Table C3A5-4: Time Series, Cross-Sectional Model Results ..................................................................... C3A5-12
 

Table C3A5-5: Estimation of Capital Outlays for Phase III Sample Facilities: Median Facilities Selected by
 

Revenue and ROA Percentiles .................................................................................................. C3A5-14
 

APPENDIX C3A6: SUMMARY OF MODERATE IMPACT THRESHOLD VALUES BY INDUSTRY 

Table C3A6-1: Summary of Moderate Impact Thresholds by Industry ......................................................... C3A6-4
 

APPENDIX C3A7: ANALYSIS OF BASELINE CLOSURE RATES 

Table C3A7-1: Predicted Baseline Closures and Annual Percentage of Closures for Primary Manufacturing 

Industries (1990-2002)............................................................................................................................ C3A7-1 

APPENDIX C3A8: ANALYSIS OF OTHER REGULATIONS 

Table C3A8-1: Regulations Potentially Affecting 316(b) Manufacturers ...................................................... C3A8-2
 

Table C3A8-2: Per Facility Cost of Regulations that Affect 316(b) Industriesa

............................................. C3A8-5
 

CHAPTER D1: REGULATORY FLEXIBILITY ANALYSIS 

Table D1-1: NAICS Classification of MODU Parent Companies...................................................................... D1-3 
 

Table D1-2: Unique 4-Digit Firm-Level SIC Codes and SBA Size Standards for Manufacturers a .................... D1-7
 

Table D1-3: Number of Firms by Firm Sector and Size (assuming two different ownership cases) .................. D1-9
 

Table D1-4: Summary of Small Entity Impact Ratio Ranges by Sector........................................................... D1-11
 

APPENDIX D1A: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Table D1A-1: Summary of Small Entity Impact Ratio Ranges for Existing Facilities by Regulatory Segment 

(Facilities with DIF of at least 2 MGD).................................................................................................... D1A-2 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute xv 
§ 316(b) Final Rule: Phase III – Economic Analysis Table of Contents 

CHAPTER D2: UMRA ANALYSIS 

Table D2-1: Federal Government Costs for Permit Issuance Activities (Per Facility Permitted under General 

Permits; $2004) ................................................................................................................................ D2-4 

Table D2-2: Federal Government Costs for Annual Activities (Per Facility Permitted under General Permits; 

$2004)............................................................................................................................................... D2-4
 

Table D2-3: - Annualized Government Administrative Costs (millions, $2004) ................................................ D2-5
 

Table D2-4: Government Costs of Start-Up Activities (per Permitting Authority; $2004)................................ D2-6
 

Table D2-5: Government Permitting Costs (per Permit; $2004) ........................................................................ D2-7
 

Table D2-6: Government Costs of Verification Study Review (per Permit; $2004) ........................................... D2-8
 

Table D2-7: Government Costs of Alternative Regulatory Requirements (per Permitting Authority; $2004) .. D2-8
 

Table D2-8: Government Costs for Annual Activities (per Permit; $2004) ....................................................... D2-9
 

Table D2-9: Federal Government Permit Program Oversight Activities (per Permit; $2004) ........................... D2-9
 

Table D2-10: Summary of UMRA Costs (millions, $2004).............................................................................. D2-11
 

APPENDIX D2A: SUMMARY RESULTS FOR SUPPLEMENTAL OPTIONS 

Table D2A-1: Summary of UMRA Costs for the I-only Everywhere option (millions, $2004) ...................... D2A-1
 

Table D2A-2: Summary of UMRA Costs for the I&E Like Phase II option (millions, $2004) ....................... D2A-2
 

Table D2A-3: Summary of UMRA Costs for the I&E Everywhere option (millions, $2004) ......................... D2A-2
 

CHAPTER E1: SUMMARY OF SOCIAL COSTS 

Table E1-1: Summary of Annualized Direct Costs by Industry Segments (millions, $2004) ............................. E1-4
 

Table E1-2: Summary of Annualized Government Costs (millions, $2004) ....................................................... E1-4
 

Table E1-3: Summary of Annualized Government Costs (millions, $2004) ....................................................... E1-5
 

Table E1-4: Summary of Annualized Social Costs (millions, $2004) ................................................................. E1-6
 

Table E1-5: Summary of Annualized Social Costs (millions, $2004) ................................................................. E1-6
 

Table E1-6: Time Profile of Compliance Costs for the 50 MGD All Waterbodies Option for Existing Facilities 
 

and the Final Rule for New OOGE Facilities (millions; $2004) ................................................................. E1-7 

Table E1-7: Time Profile of Compliance Costs for the 200 MGD for All Waterbodies Option for Existing 

Facilities and the Final Rule for New OOGE Facilities (millions; $2004).................................................. E1-8 

Table E1-8: Time Profile of Compliance Costs for the 100 MGD for Certain Waterbodies Option for Existing 

Facilities and the Final Rule for New OOGE Facilities (millions; $2004).................................................. E1-9
 

APPENDIX E1A: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Table E1A-1: Summary of Annualized Direct Costs by Regulated Industry Segments................................... E1A-2
 

Table E1A-2: Summary of Annualized Government Costs for Existing Facilities at 3% Discount Rate ........ E1A-2
 

Table E1A-3: Summary of Annualized Government Costs for Existing Facilities at 7% Discount Rate ........ E1A-3
 

Table E1A-4: Summary of Annualized Social Costs for Existing Facilities at 3% Discount Rate .................. E1A-3
 

Table E1A-5: Summary of Annualized Social Costs for Existing Facilities at 7% Discount Rate .................. E1A-4
 

Table E1A-6: Time Profile of Compliance Costs for Existing Electric Generators with DIF of 2 to 50 MGD Under 
 

the I-only Everywhere Option (millions, $2004)...................................................................................... E1A-5 

Table E1A-7: Time Profile of Compliance Costs for Existing Electric Generators with DIF of 2 to 50 MGD Under 

the I&E Like Phase II Option (millions, $2004)....................................................................................... E1A-6 

Table E1A-8: Time Profile of Compliance Costs for Existing Electric Generators with DIF of 2 to 50 MGD Under 

the I&E Everywhere Option (millions, $2004)......................................................................................... E1A-7 

Table E1A-9: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 2 to 50 MGD Under the 

I-only Everywhere Option (millions, $2004)............................................................................................ E1A-8 

Table E1A-10: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 2 to 50 MGD Under 

the I&E Like Phase II Option (millions, $2004)....................................................................................... E1A-9
 

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§ 316(b) Final Rule: Phase III – Economic Analysis Table of Contents 

Table E1A-11: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 2 to 50 MGD Under 

the I&E Everywhere Option (millions, $2004)....................................................................................... E1A-10 

Table E1A-12: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 50 MGD or Greater 

Under the I-Only Everywhere Option (millions, $2004) ........................................................................ E1A-11 

Table E1A-13: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 50 MGD or Greater 

Under the I&E Everywhere Option (millions, $2004)............................................................................ E1A-13 

CHAPTER E2: SUMMARY OF BENEFITS 

Table E2-1: Total Annual Baseline I&E Losses for Potential Phase III Existing Facilities by Region (thousands) 

..................................................................................................................................................................... E2-2 
 

Table E2-2: Expected Reduction in I&E for Phase III Existing Facilities by Option and Region ..................... E2-3 
 

Table E2-3: Time Profile of Mean Monetary Value of Total Baseline I&E Losses (thousands; $2004) ............ E2-5 
 

Table E2-4: Time Profile of Mean Total Use Benefits - Phase III Final Regulation (thousands; $2004) ........... E2-6 
 

Table E2-5: Time Profile of Mean Total Use Benefits - 200 MGD All Option (thousands; $2004).................. E2-7 
 

Table E2-6: Time Profile of Mean Total Use Benefits - 100 MGD CWB Option (thousands; $2004)............... E2-8 
 

Table E2-7: Summary of Monetary Values of Baseline I&E Losses (thousands; $2004)................................. E2-10 
 

Table E2-8: Summary of Monetized Benefits by Option (thousands; $2004; discounted at 3%) ..................... E2-12 
 

Table E2-9: Summary of Monetized Benefits by Option (thousands; $2004; discounted at 7%) ..................... E2-13 
 

APPENDIX E2A: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Table E2A-1: Expected Reductions in I&E for Existing Phase III Facilities by Option ...................................E2A-1 

Table E2A-2: Time Profile of Mean Total Use Benefits - “Electric Generators 2-50 MGD I-only Everywhere” 

Option (thousands; 2004$)a

............................................................................................................E2A-4 

Table E2A-3: Time Profile of Mean Total Use Benefits - “Electric Generators 2-50 MGD I&E like Phase II” 

Option (thousands; 2004$)a ...........................................................................................................E2A-5 

Table E2A-4: Time Profile of Mean Total Use Benefits - “Electric Generators 2-50 MGD I&E Everywhere” 

Option (thousands; 2004$)a

............................................................................................................E2A-6 

Table E2A-5: Time Profile of Mean Total Use Benefits - “Manufacturers 2-50 MGD I-only Everywhere” Option 

(thousands; 2004$)a ........................................................................................................................E2A-7 

Table E2A-6: Time Profile of Mean Total Use Benefits - “Manufacturers 2-50 MGD I&E like Phase II” Option 

(thousands; 2004$)a ........................................................................................................................E2A-8 

Table E2A-7: Time Profile of Mean Total Use Benefits - “Manufacturers 2-50 MGD I&E Everywhere” Option 

(thousands; 2004$)a ........................................................................................................................E2A-9 

Table E2A-8: Time Profile of Mean Total Use Benefits - “Manufacturers 50+ MGD I-only Everywhere” Option 

(thousands; 2004$)a ......................................................................................................................E2A-10 

Table E2A-9: Time Profile of Mean Total Use Benefits - “Manufacturers 50+ MGD I&E Everywhere” Option 

(thousands; 2004$)a ......................................................................................................................E2A-11
 

Table E2A-10: Summary of Monetized Benefits for Existing Phase III Facilitiesa.........................................E2A-12
 

Table E2A-11: Summary of Monetized Benefits for Existing Phase III Facilitiesa

.........................................E2A-14
 

CHAPTER E3: COMPARISON OF BENEFITS AND SOCIAL COSTS 

Table E3-1: Number of Existing Phase III Facilities by Compliance Actiona..................................................... E3-1 

Table E3-2: Total Benefits, Social Costs, and Cost-Benefit Ratios for Existing Phase III Facilities by Option 

(millions; $2004) .............................................................................................................................. E3-3 

Table E3-3: Cost-Benefit Ratios for Existing Phase III Facilities by Option and Region (discounted at 3%).... E3-4 

Table E3-4: Cost-Benefit Ratios for Existing Phase III Facilities by Option and Region (discounted at 7%).... E3-4 

Table E3-5: Time Profile of Benefits and Social Costs for Existing Phase III Facilities (millions; $2004)........ E3-5 

Table E-6: Comparison of Break-Even Analysis by Regions for 316(b) Phase II and Phase III Regulations (2004$, 

discounted at 3%)a,b .......................................................................................................................... E3-6
 

Table E3-7: Incremental Benefit-Cost Analysis for Existing Phase III Facilities (millions; $2004)................... E3-7
 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute xvii 
§ 316(b) Final Rule: Phase III – Economic Analysis Table of Contents 

Table E3-8: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social Costs for 

Existing Phase III Facilities - Break-Even Analysis ($2004)........................................................... E3-8 

Table E3-9: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social Costs for 

Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 3%) .......... E3-9 

Table E3-10: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social Costs for 

Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 7%) ........ E3-10 

APPENDIX E3A: SUMMARY OF RESULTS FOR SUPPLEMENTAL OPTIONS 

Table E3A-1: Number of Existing Phase III Facilities by Compliance Actiona................................................E3A-1
 

Table E3A-2: Total Benefits, Social Costs, and Net Benefits for Existing Phase III Facilities.........................E3A-2
 

Table E3A-3: Total Net Benefits for Existing Phase III Facilities by Option and Region ................................E3A-3
 

Table E3A-4: Total Net Benefits for Existing Phase III Facilities by Option and Region ................................E3A-4
 

Table E3A-5: Time Profile of Benefits and Costs for Existing Phase III Electric Generator 2-50 MGD Facilities 
 

(millions; 2004$) ............................................................................................................................E3A-5 

Table E3A-6: Time Profile of Benefits and Costs for Existing Phase III Manufacturer 2-50 MGD Facilities 

(millions; 2004$) ............................................................................................................................E3A-6 

Table E3A-7: Time Profile of Benefits and Costs for Existing Phase III Manufacturer 50+ MGD Facilities 

(millions; 2004$) ............................................................................................................................E3A-7 

Table E3A-8: Incremental Benefit-Cost Analysis for Existing Phase III Facilities (millions; 2004$)..............E3A-8 

Table E3A-9: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social Cost for 

Existing Phase III Facilities - Break-Even Analysis (2004$, discounted at 3%) ...........................E3A-9 

Table E3A-10: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social Cost for 

Existing Phase III Facilities - Break-Even Analysis (2004$, discounted at 7%) ...........................E3A-9 

Table E3A-11: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social Costs for 

Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 3%) ......E3A-10 

Table E3A-12: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social Costs for 

Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 7%) ......E3A-12 

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§ 316(b) Final Rule: Phase III – Economic Analysis Table of Contents 

LIST OF FIGURES 

CHAPTER C2A: PAPER AND ALLIED PRODUCTS (SIC 26) 

Figure C2A-1: Value of Shipments and Value Added for Profiled Paper and Allied Products Segments (millions, 

$2005)............................................................................................................................................ C2A-7
 

Figure C2A-2: Producer Price Indexes for Profiled Paper and Allied Products Segments .............................. C2A-9
 

Figure C2A-3: Employment for Profiled Paper and Allied Products Segments............................................. C2A-12
 

Figure C2A-4: Capacity Utilization Rate (Fourth Quarter) for Pulp and Paper Industry ............................... C2A-15
 

Figure C2A-5: Value of Imports and Exports for Profiled Paper and Allied Products Segments .................. C2A-20
 

Figure C2A-6: Net Profit Margin and Return on Capital for Pulp and Paper Mills ....................................... C2A-22
 

Figure C2A-7: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment Size for 
 

Profiled Paper and Allied Products Segments............................................................................. C2A-25 

Figure C2A-8: Number of Facilities Estimated Subject to the 200 MGD All Option by Employment Size for 

Profiled Paper and Allied Products Segments............................................................................. C2A-25 

Figure C2A-9: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Employment Size for 

Profiled Paper and Allied Products Segments............................................................................. C2A-26
 

CHAPTER C2B: CHEMICALS AND ALLIED PRODUCTS (SIC 28) 

Figure C2B-1: Value of Shipments and Value Added for Profiled Chemicals Industry Segments...................C2B-7
 

Figure C2B-2: Producer Price Indexes for Profiled Chemicals Industry Segments ........................................C2B-10
 

Figure C2B-3: Employment for Profiled Chemical Segments (000s) .............................................................C2B-13
 

Figure C2B-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Chemical Segments........................C2B-17
 

Figure C2B-5: Value of Imports and Exports for Profiled Chemicals Industry Segments ..............................C2B-25
 

Figure C2B-6: Net Profit Margin and Return in Total Capital for the Chemical Industry ..............................C2B-28
 

Figure C2B-7: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment Size for 
 

Profiled Chemicals Industry Segments ........................................................................................C2B-32 

Figure C2B-8: Number of Facilities Estimated Subject to the 200 MGD All Option by Employment Size for 

Profiled Chemicals Industry Segments ........................................................................................C2B-32 

Figure C2B-9: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Employment Size for 

Profiled Chemicals Industry Segments ........................................................................................C2B-33
 

CHAPTER C2C: PETROLEUM REFINING (SIC 2911) 

Figure C2C-1: Value of Shipments and Value Added for Petroleum Refineries (millions, $2005)..................C2C-6
 

Figure C2C-2: Producer Price Index for Petroleum Refineries .........................................................................C2C-7
 

Figure C2C-3: Employment for Petroleum Refineries ......................................................................................C2C-9
 

Figure C2C-4: Capacity Utilization Rates (Fourth Quarter) for Petroleum Refineries ...................................C2C-12
 

Figure C2C-5: Value of Imports and Exports for Petroleum Refining (millions, $2005) ...............................C2C-16
 

Figure C2C-6: Net Profit Margin and Return on Total Capital for Petroleum Refining .................................C2C-18
 

Figure C2C-7: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment Size for the 
 

Petroleum Refinery Segment........................................................................................................C2C-21 

Figure C2C-8: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment Size for the 

Petroleum Refinery Segment........................................................................................................C2C-21 

Figure C2C-9: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Employment Size for the 

Petroleum Refinery Segment........................................................................................................C2C-22
 

CHAPTER C2D: STEEL (SIC 331) 

Figure C2D-1: Value of Shipments and Value Added for Profiled Steel Industry Segments .......................... C2D-8
 

Figure C2D-2: Producer Price Index for Profiled Steel Industry Segments ..................................................... C2D-9
 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute xix 
§ 316(b) Final Rule: Phase III – Economic Analysis Table of Contents 

Figure C2D-3: Employment for Profiled Steel Industry Segments ................................................................ C2D-12 

Figure C2D-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Steel Industry Segments ............... C2D-15 

Figure C2D-5: Net Profit Margin and Return on Total Capital for the Iron and Steel Industry ..................... C2D-21 

Figure C2D-6: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment Size for 

Profiled Steel Industry Segments ................................................................................................ C2D-24 

Figure C2D-7: Number of Facilities Estimated Subject to the 200 MGD All Option by Employment Size for 

Profiled Steel Industry Segments ................................................................................................ C2D-24 

Figure C2D-8: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Employment Size for 

Profiled Steel Industry Segments ................................................................................................ C2D-25 

CHAPTER C2E: ALUMINUM (SIC 333/5) 

Figure C2E-1: Value of Shipments and Value Added for Profiled Aluminum Industry Segments (millions, $2005)C2E-6 

Figure C2E-2: Producer Price Indexes for Profiled Aluminum Industry Segments ..........................................C2E-8 

Figure C2E-3: Employment for Profiled Aluminum Industry Segments ........................................................C2E-11 

Figure C2E-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Aluminum Segments......................C2E-14 

Figure C2E-5: Net Profit Margin and Return on Total Capital for the Aluminum Industry ...........................C2E-21 

Figure C2E-6: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment Size for the 

Profiled Aluminum Segments ......................................................................................................C2E-24 

Figure C2E-7: Number of Facilities Estimated Subject to the 200 MGD All Option by Employment Size for the 

Profiled Aluminum Segments ......................................................................................................C2E-24 

Figure C2E-8: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Employment Size for the 

Profiled Aluminum Segments ......................................................................................................C2E-25 

CHAPTER C2F: FOOD AND KINDRED PRODUCTS (SIC 20) 

Figure C2F-1: Value of Shipments for Food Manufacturing and Beverage Manufacturing Segments (millions, 

$2005)............................................................................................................................................. C2F-5 

Figure C2F-2: Value Added for Food Manufacturing and Beverage Manufacturing Segments (millions, $2005) ....

 ........................................................................................................................................................ C2F-6 

Figure C2F-3: Producer Price Indexes for Food Manufacturing and Beverage Manufacturing Segments ....... C2F-8 

Figure C2F-4: Employment for Food Manufacturing and Beverage Manufacturing Segments...................... C2F-11 

Figure C2F-5: Capacity Utilization for Food Manufacturing and Beverage and Tobacco Manufacturinga

.... C2F-14 

Figure C2F-6: Value of Imports and Exports for Food Manufacturing and Beverage Manufacturing Segments 

(millions, $2005) .......................................................................................................................... C2F-19 

Figure C2F-7: Net Profit Margin for Food and Beverage Manufacturers ....................................................... C2F-21 

Figure C2F-8: Return on Total Capital for Food and Beverage Manufacturers .............................................. C2F-22 

Figure C2F-9: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment Size for the 

Profiled Food Manufacturing and Beverage Segments ................................................................ C2F-25 

Figure C2F-10: Number of Facilities Estimated Subject to the 200 MGD All Option by Employment Size for the 

Profiled Food Manufacturing and Beverage Segments ................................................................ C2F-25 

Figure C2F-11: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Employment Size for 

the Profiled Food Manufacturing and Beverage Segments .......................................................... C2F-26 

CHAPTER C2G: FACILITIES IN OTHER INDUSTRIES (VARIOUS SICS) 

Figure C2G-1: Other Industries Facilities Estimated Subject to the 50 MGD All Option by Employment Size 

 ....................................................................................................................................................... C2G-4 

Figure C2G-2: Other Industries Facilities Estimated Subject to the 200 MGD All Option by Employment Size 

 ....................................................................................................................................................... C2G-4 

Figure C2G-3: Other Industries Facilities Estimated Subject to the 100 MGD CWB Option by Employment Size ..

 ....................................................................................................................................................... C2G-5 

xx Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – Economic Analysis Table of Contents 

APPENDIX C3A4: ADJUSTING BASELINE FACILITY CASH FLOW 

Figure C3A4-1: Growth in Real Domestic Product, 1985-2005..................................................................... C3A4-3
 

Figure C3A4-2: Capacity Utilization in Manufacturing Industries, 1985-2005 ............................................. C3A4-4
 

Figure C3A4-3: Growth in Industrial Production, 1985-2005........................................................................ C3A4-4
 

Figure C3A4-4: ATCF Index vs. Trend........................................................................................................ C3A4-12
 

APPENDIX C3A5: ESTIMATING CAPITAL OUTLAYS FOR SECTION 316(B) PHASE III MANUFACTURING 

SECTORS DISCOUNTED CASH FLOW ANALYSES 

Figure C3A5-1: Comparison of Estimated Capital Outlays to Reported Depreciation for Phase III Survey 

Facilities in the Paper and Allied Products Sector .................................................................... C3A5-16 

Figure C3A5-2: Comparison of Estimated Capital Outlays to Reported Depreciation for Phase III Survey 

Facilities in the Chemicals and Allied Products Sector............................................................. C3A5-17 

Figure C3A5-3: Comparison of Estimated Capital Outlays to Reported Depreciation for Phase III Survey 

Facilities in the Petroleum and Coal Products Sector................................................................ C3A5-18 

Figure C3A5-4: Comparison of Estimated Capital Outlays to Reported Depreciation for Phase III Survey 

Facilities in the Primary Metal Industries Sector ...................................................................... C3A5-19 

Figure C3A5-5: Comparison of Estimated Capital Outlays to Reported Depreciation for Phase III Survey 

Facilities in the Food and Kindred Products Sector .................................................................. C3A5-20 

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xxii Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

Chapter A1: Introduction 

INTRODUCTION CHAPTER CONTENTS

EPA is promulgating regulations implementing section Introduction............................................................ A1-1

316(b) of the Clean Water Act (CWA). This regulation is A1-1 Overview of Potentially Regulated Sectors and 

Facilities.................................................... A1-1 the third in a series of rulemaking actions under CWA 

section 316(b), addressing the environmental impacts of A1-1.1 New Offshore Oil and Gas Extraction 

cooling water intake structures (CWIS). The Final Section Facilities ........................................... A1-1 

316(b) Regulation for Phase III Facilities establishes A1-1.2 Existing Phase III Facilities and Sectors 

national performance requirements for the location, design, .......................................................... A1-2 

construction, and capacity of CWIS for new offshore oil A1-2 Summary of the Final Rule ..................... A1-10 

and gas extraction facilities. Although several regulatory A1-2.1 New Offshore Oil and Gas Extraction 

options were considered for promulgation for existing Facilities ......................................... A1-10 

manufacturing facilities, EPA has decided that Phase III A1-2.2 Existing Facilities ........................... A1-11

existing facilities should continue to have section 316(b) A1-3 Summary of Economic Analysis Results A1-11 

limits established on a case-by-case, best professional A1-4 Organization of the EA Report ............... A1-19 judgment basis. References............................................................ A1-21 

This Economic and Benefits Analysis for the Final Section 

316(b) Phase III Existing Facilities Rule report (hereinafter 

“Economic Analysis” or “EA”) presents the economic analysis of the final regulation, as it applies to new oil and 

gas extraction facilities, as well as several regulatory alternatives that EPA considered in the development of a 

potential regulation for existing Phase III manufacturing facilities. 

A1-1 OVERVIEW OF POTENTIALLY REGULATED SECTORS AND FACILITIES 

Setting aside those facilities covered by the Phase II Final Regulation, the facilities potentially subject to 

regulation under Phase III consisted of facilities that employ a cooling water intake structure and are designed to 

withdraw two million gallons per day or more from waters of the United States and that fall in two general 

categories: 

1. New Offshore Oil and Gas Extraction Facilities; and 

2. Existing Facilities, which include Electric Power Producing Facilities with DIF of less than 50 MGD, 

Manufacturing and Other Industries Facilities (“Manufacturers”). 

In the documents for the Phase III proposed regulation, these facilities were collectively described as the 

“potential Phase III facilities.” 

A1-1.1 New Offshore Oil and Gas Extraction Facilities 

In developing the Final Section 316(b) Regulation for Phase III Facilities, EPA analyzed the proposed 

regulations’ applicability to new offshore oil and gas extraction facilities (abbreviated as “new OOGE facilities”), 

seafood processing vessels, and offshore liquid natural gas (LNG) terminals. EPA’s analysis of these facilities is 

discussed in Part C: Economic Analysis for Phase III New Offshore Oil and Gas Extraction Facilities of this EA 

and in the Technical Development Document for the Final Section 316(b) Phase III Existing Facilities Rule (U.S. 

EPA, 2006b). 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute A1-1 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

The Phase III final regulation applies to only the new offshore oil and gas extraction facilities category of these 

additional categories listed above. EPA estimates that 124 new offshore oil and gas extraction facilities will be 

subject to the final regulation. All of these facilities will be located off the coast of California, Alaska, or the Gulf 

of Mexico, henceforth referred to as “Coastal Waterbodies.” 

A1-1.2 Existing Phase III Facilities and Sectors 

A1-1.2.1 Regulatory Options Considered 

EPA considered requirements for Phase III existing facilities to meet performance standards similar to those 

required in the final Phase II rule, including an 80-95% reduction in impingement mortality and a 60-90% 

reduction in entrainment. In the final Phase III rule, however, EPA determined that uniform national standards are 

not the most effective way to address cooling water intake structures at existing Phase III facilities. Phase III 

existing facilities continue to be subject to permit conditions implementing section 316(b) of the Clean Water Act 

set by the permit director on a case-by-case basis, using BPJ. 

The performance standards presented at proposal were intended to reflect the best technology available for 

minimizing adverse environmental impacts determined on a national categorical basis. The type of performance 

standard applicable to a particular facility (i.e., reductions in impingement only or impingement and entrainment) 

would have varied based on several factors, including the facility’s location (i.e., source waterbody) and the 

proportion of the waterbody withdrawn. Impingement reductions were required at all facilities subject to the 

performance standards. Entrainment reductions are required at facilities 1) located on an estuary, tidal river, 

ocean, or one of the Great Lakes, or 2) located on a freshwater river and withdrawing greater than 5% of the mean 

annual flow of the waterbody. At proposal, facilities located on lakes or reservoirs may not disrupt the thermal 

stratification of the waterbody, except in cases where the disruption is beneficial to the management of fisheries. 

EPA proposed three possible options for defining which existing Manufacturing Facilities would be subject to 

uniform national requirements, based on design intake flow threshold and source waterbody type: The facility has 

a total design intake flow of 50 million gallons per day (MGD) or more, and withdraws from any waterbody; the 

facility has a total design intake flow of 200 MGD or more, and withdraws from any waterbody; or the facility has 

a total design intake flow of 100 MGD or more and withdraws water specifically from an ocean, estuary, tidal 

river, or one of the Great Lakes. These are Options 5, 9, and 8 respectively in Table A1-1, below. 

In addition, EPA considered a number of options (specifically Options 2, 3, 4, and 7 below) that would have 

established different performance standards for certain groups or subcategories of Phase III existing facilities. 

Under these options, EPA would have applied the proposed performance standards and compliance alternatives 

(i.e., the Phase II requirements) to the higher threshold facilities, apply the less-stringent requirements as specified 

below to the middle flow threshold category, and would apply BPJ below the lower threshold. 

The regulatory options as well as other options considered are described in detail below: 

Option 1: Facilities with a design intake flow of 20 MGD or greater would be subject to the performance 

standards discussed above. Under this option, section 316(b) permit conditions for Phase III facilities with a 

design intake flow of less than 20 MGD would be established on a case-by-case, BPJ, basis. 

Option 2: Facilities with a design intake flow of 50 MGD or greater, as well as facilities with a design intake 

flow between 20 and 50 MGD (20 MGD inclusive), when located on estuaries, oceans, or the Great Lakes would 

be subject to the performance standards. Facilities with a design intake flow between 20 and 50 MGD (20 MGD 

inclusive) that withdraw from freshwater rivers and lakes would have to meet the performance standards for 

impingement mortality only and not for entrainment. Under this option, section 316(b) requirements for Phase III 

facilities with a design intake flow of less than 20 MGD would be established on a case-by-case, BPJ, basis. 

A1-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

Option 3: Facilities with a design intake flow of 50 MGD or greater would be subject to the performance 

standards. Facilities with a design intake flow between 20 and 50 MGD (20 MGD inclusive) would have to meet 

the performance standards for impingement mortality only and not for entrainment. Under this option, section 

316(b) requirements for Phase III facilities with a design intake flow of less than 20 MGD would be established 

on a case-by-case, BPJ, basis. 

Option 4: Facilities with a design intake flow of 50 MGD or greater, as well as facilities with a DIF between 20 

and 50 MGD (20 MGD inclusive), when located on estuaries, oceans, or the Great Lakes would be subject to the 

performance standards. Facilities that withdraw from freshwater rivers and lakes and all facilities with a design 

intake flow of less than 20 MGD would have requirements established on a case-by-case, BPJ, basis. 

Option 5: Facilities with a design intake flow of 50 MGD or greater would be subject to the performance 

standards. Under this option, section 316(b) requirements for Phase III facilities with a design intake flow of less 

than 50 MGD would be established on a case-by-case, BPJ, basis. 

Option 6: Facilities with a design intake flow of greater than 2 MGD would be subject to the performance 

standards. Under this option, section 316(b) requirements for Phase III facilities with a design intake flow of 2 

MGD or less would be established on a case-by-case, BPJ, basis. 

Option 7: Facilities with a design intake flow of 50 MGD or greater would be subject to the performance 

standards. Facilities with a design intake flow between 30 and 50 MGD (30 MGD inclusive) would have to meet 

the performance standards for impingement mortality only and not for entrainment. Under this option, section 

316(b) requirements for Phase III facilities with a design intake flow of less than 30 MGD would be established 

on a case-by-case, BPJ, basis. 

Option 8: Facilities with a design intake flow of 200 MGD or greater would be subject to the performance 

standards. Under this option, section 316(b) requirements for Phase III facilities with a design intake flow of less 

than 200 MGD would be established on a case-by-case, BPJ, basis. 

Option 9: Facilities with a design intake flow of 100 MGD or greater and located on oceans, estuaries, and the 

Great Lakes would be subject to the performance standards. Under this regulatory option, section 316(b) 

requirements for Phase III facilities with a design intake flow of less than 100 MGD would be established on a 

case-by-case, BPJ, basis. 

Table A1-1 summarizes the application of performance standards under each of the proposed options considered 

for Phase III existing facilities (Options 5, 8, and 9) as well as the other options considered: 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute A1-3 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

Table A1-1: Performance Standards for the Regulatory Options Considered 

Option Minimum Design Intake Flow Defining Facilities as Existing Phase III Facilities 

> 2 MGD 20 MGD 30 MGD 50 MGD 100 MGD 200 MGD 

1 BPJ I&E 

2 BPJ Freshwater rivers and lakes: I only 

All other waterbodies: I&E 

I&E 

3 BPJ I only I&E 

4 BPJ Estuaries, oceans, Great Lakes: I&E 

All other waterbodies: BPJ 

I&E 

5 BPJ I&E 

6 I&E 

7 BPJ I only I&E 

8 BPJ I&E 

9 BPJ Estuaries, oceans, Great Lakes: I&E 

All other waterbodies: BPJ 

Key: 

 BPJ - Best Professional Judgment 

 I&E - 80-95% reduction in impingement mortality and a 60-90% reduction in entrainment, where applicable 

 I only - 80-95% reduction in impingement mortality 

 Estuaries - includes tidal rivers and streams 

 Lakes - includes lakes and reservoirs 

None of the regulatory options for Phase III existing facilities (Options 5, 8, and 9) that were presented at 

proposal would have covered electric generators not already covered by the Phase II rule, as that rule addresses 

electric power generators with DIF of 50 MGD or more. Therefore, EPA focused its analysis for the final 

regulation for Existing Facilities on the Manufacturers segment and did not give further consideration to electric 

generators. As a result, in presenting analyses for the Existing Facilities, this document focuses on the 

Manufacturing and Other Industries (“Manufacturers”) category of existing facilities. 

The EA, including the discussion in the remainder of this section, does present information on the more 

comprehensive set of potential Phase III existing facilities and the regulatory options that would have applied to 

them. However, the information for existing facilities below the 50 MGD applicability threshold is considerably 

more limited in scope than the information for facilities with a DIF of at least 50 MGD since the smaller flow 

facilities do not fall within the applicability thresholds for the regulatory options that were presented at proposal. 

The discussions for existing facilities in the remainder of this document focus on the three regulatory options 

comprising the regulatory proposal (i.e., Options 5, 8, and 9). In the remainder of this document, these three 

options are referred to as follows: 

1. Option 5, which would have applied to existing Manufacturers segment facilities with a total design 

intake flow of 50 MGD or more and located on any source waterbody type is referred to as the “50 

MGD All Option”. 

2. Option 8, which would applied to existing Manufacturers segment facilities with a total design intake 

flow of 200 MGD or more and located on any source waterbody type is referred to as the “200 MGD 

All Option”. 

3. Option 9, which would applied to existing Manufacturers segment facilities with a total design intake 

flow of 100 MGD or more and located on certain source waterbody types (i.e., an ocean, estuary, tidal 

A1-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

river/stream or one of the Great Lakes) is referred to as the “100 MGD Certain Water Bodies Option” 

or “100 MGD CWB Option”. 

In addition to these three regulatory analysis options, this document also presents information on the other options 

that EPA analyzed in development of the Phase III proposal and the final regulation (i.e., Options 2, 3, 4 and 7, 

also referred to as the “Supplemental Options”). The information for the supplemental options is presented in 

appendices to the relevant chapters in this EA report. EPA also proposed not to promulgate a national categorical 

rule, and instead continue to rely on case-by-case, best professional judgment to establish 316(b) limits for Phase 

III facilities. 

The remainder of this section provides an overview of the existing Phase III sectors and facilities that were 

analyzed for this rulemaking. Chapter C2: Profile of Manufacturers presents more detailed information on these 

Manufacturers sectors and facilities.1 

A1-1.2.2 Sector Information 

Based on past section 316(b) rulemakings, EPA’s effluent guidelines program, and the 1982 Census of 

Manufactures, EPA identified two major industry segments of existing facilities for analysis in developing this 

regulation: (1) steam electric generators; and (2) manufacturing industries with substantial cooling water use. 

Steam electric generators are the largest industrial users of cooling water. The condensers that support the steam 

turbines in these facilities require substantial amounts of cooling water. EPA estimates that steam electric utility 

power producers (SIC Codes 4911 and 4931) and steam electric nonutility power producers (SIC Major Group 

49) account for approximately 92.5% of total cooling water intake in the United States (U.S. EPA, 2001). 

Beyond steam electric generators, facilities in other industry segments use cooling water in their production 

processes (e.g., to cool equipment, for heat quenching, etc.). As described in the EA for the Phase III Proposed 

Regulation, EPA used information from the 1982 Census of Manufactures to identify four major manufacturing 

sectors showing substantial cooling water use: (1) Paper and Allied Products (SIC Major Group 26); (2) 

Chemicals and Allied Products (SIC Major Group 28); (3) Petroleum and Coal Products (SIC Major Group 29); 

(4) Primary Metals Industries (SIC Major Group 33). For its analyses in support of the proposed rule, EPA later 

divided the Primary Metal Industries (SIC 33) into a Steel sector (SIC 331) and an Aluminum sector (SIC 

333/335), based on the business and other operational differences in these two major industries. EPA referred to 

these five industries – Paper, Chemicals, Petroleum, Aluminum, and Steel – as the “Primary Manufacturing 

Industries” in the documentation for the proposed regulation. As shown in Table A1-2, following page, together 

with electric power producers, these industries account for approximately 99% of the total cooling water intake in 

the United States. EPA focused its initial data gathering and regulation development analyses for the 

manufacturers segment of the 316(b) Phase III regulation on these industries. 

A key data source for EPA’s analysis for the 316(b) Phase III regulation is the detailed questionnaire issued to a 

sample of facilities potentially subject to regulation under Phase III. Based on responses to a screener survey, 

EPA targeted the detailed questionnaire to facilities believed to be in the electric power industry and the Primary 

Manufacturing Industries. As discussed in the EA for the proposed Phase III regulation and further elaborated on 

in the November 2005 Notice of Data Availability (NODA), EPA received survey questionnaires from facilities 

with business operations in industries other than the Primary Manufacturing Industries. EPA originally believed 

these facilities to be non-utility electric power generators; however, inspection of their responses indicated that the 

facilities were better understood as cooling water-dependent facilities whose principal operations lie in businesses 

other than the electric power industry or the Primary Manufacturing Industries listed above. These surveys 

1

 The EA for the proposed regulation includes a detailed profile for Electric Power Producers. For the reasons just stated, 

this profile was not updated for the EA for the final Phase III regulation. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute A1-5 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

included 12 questionnaires from facilities in the Food and Kindred Products industry and 10 additional 

questionnaires from facilities in a range of other manufacturing and non-manufacturing industries. In the EA for 

the proposed Phase III regulation, EPA referred to these additional industries as the “Other Industries” and the 

facilities as the “Other Industries facilities.” 

Because the questionnaire responses for these Other Industries facilities were not received through the structured 

sample framework, EPA did not apply sample weights to these facilities in the analyses for the proposed 

regulation, and treated them as “additional known facility” observations with a sample weight of one. Although 

EPA’s analyses for these Other Industries facilities were less precise than the analyses undertaken for the Primary 

Manufacturing Industries, EPA concluded that its analysis for the Other Industries group provided a sufficient 

basis for regulation development. In particular, EPA’s review of the engineering characteristics of cooling water 

intake and use in the Other Industries group indicated that cooling water intake and use in these industries do not 

differ materially from cooling water intake and use in the electric power industry and the Primary Manufacturing 

Industries. In addition, EPA specifically analyzed the economic impacts of evaluated options on the sample 

facilities in the Other Industries group. Finally, because the statistically valid survey group of six industries (i.e., 

for the five Primary Manufacturing Industries and Electric Generators) reflects 99% of total cooling water 

withdrawals, EPA concluded that few additional facilities in the Other Industries group would be potentially 

subject to Phase III regulation. Based on these considerations, EPA concluded at Proposal that the Phase III 

regulation could be extended to all industries and without imposing material economic/financial impact in 

industries beyond those on which EPA initially focused in developing the Phase III regulation. In the Federal 

Register notice for the proposed Phase III regulation, EPA sought comment on the analytic treatment and 

regulatory findings for these facilities. 

Following proposal, EPA undertook additional analyses of these facilities, and of the Food and Kindred Products 

industry, in particular, to confirm its regulatory analytic findings for the Other Industries facilities. These 

analyses, which are documented in the EA and in the public record for the final regulation, included: (1) 

comparative analysis of cooling water use and compliance costs between the original set of Primary 

Manufacturing Industries and the 22 facilities in the Other Industries facilities set; (2) preparation of a detailed 

industry profile and assessment of business conditions and outlook for the Food and Kindred Products industry; 

and (3) development of a cooling water usage-based multiplier for extrapolating results from its analysis of the 

Food and Kindred Products industry questionnaire facilities to the broader population of facilities in the industry. 

EPA sought comment on these analyses in the NODA. 

Based on the findings from these analyses, EPA made the following changes in its analysis for the Manufacturers 

category of facilities. First, EPA now groups the Food and Kindred Products industry within the previously 

defined Primary Manufacturing Industries set of industries. As previously described, EPA received over half (12) 

of the 22 Other Industries questionnaires from facilities in this industry and it is also the next largest user of 

cooling water, after the electric power industry and the original Primary Manufacturing Industries, as reported in 

the Census of Manufacturers reports of cooling water usage. The Primary Manufacturing Industries thus include 

the following industries: Paper, Chemicals, Petroleum, Aluminum, Steel, and Food and Kindred Products. 

Second, EPA used the cooling water usage-based multiplier of 3.11, as documented at NODA, for estimating the 

industry-level costs and impacts of Phase III regulatory compliance for the Food and Kindred Products industry. 

Third, EPA includes a detailed industry profile for the Food and Kindred Products industry in this EA. 

Table A1-2, below, documents the estimated cooling water usage in the electric power industry, the redefined 

Primary Manufacturing Industries (including Food and Kindred Products), and the remaining cooling waterreliant industry sectors (“Other Industries”). Together, the electric power industry and the Primary Manufacturing 

Industries account for approximately 99.6% of total estimated cooling water usage. This document refers to the 

Primary Manufacturing Industries and the remaining Other Industries collectively as “Manufacturers.” 

A1-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

Table A1-2: Cooling Water Intake by Sector 

Cooling Water Intake Flowb 

Sectora (SIC Code) 

Billion Gal./Yr. Percent of Total Cumulative Percent 

Steam Electric Utility Power Producers (49) 70,000 90.9% 90.9% 

Steam Electric Nonutility Power Producers (49) 1,172 1.5% 92.4% 

Chemicals and Allied Products (28) 2,797 3.6% 96.0% 

Primary Metals Industries (33) 1,312 1.7% 97.8% 

Petroleum and Coal Products (29) 590 0.8% 98.5% 

Paper and Allied Products (26) 534 0.7% 99.2% 

Food and Kindred Products (20) 272 0.4% 99.6% 

Additional 14 Categoriesc 335 0.4% 100.0% 

a The table is based on reported primary SIC codes. 

b Data on cooling water use are from the 1982 Census of Manufactures, except for traditional steam electric utilities, 

which are from the Form EIA-767 database, and the steam electric nonutility power producers, which are from the Form 

EIA-867 database. 1982 was the last year in which the Census of Manufactures reported cooling water use. 

c 14 additional major industrial categories (major SIC codes) with effluent guidelines. 

Source: U.S. DOC, 1986; U.S. DOE, 1995; U.S. DOE, 1996. 

The six Primary Manufacturing facility sectors analyzed for the Phase III rulemaking comprise a substantial 

portion of all U.S. industries. As shown in Table A1-3, the six sectors combined account for over 64,000 

facilities, over 3.6 million employees, more than $1.8 trillion in value of shipments and almost $155 billion in 

payroll. They also account for over 42% of total U.S. manufacturing value of shipments and 27% of 

manufacturing employment. As shown in Table A1-4 (see page 9), however, only a subset of facilities in these 

industry sectors would be subject to regulation under Phase III based on the applicability thresholds under each of 

the regulatory analysis options. 

Table A1-3: Summary Economic Data for Major Industry Sectors Potentially Subject to §316(b) 

Regulation: Facilities, Employment, Value of Shipments, and Payroll 

Value of a Number of Sector (SIC) Facilitiesb Employment Shipments Payroll 

(millions, $2004) (millions, $2004) 

Paper & Allied Products (26) 561 137,044 70,505 8,121 

Chemicals & Allied Products (28) 29,005 1,651,237 710,762 75,785 

Petroleum & Coal Products (29) 2,262 96,673 312,885 7,017 

Steel (331) 1,069 154,364 92,693 8,773 

Aluminum (333,335) 590 63,538 31,471 2,943 

Food & Kindred Products (20) 30,823 1,571,096 584,908 52,152 

All §316(b) Sectors 64,310 3,673,952 1,803,224 154,791 

Total U.S. Manufacturing (NAICS 31 - 33) 350,828 13,404,292 4,265,784 569,414 

§316(b) Manufacturing Sectors as a Percent of 18.3% 27.4% 42.3% 27.2% Total U.S. Manufacturing 

a Data from 2004 Annual Survey of Manufactures is available by NAICS code. Therefore, the following proxies were used to gather 

data: Paper & Allied Products (26) = NAICS 3221; Chemicals & Allied Products (28) = NAICS 325 and 326; Petroleum & Coal 

Products (29) = NAICS 3241; Steel (331) = NAICS 3311 and 3312; Aluminum (333,5) = NAICS 3313; Food & Kindred Products (20) 

= NAICS 311 and 3121. 

b Number of facilities is not available in the Annual Survey of Manufactures; data were collected from the 2002 Economic Census. 

Source: U.S. DOC, 2005; U.S. DOC, 2002. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute A1-7 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

A1-1.2.3 Facilities and Cooling Water Usage 

EPA’s 2000 Section 316(b) Industry Survey collected cooling water information for 656 power producers 

(hereafter referred to as “Electric Generators”), 211 facilities in Primary Manufacturing Industries, and 13 

additional known facilities in Other Industries determined to be potentially subject to regulation under Section 

316(b). Industry-wide, these facilities represent 671 power producers, 575 facilities in Primary Manufacturing 

Industries, and 17 facilities in Other Industries. Details of cooling water usage and other information on these 

facilities follows: 

f The 671 Electric Generators withdraw 79,000 billion gallons of cooling water per year. Of the 671 power 

producers, 554 were covered under the final Phase II rule. These 554 facilities accounted for 90.9% of 

total cooling water flow for Phase II and potential Phase III Electric Generators and Manufacturers (see 

Table A1-4). The remaining 117 facilities were considered for potential regulation in Phase III. Based on 

the survey, the 117 potential Phase III facilities account for approximately 392 billion gallons of cooling 

water per year, or 0.5% of the estimated total flow for Phase II and potential Phase III Electric Generators 

and Manufacturers. 

f The 575 facilities in Primary Manufacturing Industries potentially subject to the final regulation withdraw 

7,600 billion gallons of cooling water per year. The 17 additional known facilities in Other Industries 

withdraw 200 billion gallons of cooling water per year. Overall, the Manufacturing facilities potentially 

subject to Phase III regulation account for approximately 9.0% of total flow for Phase II and potential 

Phase III Electric Generators and Manufacturers. 

 Table A1-4 presents summary information about the number of facilities and water intake for existing facilities 

by sector and analysis option. 

A1-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information 

 Table A1-4: Estimated Cooling Water Intake by Sector and Analysis Option (Sample Weighted) - EP

Total Rule 

50 MDG All 200 MGD All 

of 

Annual 

Intake 

(BGY) 

of 

Annual 

Intake 

(BGY) 

of 

Annual 

Intake 

(BGY) 

of 

Annual 

Intake 

(BGY) 

of 

Annu

Intak

(BGY

671 79,100 554 78,700 117 400 - - - - 

Industries 

575 7,600 575 7,600 155 6,100 31 3,90

Chemicals and 

Allied Products 185 2,400 185 2,400 57 2,000 7 1,10

Steel 68 1,700 68 1,700 26 1,600 13 1,20

Aluminum 20 200 20 200 4 100 1 100 

Petroleum and 

Coal Products 39 500 39 500 17 500 4 300 

Products 225 2,400 225 2,400 42 1,700 3 1,00

Food and 

Kindred Products 37 400 37 400 9 300 3 100 

Additional in Other Industries 

17 200 17 200 7 200 2 100 

1,263 86,900 554 78,700 592 7,800 161 6,200 33 3,90

Subject to Phase II Potentially Subject to 

Phase III Rule 

Estimated Subject to Phase III Final Rul

analysis options for Existing 

Sector 

Est. No. 

Facilities Flow 

Est. No. 

Facilities Flow 

Est. No. 

Facilities Flow 

Est. No. 

Facilities Flow 

Est. No. 

Facilities Flow 

Steam Electric Power Producers Primary Manufacturing 

Paper and Allied 

Known Facilities Total Surveyed 

BGY = Billion Gallons per Year. a Totals may not sum due to independent rounding. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

Two of the primary parameters considered by EPA in developing the Phase III regulation are the design intake 

flow (DIF) of the facilities and the type of waterbody from which a facility withdraws cooling water. As 

previously described, EPA presented three options at Proposal based on 50 MGD, 100 MGD, and 200 MGD 

applicability thresholds. The two main types of waterbody are (1) “sensitive waterbodies,” which are generally 

considered of higher biological productivity and more sensitive to adverse environmental impact (including 

estuaries/tidal rivers, and oceans and Great Lakes); and (2) “inland waterbodies” (including freshwater 

rivers/streams and lakes/reservoirs). Of the three regulatory options presented at Proposal, EPA further 

differentiated the 100 MGD or greater facilities based on waterbody type. 

Table A1-5 shows, by waterbody type and industry segment, the number of Manufacturers facilities potentially 

subject to national requirements under the three DIF applicability thresholds presented at Proposal, and the total 

of facilities potentially subject to a Phase III regulation – that is, with DIF of at least 2 MGD. EPA estimates that 

as many as 592 existing facilities in the Manufacturers segment (including 575 facilities in the Primary 

Manufacturing Industries and 17 known facilities in Other Industries), were potentially subject to regulation under 

Phase III, based on a 2 MGD DIF applicability threshold. EPA estimates that 161 of these facilities would be 

subject to regulation under the 50 MGD option. Of these 161 facilities, 49 are located on Sensitive Waterbodies 

and 112 are located on Inland Waterbodies. For the 100 MGD or greater facilities, 27 are located on Sensitive 

waterbodies. Under the 100 MGD option, only the 27 facilities on Sensitive Waterbodies would be subject to 

regulation. Lastly, under the 200 MGD option, EPA estimates that 33 facilities would be subject to regulation, of 

which, 16 are located on Sensitive Waterbodies and 17 are located on Inland Waterbodies. 

Table A1-5: Existing Manufacturers Facilities by Applicability Threshold and Waterbody Type 

Industry Segment 

Primary Manufacturing Industries 575 155 73 31 

Other Industries 17 7 4 2 

Total 592 161 77 33 

Primary Manufacturing Industries 

Other Industries 

Total 

Primary Manufacturing Industries 

Other Industries 

Total 

Subject to National Requirements with DIF Applicability 

Threshold of Greater than or Equal to 

2 MGD 50 MGD 100 MGD 200 MGD 

All Waterbodies 

Sensitive Waterbodies (Coastal Waterbodies and Great Lakes) 

92 45 24 14 

5 4 3 2 

97 49 27 16 

Inland Waterbodies 

482 109 49 17 

12 3 1 0 

494 112 50 17 

Source: U.S. EPA, 2000; U.S. EPA Analysis, 2006. 

A1-2 SUMMARY OF THE FINAL RULE 

A1-2.1 New Offshore Oil and Gas Extraction Facilities 

The Phase III final regulation applies to new offshore oil and gas extraction facilities. Under the final rule, EPA 

is promulgating the regulatory requirements presented at proposal: new offshore oil and gas extraction facilities 

that withdraw 2 MGD or more and meet other applicability criteria are subject to requirements similar to those 

applicable to other new facilities in the Phase I (new facility) 316(b) regulation. These requirements address 

intake flow velocity, proportional flow restrictions, specific impact concerns (e.g., threatened or endangered 

A1-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

species; critical habitat; or migratory, sport, or commercial species), and information submission, monitoring, and 

recordkeeping. As described at proposal, available information indicates that it is not feasible for offshore oil and 

gas extraction facilities to employ closed-cycle recirculating cooling systems to reduce cooling water flow levels 

because such facilities have neither the physical space nor the technical capacity to install technologies such as 

cooling towers or other closed-cycle systems. Thus, the final regulation does not require new offshore oil and gas 

extraction facilities to reduce intake flow to a level commensurate with a closed-cycle recirculating cooling 

system or to use close-cycle recirculating cooling as a baseline for performance standards. 

A1-2.2 Existing Facilities 

 EPA has chosen not to promulgate any of the regulatory options considered for the Phase III regulation for 

existing facilities. Instead, EPA has decided that Phase III existing facilities should continue to have section 

316(b) limits established on a case-by-case, best professional judgment basis. 

A1-3 SUMMARY OF ECONOMIC ANALYSIS RESULTS 

This section presents a brief summary of the main results of EPA’s economic analyses for the final rule. This 

summary includes results for the regulation of new oil and gas extraction facilities, and the results of the analysis 

of the regulatory analysis options for existing facilities. More detail on each analysis, including methodology and 

results, is provided in later chapters of this EA. 

a. Number of Facilities Subject to National Categorical Requirements 

 New Facilities 

For today’s final rule, EPA is promulgating a 2 MGD flow threshold for new offshore oil and gas extraction 

facilities, the same flow threshold applicable to other new facilities under Phase I. EPA’s analysis of new 

offshore oil and gas extraction facilities includes oil and gas production platforms/structures and mobile offshore 

drilling units (MODUs). EPA estimated the number and characteristics of new offshore oil and gas extraction 

facilities based on data on existing offshore oil and gas extraction facilities collected through EPA’s 316(b) 

survey of offshore oil and gas extraction facilities and from other sources of publicly available information, such 

as the Minerals Management Service. 

EPA estimates that 21 new offshore oil and gas extraction platforms and 103 new MODUs would be subject to 

the national requirements of the final rule, assuming a 20-year period of construction from 2007 (the assumed 

effective date of the rule) to 2026. 

 Existing Facilities 

EPA evaluated three regulatory options for existing facilities: 50 MGD or greater for All Waterbodies, 200 MGD 

for All Waterbodies, and 100 MGD for Certain Waterbodies. These three options had the same national 

categorical requirements, but they differed with respect to the number of existing facilities that would be subject 

to these requirements. Specifically, the number of regulated facilities differs as a result of (1) the design intake 

flow (DIF) applicability thresholds of the regulatory analysis options; and (2) the type of waterbodies to which the 

options would apply. 

Table A1-6 on the following page presents, by industry segment and regulatory analysis option, (1) the number of 

existing facilities potentially subject to regulation under Phase III, (2) the estimated number of baseline closures, 

(3) the number of existing manufacturing facilities estimated to be subject to national categorical requirements 

under the three regulatory analysis options, and (4) the number of facilities estimated to install a technology to 

comply with each analysis option. Facilities that are not baseline closures and would not be subject to the 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute A1-11 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

requirements under the regulatory analysis options would be (“Potentially Subject to Regulation” minus “Baseline 

Closure” minus “Subject to National Requirements – Total”) subject to permitting on a case-by-case, best 

professional judgment basis. 

As shown in Table A1-6, EPA estimates that as many as 592 Manufacturers facilities (including 575 facilities in 

the Primary Manufacturing Industries and 17 Other Industries facilities) were potentially subject to the Phase III 

final regulation for existing facilities, based on the 2 MGD DIF cutoff. Of these, EPA estimates that 77 

Manufacturers would be baseline closures – i.e., they would be in severe financial distress independent of 

regulation. As a result, EPA estimates that 515 Manufacturers financially viable facilities were potentially within 

the scope of a Phase III final regulation. 

Under the 50 MGD applicability threshold, EPA estimates that 146 existing Manufacturers facilities would be 

subject to regulation under this option.2

 Of these, 111 are estimated to install a technology to comply with the 

potential regulation requirements. The 100 MGD and 200 MGD options would apply to smaller sets of facilities. 

The 200 MGD All option would apply to 31 facilities in the Manufacturers segment, with 27 facilities estimated 

to install a technology. The 100 MGD CWB option would apply to the smallest number of manufacturing 

facilities (23), with 22 of these facilities estimated to install a technology. 

Table A1-6: Phase III Existing Facility Counts, by Industry Segment and Option 

Industry 

Potentially 

Subject to Baseline 

Closure 

Subject to National Requirements, Excluding Baseline Closures 

50 MGD All Option 200 MGD All Option 100 MGD CWB 

Option 

Regulation 

Total w/ 

Technology Total w/ Technology Total w/ Technology 

Primary 

Manufacturing 575 75 140 105 30 26 21 20 

Industries 

Other Industries 17 2 6 6 1 1 2 2 

Totala 592 77 146 111 31 27 23 22 

a Individual numbers may not sum to totals due to independent rounding. 

Source: U.S. EPA Analysis, 2006. 

b. Economic Impacts 

 New Facilities 

EPA conducted several types of economic impact analysis for the new offshore oil and gas extraction industry 

segment. These analyses include three analyses for platforms/structures (facility-level production value and 

closure analysis, facility-level barrier-to-entry analysis, and firm-level cost-to-revenue analysis) and three 

analyses for MODUs (facility-level closure analysis, facility-level barrier-to-entry analysis, and firm-level cost-torevenue analysis). These analyses found no economic impact on any new offshore oil and gas extraction facility 

that would be subject to regulation under the final Phase III rule or any firm projected to build a new offshore oil 

and gas extraction facility that would be subject to regulation under Phase III. 

For a detailed discussion of EPA’s economic impact analyses for new facilities, see Chapter B3: Economic 

Impact Analysis for the Offshore Oil and Gas Extraction Industry. 

2

 This number of existing facilities (146 facilities) estimated to be subject to the Phase III final regulation differs from the 

value (161 facilities) reported in Table A1-4 and Table A1-5 because it excludes baseline closures. 

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 Existing Facilities 

EPA identified a facility as a regulatory closure if it would have operated under baseline conditions but would fall 

below an acceptable financial performance level under the proposed regulatory requirements. EPA’s analysis of 

regulatory closures is based on the estimated change in facility after-tax cash flow (cash flow) as a result of the 

regulation and specifically examines whether the change in cash flow would be sufficient to cause the facility’s 

going concern business value to become negative. EPA calculated the going concern value of each facility using 

a discounted cash flow framework in which cash flow is discounted at an estimated cost of capital. The definition 

of cash flow used in these analyses is after-tax free cash flow available to all capital – equity and debt. 

Correspondingly, the cost of capital reflects the combined cost, after-tax, of equity and debt capital. For its 

analysis of economic/financial impacts, EPA used 7% as a real, after-tax cost of capital. 

EPA also identified facilities that would likely incur moderate financial impacts, but that would not be expected to 

close, under each of the regulatory analysis options. EPA established thresholds for two measures of financial 

performance and condition – interest coverage ratio and pre-tax return on assets – and compared the facilities’ 

performance before and after compliance under each option with these thresholds. EPA attributed incremental 

moderate impacts to the options if both financial ratios exceeded threshold values in the baseline (i.e., there were 

no moderate impacts in the baseline), but at least one financial ratio fell below the threshold value in the postcompliance case. 

EPA estimated that none of the facilities estimated to be subject to regulation under each option would close or 

incur employment losses as a result of implementation of the three options. EPA also found that none of these 

facilities would incur a moderate economic impact as a result of the regulatory analysis options. 

EPA also assessed whether firms owning regulated facilities might incur a material adverse impact, based in 

particular on the possibility of owning more than one regulated facility. This analysis, which relied on a firmlevel cost-to-revenue test, found that no firms owning Manufacturing facilities would be materially affected under 

the options considered for existing facilities. 

For a detailed discussion of EPA’s economic impact analyses for existing facilities, see Chapter C3: Economic 

Impact Analysis for Manufacturers. 

c. Regulatory Flexibility Analysis 

 New Facilities 

The Regulatory Flexibility Act (RFA) requires EPA to consider the economic impact that the final rule would 

have on small entities. In the new offshore oil and gas extraction industry segment, EPA estimates that one small 

entity, a new offshore oil and gas extraction platform, would be subject to the national requirements of the final 

rule. EPA estimates that this entity would incur annualized, after-tax compliance costs of less than 0.1% of 

annual revenue. Table A1-7 outlines the total number of small entities in the new offshore oil and gas extraction 

industry segment, the number of small entities potentially subject to final regulation under Phase III, and the 

estimated cost-to-revenue ratio that small entities would incur in complying with the final regulation. For a 

detailed discussion of these analyses, see Chapter D1: Regulatory Flexibility Analysis. 

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Table A1-7: Summary of Small Entity Impact Ratio Ranges For New OOGE Facilities 

Number of Small 

Total Number of Entities Owning Percentage of Compliance Cost/Annual 

Revenues Small Entities Industry Facilities Small Entities Subject to Potentially Subject Regulation 0-1% 1-3% >3% 

to Regulation 

New OOGE Facilities 24 1 4.2% 1 - -

Source: U.S. EPA Analysis, 2006. 

 Existing Facilities 

EPA estimates that no existing small entities in the Manufacturers industry segments would be subject to national 

categorical requirements under each analysis option. 

d. UMRA Analysis 

 New Facilities 

Under section 202 of the Unfunded Mandates Reform Act (UMRA), EPA generally must prepare a written 

statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that might result 

in expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million 

or more in any one year. EPA’s UMRA analysis for the final rule found the following: 

f Final rule for new offshore oil and gas extraction facilities: EPA estimates the total annualized aftertax costs of compliance for the Final Regulation to be $1.9 million ($2004). All of these direct facility 

costs are incurred by the private sector (including 124 new offshore oil and gas extraction facilities). No 

facility owned by State and local governments is subject to the national requirements under the final rule. 

Additionally, State and local permitting authorities will not incur costs to administer the rule for new 

offshore oil and gas extraction facilities because these facilities are not under State jurisdiction. EPA 

estimates that the highest undiscounted after-tax cost incurred by the private sector in any one year is 

approximately $1.5 million in 2013. 

 Existing Facilities 

EPA also conducted the UMRA analysis for the three options for existing facilities. The results of these analyses 

combined with the actual costs of the final rule are presented below: 

f 50 MGD for All Waterbodies option for existing facilities and final rule for new offshore oil and gas 

extraction facilities: EPA estimates the total annualized after-tax costs of compliance for this option to be 

$32.8 million ($2004). All of these direct facility costs are incurred by the private sector (including 146 

manufacturing facilities and 124 new offshore oil and gas extraction facilities). No facility owned by 

State and local governments is subject to the national requirements under the final rule. Additionally, 

State and local permitting authorities are estimated to incur $0.6 million annually to administer the rule 

under this option, including labor costs to write permits and to conduct compliance monitoring and 

enforcement activities. EPA estimates that the highest undiscounted after-tax cost incurred by the private 

sector in any one year is approximately $132.1 million in 2011. 

f 200 MGD for All Waterbodies option for existing facilities and final rule for new offshore oil and gas 

extraction facilities: EPA estimates the total annualized after-tax costs of compliance for this option to be 

$17.9 million ($2004). All of these direct facility costs are incurred by the private sector (including 31 

manufacturing facilities and 124 new offshore oil and gas extraction facilities). No facility owned by 

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State and local governments is subject to the national requirements under this evaluated option. 

Additionally, State and local permitting authorities are estimated to incur $0.2 million annually to 

administer this option, including labor costs to write permits and to conduct compliance monitoring and 

enforcement activities. EPA estimates that the highest undiscounted after-tax cost incurred by the private 

sector in any one year is approximately $78 million in 2010. 

f 100 MGD for Certain Waterbodies option for existing facilities and final rule for new offshore oil and 

gas extraction facilities: EPA estimates the total annualized after-tax costs of compliance for this option 

to be $13.0 million ($2004). All of these direct facility costs are incurred by the private sector (including 

23 manufacturing facilities and 124 new offshore oil and gas extraction facilities). No facility owned by 

State and local governments is subject to the national requirements under this evaluated option. 

Additionally, State and local permitting authorities are estimated to incur $0.2 million annually to 

administer this option, including labor costs to write permits and to conduct compliance monitoring and 

enforcement activities. EPA estimates that the highest undiscounted after-tax cost incurred by the private 

sector in any one year is approximately $79 million in 2011. 

Table A1-8 summarizes the total annualized cost and maximum one-year cost, by facility and government costs, 

for the final rule and regulatory analysis options. For a detailed discussion of these analyses, see Chapter D2: 

UMRA Analysis. 

Table A1-8: Summary of UMRA Costs (millions, $2004) 

Total Annualized Cost Maximum One-Year Cost 

Sector Facility Government Facility Government 

Compliance Implementation Total Compliance Implementation Total 

Costs Costs Costs Costs 

Final Rule for New Facilities 

Government Sector 

(excl. Federal) n/a n/a n/a n/a n/a n/a 

Private Sector $1.9 n/a $1.9 $1.5 n/a $1.5 

50 MGD All Option for Existing Facilities / Final Rule for New Facilities 

Government Sector 

(excl. Federal) $0.0 $0.6 $0.6 $0.0 $2.3 $2.3 

Private Sector $32.8 n/a $32.8 $132.1 n/a $132.1 

200 MGD All Option for Existing Facilities / Final Rule for New Facilities 

Government Sector 

(excl. Federal) $0.0 $0.2 $0.2 $0.0 $0.8 $0.8 

Private Sector $17.9 n/a $17.9 $77.9 n/a $77.9 

100 MGD CWB for Existing Facilities / Final Rule for New Facilities 

Government Sector 

(excl. Federal) $0.0 $0.2 $0.2 $0.0 $1.1 $1.1 

Private Sector $13.0 n/a $13.0 $79.5 n/a $79.5 

Source: U.S. EPA Analysis, 2006. 

e. Energy Effects 

Executive Order 13211, (“Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, 

or Use” (66 FR 28355, May 22, 2001)) requires EPA to prepare a Statement of Energy Effects when undertaking 

regulatory actions identified as “significant energy actions.” This rule is not a “significant energy action” as 

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§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

defined in Executive Order 13211 because it is not likely to have a significant adverse effect on the supply, 

distribution, or use of energy. 

EPA analyzed the potential for energy effects of the final rule for new offshore oil and gas extraction facilities as 

well as the potential effects of the options considered for existing facilities and found that it would not lead to 

adverse outcomes. From these analyses, EPA concludes that this rule would have minimal energy effects at a 

national and regional level. As a result, EPA did not prepare a Statement of Energy Effects. For more detail on 

the potential energy effects of the final regulation, see Chapter D3: Other Administrative Requirements, Section 

D3-7. 

f. Social Costs 

 New Facilities 

EPA calculated the social cost for regulated new offshore oil and gas extraction facilities also using 3% and 7% 

discount rates. EPA estimated total annualized social costs of $3.8 million at a 3% rate and $3.2 million at a 7% 

rate. The largest component of social cost is the pre-tax cost of regulatory compliance incurred by complying 

facilities; these costs include pilot study costs, one-time technology costs of complying with the rule, one-time 

costs of installation downtime, annual operating and maintenance costs, and permitting costs (initial permit costs, 

annual monitoring costs, and permit reissuance costs). Social cost also includes implementation costs incurred by 

the Federal government. States are not involved in administering the permits for new offshore oil and gas 

extraction facilities since the offshore oil and gas industry is permitted under General Permits at the Regional 

EPA level (which is part of the Federal government). 

Table A1-9 presents the total social cost for new facilities under the final regulation by type of cost, using 3% and 

7% discount rates. 

Table A1-9: Social Cost for New Facilities (annualized, millions, $2004) 

3% Discount Rate 7% Discount Rate 

Direct Compliance Cost: 

MODUs $1.9 $1.7 

Platforms/Structures $1.5 $1.2 

Total Direct Compliance Costa $3.4 $2.8 

Federal Administrative Cost $0.4 $0.3 

Total Social Cost for New Facilitiesa $3.8 $3.2 

a Individual numbers may not sum to totals due to independent rounding. 

Source: U.S. EPA Analysis, 2006. 

 Existing Facilities 

EPA also calculated the social cost of the regulatory analysis options for existing manufacturers using two 

discount rate values: 3% and 7%. At a 3% rate, EPA estimated total annualized social costs of $38.2 million for 

the 50 MGD All option, $19.5 million for the 200 MGD All option, and $14.6 million for the 100 MGD CWB 

option (all dollar values in $2004). At a 7% rate, these values are $39.0 million, $20.2 million, and $14.1 million, 

respectively. The largest component of social cost is the pre-tax cost of regulatory compliance incurred by 

complying facilities; these costs include pilot study costs, one-time technology costs of complying with the rule, 

one-time costs of installation downtime, annual operating and maintenance costs, and permitting costs (initial 

permit costs, annual monitoring costs, and permit reissuance costs). Social cost also includes implementation 

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§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

costs incurred by Federal and State governments. As described above, EPA’s social cost estimates exclude the 

cost of facilities estimated to be baseline closures. 

Table A1-10 presents the total social cost for existing facilities under the regulatory analysis options by type of 

cost, using 3% and 7% discount rates. As shown in the table, direct compliance cost in the manufacturers 

segment accounts for the substantial majority of total social cost for existing facilities for each of the regulatory 

analysis options. EPA’s estimate of Federal and State government costs for administering each option is 

comparatively minor in relation to the estimated direct cost of regulatory compliance. 

Table A1-10: Social Cost for Existing Facilities (annualized, millions, $2004) 

50 MGD All Option 200 MGD All Option 100 MGD CWB 

Option 

3% 7% 3% 7% 3% 7% 

Direct Compliance Cost: 

Manufacturersa $37.6 $38.3 $19.3 $20.0 $14.4 $13.9 

Primary Manufacturing Industries $36.3 $37.1 $18.8 $19.5 $13.7 $13.3 

Other Industries $1.3 $1.2 $0.5 $0.4 $0.7 $0.7 

Total Direct Compliance Costa $37.6 $38.3 $19.3 $19.9 $14.4 $13.9 

State and Federal Administrative Cost $0.6 $0.6 $0.2 $0.2 $0.2 $0.2 

Total Social Cost for Existing Facilitiesa $38.2 $39.0 $19.5 $20.2 $14.6 $14.1 

a Individual numbers may not sum to totals due to independent rounding. 

Source: U.S. EPA Analysis, 2006. 

 New and Existing Facilities 

Although EPA is promulgating final Phase III regulations only for new offshore oil and gas extraction facilities, 

EPA also considered the total social cost of including each regulatory analysis option for existing facilities in the 

final rule. Under the 50 MGD All option for existing facilities and the final regulation for new offshore oil and 

gas extraction facilities, total annualized social costs are $42.2 million and $42.3 million, using 3% and 7% 

discount rates, respectively. Under the 200 MGD All option for existing facilities and final rule for new offshore 

oil and gas extraction facilities, total annualized social costs are $23.4 million under both the 3% and 7% discount 

rates. Under the 100 MGD CWB option for existing facilities and the final rule for new offshore oil and gas 

extraction facilities, total annualized social costs are $18.5 million under the 3% discount rate, and $17.4 million 

under the 7% discount rate. 

Table A1-11 summarizes the total social costs for new and existing facilities under the final rule and each 

regulatory analysis option. For details of EPA’s social cost analyses, see Chapter E1: Summary of Social Costs. 

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§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

Table A1-11: Total Social Cost for New and Existing Facilities (annualized, millions, $2004) 

2 MGD New/ 2 MGD New/ 2 MGD New/ 

50 MGD All Existing 200 MGD All Existing 100 MGD CWB Existing 

3% 7% 3% 7% 3% 7% 

Direct Compliance Cost: 

Existing Facilities $37.6 $38.3 $19.3 $20.0 $14.4 $13.9 

New Facilities $3.5 $2.9 $3.5 $2.9 $3.5 $2.9 

Total Direct Compliance Costa $41.1 $41.2 $22.8 $22.9 $17.9 $16.8 

State and Federal Administrative Cost: 

Existing Facilities $0.6 $0.6 $0.2 $0.2 $0.2 $0.2 

New Facilities $0.4 $0.3 $0.4 $0.3 $0.4 $0.3 

Total State and Federal Administrative 

Costa $1.1 $1.0 $0.6 $0.5 $0.6 $0.5 

Total Social Costa $42.2 $42.3 $23.4 $23.4 $18.5 $17.4 

a Individual numbers may not sum to totals due to independent rounding. 

Source: U.S. EPA Analysis, 2006. 

g. Benefit-Cost Analysis 

 Existing Facilities 

The benefit-cost analysis compares total annualized use benefits to total annualized pre-tax costs (social costs) for 

facilities that remain open in the baseline. Benefits and costs were discounted using both a 3% and 7% discount 

rate. The cost estimates include costs of compliance to facilities subject to regulation under the regulatory 

analysis options considered for the Phase III rule for existing facilties, as well as administrative costs incurred by 

State and local governments and by the Federal government. The benefits estimates include monetized benefits to 

commercial and recreational fishing. Total monetizable benefits include only use benefits because non-use 

benefits were evaluated qualitatively. 

Table A1-12 summarizes the number of facilities potentially subject to regulation under the regulatory analysis 

options, the number of facilities estimated to install I&E technologies, total annualized benefits, total annualized 

costs, and net benefits. Because EPA was unable to estimate benefits for the new offshore oil and gas extraction 

industry segment3

, the benefit-cost analysis only includes existing facilities. As reported in Table A1-12, 

estimated costs exceed estimated use benefits under all three options for existing facilities. Under the 50 MGD 

All option, 146 facilities are estimated to be subject to the national categorical requirements. Of those facilities, 

111 are estimated to install technologies to reduce impingement and entrainment. Using a 3% discount rate, total 

costs would exceed total use benefits by $36.0 million; using a 7% discount rate, total costs would exceed total 

use benefits by $37.2 million. Under the 200 MGD All option, 31 facilities would be subject to the national 

categorical requirements, with 27 facilities estimated to require new technologies. This option yields total social 

costs in excess of total benefits of $18.0 million and $19.0 million, discounted at 3% and 7%, respectively. Under 

the 100 MGD CWB option, 23 facilities would be subject to the national categorical requirements, and 22 are 

estimated to install technologies. Total social costs would exceed total use benefits by $12.7 million using a 3% 

discount rate, and $12.6 million using a 7% discount rate. For further discussion of the benefit-cost analysis, see 

Chapter E3: Comparison of Benefits and Social Costs. 

3

 EPA was unable to do so because this would require an estimation of where these new facilities would be built, since 

these are new facilities, such estimation was not feasible. 

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Table A1-12: Summary of Benefits and Social Costs for Existing Facilities (millions, $2004) 

Annualized Use Number of Number of Total Value of I&E Cost-Benefit Option Facilities Subject Facilities Installing Annualized Reductions Ratio to Option Technology a Costs (Mean)

3% Discount Rate 

50 MGD All option 146 111 $2.3 $38.2 17.0 

200 MGD All Option 31 27 $1.5 $19.5 13.0 

100 MGD CWB Option 23 22 $1.9 $14.6 7.8 

7% Discount Rate 

50 MGD All option 146 111 $1.8 $39.0 21.7 

200 MGD All Option 31 27 $1.2 $20.2 16.9 

100 MGD CWB Option 23 22 $1.5 $14.1 9.5 

a The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits only qualitatively. 

b Cost-benefit ratios are calculated by dividing total annualized costs by total annual use benefits. The ratios presented here are 

based on the comparison of a substantially complete measure of social costs with an incomplete measure of benefits. 

Source: U.S. EPA Analysis, 2006. 

A1-4 ORGANIZATION OF THE EA REPORT 

The EA assesses the costs, economic impacts, and benefit-cost relationships of the final regulation and the other 

regulatory options evaluated in its development. The EA consists of five parts, organized as follows: 

Part A: Background Information 

Chapter A1: Introduction provides a brief discussion of the regulated industry sectors and facilities, summarizes 

the final rule and other evaluated options, and presents a summary of economic analysis results. 

Chapter A2: Need for the Regulation discusses the environmental impacts from operating CWIS and explains the 

need for this regulatory effort. 

Part B: Economic Analysis for Phase III New Offshore Oil and Gas Extraction Facilities 

Chapter B1: Summary of Cost Categories and Key Analysis Elements for New Offshore Oil and Gas 

Extraction Facilities summarizes the cost categories included in the economic analyses for Phase III new 

facilities and describes certain elements of the analytic framework of the economic analyses of new offshore oil 

and gas extraction facilities. 

Chapter B2: Profile of the Offshore Oil and Gas Extraction Industry presents a profile of existing offshore oil 

and gas production platforms and mobile offshore drilling units (MODUs) and characterizes new facilities subject 

to the final Phase III requirements. The profile summarizes the existing facilities, their associated firms, and the 

financial conditions of those firms. The profile also projects the number and type of new facilities estimated to 

begin operation over a twenty-year period. 

Chapter B3: Economic Impact Analysis for the Offshore Oil and Gas Extraction Industry presents an overview 

of the methodology used to estimate the economic impacts potentially incurred by new offshore oil and gas 

extraction facilities under the final Phase III regulation and provides the impact analysis results. The chapter 

assesses the potential impacts on MODUs, platforms, and firms, including a cost-to-revenue analysis at the 

facility and firm levels. The chapter also presents a barrier-to-entry analysis for new facilities. 

Part C: Economic Analysis for Phase III Existing Facilities 

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§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

Chapter C1: Summary of Cost Categories and Key Analysis Elements for Existing Facilities summarizes the 

cost categories included in the economic analyses for Phase III existing facilities and describes certain elements of 

the analytic framework that are common to the economic analyses of Manufacturers and Electric Generators. 

Chapter C2: Profile of Manufacturers presents profiles of the markets in which affected manufacturing facilities 

operate (SIC codes 26, 28, 29, 331, 333/335, and 20). Each manufacturing industry profile presents an outline of 

domestic production, discusses market structure and competitiveness, summarizes industry-wide financial 

performance and condition, and characterizes facilities potentially subject to regulation under Phase III. 

Chapter C3: Economic Impact Analysis for Manufacturers presents an overview of the methodology used to 

estimate the economic impacts incurred by Phase III manufacturing facilities under the three options and provides 

the impact analysis results. The chapter describes the analytic framework used to assess severe and moderate 

facility-level impacts associated with the regulatory analysis options. The chapter also includes a discussion of 

firm- and market-level impacts. 

Part D: Additional Economic Analyses for New and Existing Facilities 

Chapter D1: Regulatory Flexibility Analysis presents EPA’s estimates of small entity impacts from this final rule 

and other evaluated options. 

Chapter D2: UMRA Analysis outlines the requirements for analysis under the Unfunded Mandates Reform Act 

and presents the results of the analysis for this final regulation and other evaluated options. 

Chapter D3: Other Administrative Requirements presents additional analyses conducted in developing this final 

rule and other evaluated options. These analyses address the requirements of Executive Orders and Acts 

applicable to this proposal. 

Part E: Social Costs, Benefits, and Benefit-Cost Analysis for New and Existing Facilities 

Chapter E1: Summary of Social Costs presents the social costs of the final rule and other evaluated options, 

including time profiles of direct facility costs and administrative costs. 

Chapter E2: Summary of Benefits provides an overview of the regional studies used to support the benefits 

assessment and a summary of the analyses. The chapter also presents the results of each regional study for the 

regulatory analysis options considered for Phase III existing facilities. Finally, the chapter outlines the 

methodology used to extrapolate regional study results to develop national estimates of baseline losses from 

impingement and entrainment at in-scope facilities and presents monetized benefits. 

Chapter E3: Comparison of Benefits and Social Costs compares total benefits to total social costs at the national 

and regional levels for the regulatory analysis options considered for Phase III existing facilities. This chapter 

includes a discussion of net benefits, an incremental analysis of net benefits, cost/benefit ratio, and a break-even 

analysis. Lets 

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§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

REFERENCES 

Clean Water Act (CWA). 33 U.S.C. 1251 et seq. 

U.S. Department of Commerce (U.S. DOC). 2005. Statistics for Industry Groups and Industries: 2004. Annual 

Survey of Manufactures. U.S. Census Bureau. December 2005. 

U.S. Department of Commerce (U.S. DOC). 2002. 2002 Economic Census. U.S. Census Bureau. 

U.S. Department of Commerce (U.S. DOC). 1986. 1982 Census of Manufactures. Subject Series: Water Use in 

Manufacturing. Bureau of the Census. March 1986. 

U.S. Department of Energy (U.S. DOE). 1996. Form EIA-867 (1996). Annual Nonutility Power Producer 

Report. 

U.S. Department of Energy (U.S. DOE). 1995. Form EIA-767 (1995). Steam-Electric Plant Operation and 

Design Report. 

U.S. Environmental Protection Agency (U.S. EPA). 2006a. Economic and Benefits Analysis for the Final 

Section 316(b) Phase III Existing Facilities Rule. EPA-821-R-06-001. June 2006. 

U.S. Environmental Protection Agency (U.S. EPA). 2006b. Technical Development Document for the Final 

Section 316(b) Phase III Existing Facilities Rule. EPA-821-R-06-003. June 2006. 

U.S. Environmental Protection Agency (U.S. EPA). 2001. Economic Analysis of the Final Regulations 

Addressing Cooling Water Intake Structures for New Facilities. EPA-821-R-01-035. November 2001. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Section 316(b) Industry Survey. Detailed Industry 

Questionnaire: Phase II Cooling Water Intake Structures and Industry Short Technical Questionnaire: Phase II 

Cooling Water Intake Structures, January, 2000 (OMB Control Number 2040-0213). Industry Screener 

Questionnaire: Phase I Cooling Water Intake Structures, January, 1999 (OMB Control Number 2040-0203). 

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§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A1: Introduction 

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§ 316(b) Final Rule: Phase III – EA, Part A: Background Information	 Chapter A2: Need for the Regulation 

Chapter A2: Considerations in Assessing the 
 

Need for Phase III Regulation 
 

INTRODUCTION 

Many cooling water intake structures (CWIS) have been 

constructed on sensitive aquatic systems with capacities 

and designs that have potential to cause damage to the 

waterbodies from which they withdraw water. In fact, of 

the 709 existing facilities that were considered potentially 

within the scope of the 316(b) Phase III regulation, only 67 

indicated on EPA’s 2000 Section 316(b) Industry Survey 

that they have ever performed an impingement and 

entrainment (I&E) study (U.S. EPA, 2000).1

 In addition, 

EPA and the Bureau of Land Management’s Minerals 

Management Service (MMS) could only identify one case where the potential environmental impacts of the 

CWIS of a new oil and gas extraction facility were considered (U.S. DOI, 2001). In a subsequent literature 

review, MMS did not find any information related to potential environmental impacts or I&E controls for any 

existing oil and gas extraction facilities (U.S. DOI, 2004). 

CHAPTER CONTENTS 


 

	 


 

Introduction............................................................ A2-1

A2-1 Description of Environmental Impacts from 

CWIS ........................................................ A2-1 

A2-2 Levels of Protection at Phase III Facilities A2-2 

A2-2.1 Phase III New Facilities.................... A2-2 

A2-2.2 Potential Phase III Existing FacilitiesA2-3 

A2-3 Addressing Market Imperfections............. A2-3 

References.............................................................. A2-4

This chapter presents information that documents how EPA addressed the question of the need for regulation. 

A2-1 DESCRIPTION OF ENVIRONMENTAL IMPACTS FROM CWIS 

The withdrawal of cooling water by Phase III existing facilities removes tens of billions of aquatic organisms 

from waters of the United States each year, including plankton (small aquatic animals, including fish eggs and 

larvae), fish, crustaceans, shellfish, sea turtles, marine mammals, and many other forms of aquatic life. Most 

impacts are to early life stages of fish and shellfish. Aquatic organisms drawn into CWIS are either impinged on 

components of the intake structure or entrained in the cooling water system (CWS) itself. 

Rates of I&E depend on species characteristics, the environmental setting in which a facility is located, and the 

location, design, and capacity of the facility’s CWIS. 

In addition to direct losses of aquatic organisms from I&E, a number of indirect, ecosystem-level effects may also 

occur, including (1) disruption of aquatic food webs resulting from the loss of impinged and entrained organisms 

that provide food for other species, (2) disruption of nutrient cycling and other biochemical processes, (3) 

alteration of species composition and overall levels of biodiversity, and (4) degradation of the overall aquatic 

environment. In addition to the impacts of a single CWIS on currents and other local habitat features, 

environmental degradation can result from the cumulative impact of multiple intake structures operating in the 

same watershed or intakes located within an area where intake effects interact with other environmental stressors. 

1

 This number is sample-weighted and includes manufacturing facilities and electric generators only. Facilities estimated 

to be baseline closures are excluded from this count and all analyses presented in this chapter. See Chapter C3 for additional 

information on EPA’s baseline closure analyses. 

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§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A2: Need for the Regulation 

A2-2 LEVELS OF PROTECTION AT PHASE III FACILITIES 

Facilities subject to the Phase III final regulation use a wide variety of cooling water intake technologies to 

maximize cooling system efficiency, minimize damage to their operating systems, and to reduce environmental 

impacts. The following subsections present data on technologies that have been identified as effective in 

protecting aquatic organisms from I&E. The first subsection presents information for the Phase III new facilities; 

the second subsection presents information for Phase III existing facilities. 

A2-2.1 Phase III New Facilities 

In general, oil and gas extraction facilities have not considered the potential environmental impacts of their 

CWISs. EPA and the Bureau of Land Management’s Minerals Management Service (MMS) could only identify 

one case where the environmental impacts of a fixed offshore oil and gas extraction facility’s CWIS were 

considered (U.S. DOE, 2001). Although plans for the Liberty Island Project in Beaufort Sea, Alaska, were put on 

hold in January 2002 (FR, 2002), BP Exploration (Alaska) Inc. (BPXA) had plans to locate a vertical intake pipe 

for a seawater-treatment plant on the south side of Liberty Island, Beaufort Sea, Alaska. The project would have 

had the following specifications: 

f a vertical pipe with an opening of 8 feet by 5.67 feet, located approximately 7.5 feet below the mean lowwater level; 

f a continuous flush system discharge that pumps the seawater through the process-water system to prevent 

ice formation and blockage; 

f recirculation pipes located just inside the opening to help keep large fish, other animals, and debris out of 

the intake; 

f two vertically parallel screens (6 inches apart), located in the intake pipe above the intake opening, with a 

mesh size of 1 inch by 1/4 inch; 

f maximum water velocity of 0.29 feet per second at the first screen and 0.33 feet per second at the second 

screen (maximum velocities only during a few hours each week while testing the fire-control water 

system – at other times, considerably lower velocities); and 

f periodical removal, cleaning, and replacement of the screens. 

MMS stated in the Liberty Draft Environmental Impact Statement (which was prepared prior to BP’s decision to 

hold development plans) that the proposed seawater-intake structure would likely harm or kill some young-of-theyear arctic cisco during the summer migration period and some eggs and fry of other species in the immediate 

vicinity of the intake. However, MMS estimated that less than 1% of the arctic cisco in the Liberty area would 

likely be harmed or killed by the intake structure. Further, MMS concluded that the intake structure (1) would not 

have a measurable effect on young-of-the-year arctic cisco in the migration corridor and (2) would not have a 

measurable effect on other fish populations because of the wide distribution/low density of their eggs and fry. 

In general, the importance of controlling I&E at offshore oil and gas extraction facilities is highlighted by the fact 

that these structures provide an important fish habitat. For example, oil and gas platforms and artificial reefs 

undoubtedly serve as red snapper habitat, and they may serve as an important (but not obligate) link in the life 

history of both juvenile and adult red snapper (Gulf of Mexico Fishery Management Council, 1996). In general, 

five to 100 times more fish can be concentrated near offshore platforms than in the soft mud and clay habitats 

elsewhere in the Gulf of Mexico (Fury, 2002). As a result, 70% of all fishing trips in the Gulf of Mexico head for 

oil and natural gas platforms. Likewise, 30% of the 15 million fish caught by recreational fishermen every year 

off the coasts of Texas and Louisiana come from the waters around platforms. 

A2-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A2: Need for the Regulation 

A2-2.2 Potential Phase III Existing Facilities 

EPA used information from its 2000 Section 316(b) Industry Survey to characterize the 709 existing facilities 

potentially subject to Phase III regulation (i.e., with DIF of at least 2 MGD) with respect to their CWS 

configuration, their CWIS technologies, and their cooling system location. These estimated 709 facilities include 

592 Manufacturers facilities and 117 Electric Power Producers. Closed-cycle cooling systems (e.g., systems 

employing cooling towers) are the most effective means of protecting organisms from I&E. Discussions with 

NPDES permitting authorities and utility officials identified fine mesh screens as an effective technology for 

minimizing entrainment. They can, however, increase impingement. Another effective approach for minimizing 

Adverse Environmental Impact (AEI) associated with CWIS is to locate the intake structures in areas with low 

abundance of aquatic life, and to design the structures so that they do not provide attractive habitat for aquatic 

communities. However, this approach is of little utility for existing facilities where options for relocating intake 

structures are infeasible. 

A2-3 ADDRESSING MARKET IMPERFECTIONS 

Facilities withdraw cooling water from U.S. waters to support production activities, and, in the process impinge 

and entrain organisms without accounting for the consequences of these actions on the ecosystem or other parties 

who do not directly participate in the production process. The actions of these facilities impose harm or costs on 

the environment and on other parties (sometimes referred to as third parties). These costs, however, are not 

recognized by the responsible entities in the conventional market-based accounting framework. Because the 

responsible entities do not account for these costs to the ecosystem and society, they are external to the market 

framework and the consequent production and pricing decisions of the responsible entities. In addition, because 

no party is reimbursed for the adverse consequences of I&E, the externality is uncompensated. 

Business decisions will yield a less than optimal allocation of economic resources to production activities, and, as 

a result, a less than optimal mix and quantity of goods and services, when external costs are not accounted for in 

the production and pricing decisions of the section 316(b) industries. In particular, the quantity of AEI caused by 

the business activities of the responsible business entities will exceed optimal levels and society will not 

maximize total possible welfare. Adverse distributional effects may be an additional consequence of the 

uncompensated environmental externalities. If the distribution of I&E and ensuing AEI is not random among the 

U.S. population but instead is concentrated among certain population subgroups based on socio-economic or other 

demographic characteristics, then the uncompensated environmental externalities may produce undesirable 

transfers of economic welfare among subgroups of the population. 

Market imperfections are often the reason that governments consider regulatory actions against a business or 

group of businesses. Depending on the nature of the AEI and potential costs for control technologies, 

governments may decide to address the market imperfection through a wide-ranging regulation or on a case-bycase basis. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute A2-3 
§ 316(b) Final Rule: Phase III – EA, Part A: Background Information Chapter A2: Need for the Regulation 

REFERENCES 

Federal Register (FR). 2002. Volume 67, number 99, pages 36020-26022. May 22, 2002. 

Fury, Sandra. ChevronTexaco. Statements before U.S. Commission on Ocean Policy. March 8, 2002. 

Gulf of Mexico Fishery Management Council. 1996. Reef Fish Stock Assessment Panel – Review of 1996 

Analysis by Gallaway and Gazey. Pursuant to National Oceanic and Atmospheric Administration Award No. 

NA67FC0002. 

U.S. Department of Interior (U.S. DOI). 2004. Minerals Management Service. Marine and Coastal Fishes 

Subject to Impingement by Cooling-Water Intake Systems in the Northern Gulf of Mexico: An Annotated 

Bibliography, OCS Study, MMS 2003-040. August 2003. 

U.S. Department of Interior (U.S. DOI). 2001. Minerals Management Service. Liberty Development and 

Production Plan Draft Environmental Impact Statement, OCS EIS/EA, MMS 2001-001. January 2001. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Section 316(b) Industry Survey. Detailed Industry 

Questionnaire: Phase II Cooling Water Intake Structures and Industry Short Technical Questionnaire: Phase II 

Cooling Water Intake Structures, January, 2000 (OMB Control Number 2040-0213). Industry Screener 

Questionnaire: Phase I Cooling Water Intake Structures, January, 1999 (OMB Control Number 2040-0203). 

A2-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

Chapter B1: Summary of Cost Categories 
 

and Key Analysis Elements for New Offshore 
 

Oil and Gas Extraction Facilities 

INTRODUCTION 

This chapter presents an overview of the cost categories 

and certain elements of the analytic framework that are 

common to the economic analyses of the two major 

industry segments covered by the final standards for new 

Offshore Oil and Gas Extraction facilities: mobile offshore 

drilling units (MODUs) and oil and gas production 

platforms or structures. 

B1-1 COST CATEGORIES 

In its analyses of the costs and economic impacts of the 

final rule on new oil and gas extraction facilities, EPA 

considered three categories of costs: 

f costs of installing and operating compliance 

technology, 

f administrative costs incurred by complying 

facilities, and 

f administrative costs incurred by permitting 

authorities. 

CHAPTER CONTENTS 


 


 

Introduction............................................................ B1-1

B1-1 Cost Categories ......................................... B1-1

B1-1.1 Cost of Installing and Operating 

Compliance Technology................... B1-2 

B1-1.2 Administrative Costs for Complying 

Facilities ........................................... B1-3 

B1-2 Key Elements of the Economic Analysis For 

New Offshore Oil and Gas Extraction Facilities 

.................................................................. B1-7 

B1-2.1 Compliance Schedule ....................... B1-8 

B1-2.2 Adjusting Monetary Values to a Common 

Time Period of Analysis ................... B1-8 

B1-2.3 Discounting and Annualization – Costs to 

Society or Social Costs ..................... B1-9 

B1-2.4 Discounting and Annualization – Costs to 

Complying Facilities ...................... B1-11 

References............................................................ B1-13 

In contrast to the analysis conducted for the Manufacturing industry segment (see also Chapter B1), EPA assumed 

that no downtime is associated with installing or maintaining CWIS technologies for new offshore oil and gas 

extraction facilities, for two reasons. First, new facilities do not have to retrofit equipment; the equipment is built 

to specification and installed before the facility begins operations. Second, even the maintenance of CWISs 

should not result in downtime in the oil and gas industry. MODUs are hauled out on a regular basis for other 

types of maintenance activities, and production platforms are shut in one to two times per year for other 

maintenance, making incremental downtime due to CWIS maintenance unlikely (see the Technical Development 

Document for the Final Section 316(b) Phase III Rule (hereafter referred to as the “Phase III Technical 

Development Document”; U.S. EPA, 2006b). 

Subsection B1-1.1 provides an overview of the three cost categories included in the analysis for new offshore oil 

and gas extraction facilities, addressing those aspects of each category that are relevant to the oil and gas industry. 

Table B1-1 summarizes the type of new offshore oil and gas extraction facility assumed to be subject to Phase III 

regulation and the compliance technologies considered for each facility type. Subsection B1-1.2 presents 

information on administrative costs incurred by new oil and gas facilities. Additional detail on the costs of 

installing and operating compliance technology is provided in the Phase III Technical Development Document. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

B1-1.1 Cost of Installing and Operating Compliance Technology 

Oil and gas drilling and production facilities will need to implement technologies to reduce impingement 

mortality and/or entrainment. The choice of technology varies depending on CWIS diameter and flow rate or 

diameter, or type of CWIS (e.g., sea chest or simple pipe). Note that for new MODUs, which EPA assumes will 

use sea chests, only impingement requirements will apply. EPA determined that entrainment controls on sea 

chests are not technically practicable (U.S. EPA, 2006b). 

Table B1-1: Technologies for Implementing 316(b) Requirements for New Offshore Oil and Gas 

Extraction Facilities 

Category CWIS Type Technology Description 

Platform Simple Pipe or Caisson Stainless steel wedge wire screen - no air sparge cleaning 

Stainless steel wedge wire screen - with air sparge Platform Simple Pipe or Caisson cleaning 

Platform Simple Pipe or Caisson 

Platform Simple Pipe or Caisson 

Platform Simple Pipe or Caisson 

Jackup Simple Pipe or Caisson 

Jackup Simple Pipe or Caisson 

Jackupa Sea Chest 

Jackupa Sea Chest 

Jackup Submersible Pumps 

Submersibles, SemiCuNi wedge wire screen - no air sparge cleaning 

CuNi wedge wire screen - with air sparge cleaning 

Stainless steel and CuNi velocity caps 

Cylindrical wedge wire screen over tower inlet 

Horizontal Flow Modifier 

Flat panel wedge wire screen over sea chest opening 

Horizontal Flow Diverter for Side Sea Chests 

Cylindrical wedge wire screen over suction pipe inlet 

Submersibles and Drill Shipsa Sea Chests Flat panel wedge wire screen over sea chest 

Submersibles, Semi- Sea Chests Horizontal flow diverter over side sea chest submersibles and Drill Shipsa 

Drill Barges Simple Pipes Cylindrical wedge wire screen over simple pipes 

a 

Drill Barges Simple Pipes Velocity Cap on the CWIS 

All semi-submersibles and drill ships and most jackups in EPA’s technical database use sea chests. EPA determined that 

entrainment controls on sea chests are not technically practicable. New MODUs, which are represented by typical existing MODUs, are 

assumed to use sea chests (see U.S. EPA, 2006b). 

Source: U.S. EPA, 2006b. 

EPA developed technology cost estimates for the final rule based on the impingement mortality and entrainment 

reduction technologies (as appropriate) projected for each new oil and gas facility. Technology costs include 

capital costs and operating and maintenance (O&M) costs. The technology costs developed for the final rule 

analysis are engineering cost estimates, expressed in July 2002 dollars. These costs were converted to mid-year 

2004 values for most applications (see Section B1-2.2 below for a discussion of adjusting monetary values to a 

common time period of analysis). 

More detailed information on the compliance technologies considered by EPA, on technology costs, and on 

EPA’s characterization of baseline technologies already in-place at new offshore oil and gas extraction facilities, 

is available in the Phase III Technical Development Document. In addition, Chapter B3: Economic Impact 

Analysis for the Offshore Oil and Gas Extraction Industry provides more detail on the engineering costs assumed 

for each of the different types of oil and gas facilities analyzed in this report. 

EPA received no substantive comments on compliance costs or costing methodologies, so no changes have been 

made to these, other than to inflate costs for the 2003 values presented at proposal to 2004 values in this final 

economic analysis report. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

B1-1.2 Administrative Costs for Complying Facilities 

Compliance with the standards of the final rule requires new offshore oil and gas extraction facilities to carry out 

certain administrative functions. For Phase III existing facilities, these administrative functions, which help them 

determine their compliance requirements and provide the documentation needed for issuance of their new 

National Pollution Discharge Elimination System (NPDES) permits, fall on each facility individually. For new 

oil and gas facilities, however, General Permits apply. 

There are three General Permits (GPs) that will apply to new offshore oil and gas extraction facilities subject to 

Phase III regulation. The Region 6 General Permit applies to the relatively active Western Gulf of Mexico 

(GOM) region; the Region 4 General Permit applies to the currently relatively inactive Eastern GOM region, and 

the Region 10 General Permit (Cook Inlet permit) applies to Cook Inlet, Alaska. The GPs are expected to be 

rewritten to accommodate the requirements of section 316(b) following promulgation of the final rule and as each 

GP comes up for renewal at the end of its 5-year cycle. 

The current Region 6 permit was effective as of 2002, expired in 2003, and was renewed in 2004. This renewal is 

for 3 years only, to allow for information from a produced water study to be incorporated more expeditiously. 

The next rounds of permitting, therefore, are assumed to 2007 and 2012. The Region 4 permit expired in 2003 

and was renewed in 2004. The probable post-promulgation GP renewal schedule is considered to be 2009 and 

2014. The proposed permit for Cook Inlet is currently in comment period. The likely renewal is therefore mid to 

late 2006. However, the permit expired in 2004. Assuming the 5-year schedule will still apply, regardless of this 

delay, the likely post-promulgation renewal schedule for the Cook Inlet permit is 2009 and 2014. 

The 316(b) Phase III final rule is scheduled to be promulgated in 2006, with the effective date assumed to be the 

beginning of 2007. Three years of environmental studies are assumed to be required prior to permitting under the 

section 316(b) rule. Thus, the first possible compliance date after the 2007 effective date would be 2010. 

However, the general permits may not be able to incorporate section 316(b) requirements during the 2007-2009 

repermitting cycles. Therefore, EPA assumed that the oil and gas industries will be required to comply starting in 

2012 (or 2014 in the case of Region 4 and 10 permits). 

Because the rule becomes effective in 2007, however, EPA is assuming, for both simplicity and to be 

conservative, that starting in 2007, new offshore oil and gas extraction facilities will have installed and will be 

operating relevant CWIS controls, since they will be relatively inexpensive to install during construction. The 

pre-permitting studies are assumed to start in 2007 (for both Region 6 and Region 4), but other permitting tasks 

will not begin until the year prior to when the GPs renewals are finalized (2012 or 2014), or the year prior to when 

the facility is assumed to come on line or be launched, whichever is later. Monitoring will begin only in the year 

the renewals are finalized or the year in which the facility comes on line or is launched, again, whichever is later. 

The timing assumptions for Region 6 and Region 4 permits may overstate costs, since costs are moved several 

years earlier in the analysis time frame than they would be if EPA assumed only those facilities constructed in 

2012 or later incur compliance costs. The costs of compliance in this industry, however, are relatively small 

overall, so the numerical significance of any overestimation would be small. More specific details of the timing 

assumptions of costs incurred are provided in a memorandum to the Rulemaking record (ERG, 2004). 

Because new offshore oil and gas extraction facilities will be subject to Phase III regulation under these GPs, EPA 

assumes that certain administrative functions can be shared among new facilities. All MODUs and platforms 

expected to be built in the first five years before the revised Region 6 General Permit is issued (2012) are 

expected to share the initial costs of certain biological characterization studies that will be required by section 

316(b) under the Region 6 GP. They are also assumed to share the cost of monitoring studies, which must be 

performed at a minimum for the first two years of the permit and then at least once per year for each repermitting 

cycle. Only MODUs are assumed to share the costs of permitting studies under the Region 4 GP. Permitting 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B1-3 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

costs for platforms are assumed to be those incurred under the Region 6 permit. Should platforms with affected 

CWISs be constructed in Region 4 locations, permitting costs will be similar to Region 6 permitting costs. Since 

it is not known which MODUs might operate in the Eastern GOM, all MODUs constructed in 2007 and beyond 

are assumed to incur permitting costs under a Region 4 GP. This roughly doubles the permitting costs assigned to 

MODUs. The assumption may overstate total costs, since not all MODUs might operate in the Eastern Gulf. 

Furthermore, there might be significant costs savings once a Region 6 permit application is completed, since 

much of the information required for both permits would most likely be identical. 

Only one Alaska project is anticipated, at most, over the period of analysis (see Chapter B2: Profile of the 

Offshore Oil and Gas Extraction Industry), so this project is expected to incur the entire cost of facility 

permitting. This project is assumed to go on line in the year the Region 10 permit is finalized (2014). For this 

project, EPA assumes that the 3-year studies are performed in the three years prior to start-up (2011-2013). 

The administrative functions associated with incorporating the 316(b) requirements into the applicable General 

Permits are either one-time requirements (compilation of information for the initial post-promulgation General 

Permits) or recurring requirements (compilation of information for subsequent General Permit renewals; and 

monitoring, record keeping, and reporting). More detailed information on the derivation of permitting activities 

and costs can be seen in U.S. EPA (2006a). 

EPA received no substantive comments on the administrative costs of permitting activities, nor on the timing or 

cost sharing assumptions. All costs and methodologies are the same as those at proposal, although costs have 

been updated from the 2003 values used at proposal to the 2004 values in this final economic analysis report. 

B1-1.2.1 Initial Post-promulgation General Permit Application 

EPA assumes that the final rule will encourage firms to pool their resources. Therefore, those firms that are 

planning to construct new platforms or MODUs to operate in the GOM within the first 5 years before the 

applicable General Permit is reissued with 316(b) requirements in place are assumed to share certain prepermitting costs. EPA expects that these firms will hire a consultant to perform the more general information 

gathering tasks required of industry before facilities can be permitted under a GP and also to perform the two 

years of monitoring studies required in the first two years of the permit (monitoring costs are assumed shared by 

the number facilities permitted in the first or second year of the first permit cycle). Other activities are specific to 

each facility and it is assumed each facility will incur the cost of these activities individually. Some of the 

permitting activities, however, will not be incremental to existing requirements. Minerals Management Service 

(MMS) has finalized a rule (August 2005) that requires some of the same information (Federal Register, 2005). 

(The MMS rule is, however, not applicable to Cook Inlet.) All information submitted will be consistent with 

Phase I, Track 1 requirements. 

Activities and costs associated with the initial permit renewal application include: 

f Start-up activities: reading and understanding the rule; mobilizing and planning; and training staff. This 

is a facility-specific activity. 

f Permit application activities: identifying source water physical data, velocity information, and cooling 

water intake structure data, including description of CWIS operations, flow distribution and water balance 

diagram, and drawings and maps to support CWIS descriptions, and maintaining copies of these records. 

These activities are assumed facility-specific, but several of the activities duplicate activities required by 

MMS. There are no incremental costs associated with duplicate activities. 

f Source waterbody flow and CWIS velocity flow information: Information used to demonstrate that the 

facility’s CWIS meets the proportional flow requirements. The CWIS velocity flow information and 

demonstration is assumed to be facility-specific, but none of these activities is incremental to MMS 

B1-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
c 

§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

requirements. The waterbody flow calculation activities are only those associated with compiling sitespecific information. Other waterbody characterization activities that can be shared are included in the 

biologic characterization study activities. 

f Design and construction technology plan: delineation of the hydrologic zone of influence for the CWIS, 

description of technologies to be implemented; the basis for technology selection; expected performance 

of the technology; and design calculations, drawings and estimates to support the technology description 

and performance. These activities are assumed facility-specific. Development of the narrative 

description of technologies is considered an MMS requirement, so no costs are assumed incurred for this 

activity. 

f Source water baseline biological characterization data: characterization of the biological community in 

the region and operation of CWISs; list of species in region; identification and evaluation of primary 

period of reproduction, larval recruitment, and period of peak meroplankton abundance for relevant taxa; 

and description of the likely impact of CWISs on the biological community due to impingement and 

entrainment. This is considered a regional study to be conducted over a 3-year period by a contractor; 

costs are assumed to be shared among affected facilities, since the entire monitoring program is assumed 

to apply region-wide. 

Table B1-2 below lists the estimated costs per facility of each of the initial post-promulgation General Permit 

activities described above (permit costs for MODUs in the Eastern GOM are lower in some cases, since MODUs 

are assumed to use sea chests and are not required to meet entrainment requirements, eliminating any costs 

associated with entrainment studies). 

Table B1-2: Cost of Initial Post-Promulgation NPDES General Permit Application Activities 

(Per Facility, 2004$) 

Activity Region 6 Region 4 Region 10 

Start-up activitiesa $2,291 $2,291 $2,291 

Permit application activitiesb 

$959 $959 $959 

Source waterbody flow informationa $1,470 $1,470 $1,470 

CWIS velocity flow informationf $0 $0 $0 

Design and construction technology planb $1,334 $1,185 $1,334 

Biological characterization studyc,e $64,574 $40,407 $297,695 

Total Initial Post-Promulgation NPDES General 

Permit Application Costd $70,627 $46,311 $303,748 a The costs for these activities are incurred in 2007 for facilities built in 2007 to 2011 in both Eastern and Western Gulf. For Alaska, 

they occur in 2011. 

b The costs for these activities are incurred in 2011 for facilities built in 2007 to 2012 for both Eastern and Western Gulf. For Alaska, 

they occur in 2013. 

The costs for these activities are incurred during 2007-2009 in the Eastern and Western Gulf and are shared costs. For Alaska, these 

costs are incurred during 2011-2013. 

d Individual numbers may not add to total due to independent rounding. e Shared study costs. f Measured as incremental to MMS requirements. 

Source: U.S. EPA, 2006a. See also ERG, 2004 and DCN 9-4000. 

B1-1.2.2 Subsequent NPDES General Permit Renewals 

Subsequent General Permit renewals will require collecting and submitting the same type of information required 

for the initial permit renewal application. EPA expects that both the facility and the contractor can use some of 

the information from the initial studies. Building upon existing information is expected to require less effort than 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

developing the data the first time, especially in situations where conditions have not changed. The shared 

recurring permit costs are assumed to be shared by all new offshore oil and gas extraction facilities built in the 

first 5-year cycle plus all new facilities built in the next 5-year cycle, etc., so as time goes on, shared costs are 

shared by more and more facilities (except Alaska, where only one project is assumed during the time frame of 

the analysis). As facilities go off line or are retired (after 30 years), fewer projects share in these studies. 

Table B1-3 lists the estimated costs of each of the NPDES General Permit renewal activities subsequent to the 

first round. Since these numbers change slightly as facilities come on or off line, the costs shown are for the first 

repermitting cycle following the initial GP renewal. 

Activity Region 6 Region 4 Region 10 

a $732 $732 $732 a $194 $194 $194 a $416 $416 $416 a $0 $0 $0 a $834 $720 $834 a $12,162 $7594 $193,324 d $14,338 $9,656 $195,501 a 

of permitting. 

Source: 

B1-1.2.3 

f 

f 

f 

f 

Activity Region 6 Region 4 Region 10 

$4,320 $1,949 $0 

$2,699 $0 $45,723 a $1,037 $468 $6,393 

$1,861 $840 $11,474 

$9,917 $3,257 $63,661 

a 

Source: 

Table B1-3: Cost of Subsequent NPDES General Permit Application Activities (Per Facility, 2004$) 

Start-up activities

Permit application activities

Source waterbody flow information

CWIS velocity flow information

Design and construction technology plan

Biologic characterization study

Total Recurring NPDES Permit Application Cost

The costs for these activities are incurred during the year of the General Permit renewal. Shared costs shown are for the first permit 

renewal period after the initial permit (e.g., 2017); these costs change as the number of permitted facilities change. For simplicity, all 

costs for repermitting are assumed to be incurred in one year, rather than spread over several years as was assumed for the initial round 

U.S. EPA, 2006a. See also ERG, 2004 and DCN 9-4000. 

Annual monitoring, record keeping, and reporting 

Annual monitoring, record keeping, and reporting activities and costs include: 

Biologic monitoring for impingement 

Biologic monitoring for entrainment 

Velocity monitoring 

Preparing and maintaining a yearly status report 

Table B1-4 on the following page outlines the associated costs of these activities. 

Table B1-4: Cost of Monitoring Activities (Per Facility, 2004$) 

Biologic monitoring for impingement 

Biologic monitoring for entrainment 

Velocity monitoring

Preparing and maintaining yearly status report 

Total Monitoring Cost 

The costs for these activities are incurred during the first two years of the initial General Permit renewal (i.e., 2012 or 2014) and are 

shared. These costs are incurred for one year in each subsequent permit renewal cycle. Shared costs shown are for the first permit cycle 

only (2012 or 2014); these costs change as the number of permitted facilities changes over time. 

U.S. EPA, 2006a. See also ERG 2004. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

B1-1.2.4 Administrative Costs for Permitting Authorities 

In addition, permitting authorities have to review the information provided by new offshore oil and gas extraction 

facilities and have to issue new general permits that reflect the requirements of the final rule. These activities 

impose costs on the responsible governmental units. For more details on the specific costs and timing 

assumptions for federal administration of new offshore oil and gas extraction facilities, see Chapter D2: UMRA 

Analysis. These costs and assumptions are summarized briefly below. 

The requirements of section 316(b) are implemented through the National Pollutant Discharge Elimination 

System (NPDES) permit program. In the case of the oil and gas industry, NPDES permitting is consolidated 

under several General Permits, which are administered at the EPA regional level. Unlike the Phase III existing 

facilities discussed in Chapter C1: Summary of Cost Categories and Key Analysis Elements for Existing 

Facilities, no states are involved in these permitting activities. Thus, three Regions (Region 6, Region 4, and 

Region 10) are expected to be the only entities responsible for permitting. Because states are not involved in 

permitting, there are no costs associated with Federal oversight as there are for state-administered NPDES 

permits. The three Regions will incur three types of costs associated with implementing the requirements of the 

final rule on a per-facility basis, i.e., for each facility permitted under a GP: (1) start-up activities (considered not 

incremental to existing activities; $0 cost) , (2) activities associated with the initial General Permit containing the 

new section 316(b) requirements ($12,677 in each region) and subsequent permit renewals ($4,743 in each 

region), and (3) annual activities ($1,471 in each region).1 

The start up activities apply only once to each Region, but the remaining activities are incurred on a per-facility 

basis. 

For a detailed discussion of administrative costs for permitting authorities, see Chapter D2: UMRA Analysis, 

section D2-1.2. 

B1-2 KEY ELEMENTS OF THE ECONOMIC ANALYSIS FOR NEW OFFSHORE OIL AND GAS 

EXTRACTION FACILITIES 

The economic analysis of regulation of new offshore oil and gas extraction facilities addresses the cost to, and 

impact on, the affected industry segments and society generally. Although these analyses differ in important 

respects for the individual industry segments – particularly in terms of the analytic models and methods for 

assessing the economic/financial impact of the final rule on complying parties within the segments – several 

elements of the analysis have features common to all new offshore oil and gas extraction facilities. This section 

reviews the following key common elements: 

f Compliance Schedule 

f Adjusting Monetary Values to a Common Time Period of Analysis 

f Discounting and Annualization: Costs to Society or Social Costs 

f Discounting and Annualization: Costs to Complying Facilities 

EPA received no substantive comments on these timing or discounting assumptions. All such methodologies are 

the same as those at proposal, although inflation factors have been changed to compute 2004 values in this final 

economic analysis report. 

1 The costs associated with implementing the requirements for new offshore oil and gas extraction facilities are 

documented in EPA’s Information Collection Request (U.S. EPA, 2004a). 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

B1-2.1 Compliance Schedule 

For its analysis of the cost and impacts of the final rule, EPA developed a profile of the expected compliance year 

(year in which the new MODU or platform is launched or comes on line) for each of the types of facilities 

considered in the economic analysis. Unlike the analysis for the Phase III existing facilities, the compliance year 

is not necessarily the same year as the year in which the facility must comply with the General Permit, since EPA 

is assuming that CWIS controls are installed and are operating in new MODUs and platforms starting in 2007, 

even though the first General Permit is assumed to be reissued with 316(b) requirements in 2012. Developing an 

explicit profile of compliance years for new offshore oil and gas extraction facilities is important because the 

schedule of compliance years determines the timing of outlays by facilities and society in complying with the 

regulation, both for the initial outlays and for the ongoing profile of outlays in maintaining compliance with the 

regulation. This information is important in properly assessing the present value of the regulation’s costs to 

society. 

For the analysis, EPA initially assumed that firms planning to build facilities in the first permit cycle (Region 6 

General Permit) (2012-2016) would contract to perform the studies necessary for these facilities to be permitted 

starting in 2007. The Region 4 permit is assumed not to incorporate 316(b) requirements until 2014, but studies 

are started in 2007 as well. Starting in 2014, any new MODUs are assumed to incur the costs of the Region 4 

permit as well as the Region 6 permit. No platforms/structures are assumed to incur costs of the Region 4 permit 

(they will incur the costs of one permit only, assumed to be issued under the Region 6 General Permit). The next 

group of facilities to be launched or come on line in the next permit cycle (2017 or 2019) will need to be involved 

only in repermitting activities for the shared studies, and thus, for the shared costs, would share repermitting costs 

with each other as well as with operations begun in the first 5-year cycle. These new operations will, however, 

incur initial permitting costs among those activities that are facility specific. The years in which facilities are 

expected to be completed are specifically spelled out, given the number of facilities expected to be completed in 

each year (see Chapter B2: Profile of the Offshore Oil and Gas Extraction Industry). More information on 

specific timing assumptions can be seen in ERG (2004) and the 316(b) Oil and Gas Compliance Cost Model for 

the Final Rule (DCN 9-4000). 

B1-2.2 Adjusting Monetary Values to a Common Time Period of Analysis 

The various economic information used in the cost and impact analyses was initially provided or estimated in 

dollars of different years. For example, facility financial data obtained in the 316(b) survey for the oil and gas 

industry are for the years 2000, 2001, and 2002, while the technology costs of regulatory compliance were 

estimated in dollars of the year 2002. To support a consistent analysis using these data that were initially 

developed in dollars of different years, EPA needed to bring the dollar values to a common analysis year. 

Generally, for this analysis, EPA adjusted all dollar values to constant dollars of the year 2004 (mid-year) using 

an appropriate inflation adjustment index. For adjusting compliance costs, EPA used the Construction Cost Index 

(CCI) published by the Engineering News-Record. Administrative costs were updated as described in U.S. EPA 

(2006a). 

B1-2.2.1 CCI 

EPA used the CCI to adjust compliance cost estimates from 2002 to mid-year 2004. EPA judges the CCI as 

generally reflective of the cost of installing and operating process and treatment equipment such as will be 

required for compliance with Phase III regulation. Table B1-5, below, shows CCI values for 2002, 2003, and 

2004. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

Year Value 

Table B1-5: Construction Cost Index 

% Change 

2002 6605 — 

2003 6694 1.3% 

2004 7115 6.3% 

Source: ENR, 2006. 

B1-2.2.2 GDP Deflator 

EPA used the GDP Deflator to adjust 316(b) survey financial data from 2000, 2001, and 2002 to 2003, but did not 

further adjust survey data to 2004. Financial survey data in 2003 dollars were used with engineering and 

permitting costs in 2003 dollars to compute vessel-level and platform-level impacts at proposal. Costs have not 

been changed since proposal (except to account for values in 2004 dollars), so impact results were not updated 

and are considered final for the purposes of this economic analysis of the final regulation. The deflators for 

adjusting the survey data are shown below in Table B1-6. 

Table B1-6: GDP Deflator Series 

Year Value % Change 

2000 100.0 

2001 102.4 2.4% 

2002 103.9 1.5% 

2003 105.7 1.7% 

Source: U.S. BEA, 2004. 

B1-2.3 Discounting and Annualization – Costs to Society or Social Costs 

Discounting refers to the economic conversion of future costs (and benefits) to their present values, accounting for 

the fact that society tends to value future costs or benefits less than comparable near-term costs or benefits. 

Discounting is important when the values of costs or benefits occur over a multiple year period and may vary 

from year to year. Discounting is also important when the time profiles of costs and benefits are not the same – 

which is the case for the regulatory analysis of new oil and facilities. Discounting enables the accumulation of the 

cost and benefit values from multiple years at a specified point in time, accounting for the difference in how 

society values those costs and benefits depending on the year in which the values are estimated to occur. 

For its analysis of the costs to society, or the social costs, of the final rule for new offshore oil and gas extraction 

facilities, EPA first developed a profile of the costs expected to be incurred as a result of the regulation over the 

period of analysis. EPA defined the analysis period as follows. The analysis period begins in 2007 (5 years 

before the first of the General Permits is reissued with 316(b) requirements) and includes facilities constructed 

over the next 20 years – i.e., to 2026 – plus a period of 30 years in which each newly constructed facility is 

assumed to continue compliance. Thus, for the social cost analysis for Phase III new offshore oil and gas 

extraction facilities, the analysis period extends to 2055 (see the 316(b) Oil and Gas Compliance Cost Model for 

the Final Rule, DCN 9-4000). In developing the time profile of costs, EPA assigned costs according to the 

following schedule: 

B1-2.3.1 Direct Costs of Regulatory Compliance 

f Capital Costs of Compliance Technology: This cost is first incurred in the year that the facility begins 

operation. However, the equipment for complying with the regulation is expected to have a useful life of 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

10 years, or a period shorter than the 30 years of compliance. Accordingly, following the first 

installation, facilities are assumed to reinstall, and re-incur the cost of, the compliance equipment at year 

11 and year 21 of the facility-specific compliance period. 

f Compliance Technology Operation and Maintenance: This cost is assumed to occur in each year of a 

facility’s 30-year compliance year period. 

B1-2.3.2 Administrative Costs Incurred by Complying Facilities 

f Biological Characterization Study: This is a three-year study required for all facilities, which is assumed 

to be shared by the affected facilities. The cost of this study is incurred over the years immediately 

following the effective date of the final rule or the years preceding the first post-promulgation GP (2007-

2009 for Eastern and Western Gulf, and 2011-2013 for Alaska). 

f Initial Permitting Cost. In addition to incurring a share of the cost of characterization studies, complying 

facilities will also incur an initial permitting cost, which is assigned to the year preceding the first year of 

a facility’s 30-year compliance period, or in 2007 for facilities launched or coming on line in 2007 

through 2011. 

f Repermitting Costs: As explained above, General Permits are renewed each five years during the period 

of compliance. Repermitting costs, both shared and facility-specific, are assumed to recur at years 5, 10, 

15, 20, and 25 of the General Permit cycles. For new offshore oil and gas extraction facilities, EPA 

assumes that 30 years is the reasonable maximum lifetime of these facilities; thus, no repermitting cost is 

incurred in the 30th year of facility operation. 

f Annual Monitoring, Record Keeping, and Reporting Activities: These costs are assumed to occur in the 

first two years of the initial permit and in each year of the permit renewal year. These costs begin in 2012 

or 2014, depending on permit. 

B1-2.3.3 Administrative Costs Incurred by Permitting Authorities 

f One-time Start-up Costs: These costs are assumed to be nonincremental to existing costs of permitting in 

the three regions. 

f Permit Processing Costs: These costs are assigned to the years in which facilities apply for initial permits 

or renewal permits during the compliance period. 

f Annual Permit Administration Activities: The cost of these activities is assumed to occur in parallel with 

the annual permit-related activities by complying facilities and thus occurs in each year of a facility’s 

compliance period. 

EPA assigned costs by facility and governmental unit according to this framework and then summed these costs 

on a year-by-year basis over the total time period of analysis. For the social cost analysis, these costs were tallied 

on a pre-tax basis, which differs from the treatment of costs for the facility impact analysis as described below. 

These profiles of costs by year were then discounted to the assumed date the final rule would take effect, 

beginning of year 2007, at two values of the social discount rate, 3% and 7%. These discount rate values reflect 

guidance from the Office of Management and Budget regulatory analysis guidance document, Circular A-4 

(OMB, 2003).2 

2 See Chapter E1: Summary of Social Costs, for further discussion of the framework for analyzing the social costs of the 

316(b) Phase III regulation. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

For more detailed information see ERG (2004) and the 316 (b) Oil and Gas Compliance Cost Model for the Final 

Rule (DCN 9-4000). 

EPA used the following formula to calculate the present value of the time stream of costs as of the beginning of 

2007:3 

Present Value = ∑ Costt 

(1+r)

t −2007 (B1-1) t 

where: 

Costt = Costs in year t 

r = Social discount rate (3% and 7%) 

t = Year in which cost is incurred (2007 to 2055) 

After calculating the present value of these cost streams, EPA calculated their constant annual equivalent value 

(annualized value) using the annualization formula presented below, again using the two values of the social 

discount rate, 3% and 7%. Although the analysis period extends from 2007 through 2055, a period of 49 years, 

inclusive, EPA annualized costs over 30 years, since 30 years is the assumed period of compliance. This same 

annualization concept and period of annualization were also followed in the analysis of benefits, although for 

benefits the time horizon of analysis for calculating the present value is longer than for costs. Using a 30-year 

annualization period for both social costs and benefits allows comparison of constant annual equivalent values of 

costs and benefits that have been calculated on a mathematically consistent basis. The annualization formula is as 

follows: 

(n−1) r ×(1+ r) Annualized Cost = x Cost of PV (B1-2) n (1+ r) −1 

where: 

r = Social discount rate (3% and 7%) 

n = Annualization period, 30 years for the social cost analysis 

B1-2.4 Discounting and Annualization – Costs to Complying Facilities 

In general, EPA followed similar concepts and procedures in the discounting and annualization required for the 

analysis of costs to, and impacts on, complying facilities as those followed for the analysis of social costs. 

However, the analysis of costs to complying facilities differs from that for costs to society in several important 

ways, which are described below. 

f Consideration of taxes. For understanding the impact of the regulation on complying facilities, the costs 

incurred by complying facilities are adjusted for taxes, as relevant, and calculated on an after-tax basis. 

The tax treatment of compliance outlays and income effects (e.g., from installation) shifts part of these 

costs to the tax-paying public and reduces the actual cost to private, tax-paying businesses. For this 

reason, the after-tax costs of compliance are a more meaningful measure than the pre-tax costs of the 

Calculation of the present value assumes that the cost is incurred at the beginning of the year. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

financial burden on complying facilities. In analyzing and reporting the impact of compliance costs on 

private facilities, annualized costs are therefore calculated on an after-tax basis. Since most companies 

that operate MODUs or platforms are headquartered in states without corporate income taxes, EPA 

assumes a state tax rate of 0%. On the Federal level, EPA assumes that the highest marginal corporate tax 

rate applies. This rate is 35% (IRS, 2005), so post-tax costs will be 65% of the pre-tax costs. EPA does 

this because all platform and MODU owners that are likely to operate in Alaska or the Gulf of Mexico are 

large corporations by SBA standards and/or all have earnings in most years that place them in the highest 

corporate tax bracket. 

f Calculation of present value and annualization of costs at the year of compliance. In the social cost 

analysis, costs were summed on a present value basis at the beginning of 2007, the assumed date the final 

regulation would take effect. For the analysis of costs to complying facilities, costs were calculated on a 

present value basis and annualized at the first year of compliance for each facility (assumed to be the year 

the facility is brought on line or launched). The calculation of annualized costs at the first year of 

compliance provides more accurate and meaningful insight for assessing financial impact in relation to 

the baseline financial performance and conditions of the complying facility than would be achieved if, for 

example, costs were further discounted – and reduced numerically – by bringing them to the year the rule 

will take effect. The aggregates of annualized cost over facilities for purposes of reporting total cost to 

complying facilities and total financial burden are likewise the sum of costs at the initial year of 

compliance for each facility, even though those years differ across facilities. These costs are annualized 

and used to report the aggregate costs to industry. The costs used to determine impacts are derived 

somewhat differently and the method used to incorporate them into the impact analysis varies by type of 

facility (MODU or platform) as explained in Chapter B3: Economic Impact Analysis for the Offshore Oil 

and Gas Extraction Industry. 

f Use of discount rates in present value and annualization calculations. The discounting and 

annualization calculations for the complying facility cost calculations use the same formulas as used for 

the social cost calculations. However, the discount rate used in the facility cost calculations generally has 

a different interpretation than the rate used for the social cost calculation (even though the numerical 

value of the rate may be the same). Instead of being a social discount rate, the discount rate used for the 

present value and annualization calculations for complying facility costs represents a cost of capital to the 

individual complying facility, which may reasonably differ from the concept of the social discount rate. 

The social discount rate may be derived on several bases, including as an opportunity cost of capital to 

society or as a societal inter-temporal preference or indifference rate – i.e., the required rate of change 

over time in a value of consumption or outlay at which society would be indifferent to the time period in 

which the consumption or outlay occurs. The social discount rates based on these society-level concepts 

may reasonably differ from the cost of capital used for assessing costs and financial impacts to the 

complying firm. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

REFERENCES 

Engineering News-Record (ENR). 2006. Construction Cost Index. Available at: http://enr.ecnext.com/freescripts/comsite2.pl?page=enr_document&article=fecosu0603-constIndexHist. (Historical data requires 

subscription or purchase.) 

ERG. 2004. Cost Timing and Cost Sharing Assumptions for Industry Compliance Costs. Memorandum to the 

316(b) Phase III Rulemaking Record. October 15, 2004. 

Federal Register. 2005. Vol. 70, No. 167, pl 51477-51519, August 30. 

Office of Management and Budget (OMB). 2003. Executive Office of the President. Circular A-4, To the Heads 

of Executive Agencies and Establishments; Subject: Regulatory Analysis. September 17, 2003. 

U.S. Bureau of Economic Analysis (U.S. BEA). 2004. Gross Domestic Product. Table 1.1.9: Implicit Price 

Deflators for Gross Domestic Product (GDP). Last Revised on February 27, 2004. Available at: 

http://www.bea.doc.gov/bea/dn/nipaweb/TableView.asp#Mid 

U.S. Department of the Treasury. 2005. Internal Revenue Service (IRS). 2005 Instructions for Forms 1120 & 

1120-A. pg. 16 (Federal tax rates). 

U.S. Environmental Protection Agency (U.S. EPA). 2006a. Information Collection Request for Cooling Water 

Intake Structures at Phase III Facilities (Final Rule). ICR Number 2169.01. June 2006. 

U.S. Environmental Protection Agency (U.S. EPA). 2006b. Technical Development Document for the Final 

Section 316(b) Phase III Existing Facilities Rule. EPA-821-R-06-003. June 2006. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B1: Summary of Costs 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2: Profile of the OOGE Industry 

Chapter B2: Profile of the Offshore Oil and 
 

Gas Extraction Industry 
 

INTRODUCTION 

EPA’s final 316(b) cooling water intake rulemaking will 

affect new construction among offshore components of the 

oil and gas industry. The rule will affect new offshore oil 

and gas extraction facilities only, because EPA will not be 

regulating existing oil and gas facilities. This profile 

compiles and analyzes economic and financial data for 

several sectors of the offshore oil and gas extraction 

industry that may be affected by certain of the Phase I 

316(b) requirements for new facilities that will be a part of 

requirements for new offshore oil and gas extraction 

facilities under Phase III. The profile characterizes the 

firms and facilities that currently exist to provide 

information on the characteristics of facilities that might be 

constructed in the future and the firms that are most likely 

to construct such facilities. 

Two key industry sectors are primarily associated with 

offshore oil and gas drilling and production, both of which 

might intake ambient cooling water from the surrounding 

oceans or navigable waterways for a wide variety of cooling needs. 

CHAPTER CONTENTS 


 


 


 

Introduction............................................................ B2-1 

B2-1 Mobile Offshore Drilling Units (MODUs) B2-2 

B2-1.1 Overview .......................................... B2-2 

B2-1.2 Existing MODUs and Their Associated 

Firms................................................. B2-3 

B2-1.3 Existing MODUs with Intake Rates 

Meeting Proposed Rule Criteria ..... B2-10 

B2-2 Oil and Gas Production Platforms........... B2-12 

B2-2.1 Overview ........................................ B2-12 

B2-2.2 Existing Platforms/Structures and Their 

Associated Firms ............................ B2-13 

B2-2.3 Existing Platforms/Structures with Intake 

Rates Meeting Proposed Rule Criteria ..... 

........................................................ B2-19

B2-3 Total New Oil and Gas Operations ......... B2-23

References............................................................ B2-24

The two major offshore oil and gas extraction industry users of CWIS are: 

f mobile offshore drilling units (MODUs) 

f offshore oil and gas production platforms 

EPA also investigated the liquid natural gas (LNG) re-gasification industry, but determined that only one new 

LNG facility recently completed has (or would have) cooling water intakes meeting the 316(b) requirement that 

25% or more of total design intake flow be used for cooling water purposes (U.S. EPA, 2006). EPA proposes to 

apply Best Professional Judgment (BPJ) to this industry. This industry, therefore, is not discussed further in this 

report. See U.S. EPA (2006), however, for profile information on this industry (including some economic 

information) and a more complete discussion of EPA’s rationale for covering this industry using BPJ. 

The following sections provide a profile for MODUs and production platforms (Sections B2-1 and B2-2). Within 

each profile, a brief overview of the industry is provided, including a look at existing facilities and their 

associated firms, and the financial conditions of those firms (where firm financial data are publicly available). 

The existing facilities are then discussed in more detail to provide information for the financial modeling of new 

facilities. Also discussed are factors affecting the future of each of these two groups of CWIS users. Finally, 

EPA projects the numbers of new MODUs or platforms that might be constructed with CWIS flow rates greater 

than 2 MGD, greater than 20 MGD, and greater than 50 MGD during the construction portion of the time frame 

of this economic analysis (construction spans the years 2007 to 2026). 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2: Profile of the OOGE Industry 

Section C2-3 concludes this chapter with a summary of the estimated total number of new facilities in the 

offshore oil and gas extraction industry with at least 2 MGD intake rates by MGD flow rate category. 

B2-1 MOBILE OFFSHORE DRILLING UNITS (MODUS) 

B2-1.1 Overview 

Offshore drilling operations often use MODUs, which are vessels or other sea-going rigs that are used to transport 

drilling equipment to the offshore site and from which drilling operations can be undertaken. The MODUs of 

interest are active primarily in the State offshore waters of the Gulf of Mexico (GOM). MODUs operating close 

to shore in State waters tend to be small barges and submersibles that do not use cooling water at the rates of 

concern (significantly less than 2 MGD) (U.S. EPA, 2006). 

MODUs provide nearly all of the exploration and delineation drilling in the offshore development of oil and gas 

resources. MODUs also provide developmental drilling services. In exploratory drilling, drilling is undertaken to 

determine whether oil and gas resources are available near existing fields or in areas where no resources have 

been previously found (wildcats). Once an exploratory well has identified the presence of potentially recoverable 

oil and gas resources, delineation drilling is undertaken. Delineation entails the drilling of additional wells to 

determine the extent and nature of the new field. These two types of drilling often occur at a distance from 

existing platforms and thus are usually conducted from a mobile rig. 

Drilling of development wells can be done from either a platform or a MODU. The same types of mobile rigs 

used to drill exploratory and delineation wells can also be used to drill developmental wells. Once a field has 

been delineated and a decision is made to develop the field, a platform is typically constructed and developmental 

drilling is initiated to construct wells for producing the field. A discussion of platform-based drilling is presented 

below in Section C2-2. 

MODUs encompass a variety of vessel or rig types. The two basic groups of MODUs are bottom-supported units 

and floating units. Bottom-supported units include submersibles and jackups. Floating units include inland 

barge rigs, drill ships, ship-shaped barges, and semi-submersibles. 

Bottom-supported drilling units are typically used when drilling occurs in shallow waters. Types of bottomsupported units include: 

f Submersibles–barge-mounted drilling rigs that are towed to the drill site and sunk to the bottom. These 

rigs may be either posted barge or bottle type. A posted barge rig consists of a barge hull that rests on the 

bottom, with steel posts that rise from the top of the hull and a deck built on top of the posts well above 

the water line. These are used in water depths no more than 30 to 35 feet. A bottle type submersible 

consists of several steel cylinders or bottles. When the bottles are flooded, the rig submerges and sinks to 

the bottom, and when water is removed, they rise to the surface. These rigs can be used in water depths 

up to 100 feet. 

f Jackup rigs–barge-mounted rigs with extendable legs that are retracted during transport. At the drill site, 

the legs are extended to the seafloor. As the legs continue to extend, the barge hull is lifted above the 

water. Jackup rigs, which can be used in waters up to 300 feet deep, can be categorized by their leg type: 

columnar leg and open-truss leg. 

Floating drilling units are typically used when drilling occurs in deep waters and at locations far from shore. 

Types of floating units include: 

f Semi-submersible–a type of floating drill unit that can withstand rough seas with minimal rolling and 

pitching tendencies, thus they are used for drilling projects in ultra-deep water Gulf regions. They are 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2: Profile of the OOGE Industry 

hull-mounted and float on the surface of the water when empty. At the drilling site, the hulls are flooded 

and sunk to a certain depth below the surface of the water. When the hulls are fully submerged, the unit 

is stable and not susceptible to wave motion due to its low center of gravity. The unit is moored with 

anchors to the seafloor. The two types of semi-submersible rigs are bottle-type (similar in concept to the 

bottle-type submersible) and column-stabilized. 

f Drill ships and ship-shaped barges–vessels that float on the surface of the water equipped with drilling 

rigs. These vessels maintain position above the drill site by anchors on the seafloor or the use of 

propellers mounted fore, aft, and on both sides of the vessel (dynamic positioning). Drill ships are the 

other major drilling rig used in ultra-deep Gulf waters. In these locations, drill ships typically operate 

using dynamic positioning. Drill ships and ship-shaped barges are susceptible to wave motion since they 

float on the surface of the water, and thus are not suitable for use in heavy seas. 

Of the five basic types of MODUS (submersibles, jackups, semi-submersibles, drill ships, and drill barges), the 

drill ships, semi-submersibles, and jackups are the three types that typically intake over 2 MGD of cooling water, 

with drill ships having the highest intake rates. Among drill ships with known intake rates above 2 MGD, all 

intake more than 50 MGD. Jackups and semi-submersibles do not generally appear to intake more than 20 MGD, 

but many intake more than 2 MGD. Submersibles and drill barges generally have cooling water intake below the 

2 MGD cutoff. Drilling operations use cooling water for purposes such as cooling engines, compressors, 

winches, and pumps (U.S. EPA, 2006). 

B2-1.2 Existing MODUs and Their Associated Firms 

The final rule will not cover existing MODUs. However, EPA has updated the profile presented in the economic 

analysis report for the proposal (U.S. EPA, 2004) to provide the broadest illustration of the types of firms that 

might construct MODUs. Later in this chapter, only those firms considered the likeliest to build new MODUs 

with CWISs that will be regulated by the 316(b) Phase III rulemaking will be profiled, but this section presents 

information that will be used in the small business analysis in Chapter D1. EPA received no comments 

concerning the MODU profile presented at proposal, nor any substantive comments on EPA’s assessment of 

which types of MODUs, the numbers of MODUs, or the specific firms considered likely to be affected by the 

rulemaking. 

Table B2-1 presents a listing of all firms operating in the Gulf of Mexico (either active, with stacked rigs, with 

ready rigs, or with rigs under construction) as compiled by Rigzone (2006a), along with the parent company of 

the owner. These affiliations were determined primarily on the basis of Security and Exchange Commission 

(SEC) data. SEC maintains an online database (the Edgar Database), on which all filings of publicly held firms 

are available. The 10K annual reports and 8K reports are used the most to collect this information. The 10K 

annual reports to SEC generally list significant subsidiaries and are the source of income statement and balance 

sheet information for characterizing financial conditions at a firm. Subsidiary lists are used to confirm ownership 

relationships. The 8-K forms, in which significant changes to the firm must be announced, are often the source of 

information on mergers and acquisitions. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2: Profile of the OOGE Industry 

Table B2-1: Owners of MODUs Currently Operating in GOM and Parent Company 

Listed Owner Parent Company 

Aban Lloyd Aban Group 

Atwood Oceanics Atwood Oceanics 

Axxis Drilling Axxis Drilling 

Blake Offshore Blake Offshore 

CNSPC China National Star Petroleum Co. 

Coastal Drilling Coastal Drilling Company 

Conoco ConocoPhillips 

Delta Seaboard American International Industries 

Devon Energy Devon Energy Corp. 

Diamond Offshore Diamond Offshore 

ENSCO ENSCO International, Inc. 

GlobalSantaFe GlobalSantaFe 

Helmerich & Payne Helmerich & Payne 

Hercules Offshore Parker Drilling 

Nabors Offshore Nabors Industries 

Noble Drilling Noble Corp. 

Parker Drilling Parker Drilling 

Perforadora Central Perforadora Central 

Pride International Pride International 

Rowan Rowan Companies 

Scorpion Offshore. Scorpion Offshore 

Songa Drilling AS. Songa Offshore 

Tetra Applied Technology Tetra Technologies 

Todco Todco 

Transocean Transocean, Inc 

Source: Rigzone, 2006a; SEC, 2006. 

The difference between this list and the list compiled for the proposal is that a number of small entities no longer 

appear on the list of operators. Five small or presumed small (those not filing with SEC) firms no longer appear 

to be operating in the GOM. These include Blue Dolphin, BSI drilling, Energy Equipment Resources, Newfield 

Exploration Co., and NR Marine. Only Blake Drilling and Workover (apparently affiliated with Blake Offshore, 

which is the name that appears currently) remain on the list as an assumed small firm for lack of financial data. 

Additionally, four foreign firms no longer appear on the list. These are Caspian Drilling Co., Ocean Rig Asa, 

Cyprus Company, and Worships BV. New firms on the list in Table B2-1 include five foreign firms, Aban 

Group, China National Star Petroleum Co., Perforadora Central, Scorpion Offshore, and Songa Drilling AS; five 

large firms, Todco, ConocoPhillips, Helmerich & Payne, American International Industries, and Devon Energy; 

and two presumed small firms, Axxis Drilling and Coastal Drilling Company (for more information on how these 

size categories are defined, see below). Overall, more large and foreign firms and fewer small firms are now 

operating in the GOM. 

Table B2-2 presents a listing of the existing MODUs’ owners and the number of rigs they are currently operating 

in the GOM (as of 2006). These include MODUs that may have CWIS intake rates that do not exceed 2 MGD 

and include all types of MODUs regardless of whether they are likely types to have CWISs of this size. The table 

also shows the number of semi-submersibles, jackups, or drill ships owned. As discussed in the economic 

analysis for the proposal (U.S. EPA, 2004), these were noted to be the likeliest MODU types to have CWIS that 

exceed 2 MGD intake rates. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2: Profile of the OOGE Industry 

Once firms that do not operate the key MODU types are removed from the analysis, only one small firm 

remains—Blake Offshore, which operates four jackups. 

The firms that own MODUs generally work as contractors to the oil and gas exploration and production industry. 

The provision of drilling and related services to U.S. and/or foreign offshore regions is the major focus of their 

business. 

Just a few firms hold most MODUs. At proposal, GlobalSantaFe, Transocean, Rowan Companies, Noble Corp. 

Parker Drilling, Pride International, ENSCO International, and Diamond Offshore operated 326 MODUs, 85% of 

the total MODUs in the analysis at that time. Currently, the leading MODU owners are again, GlobalSantaFe, 

Rowan Companies, Parker Drilling, Pride International, ENSCO, with Nabors Industries and Todco also coming 

in as top MODU owners. This group of firms owns 75 percent of the total MODUs listed, and 76 percent of the 

relevant types of MODUs. 

Compared to the number of rigs at proposal, the current count of rigs in the GOM has dropped from 384 to 298, a 

22 percent decrease (see U.S. EPA, 2004). Although higher oil and gas prices in the last few years have increased 

interest in drilling in the GOM, MODUs are mobile, and interest in drilling has increased worldwide. The market 

for MODU services is worldwide, and foreign operations can outbid the U.S., due to greater production 

expectations in more productive areas of the world. Rig utilization, is not, however, at 100 percent capacity, so 

the fewer numbers of rigs in the GOM generally would not have constrained drilling. However, MMS has offered 

extensions to leasing agreements following the extensive damage to GOM platforms due to Hurricanes Katrina 

and Rita to ensure any potential for delayed drilling do not interfere with lease development (MMS, 2006a).1 

1

 Lease activity automatically grants extensions to leases, but if activity is delayed due to rig unavailability or other 

circumstances beyond the lessee’s control, extensions can be otherwise granted. 

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Table B2-2: Number of Existing MODUs and Parent Firms 

Number of Rigs of Types 

Company Number of Rigs Associated with CWIS Intake 

Rates > 2 MGD 

Aban Group 1 1 

American International Industries 4 0 

Atwood Oceanics 2 1 

Axxis Drilling 4 0 

Blake Drilling & Workover 4 4 

China National Star Petroleum Co. 1 1 

Coastal Drilling 3 0 

ConocoPhillips 1 0 

Devon Energy 1 0 

Diamond Offshore 24 24 

ENSCO International Inc 19 18 

GlobalSantaFe 15 15 

Helmerich & Payne 12 0 

Nabors Industries 49 10 

Noble Corp. 12 9 

Parker Drilling 28 7 

Perforadora Central 1 1 

Pride International 23 12 

Rowan Companies Inc 17 17 

Scorpion Offshore 5 5 

Songa Drilling AS 5 5 

Tetra Technologies 8 0 

Todco 48 18 

Transocean Inc. 11 11 

Total Number of Rigs 298 159 

Source: Rigzone, 2006a; Table B2-1. 

The identification of corporate parent is critical to determining which firms should be defined as small under SBA 

standards. SBA defines the size of the firm to be that of the firm at the highest level of organization. Generally, 

EPA characterized a firm at the higher level of organization if it was majority owned by the larger entity. This 

approach is consistent with SBA’s definition of affiliation. Small firms that are affiliated (e.g., 51% owned) by 

firms defined as large by SBA’s standards (13CFR Part 121) are not considered small for the purposes of 

regulatory flexibility analysis (see Section D1 for more details). Affiliated firms can also be firms owned by the 

same owners or that have the same corporate officers as another firm. 

Another key piece of information needed for classifying firms as small or large is what industry the firm belongs 

to. SBA defines small businesses differently for different types of industry and currently uses NAICS to classify 

industries. SEC still requires companies to report their SIC code, not the NAICS code. Crosswalks between 

NAICS and SIC, however, are available from Bureau of the Census (2006). 

Once the parent firms were identified as above and the proper NAICS identified based on the reported SIC code 

in the 10K reports and the NAICS crosswalk information, the revenue and employment (or other criteria, as 

appropriate) for these parent firms were determined and compared to the SBA definition of small based on their 

NAICS classification. Table B2-3 shows the SBA definitions for the industries identified. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2: Profile of the OOGE Industry 

It is assumed that all domestic firms that could not be identified as large are small businesses. Also, for the 

purposes of this analysis, MODU operators owned by foreign firms are assumed to be large, even when data on 

employment could not be found, because SBA defines a small business as one “with a place of business in the 

United States, and which operates primarily in the United States or which makes a significant contribution to the 

economy” (13 CFR Part 121). Only large businesses in this industry would meet the latter criteria, and few, if 

any, foreign firms operate primarily in the United States. 

Table B2-3 presents the number of MODU parent companies that operate the MODUs of concern by NAICS and 

SIC code, where that information is available. Eight firms do not appear in these counts. Five foreign firms and 

three other firms, presumed small, had no information available on the SEC website. Note that no firms are 

positively identified as small out of the 24 total firms operating existing MODUs. 

The key firms of concern, however, constitute a smaller group of firms. The remainder of this profile focuses 

only on firms that currently operate types of MODUs that have been identified as likely to have CWIS intake rates 

> 2MGD. The firms dropped from further analysis include two presumed small firms, Coastal Drilling, and Axxis 

Drilling, and five large firms, ConocoPhillips, Devon Energy, Helmerich & Payne, American International 

Industries, and Tetra Technologies. 

Table B2-3: NAICS Classification of MODU Parent Companies 

Total Number of 

SIC code NAICS code NAICS Description SBA Definition of Small Firmsa 

Small Large 

1311 211111 Crude Petroleum and Natural 

Gas Extraction 500 employees 0 1 

2911 324110 Petroleum Refineries 1,500 0 1 

2810 325110 Industrial Chemical Mfgs. 1,000b 0 1 

1381 213111 Drilling Oil and Gas Wells 500 employees 0 11 

1389 213112 Support Activities for Oil and 

Gas Operations $6.5 million in revenues 0 1 

6799 Several NAICS Various, related to misc. $6.5 million in revenuesc 0 1 investment firms a Does not include five foreign firms and three potentially small, unknown firm for which NAICS or SIC codes could not be located 

in publicly available data. 

b Specific NAICS not listed in SBA definitions; largest employment definition from NAICS 325 used here. 

All three NAICS matched to SIC 6799 are listed $6.5 million in revenues. 

Source: SEC, 2006; 13 CFR Part 121, Census, 2006 

Table B2-4 presents the financial conditions at the parent firms listed in Table B2-2 with MODUs likely to have 

CWISs with intake rates >2MGD. A number of parent companies are privately held or are foreign and do not 

have financial information available on the SEC database, so information is not presented for these firms. The 

financial data shown are from 2002 through 2005. Data for 2004 represent the base year for the new offshore oil 

and gas extraction facility firm-level analysis in Chapter B3. In 2004, the total assets of the MODU parent 

companies ranged from $498 million to $10.8 billion. The revenues ranged from $163 million to $2.6 billion. 

The three financial ratios calculated in the table are the return on assets, return on equity, and the profit margin. 

Each of these ratios calculates the net income as a ratio over the total assets, stockholder’s equity, and total 

revenues respectively, and is commonly used measures of financial health in the oil and gas industry. The return 

on assets percentages ranged from –6.48% to 5.16%, and the profit margin ranges from –12.50% to 13.70%. In 

2004, five firms with financial data had negative net income. Note that 2005 was a much better year for most of 

the firms in this analysis, with only one firm reporting negative net income. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Ch

Table B2-4: Financial Condition of MODU Parent Companies (2002-2005) 

Firms Year of Data SizeType No. of Employees Assets ($000) Equity ($000) Revenues ($000) Net Income ($000) Ret

on A

Aban Group Large Foreign 

2005 1,100 $495,694 362,137 $176,156 $26,011 5

Atwood Oceanics 

2004 2003 Large Drilling 1,100 800 $498,936 $522,674 $271,589 $263,467 $163,454 $106,761 $7,587 $(12,802) 1

-2

2002 800 $444,530 $276,133 $118,376 $28,285 6

Blake Drilling & Workover Smalla Unknown China Nat’l. Star Petroleum Large Foreign 

2005 4,500 $3,606,922 $1,853,327 $1,221,002 $260,337 7

Diamond Offshore 

2004 2003 Large Drilling 4,200 3,740 $3.379.386 $3,135,019 $1,625,828 $1,680,480 $814,662 $680,941 ($7,243) $(48,414) -0

-1

2002 3,766 $3,256,308 $1,807,514 $752,561 $62,520 1

2005 3,600 3,617,900 $2,533,200 $1,046,900 $294,200 8

ENSCO International, Inc 

2004 2003 Large Drilling 3,600 4,300 $3,322,000 $3,183,000 $2,187,900 $2,081,100 $740,600 $742,300 ($1,900) $108,300 -0

3

2002 4,300 $3,061,500 $1,967,000 $698,100 $59,300 1

2005 5,700 $6,222,100 $4,957,500 $2,263,500 $423,100 6

GlobalSantaFe 

2004 2003 Large Foreign 7,100 7,100 $5,998,200 $6,149,700 $4,466,400 $4,327,600 $1,723,700 $1,808,200 $143,700 $129,400 2

2

2002 8,800 $5,828,700 $4,234,200 $1,870,000 $277,900 4

2005 22,599 $7,230,407 $3,758,140 $3,551,009 $648,695 8

Nabors Industries 

2004 2003 Large Foreign 19,776 17,417 $5,862,609 $5,602,692 $2,929,393 $2,490,275 $2,448,152 $1,923,999 $302,457 $192,228 5

3

2002 15,261 $5,063,872 $2,158,455 $1,518,179 $121,489 2

2005 5,600 $4,346,367 $2,731,734 $1,382,137 $296,696 6

Noble Corp. 

2004 2003 Large Foreign 5,300 3,364 $3,307,973 $3,189,633 $2,384,434 $2,178,425 $1,066,231 $987,380 $146,086 $166,416 4

5

2002 3,747 $3,065,714 $1,989,210 $990,248 $209,503 6

2005 3,040 $801,620 $259,829 $531,662 $98,883 12

Parker Drilling 

2004 2003 Large Drilling 3,014 2,920 $726,590 $847,632 $148,917 $192,803 $376,525 $338,653 $(47,083) $(109,699) -6

-12

2002 2,898 $953,325 $300,626 $385,714 $(114,054) -11

Perforadora Central Large Foreign Pride International 2005 Large Well 12,600 $4,399,981 $1,697,562 $1,180,016 ($9,137) -0

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Ch

Table B2-4: Financial Condition of MODU Parent Companies (2002-2005) 

Firms Year of Data Size Type No. of Employees Assets ($000) Equity ($000) Revenues ($000) Net Income ($000) Ret

on A

2004 Service 12,600 $4,041,993 $1,716,320 $1,712,200 $9,839 02003 10,100 $4,377,095 $1,688,708 $1,565,806 ($15,954) -0

2002 9,500 $4,399,981 $1,677,135 $1,180,016 ($17,106) -0

2005 4,577 $2,975,183 $1,619,739 $1,068,800 $229,800 7

Rowan Companies Inc 

2004 2003 

Large Drilling 4,392 5,395 $2,492,286 $2,190,809 $1,408,884 $1,136,830 $679,700 $529,300 ($1,300) ($7,800) -0

-0

2002 5,237 $2,054,504 $1,131,777 $443,931 $86,278 4

2005 2,420 $825,000 $495,500 $534,200 $59,400 7

Todco 

2004 2003 Large Drilling 

1,800 $761,400 

$778,200 

$480,600 

$137,700 

$351,400 

$227,700 

($28,800) 

($286,200) 

-3

-36

2002 $2,227,200 $561,900 $187,800 ($5,558.2) -0

2005 8,600 $10,457,000 $7,981,700 2,891,700 $715,600 6

Transocean Inc. 

2004 2003 Large Foreign 10,100 13,200 $10,758,000 $11,663,000 $7,393,000 $7,193,000 $2,614,000 $2,434,300 $152,200 $19,200 1

0

2002 14,260 $12,665,000 $7,141,000 $2,674,000 ($3,732,000) -29

a Presumed small due to lack of data. 

Note: 2002 values may not match those reported in the EA for the proposal (U.S. EPA, 2004) as firms may have restated their financials for a variety of reason

of 2002, which changed requirements for disclosing financial data. 

Source: Table C2-2; SEC, 2006; 2002-2005 10-K or 20-F reports. 

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B2-1.3 Existing MODUs with Intake Rates Meeting Proposed Rule Criteria 

B2-1.3.1 Overview of Existing MODUs as Models for New MODUs 

The following information remains unchanged from proposal. EPA received no comments that questioned EPA’s 

approach in applying information on existing MODUs to model new MODUs, including the number of MODUs 

likely to be built over the period of analysis that are expected to be affected by the final rule. 

To provide information on whether new MODUs might be subject to Phase III regulation, EPA investigated 

information obtained from a survey of MODUs undertaken for the Phase III rulemaking decision. Not all of the 

MODUs owned by the firms listed above meet the applicability standard (at least 2 MGD design intake flow) and 

other criteria of the proposed rule. EPA used a multi-step process to estimate the total number of existing MODUs 

that would be regulated under the proposed rule if they were newly constructed (i.e., CWISs with total design 

flow of at least 2 MGD or more or less than 25% of intake volume used for cooling water purposes).2

 The 

sampling frame used 384 MODUs as shown in Table B2-1). Among these 384 MODUs in this universe, EPA 

sampled 30 MODUs in the survey. The survey weights for all MODUs are thus 384 divided by 30, or 12.8. 

The following is the status of the economic survey respondents: 

f 23 respondents returned surveys 

f 8 respondents were determined to have CWISs that meet proposed rule criteria. 

f 15 respondents were determined to have CWISs that do not meet proposed rule criteria or were not 

operating in U.S. waters 

f 4 surveys were not returned from among a group of MODUs whose CWIS intake rates were known 

(based on voluntary data submitted during the 316(b) Phase I rulemaking) 

f 3 surveys were not returned among a group of MODUs whose CWIS intake rates were unknown. 

Based on the ratio of respondents whose intake rates meet Phase III rule criteria to total respondents (8/23), EPA 

assumed that among the three MODUs with unknown intake rates, one will have intake rates meeting the 

proposed rule’s criteria and two will have intake rates not meeting these criteria. Thus, the total number of 

MODUs in the economic survey sample whose intake rates are assumed to meet proposed rule criteria was 

estimated to be 13. Multiplying this number by the survey weight of 12.8 yielded an estimate of a total of 166 

MODUs with intake rates meeting proposed rule criteria. Another six MODUs, originally thought to have intake 

rates of less than 2 MGD were determined to have intake rates greater than 2 MGD, and these were added to the 

estimate of MODUs with CWISs meeting Phase III rule criteria, for a total of 172 MODUs meeting the Phase III 

rule’s criteria – roughly half of the existing MODUs operating in U.S. waters (331 MODUs or about 52 %). EPA 

therefore assumed that approximately half of new MODUs built might meet Phase III rule criteria. Of the 172 

MODUs meeting proposed rule criteria, EPA estimated that all new semi-submersibles and jackups will have 

CWIS flow rates below 20 MGD, based on all surveyed semi-submersibles and jackups having rates below 20 

MGD. EPA also estimated that all new drill ships will have rates above 50 MGD, based on all surveyed drill 

ships having intake rates of this size. For more information on the estimate of existing MODUs that might meet 

proposed rule criteria, see ERG, 2004a. 

For simplicity, the text refers to operations that meet either of these criteria as not meeting Phase III rule criteria, even 

though the proposed rule does not apply to existing facilities.. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2: Profile of the OOGE Industry 

B2-1.3.2 Current Drilling Activity and Trends 

Offshore drilling rigs are extremely capital intensive. Therefore, once a company has invested in a rig, it is in 

their best interest to keep the rig in operation. Currently, the utilization of all rigs worldwide stands at about 95%, 

which is up significantly from 72% in 2003(Rigzone, 2006b; Drilling Contractor, 2003a). The Bureau of Land 

Management’s Minerals Management Service (MMS) predicted that oil production in the Gulf of Mexico would 

be between 1.5 and 2.0 million barrels per day (bpd) by the end of 2005 and gas production would be between 11 

and 17 billion cubic feet per day (bcfd) by the same time period. (Drilling Contractor, Nov/Dec 2001). However, 

actual figures for 2005 indicate that total oil production averaged about 1.1 million bpd and total gas production 

averaged about 7.6 bcfd, down from 1.6 million bpd and 12.4 bcfd in 2002 (MMS, 2006b). The lower than 

expected production figures are due in part to the significant production losses associated with Hurricanes Katrina 

and Rita. Deepwater exploration and deep exploration in the shallow waters of the GOM continued to grow. 

MMS notes that the deepwater GOM is “the driving force in Gulf production and potential growth (MMS, 2006c). 

MMS recently announced 10 new discoveries in the deepwater Gulf ad also noted that 42 rigs were operating in 

this region in mid-March 2006 (MMS, 2006c).2 

B2-1.3.3 Estimates of New MODUs To Be Constructed 

At proposal, EPA noted that the progress report published by Offshore magazine showed that the majority of 

offshore production investment in 2003 is in the refurbishment of old rigs, however some new rigs are being built. 

In 2003, the majority of new offshore construction comprised jackup rigs. Surveys indicated that 14 jackups were 

completed in 2003, and that eight additional jackups were to be completed by 2005. Of the eight jackups to be 

completed, three were being built with a new Rowan Companies design specifically introduced for deep shelf 

drilling in the shallow water of the Gulf of Mexico (Offshore, July 2003). The outlook of the offshore industry 

showed increased growth in deepwater drilling. Three companies were reported as having deepwater semisubmersibles completed by 2004. The projections predicted that up to 67% of oil production and 27% of gas 

production will come from deepwater drilling by 2005. (Drilling Contractor, Nov/Dec 2001). 

EPA’s economic analysis report for the proposal (U.S. EPA, 2004) noted that jackups and semi-submersibles 

were among the most frequent MODUs to have CWIS intake rates that would meet Phase III rule criteria. 

Therefore, EPA focused on these as an indication of how many MODUs might be built with CWIS intake rates of 

concern (U.S. EPA, 2004). Given that 22 jackups were expected to be completed over the time period of 2003-

2005 (three years) (Drilling Contractor, 2003b), EPA assumed at proposal that seven jackups might be built each 

year during the time frame of the economic analysis; of this group (based on the assumption that half of all new 

MODUs would meet Phase III rule criteria, discussed above) EPA assumed four of these would be affected by the 

316(b) requirements. EPA further assumed that about one semi-submersible will be built per year. To be 

conservative, EPA assumed each of these semi-submersibles would meet Phase III rule criteria. Drill ships may 

also be constructed during the time frame of the analysis, but there were very few drill ships operating in the 

GOM at proposal (six are currently operating in the GOM [Rigzone, 2006a]). Only 12 out of a total 384 MODUs 

operating in the GOM (3%) at proposal were drill ships. EPA conservatively assumes three drill ships might be 

constructed over the entire 20-year time frame of the analysis, all of which are assumed to meet final rule criteria. 

The other two types of MODUs (submersibles and barges) are seldom associated with CWIS intake rates meeting 

proposed rule criteria (U.S. EPA, 2004). EPA assumed no submersibles or barges with total design intake rates 

meeting proposed rule criteria will be built during the time frame of the analysis. EPA assumed that half the 

jackups and semi-submersibles would be built with proposed technologies in place to control intake of aquatic 

species under a two MGD cutoff. The drill ships were assumed to be built with 50 MGD or greater intake rates, 

2

) 

 Not all discoveries are developed, and many of these will most likely be developed as undersea completions. The vast 

majority of deepwater projects are undersea completions (MMS, 2006d

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and the jackups and semi-submersibles were assumed to be built with intakes having a total intake rate of less 

than 20 MGD, based on the intake rates of existing MODUs of these types in the survey. 

Since proposal, EPA has not changed the estimate of how many MODUs subject to the rulemaking will be 

constructed over the time frame of the analysis. EPA notes that more current information (Rigzone, 2006a) 

indicates that 12 jackups slated for GOM operation are currently under construction. No semi-submersibles or 

drill ships are currently listed as under construction in the GOM listing. Given that not all jackups currently under 

construction will be launched this year and given that no substantive comments were received that disputed these 

estimates, EPA is continuing to assume that these numbers of jackups, semi-submersibles, and drill ships 

estimated to be built during the time frame of the analysis are reasonable. Should new MODUs constructed for 

foreign use be reconsidered for use in the GOM, costs for retrofitting will be the same as those estimated for new 

MODUs, since engineering cost estimates were based on retrofit costs (U.S. EPA, 2006) EPA did not estimate 

aggregate costs under this scenario, but impacts from such costs, should they be incurred, would be negligible, 

given the results of impact analyses. Firms owning foreign-based MODUs are either the same ones analyzed in 

Chapter B3 or are likely to be similar firms, and foreign-based vessels are similar to those analyzed in Chapter 

B3. EPA believes that, given the decline in numbers of MODUs operating in the GOM from 2002 to 2006 

despite increased interest in drilling in the GOM sparked by high oil and gas prices, that significant numbers of 

new MODUs constructed for operation in foreign locations will not be affected. 

At proposal, the firms with the largest numbers of MODUs of the type considered likely to have CWISs with 

intake rates >2 MGD were considered the likeliest to build new MODUs. For this analysis of the final rule, two 

additional firms have been added to the group analyzed in Chapter B3, since these firms (Nabors and Atwood 

Oceanics) were noted to have jackups under construction for Gulf drilling purposes. 

B2-2 OIL AND GAS PRODUCTION PLATFORMS 

B2-2.1 Overview 

Oil and gas production operations generally take place on platforms or other structures. The primary areas of 

offshore oil and gas production activity are the GOM, California, and Alaska. In shallow offshore waters, 

platforms are the typical structure used to support the resource extraction activities. These activities may involve 

drilling wells, producing oil and gas from wells, separating production streams, gathering and compressing gas, 

and working over older wells to increase production. Platforms often support buildings for crews, including in 

some cases, long-term living quarters. 

There are several different types of platforms, and non-platform structures used in the GOM. Seven major types 

of production systems are used in offshore oil and gas production. 

f The fixed platform is the most commonly used for shallow-water drilling. It is anchored directly into the 

seabed with a deck to support living quarters etc. While it is primarily used for shallow water drilling, it 

is economically feasible for depths up to 1,650 ft. 

f The compliant tower is a flexible tower and piled foundation with a conventional deck. The compliant 

tower differs from the fixed platform in that it can withstand large lateral forces. Therefore, it is effective 

at greater depths and is typically used in water depths between 1,500 and 3,000 ft. 

f The Seastar platform is a floating mini-tension leg platform used for smaller deepwater reserves. It is 

used in water depths from 600 to 3,500 ft. 

f A floating production system (FPS) is a semi-submersible with drilling and production equipment. The 

FPS can be dynamically positioned using rotating thrusters. The FPS is used at depths from 600 to 6,000 

ft. 

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f Another type of offshore platform is the Tension Leg platform (TLP). It is connected to he sea floor with 

tension tendons. TLPs are used up to depths of 6,000 ft. 

f The Spar platform consists of a large diameter cylinder supporting a deck and is used in water depths up 

to 3,000 ft. 

f The Subsea system can produce single or multiple wells using manifold pipeline systems. The Subsea 

system is used for production at depths greater than 7,000 ft. (U.S. EPA, 2000). In this system, all well 

completions are at the seafloor level, with piping leading to production platforms in shallower water or 

nearby deepwater structures. 

B2-2.2 Existing Platforms/Structures and Their Associated Firms 

Because EPA determined that so few existing platforms would be likely to have CWISs with intake rates >2MGD 

at proposal (U.S. EPA, 2004) and because EPA received no substantive data indicating other key areas where new 

platforms that might install CWISs that meet the final rule criteria, EPA continues to determine that the deepwater 

Gulf and Alaska are the primary focus of analysis.3

 This profile of existing platforms and associated firms, 

therefore, focuses only on those two areas and on what structures have been constructed since proposal. Other 

areas with offshore oil and gas operations, i.e., shallow water Gulf and California, either have not been identified 

as likely to be sites where structures with CWISs affected by the final rule are located or are areas where no new 

construction is occurring (U.S. EPA, 2004). Furthermore, if any platforms were to be built in shallow waters with 

CWISs of the regulated size, the size and scope of the operation that would drive the need for a CWIS this size 

would indicate a very expensive operation similar to the scope and size of deepwater operations. The firms likely 

to be involved in such an operation would be similar to those that operate in the deepwater GOM. Because EPA 

located no information that indicated that such shallow water operations were being built, and commenters did not 

provide data indicating that such operations are being or will be built, no costs were estimated for such operations. 

Therefore, the shallow water GOM and California regions are not discussed further. 

B2-2.2.1 Structures/Platforms/Structures in the Deepwater GOM 

At proposal, EPA profiled all operations in the Federal GOM. Since the vast majority of shallow water projects 

were determined at that time to be highly unlikely to install CWISs that would meet final rule criteria, this extent 

of profiling is not continued in this final economic analysis report. The discussion here focuses entirely on the 

deepwater GOM. 

Since proposal, a number of new structures have been built in the deepwater GOM. This new construction also 

brought in a number of new firms into the area. At proposal, 24 deepwater structures either had CWISs with 

intakes >2MGD or their intake rates were unknown. Between 2003 and 2006, a total of 11 new structures have 

been installed. The intake rates of CWISs on these structures are unknown. As Table B2-5 shows, four structures 

were installed in 2003, seven structures were installed in 2004, and no structures were installed in 2005, for an 

average of three to four structures per year installed. This average corresponds well to EPA’s estimate, at 

proposal, that about three structures would be added per year in the deepwater GOM. 

3

 One commenter indicated that deep gas operation could be affected by the final rule, but provided EPA with no 

examples of any deep gas operations in shallow water where CWIS intake rates currently or are expected to exceed 2 MGD. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2: Profile of the OOGE Industry 

Table B2-5: GOM Deepwater Platforms Constructed between 2003-2005t 

Platform Name Year of Construction Owner Firm 

Gunnison 2003 Kerr-McGee Oil & Gas Corp. 

Magnolia 2004 ConocoPhillips Co. 

Red Hawk 2004 Kerr-McGee Oil & Gas Corp. 

Front Runner 2004 Murphy Exploration & Production Co.-USA 

Marco Polo 2004 Anadarko Petroleum Corp. 

Holstein 2004 BP Exploration & Production, Inc. 

Mad Dog 2004 BP Exploration & Production, Inc. 

Matterhorn 2003 Total E&P USA, Inc. 

Nakika 2003 BP Exploration & Production, Inc 

Medusa 2003 Murphy Exploration & Production Co.-USA 

Devils Tower 2004 Dominion Exploration & Production, Inc. 

Source: MMS, 2006d 

These platforms are operated by a number of firms of different sizes and types. The potentially affected firms can 

be divided into two basic categories. The first category consists of the major integrated oil companies, which are 

characterized by a high degree of vertical integration (i.e., their activities encompass both “upstream” activities— 

oil exploration, development, and production—and “downstream” activities—transportation, refining, and 

marketing). The second category of affected firms consists of independents engaged primarily in exploration, 

development, and production of oil and gas and not typically involved in downstream activities. Some 

independents are strictly producers of oil and gas, while others maintain some service operations, such as contract 

drilling and well servicing. 

The major integrated oil companies are generally larger than the independents. As a group, the majors typically 

produce more oil and gas, earn significantly more revenue and income, and have considerably more assets and 

greater financial resources than most independents. Furthermore, majors tend to be relatively homogeneous in 

terms of size and corporate structure. All majors are considered large firms under the Regulatory Flexibility Act 

(RFA) guidelines and generally are C corporations (i.e., the corporation pays income taxes). Independents can 

vary greatly by size and corporate structure. Larger independents tend to be C corporations; small firms might 

also pay corporate taxes, but they also can be organized as S corporations (which elect to be taxed at the 

shareholder level rather than the corporate level under subchapter S of the Internal Revenue Code). Small firms 

also might be organized as limited partnerships, sole proprietorships, etc., whose owners, not the firms, pay taxes. 

One change of note since proposal is the effect of the 2005 Hurricanes Katrina and Rita on some of the deepwater 

structures. One deepwater structure is listed as destroyed by Hurricane Rita –Typhoon, owned by Chevron 

(CWIS intake rate unknown) (MMS, 2006e; ERG, 2004a). Chevron reports in their 2005 10-K report that they 

are assessing damage and weighing options for restarting operations (SEC, 2006). Katrina damaged four other 

structures in the deepwater GOM. These include Cognac, Matterhorn, Mars, and Virgo (MMS, 2006e). 

Matterhorn (Total) is a new structure since proposal, with CWIS intake rate unknown. Cognac (Shell Offshore) 

was known to have CWIS intake rates <2 MGD, and Virgo (Total) has unknown rates (ERG, 2004a). Mars, the 

structure with the largest share of production of any such structure in the GOM, is known to have CWIS intake 

rates exceeding 2 MGD (ERG, 2004a). This structure is expected to be back in production in the latter half of 

2006 (New York Times, 2006).- 

The proportions of majors and independents operating in the deepwater GOM have not changed significantly 

since proposal, and the platforms/structures existing at the time of proposal have not changed hands in the interim. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2: Profile of the OOGE Industry 

At proposal, the active firms in the deepwater included ExxonMobil, Agip (now a subsidiary of Eni), El Paso 

Production, Shell Offshore, ConocoPhillips, Chevron, BP, and Total E&P (majors or integrated utilities) and 

Kerr-McGee and Amerada Hess (independents). The newest structures have added Murphy E&P, Anadarko 

Petroleum, and Dominion E&P to the firms operating in the deepwater. These new firms comprise one 

independent (Anadarko) and one gas/electric utility firm (Dominion), adding to the two independents (KerrMcGee and Amerada Hess) and one utility (El Paso) covered at proposal. All the remaining firms are considered 

majors, including the new deepwater operator, Murphy Oil. 

Table B2-6 summarizes the information, listing the firms operating in the deepwater GOM and their parent 

company. 

Table B2-6: Operators and Parent Companies of GOM Deepwater Structures 

Operator Company Parent Company 

Amerada Hess Corporation Amerada Hess Corporation 

Anadarko Petroleum Corp. Anadarko Petroleum Corp. 

BP Exploration & Production Inc BP PLC 

Chevron USA Inc Chevron Corp. 

ConocoPhillips Co. ConocoPhillips Co. 

Dominion Exploration & Production, Inc. Dominion Resources, Inc. 

El Paso Production GOM Inc El Paso Corp. 

Eni US Operating Co., Inc. Eni SpA 

Exxon Mobil Corporation Exxon Mobil Corporation 

Kerr-McGee Oil & Gas Corporation Kerr-McGee Corporation 

Murphy Exploration & Production Company - USA Murphy Oil Corporation 

Shell Offshore Inc Royal Dutch Shell plc 

Total E&P USA Inc Total SA 

Source: MMS, 2006d; SEC, 2006. 

It is important to note that companies may share ownership of a platform. In general, the company listed as the 

operator in the MMS databases is the 100 percent owner or largest shareholder of the platform, but this is not 

always the case. The economic analyses in this report, however, make the simplifying assumption that only one 

firm owns a platform. In reality, several firms might share the impacts from regulatory costs to a platform. 

The same methodology used to identify small firms in the MODU profile (Section B2-1) is used for this profile. 

Table B2-7 lists the numbers of firms in the GOM by their NAICS definition.4

 Also listed is the SIC code, which 

is the identifier used in the 10K reports. In the table, NAICS and SICs are mapped in the key industry sectors 

represented by firms operating in the GOM. 

codes, however, the transition to the new system is still in progress. 

The North American Industry Classification System (NAICS) supercedes the Standard Industrial Classification (SIC) 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B2-15 

4 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2: Profile of the OOGE Industry 

Small Large 

Table B2-7: Count of Firms by SIC and NAICS Code 

GOM Number of Firms 

SIC code NAICS code NAICS Title SBA Size Standard 

Crude Petroleum and Natural 1311 211111 500 employees 0 6 Gas Extraction 

2911 324110 Petroleum Refineries 1,500 employees 0 5 

Fossil Fuel Electric Power 4911 221112 4.0 million megawatt hours 0 1 Generation 

Pipeline Transportation of 4922 486210 $6.5million in revenues 0 1 Natural Gas 

Note: Include 4 foreign firms for which NAICS or SIC codes were available on the SEC website.. 

Source: SEC, 2006, 13 CFR Part 121, Census, 2006 

As Table B2-7 shows, the predominant firm types operating in the GOM are those in the oil and gas extraction 

NAICS and the refineries NAICS. No firms were identified as small. All four foreign firms are also large. 

Table B2-8 shows the firms considered potentially affected firms operating in the deepwater GOM and their 

relevant financial data spanning 2002 (the year of data used at proposal) through 2005, along with 2004 data, 

which is used to compare to compliance costs in 2004 dollars in Chapter B3. These data include number of 

employees, assets, liabilities, and revenues, along with several ratios that provide a general indication of financial 

health, where data are available in 10-K or 20-F reports in U.S. dollars. 

The ratios used to establish company financial status are profitability ratios, namely: return on assets, return on 

equity, and profit margin. As described earlier, these three financial indicators are calculated as the ratio of the 

net income to the total assets, stockholders’ equity, and net sales respectively. While individually these ratios 

only tell a part of the financial stability of a company, when analyzed together, they give a much clearer picture of 

a company’s financial health. 

Table B2-8 also presents summary financial ratios. Among firms with data available in dollars, median return on 

assets for the group in 2004 is 8.31%, median return on equity is 19.77%, and median profit margin (net 

income/revenues) is 8.50%, according to 2004 financial data. Among these 13 firms, all reported positive net 

income for 2004. Most firms had sizeable increases in revenue between 2004 and 2005. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2

Table B2-8: Financial Condition of Platform/Structure Parent Companies (2002 – 2005) 

Firms 

Year 

of 

Data 

Size Type 

No. of 

Employees Assets (thousand) Equity (thousand) Revenues (thousand) Net Income (thousand) Retu

on As

(%

Eni Large Foreign 

2005 $19,115,000 $6,286,000 $22,747,000 $1,242,000 

Amerada Hess Corporation 

2004 2003 Large Major $16,312,000 $13,983,000 $5,597,000 $5,340,000 $16,733,000 $14,311,000 $977,000 $643,000 

2002 $13,262,000 $4,249,000 $11,551,000 $218,000 

2005 3,300 $22,588,000 $11,051,000 $7,100,000 $2,466,000 1

Anadarko Petroleum Corp. 

2004 2003 Large Independent 3,300 3,500 $20,192,000 $20,543,000 $9,285,000 $8,599,000 $6,079,000 $5,113,000 $1,601,000 $1,287,000 

2002 3,800 $18,248,000 $6,972,000 $3,833,000 $825,000 

2005 NA NA NA NA NA 

BP plc 2004 2003 Large Major 102,900 103,700 $205,648,000 $186,576,000 $86,435,000 $80,292,000 $285,059,000 $232,571,000 $17,090,000 $12,941,000 

2002 115,250 $164,103,000 $67,274,000 $178,721,000 $8,109,000 

2005 59,000 $125,833,000 $62,676,000 $198,200,000 $14,099,000 

Chevron Corp 2004 2003 Large Major 56,000 61,533 $93,208,000 $81,470,000 $45,230,000 $36,295,000 $155,300,000 $121,277,000 $13,328,000 $7,230,000 

2002 53,014 $77,359,000 $31,604,000 $98,537,000 $1,132,000 

2005 35,600 $106,999,000 $52,731,000 $179,442,000 $13,529,000 1

ConocoPhillips Company 

2004 2003 Large Major 35,800 $92,861,000 $82,455,000 $38,943,000 $30,853,000 $135,076,000 $104,246,000 $8,129,000 $4,735,000 

2002 $76,836,000 $32,328,000 $56,748,000 ($295) 2005 17,400 $52,660,000 $10,397,000 $18,041,000 $1,033,000 

Dominion Resources, Inc. 

2004 2003 Large Other $45,418,000 $44,186,000 $11,426,000 $10,538,000 $13,991,000 $12,095,000 $1,249,000 $318,000 

2002 $39,996,000 $10,213,000 $10,218,000 $1,362,000 

2005 83,700 $208,335,000 $111,186,000 $370,680,000 $36,130,000 1

ExxonMobil Corporation 

2004 2003 Large Major 85,900 88,300 $195,256,000 $174,278,000 $101,756,000 $89,915,000 $298,035,000 $246,738,000 $25,330,000 $21,510,000 1

1

2002 92,500 $152,644,000 $74,597,000 $204,506,000 $11,460,000 

2005 506 $3,645,546 $1,684,522 $1,072,045 $124,413 

Forest Oil Corporation 

2004 2003 

Small Independent 

496 458 

$3,112,505 $2,693,548 

$1,472,147 $1,185,798 

$912,898 $657,178 

$56,417 $56,305 

2002 456 $1,924,681 $921,211 $472,868 $58,115 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities Chapter B2

2005 3,865 $14,276,000 $4,115,000 $5,927,000 $3,211,000 2

Kerr-McGee 2004 4,084 $14,518,000 $5,318,000 $4,398,000 $404,000 

Large Independent Corporation 2003 3,915 $10,250,000 $2,636,000 $3,289,000 $219,000 

2002 4,470 $9,909,000 2005 6,248 $6,368,511 

$2,536,000 $2,579,000 ($485,000) -

$3,460,990 $11,877,151 $846,452 1

Murphy Oil 2004 5,826 $5,458,243 $2,649,156 $8,359,839 $701,315 1

Large Major Company 2003 4,789 $4,712,647 $1,950,883 $5,164,657 $294,197 

2002 4,010 $3,885,775 $1,593,553 $3,984,327 $111,508 

2005 109,000 $223,646,000 $94,103,000 $306,731,000 $25,688,000 1

Royal Dutch 2004 Major, 113,000 $193,625,000 $90,545,000 $266,386,000 $18,182,000 Shell 2003 Large Foreign 119,000 $169,766,000 $78,251,000 $198,362,000 $12,313,000 

2002 111,000 $153,320,000 $66,195,000 $163,453,000 $9,656,000 

Total SA Large Foreign 

2005 NA NA NA NA NA 

2004 6,590 $13,101,000 $5,217,000 $8,204,000 $1,346,000 1

Unocal Large Independent 2003 6,700 $11,798,000 $4,009,000 $6,512,000 $831,000 

2002 6,615 $10,846,000 2005 1,680 $9,857,000 

$3,298,000 $5,273,000 ($67,000) -

$4,209,000 $3,519,000 $1,152,000 1

2004 1,356 $6,110,000 $2,599,000 $1,948,000 $508,000 

XTO Large Independent 2003 1,007 $3,611,000 $1,466,000 $1,189,000 $288,279 

2002 867 $2,648,000 $908,000 $810,163 $186,059 

Note: 2002 values may not match those reported in the EA for the proposal (U.S. EPA, 2004) as firms may have restated their financials for a variet

Sarbanes-Oxley Act of 2002, which changed requirements for disclosing financial data 

Source: Table C2-2; SEC, 2006, 2002-2005 10-K or 20-F. 

. B2-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 
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B2-2.2.2 Alaska Operations 

There are two major regions of oil and gas production in Alaska. The first, the North Slope region, operates 

generally from onshore locations or on gravel islands. Platforms are not used here. 

The second region, Cook Inlet, Alaska, is divided into two regions: Upper Cook Inlet, which is in State waters and 

is governed by the Coastal Oil and Gas effluent guidelines; and Lower Cook Inlet, which is considered Federal 

OCS waters and is governed by the Offshore Oil and Gas Effluent Guidelines. This section refers primarily to 

Upper Cook Inlet. 

There are 16 platforms and 3 onshore production facilities in Cook Inlet, Alaska, of which two platforms have 

ceased operation and two platforms have suspended operation. Five companies own the platforms: Forest Oil 

Corporation, Marathon Oil Corp., ConocoPhillips, XTO Energy, and Unocal Corp. Marathon owns the two outof-operation platforms and is not considered a potentially affected firm in Alaska. Unocal Corp. operates the 

majority of platforms in the Cook Inlet region, with 10 platforms and 2 onshore treatment facilities. Only one 

company operating in Cook Inlet waters, Forest Oil, is an independent and considered a small business. XTO is 

also an independent, but is a large business. The remaining operators are all listed as majors, as is the operator 

(BP) of the Duck Island structure in the Beaufort Sea (North Slope) (not discussed further here). One firm in 

Alaska is listed under NAICS 324110 (SIC 2911), Petroleum Refineries, and the three additional firms are listed 

as NAICS 211111 (SIC 1311), Crude Petroleum and Natural Gas Extraction. Financial data for these firms are 

also presented in Table B2-8. 

The Department of Fish and Game in Alaska developed a standard lease requirement for all water intake pumps to 

be fitted with a screened enclosure. The requirement further States that the water intake at the surface of the 

screen enclosure should not exceed 0.1 feet per second. For the purposes of the regulatory analysis, therefore, any 

new platforms in the Cook Inlet or the North Slope regions are considered to be potentially affected by the 316(b) 

requirements for entrainment, but not impingement, since the Alaska requirement meets or exceeds 316(b) Phase 

III impingement standards. 

B2-2.3 Existing Platforms/Structures with Intake Rates Meeting Proposed Rule Criteria 

B2-2.3.1 	 Overview of Existing Platforms/Structures as Model for New Platforms/Structures Subject to 

Phase III Regulation 

The following information is unchanged from proposal. EPA received no comments pertaining to the use of 

existing platforms and models for new platforms subject to Phase III regulations. 

Very few existing platforms appear to have CWISs with intake rates that meet the proposed rule’s criteria. Most 

of the existing platforms with CWISs of this size are located in the deep waters of GOM and in California and 

Alaska waters (Cook Inlet). Using the same approach as outlined for determining existing MODUs with CWIS 

intake rates meeting proposed rule criteria, EPA makes the following estimates, using the survey conducted for 

the oil and gas sectors to support this rulemaking and voluntary data submitted by industry. See also ERG 

(2004b). 

At proposal, EPA stratified the survey in the GOM into three strata: deepwater, shallow large (20+ slot 

platforms), and shallow small (fewer than 20 slots). 

The survey universe of deepwater structures was 24 (two structures were removed from the universe prior to the 

survey because their CWIS intake rates were known to be less than 2 MGD). For the survey, EPA sampled four 

facilities. There were no non-respondents. Only one of the four reported data showing them to have CWIS intake 

rates meeting proposed rule criteria. Thus EPA estimated that six deepwater structures would have CWIS intake 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2: Profile of the OOGE Industry 

rates meeting proposed rule criteria (24 divided by 4 is a weight of 6; with one respondent reporting an intake rate 

of 2 MGD or more, this produces an estimate of six total new structures meeting proposed rule criteria). 

However, earlier data (see ERG, 2004a) indicate that eight structures in the deepwater have CWIS intake rates 

meeting proposed rule criteria. EPA used the higher number of structures to estimate the proportion of existing 

structures with CWISs meeting the proposed rule criteria to total structures in the deepwater. Given eight 

structures meeting proposed rule criteria and 24 total structures, EPA believes that about 1/3 of deepwater 

structures to be built will be equipped with intakes meeting the Phase III rule’s criteria. Only one existing 

deepwater structure had a total intake rate of over 20 MGD, and none had a total rate of over 50 MGD. All firms 

currently operating multi-well structures in the deepwater GOM with CWIS rates that meet criteria are large. 

For shallow water large platforms, EPA determined that 206 existing platforms were either known to have CWISs 

with intake rates meeting Phase III rule criteria or their intake rates were unknown (an additional 3 platforms were 

known to have CWIS intake rates less than 2 MGD and were dropped from the sampling frame). EPA sampled 33 

platforms among the large platform group. Three of these were nonrespondents. No additional platforms with 

intake rates meeting Phase III rule criteria were detected using the survey. The nonrespondents were thus 

assumed also to have CWIS intake rates not meeting proposed rule criteria. Four platforms, however, were known 

to have CWISs meeting proposed rule criteria based on earlier data (see ERG, 2004a). None of these were 

sampled. EPA therefore assumes only these four platforms have intake rates meeting proposed rule criteria. 

These platforms were owned by large firms (ExxonMobil and Marathon). Thus, EPA assumes that if any large 

platforms with CWIS intake rates meeting proposed rule criteria were to be built, large firms would build them. 

For shallow-water, small platforms, EPA determined that 2,194 platforms were in the universe of platforms in the 

Federal GOM at the time of proposal (U.S. EPA, 2004). The vast majority of these platforms had unknown 

CWIS intake rates. Four such platforms were identified prior to EPA’s Phase III Survey as having CWIS intake 

rates exceeding 2 MGD (ERG, 2004a). None of these was sampled. A total of 18 platforms with unknown CWIS 

intake rates were sampled (all responded), but EPA determined that none of the sampled platforms had total 

design flow rates meeting proposed rule criteria. Although this is a very small sample, this finding is bolstered by 

EPA’s observations that platforms in State waters are unlikely to have CWIS with intake rates totaling 2 MGD or 

more (ERG, 2004a). Platforms in State waters and small platforms in Federal waters are generally similar 

structures. EPA therefore assumed that only four small platforms located in the shallow water GOM have CWIS 

intakes meeting proposed rule criteria. These four platforms were owned by ExxonMobil and BP, thus no small 

firms were estimated likely to build platforms with greater than 2 MGD intake rates in shallow water. 

In the GOM, therefore, EPA estimated that a total of 16 existing platforms had CWIS intake rates meeting Phase 

III rule criteria. All were owned by large firms, and most operated in the deepwater regions (U.S. EPA, 2004). 

In California, EPA determined that 20 platforms either have CWIS intake rates totaling 2 MGD or more or their 

CWIS intake rates were unknown (13 platforms with known intake rates were eliminated from the sampling 

frame because their total intake was less than 2 MGD). EPA sampled 3 of these 20 platforms. Only one was 

found to have an intake rate meeting proposed rule criteria. EPA thus assumed seven existing platforms in 

California had total intake rates meeting proposed rule criteria (20 divided by 3 is a weight of 6.7, which yields 7 

platforms weighted). A total of six platforms were known from earlier data (see ERG, 2004a) to have intakes rates 

meeting Phase III rule criteria, including the surveyed platform. Three had intake rates greater than 20 MGD but 

less than 50 MGD. Of the six platforms with flow data showing rates meeting Phase III rule criteria, three of 

these were owned by small businesses (Plains Exploration and Production/Arguello). The rest were owned by 

large businesses (Aera Energy, a joint venture between Shell and ExxonMobil, and ExxonMobil). 

In Alaska, EPA determined that 19 platforms/production facilities were in the survey universe (one platform was 

known to have a total CWIS intake rate of less than 2 MGD and was dropped from the sampling frame). EPA 

sampled two platforms, but only one was determined to have a CWIS intake rate meeting Phase III rule criteria. 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2: Profile of the OOGE Industry 

EPA therefore estimated that there were 10 platforms in Alaska with intakes that met Phase III rule criteria (19/2 

is a weight of 9.5). Five of these (all located in Cook Inlet) had CWIS data showing them to have CWISs meeting 

Phase III rule criteria (ERG, 2004a). Of these structures with known CWISs of this size, all were platforms 

owned by Unocal. Based on this, EPA might have assumed no small businesses currently operating would be 

affected in Alaska. However, a small firm constructed the most recently built platform in Cook Inlet, Osprey 

(Osprey’s CWIS intake rates are unknown). To be conservative, EPA assumed that a small firm, much like Forest 

Oil (Osprey’s owner), might be the type of firm to build a new structure in Alaska and such a structure might have 

CWIS intake rates meeting Phase III criteria. However, it is also entirely likely that no such structures will be 

built within the time frame of the analysis. 

In summary, EPA identified 16 platforms in the GOM, 7 platforms in California, and 10 platforms in Alaska, for a 

total of 33 existing platforms that met Phase III rule criteria. Of these, three platforms or structures (one in the 

deepwater and two in California) had CWIS intake rates greater than 20 MGD, and one platform (California) had 

an intake rate greater than 30 MGD. No platforms had CWIS intake rates exceeding 50 MGD (U.S. EPA, 2004). 

B2-2.3.2 Current Oil and Gas Production Levels and Trends 

In 2002, 567 million bbls of total oil and 4.5 million MMcf of total gas were produced in the GOM, while in 

2005, 440 million bbls and 3.0 million MMcf were produced. Sixty one percent of all oil production and 28 

percent of all gas production in the GOM came from deepwater wells in 2002, while in 2005, 70 percent of oil 

and 39 percent of gas came from deepwater wells, continuing the trend of deepwater regions providing a growing 

share of GOM production (MMS, 2006b). MMS has been using incentives such as royalty relief to promote 

drilling of deep gas wells in GOM for many years, adding a new royalty relief system for deep gas wells drilled 

from existing platforms to extend the life of platforms in the GOM (Federal Register, Vol. 69, No. 16, pg. 3492-

3514, January 26, 2004). In recent years, the drilling of such wells has increased and trends show a continuation 

of deep gas drilling and exploration in GOM. As technology advances and more deep gas wells are drilled, 

reserve estimates are being revised, as more gas is presumed recoverable. Deep gas wells in the GOM consist of 

deepwater drilling and deep shelf drilling in shallow waters. At proposal, deep shelf gas production had increased 

by 137 Bcf from 2000 to 2002. Approximately 20% of all GOM exploration drilling was at well depths greater 

than 15,000 ft. at the end of 2003 (Drilling Contractor, Jan./Feb. 2004). In 2004, MMS predicted that deep gas 

resources might total as much as 55 trillion cubic feet (Tcf) in the GOM (MMS, 2006f). 

Standard & Poor's annual Report Card of the Oil and Gas industry in 2003 predicted that oil prices would average 

approximately $19 per barrel, and that natural gas prices would average $3 per million Btu (MMBtu) (S&P, 

2003). Prices have ballooned in recent years, with current oil futures hovering around $67/bbl and current gas 

futures at nearly $7/MMBtu (Bloomberg.com, 2006). DOE, in their most recent projection, however, predicts 

some moderation of these prices in the future. DOE expects that oil prices will drop to $46.90/bbl in 2014, and 

then rise to $46.90/bbl by 2030 (2004 dollars). Gas prices are expected to follow a similar trend, dropping to 

$4.46/Mcf in 2016, and then rising to $5.92/Mcf by 2030 (2004 dollars) (DOE, 2006).4

 The economic analysis of 

deepwater platforms employs long run wellhead oil and gas prices used by 316(b) survey respondents to project 

future platform financials. These prices are considerably lower than either current prices or future projections, so 

can be considered a very conservative estimate of prices and thus of revenues at deepwater platforms. 

According to DOE, demand for both oil and natural gas is projected to increase over time. U.S. demand for oil is 

expected to rise from about 20 million bpd in 2004 to about 30 million bpd in 2030, while demand for gas is 

expected to rise from 22.4 Tcf (total annual demand in 2004) to 26.9 Tcf (2030). The Gulf of Mexico is expected 

to continue to be a major source of both oil and gas. DOE projects that oil production will decline in the shallow 

water Gulf, going from 0.4 million bpd (2004) to 0.3 million bpd (2030), but deepwater oil will increase from 1.0 

4

 1 Mcf ~ 1 MMBtu. 

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million bpd (2004) to 2.2 million bpd (2016), then declining to 1.7 million bpd by 2030, for a total of 1.6 million 

bpd in 2004 rising to 2.0 million bpd by 2030 (DOE, 2006). Gas production follows this same pattern in the Gulf. 

Shallow water Gulf production is expected to decline, going from 2.4 Tcf to 1.8 Tcf between 2004 and 2030, 

while deepwater Gulf production is expected to increase, going from 1.8 Tcf in 2004 to 3.2 Tcf in 2014, then 

declining to 2.1 Tcf in 2030 (DOE, 2006). 

B2-2.3.3 Estimate of Platforms/Structures To Be Built That May Be Affected by the Proposal 

In the deepwater region, EPA determined at proposal, based on MMS data, that approximately 2 to 4 structures 

are built each year (see MMS, 2003; U.S. EPA 2004). EPA assumed that an average of three such deepwater 

structures are completed each year. EPA noted that out of 24 total structures in the deepwater as of 2003, 8 were 

estimated to meet Phase III rule criteria, or about a third of the total. EPA thus assumed that one structure per 

year out of the three installed annually might have intakes meeting Phase III rule criteria. Because only one 

structure at proposal was identified as having a CWIS intake rate of greater than 20 MGD (and none had a CWIS 

intake rate of more than 30 MGD), EPA assumed that only one structure out of 10 would be built having a CWIS 

intake rate of 20 MGD or more. This would mean that EPA estimated two structures would be built with these 

intake rates over the 20-year construction time frame. 

All of these structures are assumed to be constructed by large firms. To date (2006), only large firms have built 

structures in the deepwater GOM, except for a few subsea completions, which have not been identified as 

associated with intake rates meeting Phase III rule criteria. This scenario is likely to continue, given the resources 

required to construct deepwater structures, the cost of which sometimes exceed $1 billion dollars (U.S. EPA, 

2000). 

Among large (20+ slot) platforms, EPA determined that few, if any, such platforms might be built during the time 

frame of the analysis. In the EA for the proposal, EPA noted that no platforms of this size had been installed 

since 1998 (U.S. EPA, 2004). A recent download of MMS data (MMS, 2006g) indicates that no additional 

platforms of this size had been installed in the 2003-2005 time frame. Given that so few of the existing platforms 

appear to resemble a new regulated project, EPA continues to assume no new platforms of this size and with 

CWIS meeting final rule criteria would be constructed. 

Among smaller platforms, EPA determined at proposal that they are unlikely to install CWIS of the size 

considered to meet proposed rule criteria. EPA continues to assume no new smaller platforms constructed in 

shallow water would be affected by the rulemaking. 

In Cook Inlet, Alaska, only one new platform has been constructed in recent years. Most new exploration and 

development in this region takes place from existing infrastructure or from onshore locations using directional 

drilling, in which wells are drilled both vertically and horizontally to reach potential reserves, sometimes 

thousands of feet from the top-hole locations. No definitive plans appear to be in place for any new platforms in 

State waters. In Federal waters, lower Cook Inlet is a source of potential activity, since MMS completed a lease 

bid in April 2004. No activity in this region was noted since that time, however. Given the long lead times 

between lease bid to operation, it may be relatively unlikely that this lease bid will result in new platforms during 

the time frame of the analysis in either location. To be conservative, however, EPA assumes one such platform 

might be constructed in Upper Cook Inlet (State waters) and begins operation during the time frame of analysis. 

In other Federal areas in the Alaska region, little new activity is underway BP has dropped plans for its Liberty 

project in the Beaufort Sea area (Federal Register, Vol. 67, No. 99 pp. 36020-36022). The only other activity that 

has taken place in recent years in Federal waters is an exploratory well drilled in the Beaufort Sea in 2003. No 

further activity has been noted since that time (MMS, 2006h). MMS has completed lease sales in the Beaufort Sea 

in 2003 and 2005 (MMS 2006i), but the time frame for development, if any is undertaken, could be beyond the 

time frame of this analysis. 

B2-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2: Profile of the OOGE Industry 

B2-3 TOTAL NEW OIL AND GAS OPERATIONS 

Table B2-9 summarizes the number of existing MODUs and platforms that are estimated to meet the proposed 

rule’s criteria, had EPA decided to regulate existing oil and gas facilities, as well as new MODUs and platforms 

expected to be built over the 20-year analytical period that might be required to install control technologies. Also 

presented is an assessment of the number of firms involved that might be small businesses. 

Table B2-9: 

>20 MGD >50 MGD 

No. of 

Small 

Firms 

Involved 

No. Built 

in 20-Year 

Period >2 

MGD 

No. Built 

in 20-Year 

Period >20 

MGD 

No. Built 

in 20-Year 

Period 

>50 MGD 

No. of 

Small 

Firms 

Involved 

MODUs 172 12 12 6 103 3 3 0 

Deepwater 

Platforms (GOM) 8 1 0 0 20 2 0 0 

20+ Slot 

Platforms (GOM) 4 0 0 0 0 0 0 0 

Other GOM 

Platforms 4 0 0 0 0 0 0 0 

California 

Platforms 7 3 0 1 0 0 0 0 

10 0 0 1 1 0 0 1 

Total 205 16 12 8 124 5 3 1 

2004b. 

 Number of Existing and Future Offshore Oil and Gas Extraction Facilities Estimated or Assumed To Meet Final 

Phase III Rule Criteria over a 20-Year Analysis Time Frame 

Type of Oil and 

Gas Facility 

Existing Facilities New Facilities 

No. with 

>2 MGD 

flows 

No. with 

flows 

No. with 

flows Potentially Potentially 

Alaska Platforms 

Source: U.S. EPA Analysis, 2006. See the 316(b) Oil and Gas Compliance Cost Model for the Final Rule, DCN 9-4000 and ERG, 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B2-23 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2: Profile of the OOGE Industry 

REFERENCES 

Bloomberg.com. 2006. Energy Prices. Downloaded April 9. 
 

Bureau of Census 2006. 1997 NAICS United States Structure, Including Relationship to 1987 U.S. SIC 
 

http://www.census.gov/epcd/www/naics.html. 
 

Drilling Contractor. 2003a. Deepwater success results in higher drilling activity. November/December 
 

Drilling Contractor. 2003b. Large jackups are most notable of newbuilt rigs. November/December. 
 

Drilling Contractor. 2001. MMS: GOM deepwater activity, production to grow. November/December 
 

ERG. 2004a. Non-CBI In-Scope Facility Database. Spreadsheet Submitted to the 316(b) Phase III Rulemaking 
 

Record. DCN 7-3505. 
 

ERG 2004b. Calculation of Weights for Engineering Cost Estimates. Memorandum to the 316(b) Phase III 
 

Rulemaking Record. September 24, 2004. 
 

ERG. 2004c. Expanded Universe of MODUs and Platforms. Spreadsheet Submitted to the 316(b) Phase III 
 

Rulemaking Record. DCN 7-4022. 
 

MMS. 2003. Deepwater production summary by year. 
 

www.gomr.mms.gov/homepg/offshore/deepwatr/summary.asp downloaded 10/10/2003. 
 

MMS. 2006a. Notice to Lessees and Operators of Federal Oil and Gas Leases in the Outer Continental Shelf, 
 

Gulf of Mexico OCS Region. NTL. No. 2006-G02. February 10. 
 

MMS. 2006b. Production Data by Year. Downloaded from MMS.gov, April 4. 
 

MMS. 2006c. Deepwater Keeps Gulf Strong. News Release. Release No. 3482. March 21, 2006. 
 

MMS. 2006d. Gulf of Mexico Permanent Deepwater Structures. Downloaded from MMS.gov, March 1. 
 

MMS. 2006e. Table 1—Platforms Destroyed by Hurricane Katrina; Table 2—Platforms Damaged by Hurricane 
 

Katrina; Table 4—Platforms Destroyed by Hurricane Rita; Table 5—Platforms Damaged by Hurricane Rita. 
 

Downloaded from MMS.gov, April 4. 
 

MMS. 2006f. Secretary Norton Unveils New Incentives to Boost Domestic Natural Gas Production, Save 
 

Americans $570 Million a Year. The News Room. Release #3022, dated January 23, 2004. Downloaded from
 

MMS.gov, April 4. 
 

MMS. 2006g. Structures date_sort.xls. From Platform Structures file. Downloaded at 
 

http://www.gomr.mms.gov/homepg/pubinfo/freeasci/platform/freeplat.html. April 4. 
 

MMS. 2006h. Alaska OCS Region—Minerals Management Service: Beaufort Sea Exploration Wells. 
 

Downloaded from MMS.gov, April 4. 
 

MMS. 2006i. List of Alaska Region Lease Sales. Downloaded from MMS.gov. April 4. 
 

New York Times. 2006. Fixing Up Offshore U.S. Oil Rigs. March 1. 
 

Offshore. 2003. Upgrades target deep gas and deepwater. Offshore Magazine. July 2003. 
 

B2-24 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2: Profile of the OOGE Industry 

Rigzone. 2006a. Offshore Rig Search Results. Region N. America—U.S. GOM. Downloaded from 

Rigzone.com, April 4. 

Rigzone. 2006b. Worldwide Offshore Rig Utilization. Downloaded from Rigzone.com, April 4. 

SEC. 2006. Security and Exchange Commission Edgar Database of Corporate Filings. 

http://www.sec.gov/edgar/searchedgar/companysearch.html. 

S&P (Standard and Poors). 2003. Industry Report Card: Oil and Gas. January, 17, 2003. 

U.S. Department of Energy (DOE). 2006. Annual Energy Outlook, 2006. Energy Information Administration. 

U.S. Environmental Protection Agency (U.S. EPA) 2000. Economic Analysis of Final Effluent Limitations 

Guidelines and Standards for Synthetic-Based Drilling Fluids and Other Non-Aqueous Drilling Fluids in the Oil 

and Gas Extraction Point Source Category. EPA-821-B-98-020. December 2000. 

U.S. Environmental Protection Agency (U.S. EPA). 2004. Economic Analysis for Proposed Phase III Facilities. 

EPA-821-R-04-016. November. 

U.S. Environmental Protection Agency (U.S. EPA). 2006b. Technical Development Document for the Final 

Section 316(b) Phase III Existing Facilities Rule. EPA-821-R-06-003. June 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B2-25 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B2: Profile of the OOGE Industry 

THIS PAGE INTENTIONALLY LEFT BLANK
 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

Chapter B3: Economic Impact Analysis for 

the Offshore Oil and Gas Extraction 

Industry 

INTRODUCTION 

The Final Section 316(b) Rule for Phase III Facilities will 

potentially affect any new MODUs and oil and gas 

production structures that use CWISs with daily design 

combined intakes totaling at least 2 MGD (and at least 25% 

of water used for cooling water purposes). This regulatory 

structure is the similar to that applied to new facilities 

under the Section 316(b) Phase I regulation. 

This economic impact analysis is divided into four sections. 

Section B3-1 presents the analysis of the 316(b) rulemaking 

on MODUs, Section B3-2 presents the analysis of offshore 

oil and gas production platforms, Section B3-3 summarizes 

the costs and impacts on both MODUs and platforms and 

provides totals for the combined industry subgroups, and 

Section B3-4 presents costs to the Federal government and 

total social costs. The first two sections each discuss the 

aggregate national after-tax compliance cost estimates for 

new MODUs and platforms (as well as briefly summarizing 

what these costs would be had existing MODUs and 

platforms been covered by the final rule). These sections 

also present vessel-level or platform-level pre- and after-tax 

compliance costs, and discuss impacts, both at the 

vessel/platform level and at the firm level. The 

vessel/platform level impacts are assessed using two 

approaches. The first approach uses the existing facilities 

CHAPTER CONTENTS 

Introduction .......................................................... B3-1 

B3-1 MODU Analyses....................................... B3-2 

B3-1.1 Aggregate National After-tax Compliance 

Cost Analysis.................................... B3-2

B3-1.2 Vessel-Level Compliance Costs ....... B3-3

B3-1.3 Impact Analysis ................................ B3-4

B3-2 Economic Impact Analysis for Oil and Gas 

Production Platforms................................. B3-9 

B3-2.1 Aggregate National After-tax Compliance 

Costs ............................................... B3-10 

B3-2.2 Platform-Level Compliance Costs.. B3-11 

B3-2.3 Impact Analysis .............................. B3-12 

B3-3 Total Costs and Impacts Among All Affected 

Oil and Gas Industry Entities ............................

 ........................................................ B3-16 

B3-4 Total Costs to Government Entities and Social 

Costs of the 316(b) Phase III Rulemaking ........

 ........................................................ B3-16 

B3-4.1 Total Costs to Government Entities..........

........................................................ B3-16 

B3-4.2 Total Social Costs........................... B3-17 

References ........................................................ B3-18 

that might represent new facilities and applies a cash-flow/net income-based analysis. The second approach is a 

standard barrier-to-entry analysis that investigates the present value of initial permitting costs (discounted to the 

assumed year of compliance) plus initial one-time capital/installation costs as a percentage of the cost to construct 

a new MODU or platform. The firm-level analysis uses firm revenues at firms that are the likeliest to construct 

new facilities. EPA applies a pre-tax and after-tax annualized cost of compliance (incorporating permitting, 

monitoring, capital/installation, and O&M costs) for each MODU/platform the firm is expected to build over the 

period of analysis. For the comparison of annualized costs of compliance with annual revenue, EPA assumed that 

all of a firm's new MODUs or platforms/structures would be constructed in one year. This assumption maximizes 

the potential impact of compliance cost in relation to revenue. If EPA instead assumed a firm would spread 

construction over more than one year, the ratio of compliance cost to revenue would be less in any single year and 

the likelihood of finding economic impacts would diminish. In this way, the assumption that all compliance costs 

are incurred in the same year is highly conservative. With no firm-level impacts found under this conservative 

assumption, then there will also be no impacts under other, possibly more likely, scenarios in which costs are 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B3-1 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

incurred over several years. The ratio of these costs to revenues is then calculated and assessed as to whether this 

ratio might indicate the potential for firm-level impacts. 

The methodologies used in each analysis are presented first in each section, followed by a discussion of the 

analytic results. 

No substantive comments were received on the costs or impacts estimated at proposal. Costs, therefore, have 

only been updated to reflect 2004 values. Impacts on individual platforms and vessels were not rerun, since these 

impacts are based on survey data that were updated to reflect 2003 dollar values at proposal for comparison with 

engineering and permitting costs that reflect the same year dollars. Since these costs remain the same in 2003 

dollars, impacts remain unchanged from proposal and are considered final for the purposes of this economic 

analysis report. 

B3-1 MODU ANALYSES 

B3-1.1 Aggregate National After-tax Compliance Cost Analysis 

A number of costs must be considered in calculating the aggregate national after-tax compliance costs, each with 

distinct timing considerations. Permitting costs are incurred by facilities, but these costs are incurred by facilities 

to come under one of three General Permits. EPA assumes costs of studies needed to incorporate permit 

requirements under the General Permits can be shared. EPA further assumes that all permitting costs would be 

grouped into three general permit regions. These regions are Eastern Gulf of Mexico, Western Gulf of Mexico, 

and Alaska. Other permit activities are facility-specific and will fall on each facility affected. The timing of 

permitting costs is complex and was discussed in Chapter B1: Summary of Cost Categories and Key Analysis 

Elements for New Offshore Oil and Gas Extraction Facilities. More information can also be found in U.S. EPA 

(2006a) and ERG (2004a). 

EPA assumes that four jackups and 1 semi-submersible will be built each year over the time frame of the analysis. 

EPA also assumes that three drill ships will be built, launched in 2012, 2017, and 2022 for a total of 103 MODUs 

over the 20-year period of construction. Permitting costs, therefore, apply to 80 jackups, 20 semi-submersibles 

and 3 drill ships. See Chapter B2: Profile of the Offshore Oil and Gas Extraction Industry. 

Pre-tax costs of installing and operating control technologies and for various permitting activities are input to a 

spreadsheet in the year in which they are assumed to be incurred. Capital costs are assumed to be incurred every 

10 years, and repermitting costs occur every 5 years. Each MODU is assumed to operate over a 30-year 

compliance period1

. Costs are discounted to the year of compliance, assumed to be the year the MODU is 

launched, and summed to produce the present value of costs in the year of compliance. These costs are then 

annualized over 30 years. See Chapter B1: Summary of Cost Categories and Key Analysis Elements for New 

Offshore Oil and Gas Extraction Facilities for more details on the cost discounting methodology. 

To create after-tax costs, EPA assumes that the highest marginal corporate tax rate applies. This rate is 35% (IRS, 

2005), so after-tax costs would be 65% of the pre-tax costs. EPA does this because all MODU owners that are 

likely to build MODUs are large corporations by SBA standards and all have earnings in most years that place 

them in the highest corporate tax bracket. 

Table B3-1 summarizes the national aggregate after-tax compliance costs for MODUs. As the table shows, these 

costs are $1.9 million per year over the time frame of the analysis in 2004 dollars. See ERG (2004a) for a 

detailed description of how these costs were calculated (note, however, the costs shown in this reference are the 

1

 The 30 year compliance period does not reflect the anticipated operational life of the MODU, rather it is the period of 

analysis for assessing long-term costs and benefits. 

B3-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

2003 dollar values). See also the 316(b) Oil and Gas Compliance Cost Model for the Final Rulemaking, DCN 9-

4000 (hereinafter, Compliance Cost Model for Final. 

Had existing MODUs been covered by the final rule, the total national cost of the rule would have included an 

additional $3.6 million per year in 2003 dollars (ERG, 2004b). 

Table B3-1: Total Aggregate National After-tax Compliance Costs for MODUs 

($2004) 

Type of Cost 

Present Value 

(year of compliance) 

Annualized Cost of 

Compliance 

Permitting $7,270,132 $547,546 

Capital/Installation 

Semi-submersibles $634,915 $47,818 

Jackups $15,277,346 $1,150,604 

Drill ships $813,165 $61,243 

Total $16,725.426 $1,259,665 

Monitoring $1,370,001 $103,181 

O&M $0 $0 

Total $25,365,559 $1,910,392 

Source: U.S. EPA Analysis, 2006. See the Compliance Cost Model for Final, DCN 9-4000. 

B3-1.2 Vessel-Level Compliance Costs 

This section addresses costs to each of the three types of new vessels. Again, permitting and monitoring costs are 

from U.S. EPA (2006a), and capital/installation costs are from U.S. EPA (2006b). Weighted average costs 

reported in the TDD (U.S. EPA, 2006b) and derived for existing facilities are calculated and applied to new 

facilities as presented in a spreadsheet located in the rulemaking record (DCN 7-4030) and in the Compliance 

Cost Model for Final, DCN 9-4000. Pre-tax costs per vessel are used in the firm-level analysis. After-tax per 

facility costs are also presented. After-tax costs are used for comparison to pre-tax costs and are used in the firmlevel analysis, but are not used directly as shown in the vessel impact analysis.1 Additional details on how these 

costs are calculated are presented in ERG (2004a). 

B3-1.2.1 Pre-Tax Cost of Compliance for Representative Vessels 

The costs shown in Table B3-2 reflect the costs assigned to each vessel, by type of vessel. The representative 

vessels are those launched in 2007 (jackups and semi-submersibles) and 2012 (drill ship) for the purposes of 

timing assumptions. All costs are discounted to the year of compliance, which is the same as the assumed year of 

launching. This date may be prior to the date actual compliance is required for some vessels. Those constructed 

in 2007-2012 or 2014 (depending on location) are assumed to install and operate compliance equipment 

immediately when they are constructed, even though permit requirements may not be in place at that time (see 

Chapter B1: Summary of Cost Categories and Key Analysis Elements for New Offshore Oil and Gas Extraction 

Facilities for more details). The present value costs are calculated by inputting each cost into the year that it is 

In the impact analysis, after-tax costs are applied to existing MODUs, but these are calculated in a more exact way, 

since the existing MODUs have known marginal tax rates, and a depreciation schedule is used to more precisely calculate the 

after-tax cost impact on cash flow; see Section B3-1 below and ERG, 2004c). Also note that neither survey data nor 

compliance costs were updated from 2003 to 2004 for the impact modeling, since the costs did not change from proposal 

except for adjusting for inflation. All vessel-level modeling results from proposal, therefore, are considered final. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B3-3 

1 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

assumed to be incurred, which includes additional capital costs in years 11 and 21 after initial construction, 

repermitting costs every 5 years, and monitoring costs in the appropriate years. The costs are taken out over 30 

years, discounted to the year of compliance at the recommended OMB discount rate of 7%, and then summed. 

The present value cost is then annualized using a 30-year time frame assumption and 7% discount rate. Chapter 

B1: Summary of Cost Categories and Key Analysis Elements for New Offshore Oil and Gas Extraction Facilities 

also discusses this process, as does ERG (2004a). 

Table B3-2 presents the costs of compliance on an annual basis for the three types of MODUs. As the table 

shows, these costs range from $15,307 to $39,106 per year depending on type of vessel. These costs are small in 

comparison to revenues associated with drilling even one exploration well in the deepwater GOM. The 

construction of these types of wells cost oil and gas production companies at least $25 million to $30 million per 

well (U.S. EPA, 2000). A large portion of this outlay is paid to the operator of the MODU that drills the well. 

These costs are also small in comparison to typical MODU day rates, which can range from $50,000 to $180,000 

per day (Rigzone, 2006a). 

Table B3-2: Per-Vessel Annualized Pre-Tax Cost of Compliance ($2004) 

Type of Cost Present Value 

(year of compliance) 

Annualized Cost of 

Compliance 

Permitting 

Semi-submersibles $129,990 $9,790 

Jackups $129,990 $9,790 

Drill ships $68,188 $5,136 

Capital/Installation 

Semi-submersibles $48,840 $3,678 

Jackups $293,795 $22,127 

Drill ships $417,008 $31,407 

Monitoring 

Semi-submersibles $24,405 $1,838 

Jackups $24,405 $1,838 

Drill ships $34,046 $2,564 

O&M $0 $0 

Total 

Semi-submersibles $203,235 $15,307 

Jackups $448,191 $33,755 

Drill ships $519,242 $39,106 

Source: U.S. EPA Analysis, 2006. See the Compliance Cost Model for Final, DCN 9-4000. 

B3-1.2.2 After-tax Costs 

After-tax costs are presented here for comparison purposes. After-tax costs are assumed to be lower than the pretax costs by the top marginal corporate tax rate of 35%. Thus the costs calculated are 65% of the pre-tax costs in 

Table B3-2 above. The annual after-tax, annualized, per-vessel compliance costs are $9,949 for semisubmersibles, $21,941 for jackups, and $25,419 for drill ships, based on the pre-tax costs presented above. 

B3-1.3 Impact Analysis 

EPA has not rerun the impact analysis at the vessel level from proposal. Other than for inflation, all costs remain 

the same as those at proposal. EPA considers the impact results from proposal, therefore, to be final. 

B3-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

The impact analysis is conducted at two levels: vessel-level and firm-level. Although the financial condition of 

new vessels cannot be known, the financial conditions of a few, representative existing vessels are reflected in 

EPA’s 316(b) survey of MODUs. EPA received eight economic surveys from three semi-submersibles, three 

jackups, and two drill ships. The financial information from these representative vessels is used for a general 

assessment of how well these vessels would do financially if costs of the final regulation applied. The 

representative vessels are thus a proxy for new sources subject to Phase III regulation. This analysis provides an 

alternative assessment of the potential for barrier to entry. 

The second vessel-level analysis is a more typical barrier-to-entry analysis conducted by EPA for new entities, 

which looks at the present value of the initial permitting costs (including those associated with start-up activities, 

pre-permitting studies and initial permit application activities), discounted to the applicable compliance year, plus 

the initial one-time capital/installation costs of required control equipment and compares these costs to the 

baseline construction costs for each type of MODU. EPA uses an initial permit cost stream represented by 

MODUs expected to be constructed in 2007 (jackups and semi-submersibles) or 2012 (drill ships). See the 

Compliance Cost Model (DCN 7-4018) that was prepared at proposal. 

The firm-level analysis is a revenue test, comparing the revenues of firms likely to construct MODUs with the 

annualized compliance costs for representative new vessels, assuming each firm identified as potentially affected 

builds a share of the new MODUs expected to be constructed over the time frame of the analysis. For the 

comparison of annualized costs of compliance with annual revenue, EPA assumed that all of a firm's new 

MODUs would be constructed in one year. This assumption maximizes the potential impact of compliance cost 

in relation to revenue. If EPA instead assumed a firm would spread construction over more than one year, the 

ratio of compliance cost to revenue would be less in any single year and the likelihood of finding economic 

impacts would diminish. In this way, the assumption that all compliance costs are incurred in the same year is 

highly conservative. With no firm-level impacts found under this conservative assumption, then there will also be 

no impacts under other, possibly more likely, scenarios in which costs are incurred over several years. EPA uses 

the annualized cost stream for MODUs constructed in 2007 (or the cost stream for a drill ship constructed in 

2012, the first year post-compliance in which a drill ship is assumed to be constructed) to represent the annualized 

costs to each potentially affected firm. EPA uses both the pre-tax and after-tax compliance costs for comparison 

with revenues. 

B3-1.3.1 Vessel Impact Analysis Using Survey Vessels 

To calculate the impact of today’s rule on new MODUs, EPA used two models – a cash flow/net income model, 

which computes the estimated present value of after tax cash flow/net income for representative MODUs (based 

on survey data) over a 30-year operating period for each new facility, and a post-tax cost calculation model, which 

estimates the present value after-tax costs of compliance using engineering and permitting cost inputs. These two 

models are used to analyze the effect of after-tax costs on after-tax vessel cash flow or net income. For additional 

details on these models, see ERG (2004c) and DCN 7-4020. 

Using data provided by surveyed MODU operators, EPA used both the reported after-tax net income and a 

calculated cash flow figure for each survey MODU. EPA calculated cash flow using after-tax net income and 

adding depreciation, depletion, and amortization (DD&A) back into net income, since DD&A are not cash 

expenses. EPA used cash flow as an upper bound estimate of available cash and after-tax net income as a lower 

bound estimate. EPA was only able to undertake financial analysis for those MODUs with a positive net income 

or cash flow for the three years of financial information provided in the survey. EPA assumes that any MODU 

whose cash flow or net income is negative over the three years of financial data availability is unlikely to be a 

viable operation in the baseline and cannot be analyzed with respect to compliance costs. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B3-5 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

EPA used the cash flow/net income over the three years of data collected to create a moving cycle of cash 

flow/net income over the period of analysis. The years of data collected were 2000, 2001, and 2002, with 2002 

generally being a poorer year for the industry as a whole. In this way, EPA was able to represent industry 

financials in both good and bad years. The 3-year cycle provides a means for projecting the volatile oil and gas 

business over each facility’s 30-year operating period, which is expected to include major swings in the prices of 

oil and gas, the driving force behind the level of operations, pricing, and thus the financial performance of newly 

constructed vessels. EPA assumed that cash flow/net income will be flat on average over the 30 years of analysis 

and thus does not apply any factors to increase or decrease cash flow or net income over the years of analysis 

within those cyclical movements. The cash flow/net income figures from the survey, therefore, repeat every three 

years for 30 years. EPA then computes the present value of that stream of cash flow/net income figures and 

compares it to the present value of after-tax compliance costs for the preferred option. 

EPA used the capital, O&M, and permitting costs to calculate the present value of the after-tax annualized cost of 

compliance with the regulatory requirements. Each cost is accounted for in the year in which it is assumed to be 

incurred. EPA made the simplifying assumption that the existing MODUs would represent new MODUs that are 

launched in 2007. Since EPA assumes MODUs launched in this year install and operate compliance equipment at 

that time (even though they do not become permitted for compliance with 316(b) requirements until the date of 

the first applicable General Permit renewal), EPA considers the date of launching the “compliance year.” 

The first costs to be incurred are the Region 6 and Region 4 pre-permitting costs (the shared study costs) and the 

capital costs of installation and incremental O&M costs (O&M costs are estimated to be $0 for all MODUs). 

Costs for permit application activities occur in 2011 for the Region 6 permit and in 2013 for the Region 4 permit. 

Only MODUs are assumed to be permitted under the Region 4 permit, since relatively little production activity is 

currently underway in the Eastern Gulf.2

 Monitoring costs begin to be incurred in 2012. Repermitting costs enter 

in 2017, and every 5 years thereafter. EPA estimated capital costs for each MODU for which a financial survey 

response was received (with one exception), as well as many other MODUs for which financial data were not 

obtained (all were used to calculate the average costs of compliance for new facilities). In this analysis, however, 

only the costs for the eight MODUs with economic survey information were used for developing the costs for this 

impact analysis. 

EPA’s post-tax compliance cost model determined the marginal tax rate of the owner company based on the 

firm’s average taxable earnings over the three years of survey data (which were put on a mid-year 2003 basis to 

match the engineering costs, which were also set to 2003 dollars) and used the modified accelerated cost recovery 

system (MACRS) to calculate depreciation on the capital outlay. Depreciation was then used to compute a “tax 

shield” on the investment (for more information on EPA’s post-tax cost calculation model, see ERG [2004c] and 

DCN 7-4020). The post-tax cost calculation model calculates the present value of after-tax compliance costs. 

The present value output from the post-tax cost calculation model is then input to the cash flow/net income model 

and used to compare with the present value of cash flow/net income of the vessel as discussed above. If the 

present value of baseline after-tax cash flow or net income minus the present value of after-tax compliance costs 

is greater than $0, EPA assumes that the MODU would be able to continue to operate post-compliance. If the 

cash flow value becomes negative, EPA assumes the MODU would no longer continue to operate. If the net 

income value becomes negative, EPA assumes the longer-term viability of the vessel is potentially jeopardized. 

In either case, such a MODU would be counted as a potential “regulatory closure.” This analysis is considered an 

alternative assessment of the potential for barrier to entry. 

Permitting costs to platforms are assumed to be associated with the Western Gulf Permit; use of this assumption avoids 

potentially understating the magnitude of shared costs to MODUs in Region 4. 

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Although many of EPA’s analyses investigate whether costs of compliance can be passed through to customers, 

this analysis makes an assumption that costs cannot be passed through. Because existing MODUs will not have to 

meet the requirements of the rulemaking, and new MODUs must compete with these existing MODUs, it is 

unlikely that new MODUs would be able to pass through any compliance costs. Assuming zero cost pass-through 

provides a realistic estimate of potential economic impacts to new MODUs. 

Due to confidential business information (CBI) constraints, EPA is not able to provide detailed impact results on a 

MODU-specific level. Detailed results are provided in the CBI portion of the Rulemaking Record (ERG, 2004c, 

CBI version, and DCN 7-4020). The general findings of the closure analysis are that no new MODUs will be 

regulatory closures, based on an assumption that finances for new MODUs might look like those for existing 

MODUs, as a result of the incremental costs of compliance with the preferred option using either a cash flow or 

net income approach. 

B3-1.3.2 Barrier to Entry Analysis (Vessel-Level) 

EPA used the incremental capital/installation costs and the net present value of permitting costs of compliance for 

MODUs, as discussed above, using the cost streams associated with vessels launched in 2007 (jackups and semisubmersibles) and 2012 (drill ships), discounted to the compliance year. The sum of these costs (capital and 

permitting) was then compared to the costs of constructing new MODUs. If these compliance costs comprised a 

small fraction of construction costs, EPA assumed that compliance costs would not have a major impact on future 

MODUs and would not have an effect on a decision to build additional MODUs. 

EPA estimated the incremental capital costs to install CWISs that meet the requirements of 316(b) Phase I, Track 

1. These costs are $27,643 for semi-submersibles, $166,290 for jackups, and $236,028 for drill ships. The 

present value of a share of the permit costs is $102,429 for each vessel except those for drill ships, which are 

$25,673 (because they are assumed not be involved in the initial study cost sharing due to their much later 

assumed launch dates). The total incremental initial investment costs, therefore, are $130,072 for semisubmersibles, $268,718 for jackups, and $261,702 for drill ships). According to Rigzone (2006b), the cost of new 

MODUs planned to be built in the next few years averages $385 million for semi-submersibles, $130 million for 

jackups, and $525 million for drill ships. Incremental present value of permitting costs plus capital/installation 

costs are therefore estimated to range from 0.03% to 0.21% of construction costs, regardless of type of MODU. 

Because this is only a tiny fraction of total costs of construction (and a tiny fraction of contingency, which 

typically ranges from 10% to 20% of capital/installation costs), EPA believes that these costs will not have a 

material effect on decisions to build new MODUs. 

One commenter was concerned about the potential for barriers to trade due to compliance costs. The results of the 

barrier to entry analysis indicate that costs are minuscule relative to construction costs, so foreign companies 

wishing to construct new MODUs that meet the requirements of the final rule will not be dissuaded from doing 

so. Furthermore, should foreign firms wish to relocated MODUs built after the effective date of the rule to U.S. 

waters, the costs to retrofit controls should not have an impact on this decision. The costs calculated in U.S. EPA 

(2006b) and presented here are derived assuming controls must be retrofitted. The vessel-level and firm level 

impact analyses indicate negligible impacts, as does this barrier to entry analysis. EPA, therefore, has determined 

that no barriers to trade will exist as a result of the final 316(b) rulemaking. 

B3-1.3.3 Firm-Level Analysis 

To determine the impact of the final rule on firms, EPA uses a revenue test, which compares the annualized pretax and after-tax costs of compliance (calculated for each representative MODU as discussed above), with 2004 

revenues reported by all firms determined likely to build new MODUs meeting the final rule’s criteria. Because 

nearly all of these firms (other than foreign-owned) are publicly owned, EPA relied on the revenue data reported 

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§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

in Chapter B2: Profile of the Offshore Oil and Gas Extraction Industry, which was compiled from corporate 10K 

reports downloaded from SEC’s Edgar Database. EPA determined the number of MODUs likely to be built by 

each firm under the final rule. Only those firms that were identified as currently owning jackups, semisubmersibles, and drill ships that will meet the final rule’s criteria if newly constructed or those actively 

constructing MODUs at this time are considered likely to construct the estimated 103 new MODUs that will be 

affected by the final rulemaking (see also Chapter B2: Profile of the Offshore Oil and Gas Extraction Industry). 2 

EPA then assigned a number of potentially in-scope MODUs to be built by each of the firms and used the average 

per-MODU compliance costs multiplied by the number of these potentially in-scope MODUs to calculate the total 

compliance costs that might be faced by these firms. 

To calculate costs to revenues, EPA uses the pre-tax and after-tax costs shown in Table B3-2 for the firms 

identified as likely to construct new MODUs meeting the final rule’s criteria. Each firm is assumed to build 9 

jackups or semi-submersibles over the time frame of the analysis (about one every other year), except for 

GlobalSantaFe and Transocean, which are assumed to build 18 jackups and one drill ship or two drill ships, 

respectively.3

 The total number of new MODUs estimated to be built is divided equally amongst the firms. 

However, GlobalSantaFe and Transocean own a disproportionately large share of existing MODUs. So EPA 

expects their share of new MODUs to be approximately twice that of the other firms. For the comparison of 

annualized costs of compliance with annual revenue, EPA assumed that all of a firm's new MODUs estimated to 

be constructed by these firms are launched in one year. This assumption maximizes the potential impact of 

compliance cost in relation to revenue. If EPA instead assumed a firm would spread construction over more than 

one year, the ratio of compliance cost to revenue would be less in any single year and the likelihood of finding 

economic impacts would diminish. In this way, the assumption that all compliance costs are incurred in the same 

year is highly conservative. With no firm-level impacts found under this conservative assumption, then there will 

also be no impacts under other, possibly more likely, scenarios in which costs are incurred over several years. 

EPA uses the higher cost of a jackup rig to represent the cost of compliance for both jackups and semisubmersibles for simplicity. 

Table B3-3 shows all of the MODU owners that are considered likely to build an in-scope MODU. As the table 

shows, annualized pre-tax costs per firm range from $0.3 to $0.7 million. The ratio of pre-tax costs to revenues 

ranges from 0.01% to 0.19% and after-tax costs to revenue range from 0.01% to 0.12%. Given that the highest 

ratio seen is 0.19 percent, EPA concludes that firm-level impacts will be minimal. Furthermore, even if these 

costs applied to other firms (among those that own jackups or semi-submersibles with unknown CWIS intake 

rates that are considered unlikely to build new MODUs subject to Phase III regulation), impacts on any firm 

would still be estimated to be much less than 1 percent.4 

2

 Two firms have been added to the list of likely MODU constructors since proposal, based on information showing that 

they are in the process of constructing new MODUs. These are Nabors and Atwood Oceanics (Rigzone, 2006c). Nabors is 

larger in revenues than the other firms, and Atwood Oceanics is smaller. Two other firms are currently building MODUs, 

One, Perforadora Mexico, does not have financial data readily available, but is assumed to have revenues in the range of 

those shown in Table B3-3. The other, Scorpion, is a new firm, organized in April of 2005. This foreign firm is currently 

building 5 jackups and has no revenues to report at this time. With 5 MODUs in operation and assuming only 90 days per 

year of operation for each MODU (that is, a 25 percent utilization rate when the average for the GOM is currently at 85 

percent [Rigzone, 2006d]) at an average $100,000/day, this would imply a revenue stream of about $45 million per year. If it 

is further assumed that this firm builds as many as 9 MODUs in one year, the impact of the final rule will still be less than 1 

percent of revenues. 

3

 The number of MODUs per firm was changed from proposal to accommodate a higher number of firms identified as 

constructing MODUs (see Chapter B2: Profile of the Offshore Oil and Gas Extraction Industry). 

4 At proposal, there were several firms owning jackups or semi-submersibles that did not submit voluntary technical data, 

so EPA was not able to determine whether they own MODUs that might meet the final rule’s criteria were they to be newly 

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These costs reflect the assumption that all new jackups would be built with sea chests and, therefore, these vessels 

will not be required to meet entrainment controls. However, jackups on rare occasions use straight pipes. If 

jackups are not built with sea chests, the costs to comply with both impingement and entrainment controls would 

result in the annualized per-vessel compliance costs to rise from $33,755 to about $40,800.5 Under this scenario, 

the costs to revenue ratios shown in Table B3-3 would be at most 0.2 percent (see DCN 7-4030 and DCN 7-

4018). 

Table B3-3: Revenue Test for MODU Owners 

Name 

No. of Likely Inscope Rigs >2 

MGD Built in One 

Year 

2004 

Revenues 

($millions) 

Annualized 

Pre-Tax Costs 

per Firm 

($millions) 

Costs to 

Revenues 

(%) 

Annualized 

After-tax 

Costs per 

Firm 

($millions 

2004) 

Costs to 

Revenues 

(%) 

Diamond Offshore 9 $815 $0.3 0.04% $0.2 0.02% 

ENSCO 9 $741 $0.3 0.04% $0.2 0.03% 

GlobalSantaFe 19 $1,724 $0.6 0.04% $0.4 0.02% 

Noble 9 $1,351 $0.3 0.02% $0.2 0.01% 

Pride 9 $1,712 $0.3 0.02% $0.2 0.01% 

Rowan 9 $679 $0.3 0.04% $0.2 0.03% 

Transocean 20 $2,614 $0.7 0.03% $0.4 0.02% 

Nabors 9 $2,448 $0.3 0.01% $0.2 0.01% 

Atwood Oceanics 9 $163 $0.3 0.19% $0.2 0.12% 

Total/Avg. ~103 $12,247 $3.5 0.03% $2.2 0.02% 

Source: SEC, 2006; U.S. EPA Analysis, 2006. See Compliance Cost Model for Final, DCN 9-4000. 

B3-2 ECONOMIC IMPACT ANALYSIS FOR OIL AND GAS PRODUCTION PLATFORMS 

This section presents the aggregate national after-tax compliance costs for new oil and gas production platforms 

that will be built in scope. It also presents platform-level compliance costs (in after-tax and pre-tax terms). 

Impacts on platforms are then presented in two sections. The first section uses a model of a new platform to 

determine the potential for any effect on production. The second section uses an approach for identifying barriers 

to entry for all platforms likely to be built in scope and for assessing impacts on those platforms for which 

information was not sufficient to create a detailed economic model. As discussed in Chapter B2: Profile of the 

Offshore Oil and Gas Extraction Industry, only 20 in-scope deepwater platforms and one in-scope Alaska 

constructed. These firms were Atwood Oceanics, Caspian Drilling Co., Energy Equipment Resources, Nabors Industries, 

Newfield Exploration, Ocean Rig ASA, Parker Drilling, Tetra Technologies, and Workships BV (note that several of these 

firms are no longer on Rigzone’s list of current operators [Rigzone, 2006c]). Most of these firms, however, own only one or 

two such MODUs and are considered far more likely to purchase MODUs from the firms included in this analysis than to 

build their own (several of these MODUs have clearly been purchased from GlobalSantaFe, for example). As noted earlier, 

however, Noble and Atwood Oceanics are constructing new MODUs and have been added to the analysis. Had others of 

these firms been included in the analysis, however, EPA’s findings would not have changed. Atwood Oceanics is considered 

representative of the smaller (yet still large by SBA standards) MODU operators who might construct MODUs subject to the 

rule. 

5

 Based on the average inflation factor for permits and construction costs of about 4.5% from 2003 to 2004 (per-vessel 

compliance costs for jackups were estimated to rise from $32,295 in 2003 dollars to $33,755 in 2004 dollars, while costs for 

jackups with entrainment controls were estimated to be $39,063 in 2003 dollars). 

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platform are expected to be constructed over the 20 year construction time frame of the analysis under the final 

rule. 

B3-2.1 Aggregate National After-tax Compliance Costs 

The methodology for calculating the aggregate national after-tax compliance costs are identical to that used for 

calculating these same costs for MODUs, although the costs incurred are different. Costs are input in each year in 

which they occur over the 30-year time frame of the analysis, including recurring capital replacement costs, 

repermitting costs, and O&M. The costs in each year are discounted to the compliance year (assumed the year the 

platform comes on line) and summed to calculate the present value of the cost stream. These present value costs 

are then annualized. For more details on timing assumptions and annualized and present value cost calculations, 

see Chapter B1: Summary of Cost Categories and Key Analysis Elements for New Offshore Oil and Gas 

Extraction Facilities and ERG (2004a). 

To create after-tax costs, EPA assumes that the highest marginal corporate tax rate applies. This rate is 35 percent 

(IRS, 2005), so after-tax costs will be 65 percent of the pre-tax costs. EPA does this because all platform owners 

that are likely to build in-scope platforms are large corporations by SBA standards and/or have earnings that place 

them in the highest corporate tax bracket (including the one small corporation considered likely to build an Alaska 

platform). 

Table B3-4 summarizes the national aggregate after-tax compliance costs for production platforms. As the table 

shows, these costs are $1.3 million per year over the time frame of the analysis. See ERG (2004a) for a detailed 

description of how these costs were calculated. Also see DCN 9-4000. 

Had existing platforms been covered by the final rule, the total national cost of the rule would have included an 

additional $4.5 million per year in 2003 dollars (ERG, 2004b). 

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Table B3-4: Total National Aggregate After-tax Compliance Costs for Platforms 

($2004) 

Type of Cost Present Value (to year of 

compliance) 

Annualized Cost of 

Compliance 

Permitting 

Deepwater $859,982 $64,769 

Alaska $483,126 $36,386 

Total $1,343,109 $101,155 

Capital/Installation 

Deepwater $5,556,764 $418,504 

Alaska $414,536 $31,221 

Total $5,971,300 $449,725 

Monitoring 

Deepwater $188,497 $14,197 

Alaska $191,478 $14,421 

Total $379,975 $28,618 

O&M 

Deepwater $8,187,952 $616,671 

Alaska $1,458,124 $109,818 

Total $9,646,076 $726,488 

Total Compliance Costs 

Deepwater $14,793,195 $1,114,141 

Alaska $2,547,264 $191,846 

Total National Compliance Costs $17,340,460 $1,305,986 

Source: U.S. EPA Analysis, 2006. See the Compliance Cost Model for Final, DCN 9-4000. 

B3-2.2 Platform-Level Compliance Costs 

This section addresses costs to each of the two types of platforms (deepwater and Alaska). Again, permitting and 

monitoring costs are from U.S. EPA (2006a), and capital/installation and O&M costs are from U.S. EPA (2006b), 

with the weighted average of the capital and O&M costs applied to new platforms/structures as calculated in DCN 

7-4030. Pre-tax costs per platform are used in the firm-level analysis, along with after-tax costs. After-tax costs 

are used for comparison to pre-tax costs but are not used directly in the platform impact analysis.5

 See ERG 

(2004a) for more detail on how these costs were calculated. Also see DCN 9-4000. 

B3-2.2.1 Pre-Tax Cost of Compliance for Representative Platforms 

The costs shown in Table B3-5 reflect the estimated costs incurred by each platform, by type of platform. Costs 

are derived as above for computing national aggregate costs, but these costs are for a representative deepwater 

platform that comes on line in 2007 (year of compliance is assumed to be 2007) and the representative Cook Inlet 

platform coming on line in 2014 (year of compliance). Costs (which are incurred over the full time frame of the 

analysis, including recurring capital replacement and repermitting costs) are discounted to the applicable year of 

compliance and annualized over 30 years at 7 percent. 

In the impact analysis, costs are input in the year in which they are assumed to be incurred, and the financial model 

internally calculates the tax shield on these costs given depreciation schedules; see Section B3-2.3a below and ERG [2004d]). 

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Table B3-5 presents the costs of compliance on an annual basis for the two types of platforms. As the table 

shows, these costs are $87,141 or $295,147 depending on type of platform. 

Table B3-5: Per-Platform Annualized Pre-Tax Cost of Compliance ($2004) 

Type of Cost Present Value (Year of 

Compliance) 

Annualized Cost of 

Compliance 

Permitting share 

Deepwater $81,586 $6,145 

Alaska $743,271 $55,979 

Capital/Installation 

Deepwater $427,443 $32,193 

Alaska $637,748 $48,032 

Monitoring share 

Deepwater $18,164 $1,368 

Alaska $294,582 $22,186 

O&M 

Deepwater $629,842 $47,436 

Alaska $2,243,267 $168,950 

Total 

Deepwater $1,157,035 $87,141 

Alaska $3,918,868 $295,147 

Source: U.S. EPA Analysis, 2006. See the Compliance Cost Model for Final, DCN 9-4000. 

B3-2.2.2 After-tax Costs for Representative Platforms 

After-tax costs are presented here for comparison purposes. After-tax costs are assumed to be lower than the pretax costs by the top marginal corporate tax rate of 35 percent (IRS, 2005). Thus the costs calculated are 65 

percent of the pre tax costs in Table B3-5 above. 

The annual after-tax per-platform compliance costs are $56,642 for deepwater platforms and $191,846 for the 

Alaska platform, based on the pre-tax costs shown above in Table B3-5. 

B3-2.3 Impact Analysis 

The impact analysis for oil and gas production platforms is divided into two types: platform-level and firm-level. 

The platform-level analyses include two approaches to determining the potential for impacts. Because costs were 

not changed from proposal, except to adjust for inflation, the impact analysis on platforms were not rerun. EPA 

considers the results of the impact analysis at proposal as final. 

Although the financial condition of new platforms cannot be known, the financial conditions of a few, 

representative existing platforms are reflected in EPA’s 316(b) survey of production platforms. EPA received 

economic surveys from one deepwater platform and one Alaska platform with CWIS intake rates meeting the 

final rule’s requirements. The financial information from the deepwater platform is used for a general assessment 

of how well new deepwater platforms would do financially if the final rule’s costs applied. The Alaska platform 

that was surveyed, however, is a very old structure and is at the end of its productive life, thus has a production 

profile completely different from what would be expected of a new operation. Furthermore, new platforms 

constructed in Cook Inlet are far likelier to look like the Osprey platform, which is a departure from the older 

technology represented by the other Cook Inlet platforms. The Osprey platform was designed to operate as a 

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MODU until a productive reservoir was located, at which point the MODU was designed to convert to a 

stationary production platform. This design allowed Osprey to be built at a significantly lower cost than the 

traditional fixed platforms located in the inlet. EPA does not have sufficient financial information at this time to 

model an Osprey-type platform. For these reasons, the potential for impact on a new Alaska platform is assessed 

only in the second platform-level analysis, described below. 

The second platform-level analysis is a more typical barrier-to-entry analysis used for new entities. It uses the 

present value of initial permitting costs (discounted to the year of compliance) plus the capital/installation costs 

and compares these costs to the construction costs for each type of platform. This is a typical barrier-to-entry 

analysis, which assesses incremental start-up costs associated with compliance to baseline start-up costs. 

The firm-level analysis is a revenue test, comparing the revenues of firms likely to construct platforms whose 

CWISs meet the final rule’s criteria with the annualized compliance costs for each platform, assuming each firm 

considered likely to build a regulated platform in the deepwater builds four platforms/structures over the time 

frame of the analysis. For the comparison of annualized costs of compliance with annual revenue, EPA assumed 

that the firms bring all platforms on line in one year. This assumption maximizes the potential impact of 

compliance cost in relation to revenue. If EPA instead assumed a firm would spread construction over more than 

one year, the ratio of compliance cost to revenue would be less in any single year and the likelihood of finding 

economic impacts would diminish. In this way, the assumption that all compliance costs are incurred in the same 

year is highly conservative. With no firm-level impacts found under this conservative assumption, then there will 

also be no impacts under other, possibly more likely, scenarios in which costs are incurred over several years. 

One small firm is assumed the likeliest to build one platform in Alaska during the time frame of the analysis, and 

this firm is assigned the cost of the one Alaska platform assumed to be constructed during the analysis period. 

B3-2.3.1 Platform Impact Analysis Using Survey Platforms 

Oil and gas production platforms are modeled somewhat differently than most other Phase III entities. Because 

the surveyed deepwater platform was a relatively new structure in 2002 (the first year of survey data provided), 

the model is built using survey data to represent new, later-built structures. 

Generally, the model can show production extending as far out as 30 years. Calculations, such as the after-tax 

costs of compliance that are computed outside of the model platform framework (presented earlier in this 

Chapter), use a 5 or 10-year time frame over which to annualize costs. The platform model operates somewhat 

differently. Pre-tax costs are input into the model in the year in which they occur (including costs incurred in preproduction years). The model calculates after-tax costs, which are then annualized over the modeled production 

life, which could be shorter than 30 years. For this reason, repermitting costs are input into the model every five 

years and capital costs for CWISs are input every 10 years, until the model shows the platform is uneconomical to 

operate. 

EPA has developed a model deepwater oil and gas production platform based on information obtained from 

EPA’s survey and from other sources of publicly available information, such as that from MMS. ERG (2004d; 

non-CBI version) contains additional details on the methodology, non-CBI data, and assumptions on which the 

model is based and how the model was constructed. EPA has used the same basic approach a number of times for 

analyzing impacts of effluent guidelines on oil and gas facilities (see, for example, U.S. EPA, 2000). Usually, the 

only differences are the input variables, such as production rates, that are used to model individual platforms. For 

specific details on the values of variables defined by survey information and the detailed impact results, see ERG 

(2004d; CBI version). 

The model is based on both a cash flow and net income approach. The projected net revenues are compared to 

operating costs at each year for each model project. Net revenues (after subtracting royalties and severance, 

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which are payments to the lease owner and a State, if relevant) are based on an assumed price of oil, current and 

projected production of oil and gas, well production decline rates, and severance and royalty rates. Operating 

costs are based on a calculated cost per barrel of oil equivalent (BOE) produced. The model runs for 30 years or 

is assumed to shut in when operating costs exceed revenues. That is, the economic model can calculate differing 

lifetimes according to project characteristics. The model then calculates the lifetime of the project, total 

production and the net present value of the operation (net income of the operation over the life of the project in 

terms of today’s dollars), which includes the net operating earnings, taxes, expenditures on drilling, other capital 

expenditures, etc. A positive net present value means that the project is a good investment. In this case the return 

is greater than the discount rate, which represents the opportunity cost of capital. If the net present value is 

negative, it means that money would have been better invested elsewhere. 

The model is run twice–with and without the change due to the 316(b) Phase III requirements. The incremental 

cost to retrofit I&E equipment is input into a capital expenditure line (which is used in both the cash flow and net 

income calculations), and additional O&M and permitting costs are input to the cash flow section of the model. 

The post-compliance results (including production, project life, and net present value of income) are compared to 

those calculated under baseline assumptions. 

There are two ways the increased costs can have an impact on a platform. First, any increase in operating costs 

might raise total operating costs enough to cause the operating costs to exceed net revenues earlier than in the 

baseline. If the platform life is reduced, there will be a concomitant loss of production. Second, any increase in 

costs, whether operating, capital or permitting, could also drive the net present value of a marginal operation 

negative. The decision in this case would be to not develop the project rather than build the project with I&E 

controls in place, since the project would not be considered a good investment. If the platform has a positive net 

present value under baseline conditions but a negative net present value in the post-compliance scenario, EPA 

notes an impact on the platform and estimates the production lost as a result. 

Due to issues with CBI, the detailed results of the platform-specific impacts are not reported here. See ERG 

(2004d; CBI version) in the CBI portion of the Rulemaking Record for detailed information on impacts. 

However, EPA determined that there will be no impacts on deepwater oil and gas development or production due 

to the final rule’s costs based on model results. Impacts on net present value of projects are expected to be very 

small. 

B3-2.3.2 Barrier to Entry Analysis (Platform Level) 

EPA uses the incremental capital costs and present value of initial permitting costs for compliance for new 

deepwater and Alaska platforms to compare to the costs of construction of new platforms, identical to the 

approach used to measure impacts on MODU owners. If the initial investment costs of compliance are a small 

fraction of baseline construction costs, EPA assumes that compliance costs would not have a major impact on 

future platforms and would not have an effect on a decision to build additional oil and gas production platforms. 

Costs for constructing deepwater platforms are estimated to range at least from $114 million to $2.3 billion (see 

U.S. EPA, 2000). Forest Oil (Forest Oil, 2002) reports that the 2002 capital outlay for the Osprey platform in 

Cook Inlet was $120 million (which does not include exploration, delineation, or additional costs to continue to 

develop the platform). For deepwater platforms, EPA estimates that a platform coming on line in 2007 will incur 

costs of $306,323 (deepwater) and $708,058 (Alaska) in capital/installation costs plus the present value cost of the 

initial round of permitting costs. The ratio of incremental compliance costs to construction costs ranges from 0.01 

percent to 0.3 percent for deepwater projects and 0.6 percent for an Alaska project. 

B3-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

B3-2.3.3 Firm Level Impacts 

The firms that are considered affected are those identified as currently having platforms or structures in the 

deepwater that meet the final rule’s criteria. In Alaska, Forest Oil is selected as the likeliest type of firm to build 

an Alaska platform during the time frame of the analysis. All the firms considered likely to build a new 

platform/structure subject to the final rule have publicly available data on 2005 revenues. Each firm is expected 

to bring on line two affected platforms over the period of analysis, except for Forest Oil, in Alaska, where only 

one structure is expected to be built over the period of analysis. The count of platforms per firm in the Gulf has 

changed from proposal, since 6 additional firms were identified as having constructed deepwater platforms in the 

intervening years (see Chapter B2: Profile of the Offshore Oil and Gas Extraction Industry). For the comparison 

of annualized costs of compliance with annual revenue, EPA assumed both platforms are brought on line in the 

same year. This assumption maximizes the potential impact of compliance cost in relation to revenue. If EPA 

instead assumed a firm would spread construction over more than one year, the ratio of compliance cost to 

revenue would be less in any single year and the likelihood of finding economic impacts would diminish. In this 

way, the assumption that all compliance costs are incurred in the same year is highly conservative. With no firmlevel impacts found under this conservative assumption, then there will also be no impacts under other, possibly 

more likely, scenarios in which costs are incurred over several years. The costs of compliance are calculated as 

the cost stream over the compliance lifetime of a representative deepwater platform constructed in 2007 and an 

Alaska platform constructed in 2014, discounted to the year of compliance and annualized (the same approach 

used for judging impacts on MODU owners). These costs are then compared to firm-level revenues in a revenue 

test. Both pre-tax costs, reported in Table B3-5 above, and after-tax costs are used to compare to revenues. 

Table B3-6 presents the affected firms in both regions of concern (deepwater and Alaska), their annual revenues, 

their annualized pre-tax costs of compliance applied to all potentially affected structures they might construct, and 

the ratio of their compliance costs to revenues. As the table shows, costs to revenues are 0.032 percent or less for 

all affected firms. 

Table B3-6: Revenue Test for Platform Owners 

Name No. of 

Platforms 

2004 Revenues 

($millions) 

Pre-Tax PV 

Costs 

($millions 

2004) 

Pre-Tax 

Costs to 

Revenues 

After-tax Initial 

Investment 

Costs ($millions 

2004) 

After-tax 

Costs to 

Revenues 

Amerada Hess 2 $16,733 $0.2 0.001% $0.1 0.001% 

BP 2 $285,059 $0.2 <0.001% $0.1 <0.001% 

ChevronTexaco 2 $150,865 $0.2 <0.001% $0.1 <0.001% 

ExxonMobil 2 $291,252 $0.2 <0.001% $0.1 <0.001% 

Forest Oil 1 $913 $0.3 0.032% $0.2 0.021% 

Royal Dutch/Shell 2 $266,386 $0.2 <0.001% $0.1 <0.001% 

Murphy Oil 2 $8,299 $0.2 0.002% $0.1 0.001% 

Kerr-McGee 2 $4,398 $0.2 0.004% $0.1 0.003% 

Anadarko 2 $6,079 $0.2 0.003% $0.1 0.002% 

Total S.A. 2 $115,540a $0.2 <0.001% $0.1 <0.001% 

ConocoPhillips 2 $135,076 $0.2 <0.001% $0.1 <0.001% 

Dominion 2 $13,991 $0.2 0.001% $0.1 0.001% 

Total 24 $1,264,636 $2.2 <0.001% $1.4 <0.001% 

a Converted from Euros to dollars using value from 12/31/2004 obtained at XE.com, Interactive Currency Table. 

Source: SEC, 2006; U.S. EPA Analysis, 2006. See the Compliance Cost Model for Final, DCN 9-4000. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B3-15 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

B3-3 TOTAL COSTS AND IMPACTS AMONG ALL AFFECTED OIL AND GAS INDUSTRY 

ENTITIES 

Table B3-7 summarizes the total costs and impacts associated with the 316(b) Phase III Rulemaking on the oil 

and gas industry. 

As the table shows, impacts on new MODUs and platforms and their associated firms are expected to be minimal. 

Aggregate national after-tax compliance costs are also shown in the table. These costs total $1.9 million per year 

for MODUs and $1.3 million per year for platforms, which is $3.2 million per year over all affected new oil and 

gas operations estimated to be constructed over the period of the analysis. 

Table B3-7: Total National Aggregate Annualized After-tax Compliance Costs and Impacts for the Oil 

and Gas Industry ($2004) 

O&G Facility Annualized After-tax Compliance Costs 

(in $millions, discounted to year of compliance) Facility Impacts Firm Impacts 

MODUs $1.9 0 0 

Platforms $1.3 0 0 

Totala $3.2 0 0 

a Totals may not sum due to independent rounding. 

Source: U.S. EPA Analysis, 2006. See the Compliance Cost Model for Final, DCN 9-4000. 

B3-4 TOTAL COSTS TO GOVERNMENT ENTITIES AND SOCIAL COSTS OF THE 316(B) PHASE 

III RULEMAKING 

B3-4.1 Total Costs to Government Entities 

The costs in Table B3-8 reflect those costs to Region 6, Region 4 and Region 10 to administer the costs of the 

three General Permits as well as to maintain these permits over time as the number of permittees increases or 

decreases. The details of individual cost items and timing assumptions can be seen in Chapter D2: UMRA 

Analysis. Costs are arrayed over the time frame of the analysis and discounted at either 3% or 7% to 2007. 

Table B3-8: Total Costs to Government Entities ($2004) 

Government Entity Present Value Cost (2007) Annualized Cost 

3% Discount Rate 

EPA Region 6 $4,807,900 $238,151 

EPA Region 4 $3,903,492 $193,353 

EPA Region 10 $41,987 $2,080 

Total government cost $8,753,379 $433,583 

7% Discount Rate 

EPA Region 6 $2,465,458 $185,684 

EPA Region 4 $1,944,024 $146,413 

EPA Region 10 $23,272 $1,753 

Total government cost $4,432,755 $333,850 

Source: U.S. EPA 2006a; U.S. EPA Analysis, 2006. See the Compliance Cost Model for Final, DCN 9-4000. 

B3-16 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

B3-4.2 Total Social Costs 

The total costs to government entities, plus the total pre-tax cost to industry are used as an approximation of total 

social cost. There is no lost production of oil and gas calculated and no closures or firm failures are estimated. 

Thus no social costs associated with employment dislocations are incurred. A small deadweight cost to society of 

lost production due to forces other than supply and demand, such as taxes on monopolies, may occur, but this is 

not calculated. Consumer and producer surplus losses are also not calculated, but they are captured in the total 

pre-tax cost to industry. 

Table B3-9 presents the total social costs associated with the 316(b) requirements under the final rule. The 

annualized social costs of the rule associated with the affected oil and gas industries under the final rule is 

approximately $3.8 million using the 3 percent social discount rate suggested by OMB and $3.2 million per year 

using OMB’s 7 percent discount rate. 

Table B3-9: Total Social Costs of the Final Rulemaking for Oil and Gas Industries 

(in millions, $2004) 

Cost Item Present Value Cost (2007) Annualized Costs 

3 % Discount Rate 

MODU compliance costs $39.3 $1.9 

Platform compliance costs $29.5 $1.5 

Total pre-tax compliance costs $68.8 $3.4 

Government cost $8.8 $0.4 

Total social costs $77.6 $3.8 

7 % Discount Rate 

MODU compliance costs $22.4 $1.7 

Platform compliance costs $15.4 $1.2 

Total pre-tax compliance costs $37.8 $2.8 

Government costs $4.4 $0.3 

Total social costs $42.3 $3.2 

Note: Totals may not sum due to independent rounding. 

Source: EPA Analysis, 2006. See the Compliance Cost Model for Final DCN 9-4000. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute B3-17 
§ 316(b) Final Rule: Phase III – EA, Part B: Economic Analysis for New OOGE Facilities B3: Economic Impact for the OOGE Industry 

REFERENCES 

ERG. 2004a. Cost Timing and Cost Sharing Assumptions for Industry Compliance Costs. Memorandum to the 

316(b) Phase III Rulemaking Record. September 24, 2004. 

ERG. 2004b. Costs for Existing Oil and Gas Facilities Had These Been Regulated Under 316(b) Phase III. 

Memorandum to the 316(b) Phase III Rulemaking Record. September 24, 2004. 

ERG. 2004c. MODU Cost and Impact Calculations. Memorandum to the 316(b) Phase III Rulemaking Record 

(Non-CBI version) and CBI Rulemaking Record (CBI version). September 24, 2004. 

ERG. 2004d. Detailed Methodology and Results for Oil and Gas Production Platforms. Memorandum to the 

316(b) Phase III Rulemaking Record (Non-CBI version) and CBI Rulemaking Record (CBI version). October 7, 

2004. 

Forest Oil. 2002. Presentation on Forest Oil Corporation given at Banc of America Securities Energy and Power 

Conference. June 2002 Available at 

http://www.forestoil.com/downloads/presentation_bancofamerica_jun_2002.pdf. 

Rigzone. 2006a. Offshore Rig Day Rates. Available at http//www.rigzone.com/data/dayrates. March 22. 

Rigzone. 2006b. Weekly Offshore Rig Review: Build It and They Will Come. Available at 

http://www.rigzone.come/news/article.asp?a_id=29334, February 6. 

Rigzone. 2006c. Offshore Rig Search Results. Available at 

http://www.rigzone.com/data/results.asp?sortField=0&sortDir=1&P=4&Rig_Name=&RWD_Max=-

1&RWD_Min=-1&Region_ID=2&Rig_Type_ID=-1&Manager_ID=-1&Rig_Status_ID=-1&Operator_ID=-1. 

March 17. 

Rigzone. 2006d. Offshore Rig Utilization by Region. Available at 

http://www.rigzone.com/data/utilization_region.asp. March 23. 

SEC. 2006. Security and Exchange Commission Edgar Database of Corporate Filings. 

http://www.sec.gov/edgar.shtml 

U.S. Department of the Treasury. 2005. Internal Revenue Service (IRS). 2005 Instructions for Forms 1120 & 

1120-A. pg. 16 (Federal tax rates). 

U.S. Environmental Protection Agency (U.S. EPA). 2006a. Information Collection Request for Cooling Water 

Intake Structures at Phase III Facilities (Final Rule). ICR Number 2169.01. June 2006. 

U.S. Environmental Protection Agency (U.S. EPA). 2006b. Technical Development Document for the Final 

Section 316(b) Phase III Existing Facilities Rule. EPA-821-R-06-003. June 2006. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Economic Analysis of Final Effluent Limitations 

Guidelines and Standards for Synthetic-Based Drilling Fluids and Other Non-Aqueous Drilling Fluids in the Oil 

and Gas Extraction Point Source Category. EPA-821-B-00-012. December 2000. 

XE.com. 2006. Interactive Currency Table. Available at http://www.xe.com/ict/. Downloaded May 12, 2005. 

B3-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities	 C1: Summary of Costs 

Chapter C1: Summary of Cost Categories 
 

and Key Analysis Elements for Existing 
 

Facilities 
 

INTRODUCTION 

This chapter presents an overview of the cost categories 

and certain elements of the analytic framework that are 

common to the economic analyses of the industry segments 

analyzed for existing facilities. 

C1-1 COST CATEGORIES 

In its analyses of the costs and economic impacts of the 

regulatory analysis options considered for the final rule for 

Phase III existing facilities, EPA considered four categories 

of costs: 

1. 	 Costs of installing and operating compliance 

technology, 

2. 	 Net income loss from installation downtime, 

3. 	 Administrative costs incurred by complying 

facilities, and 

4. 	 Administrative costs incurred by permitting 

authorities. 

The following discussion provides an overview of each of 

these cost categories. Additional detail on the costs of 

installing and operating compliance technology and the net 

income loss from installation downtime is provided in the 

Technical Development Document for the Final Section 316(b) Phase III Existing Facilities Rule (hereafter 

referred to as the “Phase III Technical Development Document”; U.S. EPA, 2006b) and Chapter C3: Economic 

Impact Analysis for Manufacturer. 

CHAPTER CONTENTS 


 


 

	 

Introduction............................................................ C1-1

C1-1 Cost Categories ......................................... C1-1

C1-1.1 Costs of Installing and Operating 

Compliance Technology................... C1-1 

C1-1.2 Net Income Loss from Installation 

Downtime ......................................... C1-2 

C1-1.3 Administrative Costs for Complying 

Facilities ........................................... C1-3 

C1-1.4 Administrative Costs for Permitting 

Authorities and the Federal Government 

.......................................................... C1-9 

C1-2 Key Elements of the Economic Analysis For 

Phase III Existing Facilities .................... C1-10 

C1-2.1 Compliance Schedule ..................... C1-10 

C1-2.2 Adjusting Monetary Values to a Common 

Time Period of Analysis ................. C1-11 

C1-2.3 Discounting and Annualization – Costs to 

Society or Social Costs ................... C1-12 

C1-2.4 Discounting and Annualization – Costs to 

Complying Facilities ...................... C1-14 

References............................................................ C1-17 

This chapter addresses cost components relevant for the regulatory analysis options as well as the supplementary 

options analyzed for existing facilities. As a result, some of the concepts are not relevant to the three regulatory 

analysis options for existing facilities, which do not regulate Electric Generators. 

C1-1.1 Costs of Installing and Operating Compliance Technology 

Depending on the option under consideration, facilities with a DIF that meets or exceeds that option’s respective 

applicability threshold (i.e., 50 MGD, 100 MGD or 200 MGD) that are not currently in compliance with the 

performance standards for Phase III existing facilities would need to implement technologies to reduce 

impingement mortality and/or entrainment. The specific technologies projected by EPA for the analyzed facilities 

depend on the performance standard each facility would need to meet (based on the waterbody type, design intake 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 	 C1-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

flow, and annual intake flow as a percent of source waterbody mean annual flow) and the facility’s baseline 

technologies in-place. A list of the technologies considered for this analysis is provided in Table C1-1 below. 

EPA developed technology cost estimates for the regulatory analysis options based on the impingement mortality 

and entrainment reduction technologies projected for each potential existing Phase III facility. Technology costs 

include capital costs and operating and maintenance (O&M) costs. The annual O&M cost estimates used in the 

cost modules are the net O&M costs, which are defined as the difference between the estimated baseline O&M 

costs and the incremental compliance O&M costs. O&M costs are further differentiated into fixed and variable 

O&M costs. Fixed O&M costs do not vary with the level of production (i.e., they are incurred even when a 

business unit is periodically shut down). EPA assumes any periodic maintenance tasks (e.g., changing screens, 

changing nets, or inspection/cleaning by divers) are performed regardless of plant operation, and therefore are 

considered fixed costs. Variable O&M costs do vary with the level of production and are allocable based on 

estimated intake operating time (e.g., annual labor estimates for passive screens include increased labor for 

several weeks during high debris episodes). The actual fixed and variable portions of O&M costs for each facility 

may vary depending on the mix of baseline and compliance technologies. The technology costs developed for the 

regulatory analysis options are engineering cost estimates, expressed in mid-2004 dollars (see Section C1-2.2 

below for a discussion of adjusting monetary values to a common time period of analysis). 

More detailed information on the compliance technologies considered by EPA, on technology costs, and on 

EPA’s characterization of baseline technologies already in-place at potential Phase III existing facilities is 

available in the Phase III Technical Development Document (U.S. EPA, 2006b). 

C1-1.2 Net Income Loss from Installation Downtime 

Installation of some of the compliance technologies considered for potential Phase III existing facilities would 

require a one-time, temporary downtime of the facility’s cooling water intake system. Table C1-1, below, lists the 

estimated durations of net system downtime, in weeks, for each of the compliance technology modules considered 

for compliance with the final standards. The lower end of the range is used at lower flow rates. For a more 

complete discussion of facility downtime estimates, see Chapter 5 of the Phase III Technical Development 

Document (U.S. EPA, 2006b, DCN 9-0004). 

Table C1-1: Estimated Average Downtime for Technology Modules 

Description Net Downtime (Weeks) 

Fish handling and return system 0 

Fine mesh traveling screens with fish handling and return 0 

New larger intake structure with fine mesh, handling and return 0 - 2 

Passive fine mesh screens with 1.75 mm mesh size at shoreline 7 - 9 

Fish barrier net 0 

Relocate intake to submerged offshore with passive fine mesh screen with 1.75 mm mesh size 7 - 9 

Velocity cap at inlet of offshore submerged 0 

Passive fine mesh screen with 1.75 mm mesh size at inlet of offshore submerged 0 

Double-entry, single-exit with fine mesh and fish handling and return 0 

Passive fine mesh screens with 0.75 mm mesh size at shoreline 7 - 9 

Relocate intake to submerged offshore with passive fine mesh screen with 0.75 mm mesh size 0 

Passive fine mesh screen at inlet of offshore submerged with 0.75 mm mesh size 7 - 9 

Source: U.S. EPA Analysis, 2006. 

The “net” downtime duration accounts for any expected annual period of cooling water system downtime for 

regular maintenance and repair – the net downtime is the number of weeks the cooling water system would need 

C1-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

to be out of service above and beyond any regular maintenance downtime period. EPA assumed that facilities 

would minimize the disruption to their operations by making the required technology upgrades during these 

periods of scheduled maintenance. Scheduled maintenance periods can range from several weeks to several 

months, depending on the type of facility and the specific maintenance requirements.1

 Therefore, by scheduling 

the technology upgrades during maintenance periods, facilities could minimize the net impact of their system 

changes. For the purposes of analyzing the regulatory analysis options, the Agency assumed that the typical 

scheduled annual maintenance downtime would be four weeks. 

During the downtime period, the facility’s cooling-water dependent operations would most likely be halted, with a 

potential loss of revenue and income from those operations. Accordingly, a key element of the cost to facilities in 

complying with the standards set forth under each analysis option for Phase III existing facilities is the loss in 

income from installation downtime. In the facility impact analyses, EPA accounted for the cost of installation 

downtime as the loss in pre-tax income in the facility’s affected business operations. The cost of installation 

downtime is accounted for as a loss in revenue offset by a reduction in variable costs in the affected business 

operation plus any increase in operating costs due to temporary removal of the cooling water intake system from 

service. 

The cost and impact analysis discussion for potentially regulated manufacturing industry segments provides 

additional detail on the calculation of the cost of installation downtime (see Chapter C3). 

C1-1.3 Administrative Costs for Complying Facilities 

Compliance with the standards set forth under each analysis option requires Phase III existing facilities to carry 

out certain administrative functions, which help them determine their compliance requirements and provide the 

documentation needed for issuance of their new National Pollution Discharge Elimination System (NPDES) 

permits. These administrative functions are either one-time requirements (compilation of information for the 

initial post-promulgation NPDES permit) or recurring requirements (compilation of information for subsequent 

NPDES permit renewals; and monitoring, record keeping, and reporting). 

a. Initial post-promulgation NPDES permit application 

The regulatory analysis options require Phase III existing facilities to submit information regarding the location, 

construction, design, and capacity of their existing or proposed cooling water intake structures, technologies, and 

operational measures, as part of their initial post-promulgation NPDES permit applications. Some of these 

activities would be required under the current case-by-case cooling water intake structure (CWIS) permitting 

procedures, regardless of the potential standards for Phase III existing facilities, but are still included in EPA’s 

compliance cost estimate; therefore, the permitting costs presented in this economic analysis may be 

overestimated. EPA took this approach, however, because there is no way to identify which of these requirements 

may otherwise be required. Activities and costs associated with the initial permit renewal application include: 

f Start-up activities: reading and understanding the rule; mobilizing and planning; and training staff. 

f Permit application activities: developing a statement of the compliance option selected; developing 

drawings that show the physical characteristics of the source water; developing a description of the CWIS 

configuration and location; developing a facility water balance diagram; developing a narrative of CWIS 

and cooling water system (CWS) operational characteristics; performing engineering calculations; 

submitting materials for review by the Director; and keeping records. 

. 1 For a discussion of scheduled maintenance outages, see the Phase III Technical Development Document

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C1-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

In addition, the initial permit renewal application would require some facilities to conduct a comprehensive 

demonstration study.2

 The comprehensive demonstration study is a broad set of activities meant to: (1) 

characterize the source water baseline in the vicinity of the intake structure(s); (2) characterize operation of the 

cooling water intake(s); and (3) confirm that the technology(ies), operational measures, and restoration measures 

proposed and/or implemented at the CWIS meet the applicable performance standards. The following activities 

are associated with the comprehensive demonstration study portion of the initial permit application: 

f Proposal for collection of information for comprehensive demonstration study: describing historical 

studies that would be used; describing the proposed and/or implemented technologies, operational 

measures, and restoration measures to be evaluated; developing a source water sampling plan; submitting 

data and the plan for review; revising the plan based on State review; and keeping records; 

f Source waterbody flow information: gathering information to characterize flow (for freshwater 

rivers/streams only); developing a description of the thermal stratification of the waterbody (for 

lakes/reservoirs only); performing engineering calculations; submitting data for review; and keeping 

records; 

f Design and construction technology plan: delineating hydraulic zone of influence; developing narrative 

descriptions of technologies; performing engineering calculations; submitting the plan for review; and 

keeping records; 

f Impingement mortality and/or entrainment characterization study: performing biological sampling; 

performing impingement and entrainment monitoring; conducting laboratory analyses; profiling source 

water biota; identifying critical species; developing a description of additional stresses; developing a 

report based on study results; revising the report based on State review; and keeping records; 

f Verification monitoring plan: developing a narrative description of the frequency of monitoring, 

parameters to be monitored, and the basis for determining the parameters and frequency and duration of 

monitoring; submitting data and a plan for review; revising the plan based on State review; and keeping 

records. 

Finally, Phase III existing facilities would have to submit a plan that describes the installation, operation, and 

maintenance, of the technology(ies) proposed and/or implemented at the CWIS(s): 

f Technology installation and operation plan: developing an installation and maintenance schedule; 

describing the proposed monitoring parameters; listing the technology efficacy assessment activities; 

developing a schedule and methodology for efficacy assessment activities; submitting plan for review; 

and keeping records. 

Table C1-2, following pages, lists the estimated maximum costs of each of the initial post-promulgation NPDES 

permit application activities described above. The specific activities that a facility would have to undertake 

depend on the facility’s source water body type, proportional flow thresholds, and its baseline technologies inplace. Certain activities are expected to be more costly for marine facilities than for freshwater facilities.3 Some 

activities would be required of all facilities, while other activities would be required only if the facility exceeds 

the capacity utilization rate or proportional flow thresholds. Facility administrative cost estimates were developed 

for the activities that facilities were expected to perform under the three regulatory analysis options considered. 

Hourly burden estimates for each activity are based on the anticipated effort to perform these activities under 

2 

3 

For more information on the Comprehensive Demonstration Study, please refer to EPA’s Information Collection 

Request (U.S. EPA, 2006a). 

For permitting requirements, marine facilities include those withdrawing from the Great Lakes. 

C1-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

normal conditions. For a more extensive discussion of the estimated administrative burden and costs associated 

with the regulatory analysis options, see the supporting statement for the EPA ICR (DCN 9-2730). 

The table shows that certain Phase III existing facilities would only have to carry out a minimal set of permitting 

requirements (i.e., start-up activities and permit application activities). Facilities with such minimal requirements 

include (1) facilities that have recirculating systems in the baseline and (2) facilities that already have or are 

required to install certain pre-approved technologies (including cylindrical wedgewire screens) and that only have 

to comply with impingement requirements. Freshwater facilities that would have to meet both impingement and 

entrainment standards and that already have or are required to install a pre-approved technology have to develop a 

technology installation and operation plan and a verification monitoring plan in addition to the minimal activities. 

The maximum initial permitting cost is estimated to be approximately $974,000 for a facility that would have to 

meet both impingement and entrainment standards and that withdraws from a marine waterbody. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C1-5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

c 

Activity -

ments 

) 

PreI-only E-only I&E I-only E-only I&E 

b $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 

Permit application a $11,000 $11,000 $11,000 $11,000 $11,000 $11,000 $11,000 $11,000 

comprehensive b 

$0 $0 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 

a $0 $0 $4,000 $4,000 $4,000 $0 $0 $0 

a $0 $0 $3,000 $3,000 $4,000 $3,000 $3,000 $4,000 

Impingement mortality 

$0 $0 $350,000 $405,000 $508,000 $631,000 $738,000 $933,000 c 

a $0 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 

plana $0 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 

$13,000 $22,000 $393,000 $448,000 $552,000 $670,000 $777,000 $974,000 d 

a 

b 

d 

; 


 


 


 


 


 

I&E: 
 

Source:

Table C1-2: Cost of Initial Post-Promulgation NPDES Permit Application Activities ($2004) 

Estimated Cost per Permit 

Minimal 

Require

Freshwater Marine (incl. Great Lakes

Appr. 

with I&E 

Start-up activities

activities

Proposal for collection 

of information for 

demonstration study

Source waterbody flow 

information

Design and construction 

technology plan

and/or entrainment 

characterization study

Technology installation 

and operation plan $3,000 

Verification monitoring $7,000 

Total Initial PostPromulgation NPDES 

Permit Application Cost

The costs for these activities are incurred during the year prior to the permit application. 

The costs for these activities are incurred during one year, three years prior to the permit application. 

The costs for these activities are incurred during the three years prior to the permit application. 

Individual numbers may not add to total due to independent rounding. 

Key to permitting types: 

Minimal requirements: Has recirculating systems in the baseline or already has or is required to install a pre-approved 

technology and only has to comply with impingement requirements. 

Pre-appr. with I&E: Already has or is required to install a pre-approved technology and has to comply with impingement and

entrainment requirements. 

I-only: Only has to comply with impingement requirements. 

E-only: Only has to comply with entrainment requirements. 

 Has to comply with both impingement and entrainment requirements.

 U.S. EPA, 2006a. 

Another potential cost associated with the initial NPDES permit is pilot studies of compliance technologies. 

Facilities carry out pilot studies to determine if the compliance technology would function properly when installed 

and operated. EPA assumed that any facility with both I&E requirements would consider doing a pilot study, 

except if (1) the technology is sufficiently inexpensive to install ($500,000 or less) or (2) the technology is such 

that a scaled down version is infeasible. EPA further assumed that a pilot study would cost either $162,000 or 

10% of technology installation costs, whichever is greater. Activities associated with pilot studies include: 

f Deploying the pilot technology: installing an intake pipe separate from the facility’s actual cooling water 

system, but in the vicinity of the operating CWIS; installing the proposed technology to feed into the 

separate intake pipe; and pumping water through the intake pipe under various pumping scenarios and 

seasonal conditions; 

C1-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

f Monitoring efforts: collecting five samples over a 24 hour period, every two weeks for six months; 

f Evaluation of data: analyzing the data; summarizing the results; and using this information to evaluate 

the effectiveness of the technology. 

In addition to the activities described above, some facilities would be expected to conduct a site-specific 

determination of Best Technology Available (BTA). Since activities associated with site-specific determinations 

are voluntary and would only be conducted if the facilities expected them to be less expensive than complying 

with the requirements for Phase III existing facilities, EPA did not include site-specific determination costs in its 

compliance cost estimates. 

b. Subsequent NPDES permit renewals 

Each facility would have to apply for NPDES permit renewal every five years. Subsequent permit renewal 

applications would require collecting and submitting the same type of information required for the initial permit 

renewal application. EPA expects that facilities can use some of the information from the initial permit 

application. Building upon existing information is expected to require less effort than developing the data the first 

time, especially in situations where conditions have not changed. 

Table C1-3 lists the maximum estimated costs of each of the NPDES repermit application activities. The specific 

activities that a facility would have to undertake depend on the facility’s source water body type, proportional 

flow thresholds, and its baseline technologies in-place. Certain activities are expected to be more costly for 

marine facilities than for freshwater facilities. Some activities would be required of all facilities, while other 

activities would be required only if the facility exceeds the capacity utilization rate or proportional flow 

thresholds. The maximum repermitting cost is estimated to be approximately $331,000 for a facility that would 

have to meet both impingement and entrainment standards and that withdraws from a marine waterbody. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

a

 ($2004) 

Activity -

ments 

) 

PreI-only E-only I&E I-only E-only I&E 

$1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 

Permit application $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 

comprehensive $0 $0 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 

$0 $0 $1,000 $1,000 $1,000 $0 $0 $0 

$0 $0 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 

Impingement mortality 

$0 $0 $137,000 $168,000 $171,000 $251,000 $312,000 $316,000 

$0 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 

b 

$8,000 $9,000 $153,000 $184,000 $187,000 $266,000 $326,000 $331,000 

a 

b 


 


 


 


 


 

I&E: 
 

Source:

Table C1-3: Cost of NPDES Repermit Application Activities

Estimated Cost per Permit 

Minimal 

Require

Freshwater Marine (incl. Great Lakes

Appr. 

with I&E 

Start-up activities 

activities 

Proposal for collection 

of information for 

demonstration study 

Source waterbody flow 

information 

Design and construction 

technology plan 

and/or entrainment 

characterization study 

Technology installation 

and operation plan $2,000 

Total Initial PostPromulgation NPDES 

Permit Application Cost

The costs for these activities are incurred during the year prior to the permit application. 

Individual numbers may not add to total due to independent rounding. 

Key to permitting types: 

Minimal requirements: Has recirculating systems in the baseline; or already has or is required to install a pre-approved technology 

and only has to comply with impingement requirements. 

Pre-appr. with I&E: Already has or is required to install a pre-approved technology and has to comply with impingement and

entrainment requirements. 

I-only: Only has to comply with impingement requirements. 

E-only: Only has to comply with entrainment requirements. 

 Has to comply with both impingement and entrainment requirements.

 U.S. EPA, 2006a. 

c. Annual monitoring, record keeping, and reporting 

Annual monitoring, record keeping, and reporting activities and costs include: 

f Biological monitoring for impingement: collecting monthly samples for at least two years after the initial 

permit issuance; analyzing samples; performing statistical analyses; and keeping records; 

f Biological monitoring for entrainment: collecting biweekly samples during the primary period of 

reproduction, larval recruitment, and peak abundance for at least two years after the initial permit 

issuance; handling and preparing samples; conducting laboratory analyses; performing statistical 

analyses, and keeping records; 

f Bi-annual status report activities: reporting on inspection and maintenance activities; detailing biological 

monitoring results; compiling and submitting the report; and keeping records; (these activities are 

conducted every two years, instead of annually); 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

f Verification study: conducting technology performance monitoring; performing statistical analyses; 

submitting monitoring results and study analysis; and keeping records; 

Table C1-4 lists the estimated costs of each of the monitoring, record keeping, and reporting activities described 

above. Certain activities would be more costly for marine facilities than for freshwater facilities. The maximum 

annual cost is estimated to be approximately $82,000 for a facility that would have to meet both impingement and 

entrainment standards and that withdraws from a marine waterbody. 

) 

Activity Prements I-only E-only I&E I-only E-only I&E

Biological monitoring $0 $0 $19,000 $0 $19,000 $24,000 $0 $24,000 for impingement 

Biological monitoring $0 $39,000 $0 $39,000 $39,000 $0 $49,000 $49,000 

a $0 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000

Total Annual 

Monitoring, Record $0 $48,000 $28,000 $48,000 $67,000 $33,000 $58,000 $82,000 

Cost 

a $0 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 

a 

b 

; 


 


 


 


 


 

I&E: 
 

Source:

Table C1-4: Cost of Annual Monitoring, Record Keeping, and Reporting Activities ($2004) 

Estimated Cost per Permit 

Freshwater Marine (incl. Great Lakes Minimal 

RequireAppr. 

with I&E 

for entrainment 

Bi-annual status report 

activities

Keeping, and Reporting 

Verification study

This is a cost that is incurred once every two years. Therefore, only half of the total report cost of approximately $17,000 is 

accounted for in this annual framework. 

This is a one-time cost incurred during the year of compliance. 

Key to permitting types: 

Minimal requirements: Has recirculating systems in the baseline or already has or is required to install a pre-approved 

technology and only has to comply with impingement requirements. 

Pre-appr. with I&E: Already has or is required to install a pre-approved technology and has to comply with impingement and

entrainment requirements. 

I-only: Only has to comply with impingement requirements. 

E-only: Only has to comply with entrainment requirements. 

 Has to comply with both impingement and entrainment requirements.

 U.S. EPA, 2006a. 

C1-1.4 Administrative Costs for Permitting Authorities and the Federal Government 

In addition, permitting authorities would have to review the information provided by Phase III existing facilities 

and would have to issue new NPDES permits that reflect the requirements of each potential option. These 

activities would impose costs on the responsible governmental entity. 

The requirements of section 316(b) are implemented through the National Pollutant Discharge Elimination 

System (NPDES) permit program. Forty-five States and one Territory currently have NPDES permitting 

authority under section 402(c) of the Clean Water Act (CWA). EPA estimates that States and Territories would 

incur three types of costs associated with implementing the requirements of each potential option: (1) start-up 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C1-9 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

activities, (2) permitting activities associated with the initial NPDES permit containing the new section 316(b) 

requirements and subsequent permit renewals, and (3) annual activities.4 

Start-up costs would be incurred only once by each of the 46 permitting authorities. Permitting costs and annual 

activities would be incurred for every permit. The incremental administrative burden on States would depend on 

the extent of each State’s current practices for regulating cooling water intake structures (CWIS). States that 

currently require relatively modest analysis, monitoring, and reporting of impacts from CWIS in NPDES permits 

may require more permitting resources to implement the standards for Phase III existing facilities than are 

required under their current programs. Conversely, States that currently require very detailed analysis may 

require fewer permitting resources to implement a potential rule than required under their current programs. 

In addition to costs to permitting authorities, the Federal government would likely incur costs to review those 

parts of NPDES permits associated with the compliance requirements of a potential rule and to ensure that the 

permitting authorities implement a potential rule properly. 

For a detailed discussion of administrative costs for permitting authorities and the Federal government see 

Chapter D2: UMRA Analysis, section D2-1.2. 

C1-2 KEY ELEMENTS OF THE ECONOMIC ANALYSIS FOR PHASE III EXISTING FACILITIES 

The economic analysis conducted in analyzing the potential requirements for Phase III existing facilities 

addresses the cost to, and impact on, the affected industry segments and society generally. Although these 

analyses differ in important respects for the individual industry segments – particularly in terms of the analytic 

models and methods for assessing the economic/financial impact on complying parties within the segments – 

several elements of the analysis have features common to all Phase III existing facilities. This section reviews the 

following key common elements: 

f Compliance Schedule 
 

f Adjusting Monetary Values to a Common Time Period of Analysis
 

f Discounting and Annualization: Costs to Society or Social Costs 
 

f Discounting and Annualization: Costs to Complying Facilities 
 

C1-2.1 Compliance Schedule 

For its analysis of the cost and impacts of the regulatory analysis options, EPA developed a profile of the 

expected compliance year for each of the sample facilities considered in the economic analysis. The estimated 

compliance years of facilities are important for two reasons: 

f First, the compliance years determine the timing of outlays by facilities and society in complying with the 

regulation, both for the initial outlays and for the ongoing profile of outlays in maintaining compliance 

with the regulation. This information is important in properly assessing the present value of the 

regulation’s costs to society. 

f Second, the profile of compliance is likewise important in understanding the time profile, and thus present 

value, of benefits achieved by compliance with the regulation. Explicit analysis of the compliance 

schedule is particularly important for the benefits analysis because the regulation’s benefits are not 

achieved instantly upon facilities’ reaching compliance, but build up over a period of several years. 

4 The costs associated with implementing the requirements for Phase III existing facilities are documented in EPA’s 

Information Collection Request (U.S. EPA, 2006a). 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

Accordingly, EPA also used the compliance schedule developed for the cost and impact analysis in 

developing the time profile of benefits. 

EPA initially assumed that facilities would comply with each options respective requirements during the year 

their first post-promulgation NPDES permit is issued (based on a 5-year permit cycle, this would be 2007 to 

2011). However, since some of the permitting requirements need to be performed over a three-year period prior 

to compliance, facilities that would be renewing NPDES permits within the first three years after promulgation of 

the final Phase III rule (2007 to 2009) would not comply until their second post-promulgation NPDES permit is 

issued (2012 to 2014). From these assumptions, EPA estimates that all facilities would come into compliance 

between 2010 and 2014. Following research on when sample facilities’ current NPDES permits would expire and 

thus need to be renewed, EPA developed an explicit compliance schedule for all Phase III existing facilities in the 

analysis. 

C1-2.2 Adjusting Monetary Values to a Common Time Period of Analysis 

The various economic information used in the cost and impact analyses was initially provided or estimated in 

dollars of different years. For example, facility financial data obtained in the Detailed Questionnaire for 

Manufacturers are for the years 1996, 1997, and 1998, while the technology costs of regulatory compliance were 

estimated in dollars of the year 2002. To support a consistent analysis using these data that were initially 

developed in dollars of different years, EPA needed to bring the dollar values to a common analysis year. For this 

analysis, EPA adjusted all dollar values to constant dollars of the year 2004 (average or mid-year, depending on 

data availability) using an appropriate inflation adjustment index. For adjusting compliance costs, EPA used the 

Construction Cost Index (CCI) published by the Engineering News-Record. For financial statement 

information, EPA used the Gross Domestic Product Implicit Price Deflator (GDP Deflator) to bring 

dollar values to mid-year 2004. In some instances, EPA used the Producer Price Index series for a specific 

industry to adjust values to a common analysis year. 

a. CCI 

EPA used the CCI to adjust compliance cost estimates from July 2002 to mid-year 2004. EPA judges the CCI as 

generally reflective of the cost of installing and operating process and treatment equipment such as would be 

required for compliance with the options considered for this regulation. Table C1-5 shows CCI values for midyear 2002, 2003 and 2004. 

Table C1-5: Construction Cost Index 

Year Value % Change 

2002 6605 

2003 6694 1.3% 

2004 7115 6.3% 

Source: ENR, 2006. 

b. GDP Deflator 

EPA used the GDP Deflator to adjust 316(b) survey financial data from 1996-1998 to 2004. The GDP Deflator is 

a quarterly series that measures the implicit change in prices, over time, of the bundle of goods and services 

comprising gross domestic product. Table C1-6 shows GDP Deflator values from 1996 to mid-year 2004. From 

1998 to 2004, the total change in the deflator series was approximately 13.0% (109.0/96.5). 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

Table C1-6: GDP Deflator Series 

Year Value 

1996 93.847 

% Change 

1997 95.410 1.7% 

1998 96.468 1.1% 

1999 97.862 1.4% 

2000 99.997 2.2% 

2001 102.399 2.4% 

2002 104.185 1.7% 

2003 106.298 2.0% 

2004 Q2 108.987 2.5% 

Source: U.S. DOC, 2006. 

C1-2.3 Discounting and Annualization – Costs to Society or Social Costs 

Discounting refers to the economic conversion of future costs (and benefits) to their present values, accounting for 

the fact that society tends to value future costs or benefits less than comparable near-term costs or benefits. 

Discounting is important when the values of costs or benefits occur over a multiple year period and may vary 

from year to year. Discounting is also important when the time profiles of costs and benefits are not the same – 

which is the case for the regulatory analysis of Phase III existing facilities. Discounting enables the accumulation 

of the cost and benefit values from multiple years to a single point in time, accounting for the difference in how 

society values those costs and benefits depending on the year in which the values are estimated to occur. 

To estimate the social costs of options considered in developing potential requirements for Phase III existing 

facilities, EPA first developed a profile, over the period of analysis, of the compliance costs associated with each 

of the regulatory analysis options. EPA defined the period of analysis as starting with the assumed date that a rule 

would take effect, beginning of year 2007, and extending through the latest year in which any affected facility is 

assumed to reach compliance (2014) plus a period of 30 years in which facilities are assumed to continue 

compliance. Thus, for the social cost analysis for Phase III existing facilities, the analysis period extends to 2043. 

In developing the time profile of costs, EPA assigned costs according to the following schedule: 

 Direct Costs of Regulatory Compliance 

f Capital Costs of Compliance Technology: This cost is first incurred in the year that the facility’s first 

post-promulgation permit is issued. However, the equipment for complying with the regulation is 

expected to have a useful life of 10 years, or a period shorter than the 30 years of compliance. 

Accordingly, following the first installation, facilities are assumed to reinstall, and re-incur the cost of, the 

compliance equipment at year 11 and year 21 of the facility-specific compliance period. 

f Cost of Installation Downtime: This cost is incurred in the year that the facility installs the technology. 

Although the compliance technology must be reinstalled at a 10-year interval over the analysis period, the 

engineering analysis of compliance requirements indicates that facilities would not need to incur 

additional installation downtime for reinstallation of the compliance technology equipment. 

f Compliance Technology Operation and Maintenance: This cost is assumed to occur in each year of a 

facility’s 30-year compliance period. 

f Pilot Study: Pilot study costs are incurred one year before the facility’s first post-promulgation permit is 

issued. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

 Administrative Costs Incurred by Complying Facilities 

f Impingement Mortality and Entrainment Characterization Study: All facilities conduct this two- or 

three-year study except those that already have recirculating systems in the baseline and those that already 

have or are installing a pre-approved technology. The cost of this study is incurred over the years 

immediately preceding the facility’s first post-promulgation permit, but not including the first year of 

compliance. Facilities withdrawing from a marine waterbody (including the Great Lakes) are required to 

do a three-year study; facilities withdrawing from a freshwater body are required to do a two-year study. 

f Initial Permitting Cost: In addition to incurring the cost of characterization studies, complying facilities 

would also incur an initial permitting cost, which is assigned to the first year of a facility’s 30-year 

compliance period. 

f Repermitting Costs: As explained above, facilities would need to renew their NPDES permits each five 

years during the period of compliance. Repermitting costs are assumed to recur at years 5, 10, 15, 20, and 

25 of a facility’s 30-year compliance year period. If a facility were to continue compliance beyond the 

assumed 30-year compliance period, it would incur an additional round of repermitting costs in year 30 of 

the compliance period. However, these costs would be incurred to support compliance in years beyond 

the 30th year of compliance, and were therefore not accounted for in this analysis. 

f Annual Monitoring, Record Keeping, and Reporting Activities: This cost is assumed to occur in each 

year of the 30-year compliance year period. 

 Administrative Costs Incurred by Permitting Authorities 

f One-time Start-up Costs: This cost is assigned to the year the rule would take effect (2007). 

f Permit Processing Costs: These costs are assigned to the years in which facilities apply for initial permits 

or renewal permits during the compliance period. 

f Annual Permit Administration Activities: The cost of these activities is assumed to occur in parallel with 

the annual permit-related activities by complying facilities and thus occurs in each year of a facility’s 

compliance period. 

 Administrative Costs Incurred by the Federal Government 

f Permit Review: The Federal government is assumed to review the first permit for each Phase III existing 

facility that would include the new 316(b) requirements specified under each regulatory analysis option. 

Federal administrative costs would therefore be incurred between 2010 and 2014. 

For each option analyzed, EPA assigned costs by facility and governmental unit according to this framework and 

then summed these costs on a year-by-year basis over the total time period of analysis. For the social cost 

analysis, these costs were tallied on a pre-tax basis, which differs from the treatment of costs for the facility 

impact analysis as described below. These profiles of costs by year were then discounted to the assumed date the 

final rule would take effect, beginning of year 2007, at two values of the social discount rate, 3% and 7%. These 

discount rate values reflect guidance from the Office of Management and Budget regulatory analysis guidance 

document, Circular A-4 (OMB, 2003).5 

5 See Chapter E1: Summary of Social Costs, for further discussion of the framework for analyzing the social costs of the 

316(b) Phase III regulation. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C1-13 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

EPA used the following formula to calculate the present value of the time stream of costs as of the beginning of 

20076

: 

Present Value = ∑ Costt 

(1+r)

t −2007 (C1-1) t 

where: 

Costt = Costs in year 
 

r = Social discount rate (3% and 7%) 
 

t = Year in which cost is incurred (2007 to 2043) 
 

After calculating the present value (PV) of these cost streams, EPA calculated their constant annual equivalent 

value (annualized value) using the annualization formula presented below, again using the two values of the social 

discount rate, 3% and 7%. Although the analysis period extends from 2007 through 2043, a period of 37 years, 

EPA annualized costs over 30 years, since 30 years is the assumed period of compliance. This same 

annualization concept and period of annualization were also followed in the analysis of benefits, although for 

benefits the time horizon of analysis for calculating the present value is longer than for costs because the 

measurable benefits will not occur immediately after the control technologies are put into place. Using a 30-year 

annualization period for both social costs and benefits allows comparison of constant annual equivalent values of 

costs and benefits that have been calculated on a mathematically consistent basis. The annualization formula is as 

follows: 

(n−1) r ×(1+ r) Annualized Cost = x Cost of PV (C1-2) n (1+ r) −1 

where: 

r = Social discount rate (3% and 7%) 
 

n = Annualization period, 30 years for the social cost analysis 
 

C1-2.4 Discounting and Annualization – Costs to Complying Facilities 

In general, EPA followed similar concepts and procedures in the discounting and annualization required for the 

analysis of costs to, and impacts on, complying facilities as those followed for the analysis of social costs. 

However, the analysis of costs to complying facilities differs from that for costs to society in several important 

ways, which are described below. 

f Consideration of taxes. For understanding the impact of the regulation on complying facilities, the costs 

incurred by complying facilities are adjusted for taxes, as relevant, and calculated on an after-tax basis. 

The tax treatment of compliance outlays and income effects (e.g., from installation downtime) shifts part 

of these costs to the tax-paying public and reduces the actual cost to private, tax-paying businesses. For 

this reason, the after-tax costs of compliance are a more meaningful measure of the financial burden on 

complying facilities than the pre-tax costs. In analyzing and reporting the impact of compliance costs on 

private facilities, annualized costs are therefore calculated on an after-tax basis. 

6 Calculation of the present value assumes that the cost is incurred at the beginning of the year. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

f Use of discount rates in present value and annualization calculations. The discount rate used in the 

facility cost calculations generally has a different interpretation than the rate used for the social cost 

calculation (even though, in some instances, the numerical value of the rate may be the same). Instead of 

being a social discount rate, the discount rate used for the present value and annualization calculations for 

complying facility costs represents a cost of capital to the individual complying facility, which may 

reasonably differ from the concept of the social discount rate. The social discount rate may be derived on 

several bases, including: (1) as an opportunity cost of capital to society or (2) as a societal inter-temporal 

preference or indifference rate – i.e., the required rate of change over time in a value of consumption or 

outlay, at which society would be indifferent to the time period in which the consumption or outlay 

occurs. The discount rates based on these society-level concepts may reasonably differ from the cost of 

capital used for assessing costs and financial impacts to the complying firm. 

f Calculation of present value and annualization of costs at the year of compliance. In the social cost 

analysis, costs incurred over 30 years were summed on a present value basis at the beginning of 2007, the 

assumed date the potential regulation would take effect. The present value was then annualized over 30 

years. The analysis of costs to complying facilities differs in two respects: (1) Costs were calculated on a 

present value basis and annualized at the first year of compliance for each facility, rather than at the 

beginning of 2007. The calculation of annualized costs at the first year of compliance provides more 

accurate and meaningful insight for assessing financial impact in relation to the baseline financial 

performance and conditions of the complying facility than would be achieved if, for example, costs were 

further discounted – and reduced numerically – by bringing them to the year the rule would take effect. 

(2) Each non-annually recurring cost component was only accounted for once, rather than repeated at 

each occurrence over the 30-year period. EPA accounted for the recurring nature of these costs (e.g., 

technology costs are assumed to recur every 10 years) through the annualization period (see bullet below). 

The resulting aggregates of annualized cost over facilities, for purposes of reporting total cost to 

complying facilities and total financial burden, are the sum of costs at the initial year of compliance for 

each facility, even though those years differ across facilities. EPA used the following formula to calculate 

the present value of the time stream of costs as of the beginning of each facility’s compliance year:7 

Cost , t x Present Value = ∑ (C1-3) (1+ r )

t −Compliance Yearx 

t 

where: 

Costx,t = Costs incurred by facility x in year t 
 

r = Discount rate (7%)
 

t = Year in which cost is incurred (2007 to 2018)8
 

Compliance Yearx = Estimated compliance year of facility x. 
 

f Annualization period. The present value estimates of the one-time or non-annually recurring costs were 

then annualized over the relevant period for which the outlay is expected to produce compliance value. 

The capital outlays for compliance equipment installation were annualized over the expected useful life of 

the compliance equipment, 10 years. The income loss from installation downtime was annualized over 

7 Calculation of the present value assumes that the cost is incurred at the beginning of the year. 
 

8
 The first compliance year is 2010. A facility with a 2010 compliance year and a 3-year study requirement would incur 

its first costs in 2007. The last compliance year is 2014. A facility with a 2014 compliance year would incur the costs of its 

last non-annual recurring cost component, repermitting, five years after compliance, in 2018. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C1-15 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

the facility’s 30-year compliance period. Although compliance equipment would need to be reinstalled at 

10-year intervals during the compliance period, the engineering analysis indicates that reinstallation 

would not require additional downtime. Thus, the relevant period for annualization of the income loss 

from installation downtime is the full 30 years of compliance assumed for this analysis. The pre-permit 

study costs and other initial permitting costs were also annualized over the 30-year compliance period 

while repermitting costs were annualized over 5 years, the interval at which these costs occur. All 

annualized cost values, which were developed on a consistent discounting and annualization basis, can 

then be summed with annually recurring costs (e.g., annual operating and maintenance expense) to yield a 

total annualized cost to complying facilities. The annualization formula is as follows: 

(n−1) r ×(1+ r) Annualized Cost = x Cost of PV (C1-4) n (1+ r) −1 

where: 
 

r = Discount rate (7%)
 

n = Annualization period (10 years for compliance equipment; 30 years for installation downtime 
 

and initial permitting costs; 5 years for repermitting costs) 
 

See Chapter C3 for additional detail on the present value and annualization concepts and procedures used in the 

specific analyses for existing manufacturing facilities. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

REFERENCES 

Engineering News-Record (ENR). 2006. Construction Cost Index. Available at: http://enr.ecnext.com/freescripts/comsite2.pl?page=enr_document&article=fecosu0603-constIndexHist. (Historical data requires 

subscription or purchase.) 

Federation of Tax Administrators (FTA). 2006. Range of State Corporate Income Tax Rates (for tax year 2005). 

http://www.taxadmin.org/fta/rate/corp_inc.html, accessed January 20, 2006. 

Office of Management and Budget (OMB). 2003. Executive Office of the President. Circular A-4, To the Heads 

of Executive Agencies and Establishments; Subject: Regulatory Analysis. September 17, 2003. 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of Economic Analysis (BEA). Gross Domestic 

Product. Table 1.1.9: Implicit Price Deflators for Gross Domestic Product (GDP). Release December 12, 2005. 

Available at: http://www.econstats.com/gdp/gdp__q4.htm. 

U.S. Department of the Treasury. 2005. Internal Revenue Service (IRS). 2005 Instructions for Forms 1120 & 

1120-A. pg. 16 (Federal tax rates). 

U.S. Environmental Protection Agency (U.S. EPA). 2006a. Information Collection Request for Cooling Water 

Intake Structures at Phase III Facilities (Final Rule). ICR Number 2169.01. June 2006. 

U.S. Environmental Protection Agency (U.S. EPA). 2006b. Technical Development Document for the Final 

Section 316(b) Phase III Existing Facilities Rule. EPA-821-R-06-003. June 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C1-17 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities C1: Summary of Costs 

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C1-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2: Profile of Manufacturers 

Chapter C2: Profile of Manufacturers 
 

INTRODUCTION 

Using information from the 1982 Census of Manufactures, 

effluent guideline development materials, and subsequent 

research on industries since Proposal, EPA identified five 

2-digit SIC-code manufacturing industries that would likely 

be subject to regulation under section 316(b). After the 

electric power industry, these industries – Paper and Allied 

Products (SIC 26), Chemicals and Allied Products (SIC 

CHAPTER CONTENTS 

C2A 
 

) 

C2C 

C2D 
 

C2E 
 

C2F (

C2G


 

Paper and Allied Products (SIC26) .........C2A-1 

C2B Chemicals and Allied Products (SIC 28 C2B-1 

Petroleum Refining (SIC 2911) ..............C2C-1 

Steel (SIC 331)........................................C2D-1 

Aluminum (SIC 333/5) ........................... C2E-1 

Food and Kindred Products SIC 20)...... C2F-1 

 Other Industries.......................................C2G-1 

Glossary .......................................................... C2Glos-1

28), Petroleum Refining (SIC 2911), Primary Metal 

Industries (SIC 33), and Food and Kindred Products (SIC 

20) – are most reliant on cooling water for their operations. 

Facilities in other industries also use cooling water and could therefore be subject to section 316(b) regulations; 

however, based on the 1982 Census of Manufactures data and engineering-based insight into industrial use of 

cooling water, the cooling water intake flow of these remaining industries is small relative to that of the power 

industry and the five selected industries. Therefore, this Profile of Manufacturers focuses on the manufacturing 

groups listed above. In its review of these industries, EPA divided the Primary Metal Industries (SIC 33) into 

Steel (SIC 331) and Aluminum (SIC 333/335) based on the business and other operational differences in these 

two major segments. The resulting six manufacturing industries – (1) Paper and Allied Products, (2) Chemicals 

and Allied Products, (3) Petroleum and Coal Products, (4) Steel, (5) Aluminum, and (6) Food and Kindred 

Products – comprise the “Primary Manufacturing Industries,” as referred to in this profile and elsewhere in this 

Economic Analysis report. 

A key data source for EPA’s analysis for the 316(b) Phase III regulation is the detailed questionnaire issued to a 

sample of facilities identified as potentially subject to the Phase III regulation. Based on responses to a screener 

survey, EPA targeted the detailed questionnaire to facilities believed to be in the major cooling water-use 

industries, including the electric power industry, listed above. EPA received a number of responses from facilities 

with business operations in industries other than the manufacturing industries listed above. EPA originally 

believed these facilities to be non-utility electric power generators; however, inspection of their responses 

indicated that the facilities were better understood as cooling water-dependent facilities whose principal 

operations lie in businesses other than the electric power industry or manufacturing industries listed above. This 

profile includes information for these facilities, referred to as “Other Industries.” 

The remainder of this chapter is divided into seven sections: 

f C2A: Paper and Allied Products (SIC 26), 

f C2B: Chemicals and Allied Products (SIC 28), 

f C2C: Petroleum and Coal Products (SIC 29), 

f C2D: Steel (SIC 331), 

f C2E: Aluminum (SIC 333/335), 

f C2F: Food and Kindred Products (SIC 20), and 

f C2G: Other Industries. 

Each industry section, except for “Other Industries,” is divided into the following five subsections: (1) summary 

insights from this profile, (2) domestic production, (3) structure and competitiveness, (4) financial condition and 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2: Profile of Manufacturers 

performance, and (5) facilities potentially subject to the Phase III regulation. The “Other Industries” section 

contains only summary information for those facilities for which questionnaire responses were received; this 

section does not include the industry specific discussions since the “Other Industry” facilities are in a variety of 

different industries, which, as noted above, rely to a much less substantial degree on cooling water to support their 

operations. 

This profile uses the Standard Industrial Classification (SIC) system as the primary framework for analyzing and 

reporting information about the industries analyzed for the section 316(b) Phase III regulation. However, the 

more recent data were often reported in the North American Industry Classification System (NAICS), which the 

U.S. Census Bureau adopted in 1997 for economic reporting. Where necessary, EPA converted information 

reported in the NAICS framework to the SIC framework using the 1997 Economic Census Bridge Between 

NAICS and SIC. In most instances, these translations are straightforward; however, for some segments, the 

translation may introduce inconsistencies in data series at the point of changeover from the SIC to the NAICS 

frameworks. 

C2-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

Chapter C2A: Paper and Allied Products 
 

(SIC 26) 
 

INTRODUCTION 

EPA’s Detailed Industry Questionnaire, hereafter referred 

to as DQ, identified five 4-digit SIC codes in the Paper and 

Allied Products industry (SIC 26) with at least one existing 

facility that operates a CWIS, holds a NPDES permit, and 

withdraws equal to or greater than two million gallons per 

day (MGD) from a water of the United States, and uses at 

least 25 percent of its intake flow for cooling purposes. 

(Facilities with these characteristics are hereafter referred 

to as facilities potentially subject to the Phase III regulation 

or “potential Phase III facilities”). 

For each of the five SIC codes, Table C2A-1, following 

page, provides a description of the industry segment, a list 

of primary products manufactured, the total number of 

detailed questionnaire respondents (weighted to represent a 

national total of facilities that hold a NPDES permit and 

operate cooling water intake structures), the number of 

facilities estimated to be potentially subject to Phase III 

regulation based on the minimum withdrawal threshold of 2 

MGD, and the number of facilities estimated to be subject 

to regulation under each analysis option. 

CHAPTER CONTENTS: 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 

Introduction..........................................................C2A-1

C2A-1 Summary Insights from this Profile ........C2A-3

C2A-2 Domestic Production...............................C2A-4

C2A-2.1 Output.............................................C2A-5

C2A-2.2 Prices ..............................................C2A-8

C2A-2.3 Number of facilities and firms........C2A-9

C2A-2.4 Employment and productivity ......C2A-11

C2A-2.5 Capital expenditures .....................C2A-13

C2A-2.6 Capacity utilization.......................C2A-14

C2A-3 Structure and Competitiveness..............C2A-15

C2A-3.1 Firm size .......................................C2A-16

C2A-3.2 Concentration ratios......................C2A-16

C2A-3.3 Foreign trade.................................C2A-18

C2A-4 Financial Condition and Performance...C2A-21

C2A-5 Facilities Operating Cooling Water Intake

Structures ..............................................C2A-22

C2A-5.1 Waterbody and Cooling System Type......

 ...................................................C2A-23

C2A-5.2 Facility Size..................................C2A-24

C2A-5.3 Firm Size ......................................C2A-26

References..........................................................C2A-28

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

SIC SIC 

Total 

a 

Regulated b 

to 50 

MGD All 

Option 

to 200 

MGD All 

Option 

100 MGD 

CWB 

Option 

2611 Pulp Mills 60 41 14 1 4 

2621 Paper Mills 290 133 13 2 5 

2631 Paperboard 

Mills 

products. 

190 52 13 0 1 

Total 540 225 39 3 10 

2676 

Products 

4 2 2 0 0 

2679 Converted 

Paperboard 

Products, 

Not 

Elsewhere 

19 3 0 0 0 

23 5 2 0 0 

563 230 41 3 

a 

b 

Source: 

10 

Table C2A-1: Phase III Facilities in the Paper and Allied Products Industry (SIC 26) 

Description Important Products Manufactured 

Number of Phase III Facilities

Potentially 

Facilities

Subject Subject Subject to 

Pulp from wood or from other materials, such 

as rags, linters, wastepaper, and straw; 

integrated logging and pulp mill operations if 

primarily shipping pulp. 

Paper from wood pulp and other fiber pulp, 

converted paper products; integrated 

operations of producing pulp and 

manufacturing paper if primarily shipping 

paper or paper products. 

Paperboard, including paperboard coated on 

the paperboard machine, from wood pulp and 

other fiber pulp; and converted paperboard 

products; integrated operations of producing 

pulp and manufacturing paperboard if 

primarily shipping paperboard or paperboard 

Other Paper and Allied Products Segments 

Sanitary 

Paper 

Sanitary paper products from purchased 

paper, such as facial tissues and 

handkerchiefs, table napkins, toilet paper, 

towels, disposable diapers, and sanitary 

napkins and tampons. 

Paper and 

Laminated building paper, cigarette paper, 

confetti, pressed and molded pulp cups and 

dishes, paper doilies, egg cartons, egg case 

filler flats, papier-mache, filter paper, foil 

board, gift wrap paper, wallpaper, etc. 

Classified 

Total Other 

Total Paper and Allied Products (SIC 26) 

Total SIC Code 26 

Number of weighted detailed questionnaire survey respondents. 

Individual numbers may not add up due to independent rounding. 

Executive Office of the President, 1987; U.S. EPA 2000; U.S. EPA analysis, 2006. 

As shown in Table C2A-1, EPA estimates that out of the total of 563 facilities with a NPDES permit and 

operating cooling water intake structures in the Paper and Allied Products Industry (SIC 26), 41 (or 7.3%) would 

be subject to the 50 MGD All option, 3 (or 0.5%) would be subject to the 200 MGD All option, and 10 (or 1.8%) 

would be subject to the 100 MGD CWB option. EPA also estimated the percentage of total production that 

occurs at facilities estimated to be subject to regulation under each analysis option. Total value of shipments for 

the Paper And Allied Products industry from the 2004 Annual Survey of Manufactures is $81.9 billion. Value of 

shipments, a measure of the dollar value of production, was selected for the basis of this estimate. Because the 

DQ did not collect value of shipments data, these data were not available for Phase III facilities. Total revenue, as 

C2A-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

reported on the DQ, was used as a close approximation for value of shipments for these facilities. EPA estimated 

the total revenue of facilities in the paper industry expected to be subject to regulation under the 50 MGD, 200 

MGD and 100 MGD regulatory analysis options to be about $19.1 billion, $1.2 billion, and $4.2 billion, 

respectively. Therefore, EPA estimates that the percentage of total production in the paper industry that occurs at 

facilities estimated to be subject to regulation under the 50 MGD, 200 MGD, and 100 MGD options is 23%, 1% 

and 5%, respectively. 

The responses to the Detailed Industry Questionnaire indicate that three segments account for most of the 

potential Phase III facilities in the Paper and Allied Products industry: (1) Pulp Mills (SIC 2611), (2) Paper Mills 

(SIC 2621), and (3) Paperboard Mills (SIC 2631). The remainder of this profile therefore focuses on these three 

industry segments. 

Table C2A-2 provides the cross-walk between SIC codes and NAICS codes for the profiled paper SIC codes. The 

table shows that both Pulp Mills and Paperboard Mills have a one-to-one relationship to their NAICS codes. 

Paper Mills correspond to two NAICS codes (322121 and 322122). NAICS 322121, classified as Paper (except 

newsprint) Mills, represents a large portion of SIC code 2621 (93 percent based on value of shipments). 

Table C2A-2: Relationship between SIC and NAICS Codes for the Paper and Allied Products Industry 

(2002a

) 

SIC 

Code SIC Description NAICS Code NAICS Description Establishments 

Value of 

Shipments 

($000) 

Employment 

2611 Pulp mills 322110 Pulp mills 31 3,650,916 8,043 

2621 Paper mills 

322121 Paper (except newsprint) 

mills (pt) 306 42,198,838 96,204 

322122 21 2,964,916 6,367 

2631 322130 203 21,216,677 48,005 

a

Source: 

Newsprint mills 

Paperboard mills Paperboard mills 

 Industry data for relevant NAICS codes from the 2002 Economic Census. 

U.S. DOC, 1997; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2A-1 SUMMARY INSIGHTS FROM THIS PROFILE 

A key purpose of this profile is to provide insight into the ability of pulp and paper firms to absorb compliance 

costs under each analysis option without material adverse economic/financial effects. The industry’s ability to 

withstand compliance costs is primarily influenced by the following two factors: (1) the extent to which the 

industry may be expected to shift compliance costs to its customers through price increases and (2) the financial 

health of the industry and its general business outlook. 

 Likely Ability to Pass Compliance Costs Through to Customers 

As reported in the following sections of this profile, the pulp and paper industry is relatively unconcentrated, 

which would suggest that firms in this industry may face difficulty in passing through to customers a significant 

portion of their compliance-related costs. The domestic pulp industry also faces significant competitive pressures 

from abroad, further curtailing the potential of firms in this industry to pass through to customers a significant 

portion of their compliance-related costs. The domestic Paper Mills and Paperboard Mills segments do not face 

as significant foreign competitive pressures, and, based on this factor, would have more latitude in passing 

through to customers any increase in production costs resulting from regulatory compliance. However, foreign 

pressure is likely to increase as capacity in foreign countries, particularly China, continues to grow and exert 

pressure on the domestic market. As discussed above, given the proportion of total value of shipments in the 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

industry estimated to be subject to regulation under each analysis option,EPA believes that the theoretical 

threshold for justifying the use of industry-wide CPT rates in the impact analysis of existing Phase III pulp and 

paper facilities has not been met. For these reasons, in its analysis of regulatory impacts for the pulp and paper 

industry, EPA assumed that complying firms would be unable to pass compliance costs through to customers: i.e., 

complying facilities must absorb all compliance costs at the time of compliance (see following sections and 

Appendix 3, Cost Pass-Through Analysis, to Chapter C3: Economic Impact Analysis for Manufacturers, for 

further information). 

 Financial Health and General Business Outlook 

Over the past decade, the pulp and paper industry, like other U.S. manufacturing industries, has experienced a 

range of economic/financial conditions, including substantial challenges. In the early 1990s, general economic 

weakness diminished financial performance in the domestic pulp and paper industry. Domestic market conditions 

were erratic in the 1990s, with financial performance peaking mid-decade, before declining again as 

overproduction caused a glut of product and decreasing prices. Going into 2000, the industry’s financial 

performance had started to improve, but the subsequent recession and global economic downturn, coupled with 

continuing overproduction, led to declining financial results through 2003. Financial performance in 2004 and 

2005, however, showed significant improvement. Going forward, the industry continues to face increased foreign 

competition, global and domestic overcapacity, and difficulty adapting to changing business conditions (McNutt, 

Cenatempo & Kinstrey, 2004). At the same time, with the ongoing improvement in U.S. economic conditions, 

the pulp and paper industry appears poised to achieve stronger financial performance in 2006 and later years. 

This should position firms to better withstand additional regulatory compliance costs without imposing significant 

financial impacts. 

C2A-2 DOMESTIC PRODUCTION 

The paper and allied products industry is one of the top ten U.S. manufacturing industries, and among the top five 

segments in sales of nondurable goods. Growth in the paper industry is closely tied to overall gross domestic 

product (GDP) growth. Although the domestic market consumes over 90 percent of total U.S. paper and allied 

products industry output, exports have taken on an increasingly important role, and growth in a number of key 

foreign paper and paperboard markets are a key factor in the health and expansion of the U.S. industry (McGrawHill, 2000). The industry is considered mature, with growth slower than that of the GDP, and U.S. producers 

have actively sought growth opportunities in overseas markets. Although exports still represent a small share of 

domestic shipments, they exert an important marginal influence on capacity utilization. Prices and industry 

profits, which are sensitive to capacity utilization, have therefore become increasingly sensitive to trends in global 

markets. The industry experienced relatively stable production and sales during the 1990s, but saw more volatile 

capacity utilization, profitability, and prices (Ince, 1999). 

With the slowing of the U.S. economy in 2000, and the onset of recession in 2001, the resulting drop in demand 

and prices put pressure on companies in the industry to eliminate excess capacity. Through aggressive 

consolidation and streamlining of their operations, facilities sought to lower expenses through elimination of older 

and less cost efficient operations. In 2002, paper companies eliminated three million tons of capacity, with 

similar reductions expected in 2003 (Value Line, 2003b). 

The U.S. Paper and Allied Products industry has a worldwide reputation as a high quality, high volume, and lowcost producer. The industry benefits from many key operating advantages, including a large domestic market; the 

world’s highest per capita consumption; a modern manufacturing infrastructure; adequate raw material, water, and 

energy resources; a highly skilled labor force; and an efficient transportation and distribution network (Stanley, 

2000). U.S. producers face growing competition from new facilities constructed overseas, however (McGrawHill, 2000). 

C2A-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

The industry is a major energy user, second only to the chemicals and metals industries. However, 56 percent of 

total energy used in 1998-99 was self-generated (McGraw-Hill, 2000). The use of renewable resources (biomass, 

black liquor, hydroelectric, etc.) for energy production has increased from 40 percent of total industry energy 

consumption in 1972 to 56 percent in 2000, and is currently estimated to account for about 60 percent of 

consumption in 2004 (Paper Age, 2004a). 

C2A-2.1 Output 

The paper and allied products industry has experienced continued globalization and cyclical patterns in production 

and earnings over the last two decades. Capital investments in the 1980s resulted in significant overcapacity. 

U.S. producers experienced record sales in 1995. In 1996, lower domestic and foreign demand, coupled with 

declining prices, caused the industry’s total shipments to decline by 2.2 percent. More recently, three consecutive 

years of increasing demand and slowly increasing prices led to better industry performance at the end of the 

1990s. During these years, domestic producers controlled operating rates to allow drawdown of high inventories 

and to achieve higher capacity utilization. U.S. producers have also placed a greater emphasis on foreign markets 

both through export sales and investments in overseas facilities (McGraw-Hill, 2000). The paper products 

industry recorded improved sales and stronger earnings in 1999 and early 2000, but began to experience declines 

in sales in the second half of 2000, reflecting reduced paper and packaging demand due to the slowdown in the 

U.S. economy and a growth in imports (S&P, 2001). Most products were characterized by weak demand, reduced 

production and price reductions in 2001, due to continuing reductions in domestic demand (Paperloop Inc., 2001). 

Annual sales in the U.S. in 2001 dropped 1.5%, while earnings at the top 31 U.S. corporations fell by nearly 75%, 

partly due to a decrease in prices of up to 15% (Paun et al. 2004). 

Capacity for U.S. paper and paperboard declined annually from 2001 to 2003, in contrast to annual increases in 

capacity for the previous two decades. Capacity declined 1.9% in 2001, 1.3% in 2002, and 0.4% in 2003, and is 

expected to remain unchanged from 2004 to 2006 due to increased foreign competition, mature domestic markets, 

and competition from other media (Paper Age, 2004b). Overcapacity has been a problem within the industry. As 

the world economy began to slow in the early 2000s, demand in the U.S. and abroad waned, forcing producers to 

limit production to prevent oversupply and keep pricing levels from dropping further (S&P, 2004b). In addition 

to production downtime, many older, less efficient, single mill operations were permanently closed. In 2001, pulp 

production decreased 7.3% to 53 million tons, while paper and paperboard production decreased 5.5% to 81 

million tons (Paun et al. 2004). 

For 2004, paper industry demand and prices were expected to remain at 2003 levels or increase slightly. As the 

economy continues to improve, demand should pick up, with better financial performance expected in 2006 and 

beyond, as long as the industry continues careful management of production levels and control of inventories. In 

addition, the weakened dollar should help to improve performance in export markets (S&P, 2004a). These 

improving conditions should better position firms to manage any increase in production costs resulting from 

regulatory compliance. 

Figure C2A-1 shows the trend in constant value of shipments and value added for the three profiled 

segments.1

 Value of shipments and value added, two common measures of manufacturing output, provide insight 

into an industry’s overall economic health and outlook. Value of shipments is the sum of receipts from the sale of 

outputs; it indicates the overall size of a market or the size of a firm in relation to its market or competitors. 

Value added measures the value of production activity in a particular industry and is calculated as the difference 

between the value of shipments and the value of inputs used to make the products sold. 

1 Terms highlighted in bold and italic font are further explained in the glossary. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

The trends over time in value of shipments and value added show that the Paper and Allied Products has 

performed erratically over the 1987-2004 period, with swings in shipments and value added generally following 

the performance trend of the aggregate U.S. economy. Of the three profiled industry segments, the Paperboard 

Mills segment recorded an overall increase in the total value of shipments during the 18-year analysis period, 

whereas both Paper Mills and Pulp Mills recorded real declines in shipments over the same period. All three 

industries recorded real declines in value added over the 18-year period. 

C2A-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

Segments (millions, $2005) 

0 

198719881989199019911992199319941995199619971998199920002001200220032004 

( 

( 

) 

( 

( ) 

( 

Value Added 

0 

198719881989199019911992199319941995199619971998199920002001200220032004 

(

 (

 ( ) 

(

) 

) 

Note: 

Source: 

Figure C2A-1: Value of Shipments and Value Added for Profiled Paper and Allied Products 

Value of Shipments 

10,000 

20,000 

30,000 

40,000 

50,000 

60,000 

P ap er M ills N A ICS t o SI C) 

P a pe r M ills SI C 2621) 

P ap erbo ard M ills (N A ICS t o SI C

P a pe r boar d M ills SI C 2631) 

P ulp M ills N A I CS t o SIC

P ulp M ills SI C 2611) 

5,00 0 

10 ,0 00 

15 ,0 00 

20 ,0 00 

25 ,0 00 

30 ,0 00 

P ap er M ills N AICS t o SIC) 

P aper M ills SIC 2621) 

P aperboard M ills NAICS t o SIC

P aperboard M ills SIC 263 1) 

P ulp M ills (NAICS t o SIC

P ulp M ills (SIC 2 6 1 1 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled 

in the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data 

to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-7 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

Table C2A-3 provides the Federal Reserve System’s index of industrial production for the profiled pulp and paper 

segments, which shows trends in production between 1989 and 2005. This index more closely reflects total 

output in physical terms, whereas value of shipments and value added reflect the economic value of production. 

The production index is expressed as a percentage of output in the base year, 2000. Pulp Mill industry production 

increased sharply between 2001 and 2002 and has been rising continuously since then (see Table C2A-9). In 

total, the industry experienced a 26.3 percent increase in production over 1989 to 2005. The Paper Mills industry, 

on the other hand, saw a continuous decrease in production between 2000 and 2003, followed by a slight increase 

in 2004 and 2005. Overall, however, production decreased by 13.9 percent over 1989 to 2005. Paperboard Mill 

production has fluctuated slightly in recent years, but the industry recorded an overall 4.8 percent increase in 

production over the 1989 to 2005 time period. 

Year 

a 

2002=100 Change 

b 

2002=100 Change 

c 

2002=100 Change 

1989 84.1 110.9 93.4 

1990 84.0 -0.1% 108.6 -2.1% 93.8 0.4% 

1991 85.3 1.6% 105.1 -3.3% 92.9 -1.0% 

1992 89.7 5.2% 103.8 -1.2% 97.1 4.4% 

1993 75.4 -16.0% 103.2 -0.6% 99.1 2.1% 

1994 79.8 5.9% 109.0 5.6% 104.8 5.8% 

1995 85.8 7.5% 112.7 3.4% 108.7 3.7% 

1996 78.7 -8.3% 106.0 -5.9% 103.5 -4.8% 

1997 78.3 -0.4% 105.0 -1.0% 106.2 2.6% 

1998 80.4 2.7% 105.5 0.5% 107.2 1.0% 

1999 81.0 0.7% 110.4 4.7% 108.6 1.3% 

2000 80.1 -1.1% 109.4 -0.9% 105.1 -3.2% 

2001 81.6 1.9% 101.3 -7.5% 101.3 -3.6% 

2002 100.0 22.5% 100.0 -1.2% 99.9 -1.4% 

2003 100.7 0.7% 92.1 -7.9% 97.1 -2.8% 

2004 105.1 4.5% 95.3 3.5% 99.3 2.3% 

2005d 106.2 1.0% 95.5 0.3% 97.9 -1.5% 

1989-2005 

Average Annual 

Growth Rate 

26.3% 

1.5% 

-13.9% 

-0.9% 

4.8% 

0.3% 

a

 NAICS 32211. 

b

 NAICS 32212. 

c

 NAICS 32213. 

d

Source:

Table C2A-3: U.S. Pulp and Paper Industry Industrial Production Index (Annual Averages) 

Pulp Mills

Index Percent 

 Paper Mills

Index Percent 

 Paperboard Mills

Index Percent 

Total Percent Change 

 Average through 9 months of 2005. 

 Economagic, 2006. 

C2A-2.2 Prices 

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and 

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment. 

As shown in Figure C2A-2, price levels in the U.S. paper industry closely reflect domestic and foreign demand, 

and industry capacity and operating rates, which determine supply (S&P, 2001). Prices tend to be volatile due to 

C2A-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

mismatches between short-term supply and demand. The industry is very capital intensive, and development of 

new capacity requires several years. Prices therefore tend to increase when demand and capacity utilization rise, 

and drop sharply when demand softens or when new capacity comes on line. In the past, producers have been 

reluctant to cut production when demand declines because fixed capital costs are a substantial portion of total 

manufacturing costs; this reluctance has occasionally caused persistent oversupply. During the recent economic 

slowdown, however, producers appeared more willing to cut output to prevent sharp reductions in prices (Ince, 

1999; S&P, 2001). 

The paper industry suffered from low prices throughout the early 1990s. The depressed prices resulted from the 

paper boom of the late 1980s. Prices recovered in the mid 1990s before declining again in the latter part of the 

decade. Entering 2000, prices in the paper industry reversed course and rose, before experiencing declines in 

2001 and 2002, as prices for most paper grades dropped between 5 and 15 percent (Value Line, 2003b). Faced 

with substantial declines in demand during those years, producers cut production, endured downtime, and closed 

less efficient facilities to prevent major price declines for paper products (S&P, 2001). Prices started to level off 

near the end of 2002, and proceeded to rise during 2003 through 2005. As demonstrated in Figure C2A-2, prices 

have continued to increase steadily through 2004 and 2005. 

Figure C2A-2: Producer Price Indexes for Profiled Paper and Allied Products Segments 

100 

110 

120 

130 

140 

150 

160 

170 

180 

190 

200 

210 

1987198819891990199119921993199419951996199719981999200020012002200320042005 

322130) 

(

 ( 

Paperboard Mills (NAICS 

Paper Mills NAICS 32212) 

Pulp Mills NAICS 322110) 

Source: BLS, 2006. 

C2A-2.3 Number of facilities and firms 

The Statistics of U.S. Businesses reports that the number of facilities and firms in the Pulp Mills segment 

decreased by 17.4 and 12.5 percent, respectively, between 1990 and 2003. One of the reasons for this decline has 

been the increase in the number of mills that produce de-inked recycled market pulp and thus displace demand for 

virgin pulp mill product. These are secondary fiber processing plants that use recovered paper and paperboard as 

their sole source of raw material. Producers of de-inked market pulp have experienced strong demand over the 

past several years in both U.S. and foreign markets. As a result, U.S. de-inked recycled market pulp capacity 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-9 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

more than doubled between 1994 and 1998 (McGraw-Hill, 2000). Since 1994, the secondary fiber share of total 

papermaking fiber production has increased steadily, reaching 37 percent in 1999 (McGraw-Hill, 2000). 

In contrast, the number of facilities and firms in the Paper Mills and Paperboard Mills segments declined. 

While the number of facilities in the Paper Mills industry decreased by 12.2 percent between 1990 and 2003, the 

number of firms in the industry rose slightly. In contrast, the number of both facilities and firms in the 

Paperboard Mills industry declined by 2.2 and 11.8 percent, respectively. Overcapacity in the 1990s limited the 

construction of new facilities. In 1998 and 1999, 577,000 and 2.5 million tons of paper and paperboard capacity 

were removed from the capacity base. Over the same period, more than one million tons of pulp capacity were 

removed (Pponline, 1999). In 2001and 2002, 8.2 million tons of capacity closed, mostly in containerboard, 

market pulp, and print and writing papers. (Paper Age, 2004c). Table C2A-4 and Table C2A-5 present the 

number of facilities and firms for the three profiled paper and allied products segments between 1990 and 2003. 

Table C2A-4: Number of Facilities Owned by Firms in the Profiled Paper and Allied Products Segments 

Pulp Mills Paper Mills Paperboard Mills 

Year Number of Percent Number of Percent Number of Percent 

Facilities Change Facilities Change Facilities Change 

1990 46 327 226 

1991 53 15.2% 349 6.7% 228 0.9% 

1992 44 -17.0% 324 -7.2% 222 -2.6% 

1993 46 4.5% 306 -5.6% 217 -2.3% 

1994 52 13.0% 316 3.3% 218 0.5% 

1995 53 1.9% 317 0.3% 219 0.5% 

1996 62 17.0% 344 8.5% 228 4.1% 

1997 41 -33.9% 259 -24.7% 214 -6.1% 

1998a 44 7.3% 235 -9.4% 232 8.4% 

1999a 45 2.3% 242 3.2% 233 0.4% 

2000a 48 6.7% 240 -1.0% 238 2.1% 

2001a

 51 6.3% 238 -0.8% 247 3.8% 

2002a 44 -13.7% 271 14.0% 231 -6.5% 

2003a 38 -13.6% 287 5.9% 221 -4.3% 

Total Percent Change -17.4% -12.2% -2.2% 1990-2003 

Average Annual -1.5% -1.0% -0.2% Growth Rate 

a Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. SBA, 1989-2003. 

C2A-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

Table C2A-5: Number of Firms in the Profiled Paper and Allied Products Segments 

Year 

Firms Change Firms Change Firms Change 

1990 31 158 102 

1991 37 19.4% 186 17.7% 102 0.0% 

1992 29 -21.6% 161 -13.4% 95 -6.9% 

1993 32 10.3% 153 -5.0% 99 4.2% 

1994 37 15.6% 163 6.5% 96 -3.0% 

1995 32 -13.5% 163 0.0% 93 -3.1% 

1996 43 34.4% 186 14.1% 101 8.6% 

1997 27 -37.2% 131 -29.6% 85 -15.8% 

1998a 32 18.5% 124 -5.3% 95 11.8% 

1999a 33 3.1% 133 7.2% 95 0.0% 

2000a 36 9.1% 134 0.7% 105 10.5% 

2001a 40 11.1% 140 4.6% 116 10.5% 

2002a 27 -32.5% 174 23.9% 107 -7.8% 

2003a

 27 0.0% 162 -6.7% 90 -15.9 

1990-2003 

Growth Rate 

-12.9% 

-1.1% 

2.5% 

0.2% 

-11.8% 

-1.0% 

a 

. 

Source: 

Pulp Mills 

Number of Percent 

Paper 

Number of 

Mills 

Percent 

Paperboard Mills 

Number of Percent 

Total Percent Change 

Average Annual 

Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC

U.S. SBA, 1989-2003. 

C2A-2.4 Employment and productivity 

The U.S. paper industry is among the most modern in the world. It has a highly skilled labor force and is 

characterized by large capital expenditures, which have been largely aimed at productivity improvements. 

Employment in the three profiled paper industry segments remained relatively constant from 1987 through the 

mid 1990s. Since then, employment at Pulp Mills has dropped considerably, decreasing by 46 percent; Paper 

Mills have also seen a substantial reduction in the workforce of close to 48 percent. Employment in Paperboard 

Mills fell the least over this period, but still declined by over 24 percent. Part of this employment loss is 

attributable to firms closing older and higher cost facilities (McNutt, Cenatempo & Kinstrey, 2004). Figure 

C2A-3 presents employment for the three profiled paper segments between 1987 and 2004. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

0 

198719881989199019911992199319941995199619971998199920002001200220032004 

( ) 

( 

( 

) 

( ) 

( ) 

(

Note: 

Source: 

Figure C2A-3: Employment for Profiled Paper and Allied Products Segments 

20,000 

40,000 

60,000 

80,000 

100,000 

120,000 

140,000 

P ap er M ills N A IC S t o SI C 

P ap er M ills SIC 2621) 

P ap er b o ar d M ills N A IC S t o 

SI C 

P ap er b o ar d M ills SIC 2 6 3 1 

P u lp M ills N A IC S t o SI C 

P u lp M ills SIC 2611) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled 

in the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data 

to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

Table C2A-6 on the following page presents the change in value added per labor hour, a measure of labor 

productivity, for each of the profiled industry segments between 1987 and 2004. The table shows that labor 

productivity in the Pulp Mills segment has been relatively volatile, posting several double-digit gains and losses 

between 1987 and 2004. These changes were primarily driven by fluctuations in value added and production 

levels. Overall, productivity in Pulp Mills increased by only 1.1 percent during this period, while increasing by 

61 and 32 percent in the Paper Mills and Paperboard Mills, respectively. 

C2A-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

Table C2A-6: Productivity Trends for Profiled Paper and Allied Products Segments ($2005) 

Pulp Mills Paper Mills Paperboard Mills 

Value Value Value 

Year Value 

Added 

Prod. 

Hrs. 

Added/Hour Value 

Added 

Prod. 

Hrs. 

Added/Hour Value 

Added 

Prod. 

Hrs. 

Added/Hour 

($ mil) (mil) $/hr Percent 

Change 

($ mil) (mil) $/hr Percent 

Change 

($ mil) (mil) $/hr Percent 

Change 

1987 3,494 24 146 21,593 213 102 10,591 89 120 

1988 4,616 24 193 32.1% 24,982 215 116 14.4% 13,003 91 143 19.7% 

1989 5,621 25 221 14.6% 24,405 214 114 -1.8% 12,557 89 141 -1.7% 

1990 4,694 28 169 -23.4% 22,808 211 108 -5.0% 11,161 91 123 -12.4% 

1991 3,248 28 118 -30.6% 20,592 212 97 -10.4% 9,635 87 111 -9.7% 

1992 3,315 26 126 7.1% 19,269 215 90 -7.8% 10,636 88 120 8.0% 

1993 2,170 23 94 -25.5% 18,408 212 87 -3.2% 9,546 90 106 -11.8% 

1994 2,600 22 119 26.9% 18,727 206 91 5.1% 10,782 94 115 8.5% 

1995 4,767 23 211 76.9% 27,347 201 136 49.3% 15,403 98 158 37.2% 

1996 2,629 24 110 -47.8% 22,514 197 114 -16.1% 11,533 95 122 -23.0% 

1997a 1,771 13 137 24.7% 22,365 182 123 7.9% 10,623 93 114 -6.1% 

1998a 1,631 12 131 -4.4% 22,352 173 129 4.9% 11,749 90 130 14.2% 

1999a 1,653 12 141 7.7% 22,389 167 134 3.8% 11,947 86 139 6.6% 

2000a 2,048 12 172 22.0% 23,200 155 149 11.4% 13,356 86 155 11.4% 

2001a 1,547 12 129 -25.0% 20,856 145 143 -4.0% 12,075 83 145 -6.4% 

2002a 1,869 13 142 10.0% 20,980 129 163 13.8% 11,642 78 149 2.8% 

2003a

 1,751 13 132 -7.2% 19,397 125 155 -4.9% 10,772 74 145 -2.9% 

2004a 1,921 13 148 12.1% 19,503 119 164 5.6% 10,625 67 158 9.3% 

-45.0% -45.6% 1.1% -9.7% 61.4% 0.3% -24.1% 32.1% 1987-2004 

-3.5% -3.5% 0.1% -0.6% -3.4% 2.9% 0.0% -1.6% 1.7% Growth Rate 

a 

. 

Source: 

Total % Change -44.1% 

Average Annual 

Before 1997, data were compiled in the SIC system; since 1997, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2A-2.5 Capital expenditures 

The paper and allied products industry is a highly capital intensive industry. Capital-intensive industries are 

characterized by a large value of capital equipment per dollar value of production. New capital expenditures 

are needed to modernize, expand, and replace existing capacity. Consistently high levels of capital expenditures 

have made the U.S. paper industry one of the most modern industries in the world (Stanley, 2000). The total level 

of capital expenditures for the pulp, paper, and paperboard industries was $2.7 billion in 2004 (in $2005). The 

Paper Mills and Paperboard Mills segments accounted for approximately 93 percent of that spending (see Table 

C2A-7). Most of the spending is for production improvements (through existing machine upgrades, retrofits, or 

new installed equipment), environmental concerns, and increased recycling (McGraw Hill, 2000). The total 

capital expenditure for 2004 is considerably less, in real terms, than what was spent in the early 1990s, as 

producers became wary of adding too much capacity that might lead to oversupply and depressed prices. 

The Department of Commerce estimates that environmental spending accounted for about 14 percent of all capital 

outlays made by the U.S. paper industry since the 1980s, and the Cluster Rule promulgated in 1998 is expected to 

require increased environmental expenditures (S&P, 2001). 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-13 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

Table C2A-7: Capital Expenditures for Profiled Paper and Allied Products Segments (millions, $2005) 

Pulp Mills Paper Mills Paperboard Mills 

Year Capital Percent Capital Percent Capital Percent 

Expenditures Change Expenditures Change Expenditures Change 

1987 354 4,237 1,183 

1988 458 29.3% 4,887 15.3% 2,248 89.9% 

1989 994 117.1% 7,473 52.9% 2,359 5.0% 

1990 1,448 45.6% 5,877 -21.4% 4,090 73.3% 

1991 1,316 -9.1% 4,829 -17.8% 2,857 -30.1% 

1992 1,002 -23.8% 3,779 -21.8% 2,648 -7.3% 

1993 540 -46.1% 3,632 -3.9% 2,084 -21.3% 

1994 392 -27.5% 3,991 9.9% 2,169 4.1% 

1995 562 43.6% 3,341 -16.3% 2,546 17.4% 

1996 834 48.3% 3,754 12.3% 2,819 10.7% 

1997a 405 -51.4% 3,407 -9.2% 1,897 -32.7% 

1998a 483 19.3% 3,632 6.6% 1,620 -14.6% 

1999a 214 -55.8% 2,694 -25.8% 1,458 -10.0% 

2000a 265 24.2% 2,878 6.8% 1,330 -8.8% 

2001a 211 -20.4% 2,702 -6.1% 1,127 -15.2% 

2002a 203 -3.9% 2,272 -15.9% 878 -22.1% 

2003a 192 -5.5% 2,212 -2.6% 807 -8.1% 

2004a 192 -0.1% 1,591 -28.1% 956 18.5% 

Total Percent Change 

1987- 2004a -45.9% -62.5% -19.2% 

Average Annual -3.5% -5.6% -1.2% Growth Rate 

a Before 1997, data were compiled in the SIC system; since 1997, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2A-2.6 Capacity utilization 

Capacity utilization measures actual output as a percentage of total potential output given the available 

capacity. Capacity utilization provides insight into the extent of excess or insufficient capacity in an industry, and 

into the likelihood of investment in new capacity. According to the U.S. Industry and Trade Outlook, a utilization 

rate in the range of 92 to 96 percent is necessary for the Pulp Mills segment to remain productive and profitable 

(McGraw-Hill, 2000). 

As shown in Figure C2A-4, capacity utilization fluctuated sharply in all three profiled segments over the analysis 

period. Capacity utilization increased between 1989 and 1994, and then fell sharply in 1995. This sharp drop 

resulted from an effort to reduce inventories, which had begun rising in 1995 in response to low demand and 

oversupply (McGraw-Hill, 2000). As inventories were sold off and global economic activity strengthened, 

capacity utilization began to rise again in 1996, peaked in 1997, and again declined in 1998 due to reduced 

demand from the Asian market (S&P, 2001). With the global economic slowdown starting in 2000, paper 

producers were forced to implement production cutbacks and downtime to prevent oversupply from further 

depressing prices. As a result, utilization rates fell farther in 2000 and 2001 to values below those observed in the 

prior decade. At the same time, overall capacity contracted as companies permanently closed less efficient 

facilities. By 2004, capacity utilization in the Paperboard Mill and Pulp Mill industries had returned to its 1990 

C2A-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

level, while Paper Mill capacity utilization increased between 2001 and 2002 and has remained relatively constant 

over 2003 to 2004. The industry is expected to continue consolidating, which should aid profitability in the long 

run (S&P, 2004b). 

75 

80 

85 

90 

95 

100 

1989199019911992199319941995199619971998199920002001200220032004 

(

) 

(

2631) 

( ) 

(

 ( ) 

(

Note: 

Source: 

Figure C2A-4: Capacity Utilization Rate (Fourth Quarter) for Pulp and Paper Industry 

P aperboard Mills NAICS 

to SIC

P aperboard Mills SIC 

P ulp Mills NAICS t o SIC

P ulp Mills SIC 2611) 

P aper Mills NAICS t o SIC

P aper Mills SIC 2621) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled 

in the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data 

to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. DOC, 1989-2004. 

C2A-3 STRUCTURE AND COMPETITIVENESS 

Paper and allied products companies range in size from large corporations having billions of dollars of sales, to 

small producers with revenue a fraction of the size of the large producers. Because all paper and allied products 

companies use the same base materials in their production, most manufacture more than one product. To escape 

the extreme price volatility of commodity markets, many smaller manufacturers have differentiated their products 

by offering value-added grades. The smaller markets for value-added products make this avenue less available to 

the larger firms (S&P, 2001). 

The paper industry has consolidated through mergers and acquisitions and has closed older mills over the last few 

years, as a way to improve profits in a mature industry. About six percent of North American containerboard 

capacity was shut down (most on a permanent basis) in late 1998 and early 1999. Companies have been reluctant 

to invest in any major new capacity, which might result in excess capacity (S&P, 2001). In 1999, new capacity 

additions in the paper and allied products industry were at their lowest level of the past ten years; this caution in 

adding to capacity is expected to continue (Pponline.com, 2000). Another problem for the industry is the 

increasing capacity being brought online in foreign countries, which could result in higher U.S. import levels and 

increased competition for U.S. products in export markets (S&P, 2004a). 

Major recent mergers include International Paper’s acquisition of Champion International in 2000 and Union 

Camp in 1999, Georgia-Pacific’s takeover of Fort James Corp. (itself a 1997 combination of James River and 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

Fort Howard), Weyerhaeuser’s acquisition of Willamette Industries Inc., the merger of Mead and Westvaco, and 

Temple-Inland’s takeover of Gaylord Container (S&P, 2001, 2004b). 

C2A-3.1 Firm size 

For SIC codes 2611, 2621, and 2631, the Small Business Administration defines a small firm as having fewer 

than 750 employees. The size categories reported in the Statistics of U.S. Businesses (SUSB) do not correspond 

with the SBA size classifications, therefore preventing precise use of the SBA size threshold in conjunction with 

SUSB data. The SUSB data presented in Table C2A-8 show the following size distribution in 2003: 

f 15 of 27 (56 percent) firms in the Pulp Mills segment had less than 500 employees. Therefore, at least 56 

percent of firms were classified as small. These small firms owned 15 facilities, or 39 percent of all 

facilities in the segment. 

f 117 of 162 (72 percent) firms in the Paper Mills segment had less than 500 employees. These small firms 

owned 124, or 43.2 percent of all Paper Mills. 

f 54 of 90 (60 percent) firms in the Paperboard Mills segment had less than 500 employees. Therefore, at 

least 66 percent of paperboard mills were classified as small. These firms owned 56, or 25 percent of all 

Paperboard Mills. 

An unknown number of the firms with more than 500 employees have less than 750 employees, and would 

therefore also be classified as small firms. Table C2A-8 below shows the distribution of firms and facilities for 

each profiled segment by employment size of the parent firm. 

Table C2A-8: Number of Firms and Facilities by Size Category for Profiled Paper and Allied Products 

Segments in 2003a 

Employment Size 

Category 

Pulp Mills 

No. of Firms No. of 

Facilities 

Paper Mills 

No. of Firms No. of 

Facilities 

Paperboard Mills 

No. of Firms No. of 

Facilities 

0-19 9 9 46 46 17 18 

20-99 2 2 27 28 22 23 

100-499 4 4 44 50 15 15 

500+ 12 23 45 163 36 165 

Total 27 38 162 287 90 221 

a Before 1998, data were compiled in the SIC system; since 1997, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. SBA, 1989-2003. 

C2A-3.2 Concentration ratios 

Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is 

closely related to entry barriers, with more concentrated industries generally having higher barriers. 

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common 

measures of industry concentration. The CR4 indicates the market share of the four largest firms. For example, a 

CR4 of 72 percent means that the four largest firms in the industry account for 72 percent of the industry’s total 

C2A-16 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

value of shipments. The higher the concentration ratio, the less competition there is in the industry, other things 

being equal.3 An industry with a CR4 of more than 50 percent is generally considered concentrated. The HHI 

indicates concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the 

market shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with 

market shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (602 + 302 

+ 102). The higher the index, the fewer the number of firms supplying the industry and the more concentrated the 

industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets in which the HHI 

is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 1800 are considered 

to be moderately concentrated, and those in which the HHI is in excess of 1800 are considered to be concentrated. 

Table C2A-9 shows that Pulp Mills have an HHI of 1,106, Paper Mills have an HHI of 467, and Paperboard Mills 

have an HHI of 485. At these HHI levels, all three industry segments appear relatively unconcentrated. With the 

majority of the firms in this industry having small market shares, this suggests limited potential for passing 

through to customers any increase in production costs resulting from regulatory compliance. 

The concentration ratios for the three segments remained relatively stable between 1987 and 1997. The Pulp 

Mills segment has the highest concentration of the three segments, with a CR4 of 59 percent and a HHI of 1,106 

in 1997. Recent mergers and acquisitions have led to an increase in concentration in the Paper and Paperboard 

segments. In the late 1990s, the top five U.S. firms controlled 38 percent of production capacity, with higher 

concentrations in individual product lines due to targeted consolidation and specialization (Ince, 1999). In 2001, 

only four firms had greater than 11 percent of the market, with none having a share greater than 17 percent. More 

than half of the firms in the paper industry had market shares under 2 percent (Paun et al. 2004). The Paper Mills 

and Paperboard Mills segments also account for most of the production of their primary products. The Pulp Mills 

segment accounts for a lower percentage of all pulp shipments, with pulp also commonly produced by integrated 

Paper and Paperboard Mills. 

SIC (S) or 

NAICS (N) 

Code 

Year 

Total 

of Firms 

Concentration Ratios 

4 Firm 

(CR4) 

8 Firm 

(CR8) 

20 Firm 

(CR20) 

50 Firm 

(CR50) 

S 2611 

1987 

1992 

26 

29 

44% 

48% 

69% 

75% 

99% 100% 

98% 100% 

743 

858 

Table C2A-9: Selected Ratios for Profiled Paper and Allied Products Segments, 1987, 1992, and 1997 

Number Herfindahl-Hirschman 

Index 

N 322110 1997 24 59% 86% 100% 100% 1,106 

S 2621 

1987 

1992 

122 

127 

33% 

29% 

50% 

49% 

78% 94% 

77% 94% 

432 

392 

1997 139 34% 55% 80% 94% 467 

S 2631 

1987 

1992 

91 

89 

32% 

31% 

51% 

52% 

77% 97% 

80% 97% 

431 

438 

1997 81 34% 53% 82% 98% 485 

a The 

Source: 

N 32212 

N 322130 

1997 Census of Manufactures is the most recent concentration ratio data available. 

U.S. DOC, 1987, 1992, 1997, and 2002. 

Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry 

with a high concentration in domestic production may nonetheless be subject to significant competitive pressures if it 

competes with foreign producers or if it competes with products produced by other industries (e.g., plastics vs. aluminum in 

beverage containers). Concentration ratios based on share of domestic production are therefore only one indicator of the 

extent of competition in an industry. 

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3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

C2A-3.3 Foreign trade 

This profile uses two measures of foreign competition: export dependence and import penetration. 

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic 

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that 

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests 

that higher import penetration levels will reduce market power and pricing discretion because foreign competition 

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for 

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The 

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with 

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be 

less likely to succeed in passing compliance costs through to customers. 

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales 

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not 

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing 

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated 

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the 

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to 

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through 

price increases since export sales are presumed subject to substantial competition from foreign producers. 

Table C2A-10 presents trade statistics for the Pulp Mills, and Paper and Paperboard Mills segments. Imports and 

exports play a much larger role in the Pulp Mills segment than for the other two segments. Import penetration and 

export dependence levels for the Pulp Mills segment were an estimated 73 and 76 percent, respectively, in 2002. 

The Paper and Paperboard Mills segments import penetration and export dependence ratios were 16 and 9 

percent, respectively, in 2002. For Pulp Mills, the large share of domestic production that is exported and 

domestic consumption served by imports implies the industry faces significant foreign competition, limiting the 

industry’s ability to pass through to customers any increase in production costs resulting from regulatory 

compliance. For Paper and Paperboard Mills, both measures of foreign competition are well below the U.S. 

manufacturing averages estimated for 2001. Given just these measures, it would be reasonable to assume that this 

segment does not face significant foreign competitive pressures, and would have more latitude in passing through 

to customers any increase in production costs resulting from regulatory compliance. However, foreign pressure is 

likely to increase as capacity in foreign countries, particularly China, continues to grow and exert pressure on the 

domestic market (McNutt, Cenatempo & Kinstrey, 2004). In addition, as noted above, the HHI of the Paper and 

Paperboard segments is 392 and 438 respectively, suggesting firms in these segments have small market shares, 

which would curtail their ability to pass through any increase in production costs. 

C2A-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

Table C2A-10: Trade Statistics for Profiled Paper and Allied Products Segments (millions, $2005) 

Implied 

Year Value of Imports Value of Exports Value of Shipments Domestic 

Consumptiona 

Import 

Penetrationb 

Export 

Dependencec 

Pulp Mills 

1989 4,354 5,199 9,157 8,312 52% 57% 

1990 3,917 4,518 8,572 7,972 49% 53% 

1991 2,844 3,877 7,075 6,042 47% 55% 

1992 2,731 4,200 7,093 5,624 49% 59% 

1993 2,370 3,148 5,432 4,653 51% 58% 

1994 2,838 3,669 5,996 5,165 55% 61% 

1995 4,558 5,718 8,428 7,268 63% 68% 

1996 3,107 4,011 6,579 5,675 55% 61% 

1997d

 3,022 3,822 3,835 3,035 100% 100% 

1998d 2,780 3,224 3,638 3,194 87% 89% 

1999d 2,915 3,222 3,567 3,260 89% 90% 

2000d

 3,702 3,987 4,150 3,865 96% 96% 

2001d

 2,862 3,118 3,546 3,290 87% 88% 

2002d 2,510 3,000 3,928 3,439 73% 76% 

Total Percent 

Change 1989-2002 -42.3% -42.3% -57.1% -58.6% 

Average Annual 

Growth Rate -4% -4% -6% -7% 

Paper and Paperboard Mills 

1989 10,488 4,301 73,791 79,978 13.1% 5.8% 

1990 10,126 4,739 70,403 75,791 13.4% 6.7% 

1991 9,164 5,385 64,199 67,979 13.5% 8.4% 

1992 8,706 5,532 63,496 66,669 13.1% 8.7% 

1993 9,120 5,315 61,226 65,032 14.0% 8.7% 

1994 9,114 5,978 66,303 69,440 13.1% 9.0% 

1995 12,412 7,835 84,774 89,351 13.9% 9.2% 

1996 10,892 7,572 71,477 74,796 14.6% 10.6% 

1997d 10,583 7,690 67,339 70,232 15.1% 11.4% 

1998d 11,421 7,251 67,476 71,645 15.9% 10.7% 

1999d 11,565 6,927 67,631 72,269 16.0% 10.2% 

2000d

 12,554 7,509 69,912 74,957 16.7% 10.7% 

2001d

 11,795 6,562 63,362 68,595 17.2% 10.4% 

2002d 10,762 5,209 59,897 65,450 16% 9% 

Total Percent 

Change 1989-2002 2.6% 21.1% -18.8% -18.2% 

Average Annual 0.2% 1.5% -1.6% -1.5% Growth Rate 

a Calculated by EPA as shipments + imports - exports. 

b Calculated by EPA as imports divided by implied domestic consumption. 

Calculated by EPA as exports divided by shipments. 

d Before 1997, data were compiled in the SIC system; since 1997, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. DOC, 2006; U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-19 

c 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

As shown in Figure C2A-1, the value of imports and exports peaked in the mid-1990s, before dropping and 

rebounding in 2000. As expected, values of both dropped again in 2001 and 2002, as the global economy fell into 

recession. 

(millions, $2005) 

0 

19891990199119921993199419951996199719981999200020012002 

) 

) 

) 

) 

Figure C2A-5: Value of Imports and Exports for Profiled Paper and Allied Products Segments 

Pulp Mills 

1,000 

2,000 

3,000 

4,000 

5,000 

6,000 

7,000 

E x p o rt s (N A I CS t o SI C

E x p o rt s (SIC 2 6 1 1 

I m p o rt s (N A I CS t o SI C

I m p o rt s (SIC 2 6 1 1 

Paper and Paperboard Mills 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

0 

Im p o rts (NAICS to SIC) 

Im port s (SIC 2621 , 2631) 

E xport s (NAICS t o SIC) 

E xport s (SIC 2621 , 2631) 

19891990199119921993199419951996199719981999200020012002

Source: U.S. DOC, 2006. 

a Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

C2A-20 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

C2A-4 FINANCIAL CONDITION AND PERFORMANCE 

Financial performance in the paper and allied products industry is closely linked to macroeconomic cycles, both 

in the domestic market and those of key foreign trade partners, and the resulting levels of demand. Many pulp 

producers, for example, were not very profitable during most of the 1990s as chronic oversupply, cyclical 

demand, rapidly fluctuating operating rates, sharp inventory swings, and uneven world demand plagued the global 

pulp market for more than a decade (Stanley, 2000). 

Net Profit Margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales 

or revenue, and measures profitability, as reflected in the conventional accounting concept of net income. Over 

time, the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the 

industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from 

several factors, including: variations in aggregate economic conditions (including international and U.S. 

conditions), variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in 

overcapacity), or changes in the pricing and availability of inputs to the industry’s production processes (e.g., the 

cost of energy to the pulp and paper process). The extent to which these fluctuations affect an industry’s 

profitability, in turn, depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a 

capital intensive industry such as the pulp and paper industry, the relatively high fixed capital costs as well as 

other fixed overhead outlays, can cause even small fluctuations in output or prices to have a large positive or 

negative affect on profit margin. 

Return on Total Capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by 

the total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of 

the capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or 

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets 

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the 

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate 

over time a sufficient return on capital if the industry is to remain economically viable and attract capital. The 

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in 

return on total capital. 

Figure C2A-6 below shows trends in net profit margins and return on total capital for the pulp and paper industry 

between 1992 and 2005. The table shows considerable volatility in the trend. Profitability was low between 1988 

and 1993, reflecting oversupply in world markets and decreasing shipments from U.S. producers (McGraw-Hill, 

2000). By the mid-1990s, financial performance improved as demand rebounded. Financial performance 

weakened again in 2000 through 2003, reflecting slower growth in both the U.S. and the world economy. 

Coupled with overproduction in the U.S. and global markets, these factors led to deteriorating financial 

performance in these years. Industry analysts anticipated stronger financial performance for the pulp and paper 

industry for 2004 (Value Line, 2004). As expected, both net profit margins and return on capital improved in 

both 2004 and 2005. With continued improvement in the U.S. economy, the outlook for the industry should be 

stronger in subsequent years. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-21 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

14% 

12% 

10% 

4% 

6% 

8% -

-

2% 

0% 

19921993199419951996199719981999200020012002200320042005 

Source: 

Figure C2A-6: Net Profit Margin and Return on Capital for Pulp and Paper Mills 

Return on Cap ital

Pulp & Pap er M ills 

Net Profit M argin

Pulp & Pap er M ills 

Value Line, 2003a; Value Line, 2006. 

C2A-5 FACILITIES OPERATING COOLING WATER INTAKE STRUCTURES 

Point source facilities that use or propose to use a cooling water intake structure that withdraws cooling water 

directly from a surface waterbody of the United States are potentially subject to Section 316(b) of the Clean Water 

Act. In 1982, the paper and allied products industry withdrew 534 billion gallons of cooling water, accounting for 

approximately 0.7 percent of total industrial cooling water intake in the United States. The industry ranked 5th in 

industrial cooling water use, behind the electric power generation industry, and the chemical, primary metals, and 

petroleum industries (1982 Census of Manufactures). 

This section provides information for facilities in the profiled paper and allied products segments within the scope 

of the regulatory options. For each analysis option, existing facilities that meet all of the following conditions are 

potentially subject to regulation: 

f Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract or 

arrangement with an independent supplier who has a cooling water intake structure; or their cooling water 

intake structure(s) withdraw(s) cooling water from waters of the United States, and at least twenty-five 

(25) percent of the water withdrawn is used for contact or non-contact cooling purposes; 

f Have a National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one; 

and 

f Meet the applicability criteria for the specific regulatory analysis option in terms of design intake flow 

and source waterbody type (i.e., 50 MGD for All Waterbodies, 100 MGD for Certain Waterbodies, or 200 

MGD for All Waterbodies). 

The regulatory analysis options also cover substantial additions or modifications to operations undertaken at such 

facilities. Although EPA initially identified the set of facilities that were estimated to be potentially subject to the 

Phase III regulation based on a minimum applicability threshold of 2 MGD, this section focuses only on the 

facilities nationwide in the profiled paper and allied products segments that are within the scope of the regulatory 

C2A-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

options (see Table C2A-1, above for additional information on the broader set of facilities potentially subject to 

Phase III regulation).5 

C2A-5.1 Waterbody and Cooling System Type 

Table C2A-11, Table C2A-12, and Table C2A-13 report the distribution of Phase III facilities within the scope of 

the regulatory analysis options in the profiled paper and allied products segments by type of waterbody and 

cooling system under each primary analysis option. The tables show that most of the facilities have either a oncethrough system or employ a combination of a once-through and closed system. 

Table C2A-11: Number of Facilities Estimated Subject to the 50 MGD All Option by Waterbody Type 

and Cooling System for the Profiled Paper and Allied Products Segments 

Recirculating Combination Once-Through Other 

Waterbody Type Total 

No. % of Total No. % of Total No. % of Total No. % of Total 

Pulp Mills 

2 100% 6 100% 4 73% 1 100% 13 

0 0% 0 0% 2 27% 0 0% 2 

Totala 2 11% 6 38% 6 42% 1 8% 15 

/ 

Totala 

0 

0 

0 

0 

0% 

0% 

0% 

0% 

0 

5 

1 

6 

0% 

81% 

19% 

46% 

1 

4 

2 

7 

16% 

61% 

23% 

54% 

0 

0 

0 

0 

0% 

0% 

0% 

0% 

1 

9 

3 

13 

Paperboard Mills 

0 20% 3 100% 5 100% 2 38% 9 

0 0% 0 0% 0 0% 3 62% 3 

Totala 0 17% 3 22% 5 41% 4 36% 12 

/ 0 

2 

0 

0 

0% 

100% 

0% 

0% 

0 

13 

1 

0 

0% 

92% 

8% 

0% 

1 

14 

2 

2 

6% 

76% 

9% 

9% 

0 

3 

3 

0 

0% 

51% 

49% 

22% 

1 

32 

6 

2 

Totala 2 4% 14 36% 18 46% 6 14% 40 

a

Source: 

Freshwater River/ Stream 

Great Lake 

Paper Mills 

Estuary Tidal River 

Freshwater River/ Stream 

Lake/ Reservoir 

Freshwater River/ Stream 

Lake/ Reservoir 

Total for Profiled Paper and Allied Products Industries 

Estuary Tidal River 

Freshwater River/ Stream 

Lake/ Reservoir 

Great Lake 

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

EPA applied sample weights to the sampled facilities to account for non-sampled facilities and facilities that did not 

respond to the survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information 

Collection Request (U.S. EPA, 2000). 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-23 

5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

Table C2A-12: Number of Facilities Estimated Subject to the 200 MGD All Option by Waterbody Type 

and Cooling System for the Profiled Paper and Allied Products Segments 

Recirculating Combination Once-Through Other 

Waterbody Type Total 

No. % of Total No. % of Total No. % of Total No. % of Total 

Pulp Mills 

0 0% 1 100% 0 0% 0 0% 1 

Totala 0 0% 1 100% 0 0% 0 0% 1 

0 0% 0 0% 2 100% 0 0% 2 

Totala 0 0% 0 0% 2 100% 0 0% 2 

Paperboard Mills 

Totala 0 0% 0 0% 0 0% 0 0% 

0 0% 1 100% 2 100% 0 0% 3 

Totala 0 0% 1 41% 2 59% 0 0% 3 

a

Source: 

Combination Other 

Total 

No. No. No. No. 

0 0% 1 100% 0 0% 1 100% 2 

0 0% 0 0% 2 100% 0 0% 2 

Totala 0 0% 1 29% 2 42% 1 29% 4 

0 0% 2 100% 4 100% 0 0% 6 

Totala 0 0% 2 27% 4 73% 0 0% 6 

Paperboard Mills 

0 0% 0 0% 1 100% 0 0% 1 

Totala 0 0% 0 0% 1 100% 0 0% 1 

0 0% 3 100% 6 77% 1 100% 10 

0 0% 0 0% 2 23% 0 0% 2 

Totala 0 0% 3 25% 7 65% 1 10% 11 

a

Source: 

C2A-5.2 

1 

Freshwater River/ Stream 

Paper Mills 

Freshwater River/ Stream 

Total for Profiled Paper and Allied Products Industries 

Freshwater River/ Stream 

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Table C2A-13: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Waterbody 

Type and Cooling System for the Profiled Paper and Allied Products Segments 

Recirculating Once-Through Waterbody Type 

% of Total % of Total % of Total % of Total 

Pulp Mills 

Freshwater River/ Stream 

Great Lake 

Paper Mills 

Freshwater River/ Stream 

Freshwater River/ Stream 

Total for Profiled Paper and Allied Products Industries 

Freshwater River/ Stream 

Great Lake 

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Facility Size 

All of the pulp and paper facilities analyzed are relatively large, with no facilities employing fewer than 100 

people. Figure C2A-7, Figure C2A-8, and Figure C2A-9 show the number of facilities in the profiled pulp and 

paper segments by employment size category for each primary analysis option. 

C2A-24 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

13 

12 

14 

10 

0 0 0 0 0 0 

1 

00 0 

7 

6 

7 7 

0 

2 

4 

6 

8 lp Mills (

ills ( ) 

ills ( ) 

Source: 

0 0 0 0 0 0 0 0 0 0 

2 

0 

1 

0 0 

0 

0 

0 

1 

1 

1 

1 

1 

2 

2 

<100 >=1000 

) 

Source: 

Figure C2A-7: Number of Facilities Estimated within Scope of the 50 MGD All Option by 

Employment Size for Profiled Paper and Allied Products Segments 

<100 100-249 250-499 500-999 >=1000 

Pu SIC 2611) 

Paper M SIC 2621

Paperboard M SIC 2631

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Figure C2A-8: Number of Facilities Estimated within Scope of the 200 MGD All Option by 

Employment Size for Profiled Paper and Allied Products Segments 

100-249 250-499 500-999 

Pulp Mills (SIC 2611

Paper Mills (SIC 2621) 

Paperboard Mills (SIC 2631) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-25 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

0 0 0 0 0 0 0 0 0 0 

3 

1 

4 

3 

0 

0 

1 

1 

2 

2 

3 

3 

4 

4 

<100 >=1000 

Pulp Mills (

 (

 (

Source: 

C2A-5.3 

Allied Products Segments by Firm Size 

SIC Code SIC Description 

Number 

Large 

Number 

Small 

Total 

2611 Pulp Mills 15 100% 0 0% 15 

2621 Paper Mills 13 100% 0 0% 13 

2631 Paperboard Mills 12 100% 0 0% 12 

Total 40 100% 0 0% 40 

Source: 

Figure C2A-9: Number of Facilities Estimated within Scope of the 100 MGD CWB Option by 

Employment Size for Profiled Paper and Allied Products Segments 

100-249 250-499 500-999 

SIC 2611) 

Paper Mills SIC 2621) 

Paperboard Mills SIC 2631) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Firm Size 

EPA used the Small Business Administration (SBA) small entity size standards to determine the number of 

facilities in the three profiled paper segments that are owned by small firms. Firms in this industry are considered 

small if they employ fewer than 750 people. 

As shown in Table C2A-14, Table C2A-15, and Table C2A-16, large firms own all of the facilities estimated 

subject to regulation in this industry under the three regulatory analysis options. 

Table C2A-14: Number of Facilities Estimated Subject to the 50 MGD All Option in Profiled Paper and 

% of SIC % of SIC 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

C2A-26 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

Allied Products Segments by Firm Size 

SIC Code SIC Description 

Number 

Large 

Number 

Small 

Total 

2611 Pulp Mills 1 100% 0 0% 1 

2621 Paper Mills 2 100% 0 0% 2 

2631 Paperboard Mills 0 0% 0 0% 0 

Total 3 100% 0 0% 3 

Source: 

SIC Code SIC Description 

Number 

Large 

Number 

Small 

Total 

2611 Pulp Mills 4 100% 0 0% 4 

2621 Paper Mills 6 100% 0 0% 6 

2631 Paperboard Mills 1 100% 0 0% 1 

Total 11 100% 0 0% 11 

Source: 

Table C2A-15: Number of Facilities Estimated Subject to the 200 MGD All Option in Profiled Paper and 

% of SIC % of SIC 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

Table C2A-16: Number of Facilities Estimated Subject to the 100 MGD CWB Option in Profiled Paper 

and Allied Products Segments by Firm Size 

% of SIC % of SIC 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-27 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

REFERENCES 

Bureau of Labor Statistics (BLS). 2006. Producer Price Index. Industry Data Series: PCU322110-Pulp Mills; 
 

PCU32212-Paper Mills; PCU322130-Paperboard Mills. Available at: http://www.bls.gov/ppi/home.htm.
 

Downloaded February 1, 2006. 
 

Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.
 

Economagic. 2006. Industrial Production: Industry Subtotals, Individual Series, and Special Aggregates. 
 

Seasonably Adjusted. Data Series: Pulp Mills, Paper Mills, and Paperboard Mills. Available at: 
 

http://www.economagic.com/frbg17.htm#IPMarket. Downloaded February 2, 2006. 
 

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification 
 

Manual.
 

Ince, Peter J. 1999. “Global cycle changes the rules for U.S. pulp and paper.” PIMA’s North American 
 

Papermaker. December. v. 81, issue 12, p. 37. 
 

McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000. U.S. Industry &
 

Trade Outlook ‘00.
 

McNutt, Jim, Dan Cenatempo and Bob Kinstrey. 2004. “State of the North American Pulp and Paper Industry.” 
 

Presented at the Center for Paper Business and Industry Studies at Tappi Paper Summit, Atlanta, GA, May 3, 
 

2004. Available at: 
 

http://www.cpbis.gatech.edu/secure/protocols/general/docs/031107State_of_the_NA_PandP_Industry_Article.pdf 
 

Paper Age. 2004a. “The more things change.” January/February. Vol. 120 No. 1. Available at: 
 

http://www.paperage.com/issues/jan_feb2004/01_2004patrick.html
 

Paper Age. 2004b. “Continued capacity declines seen in paper industry survey.” Feb. 27, 2004. Available at: 
 

http://www.paperage.com/2004news/02_27_2004capacity_survey.html
 

Paper Age. 2004c. “The year ahead.” January/February. Vol. 120 No. 1. Available at: 
 

http://www.paperage.com/issues/jan_feb2004/01_2004price.html
 

Paperloop Inc. 2001. “Market Report: United States 3Q 2001.” 
 

Paun, D., Srivastava, V., Garth, J., Scott, E., Black, K., Dodd, A., Nguyen, L., Ganguly, I., Rice, J. & Seok, H.D. 
 

2004. A financial review of the North American paper industry. Tappi Journal. Vol.3(1). January 2004. 
 

Available at: http://www.tappi.org/index.asp?rc=1&pid=28430&ch=1&jp=&bhcd2=1084195150 
 

Pponline.com. 2000. “U.S. pulp and paper industry poised for cyclical upswing.” January 11, 2000. 
 

Pponline.com. 1999. “U.S. pulp, paper, board capacity growth ‘ultra slow’.” December 9, 1999. 
 

Standard & Poor’s (S&P). 2004a. Stock Reports - International Paper. February 21, 2004. 
 

Standard & Poor’s (S&P). 2004b. Stock Reports - Longview Fibre. February 21, 2004. 
 

Standard & Poor’s (S&P). 2001. Industry Surveys - Paper & Forest Products. April 12, 2001. 
 

Stanley, G.L. 2000. “Economic data for pulp and paper industry shows an encouraging future.” TAPPI Journal
 

83(1):pp. 27-32. 
 

C2A-28 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Paper and Allied Products 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of the Census. International Trade Administration. 

Industry, Trade, and the Economy: Data and Analysis. Data by NAICS and SIC. Available at: 

http://www.ita.doc.gov/td/industry/otea/industry_sector/tables_naics.htm. Downloaded February 2, 2006. 

U.S. Department of Commerce (U.S. DOC). 1989-2004. Bureau of the Census. Current Industrial Reports. 

Survey of Plant Capacity. 

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, 1998-2001, and 2003-2004. Bureau of the 

Census. Annual Survey of Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1987, 1992, 1997, and 2002. Bureau of the Census. Census of 

Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. 1997 Economic Census Bridge 

Between NAICS and SIC. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling 

Water Intake Structures. 

U.S. Small Business Administration (U.S. SBA). 2006. Small Business Size Standards. Available at: 
 

http://www.sba.gov/size/sizetable2002.html. 
 

U.S. Small Business Administration (U.S. SBA). 1989-2003. Statistics of U.S. Businesses. Available at: 
 

http://www.sba.gov/advo/research/data.html. Downloaded February 4, 2006. 
 

Value Line. 2006. Value Line 3.0 Investment Analyzer.
 

Value Line. 2004. Paper & Forest Products Industry. January 9, 2004. 
 

Value Line. 2003a. Value Line Investment Survey.
 

Value Line. 2003b. Paper & Forest Products Industry. April 11, 2003. 
 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2A-29 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2A: Profile of Manufacturers 

THIS PAGE INTENTIONALLY LEFT BLANK
 

C2A-30 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Chapter C2B: Chemicals and Allied 
 

Products (SIC 28) 
 

INTRODUCTION 

EPA’s Detailed Industry Questionnaire, hereafter referred 

to as the DQ, identified thirteen 4-digit SIC codes in the 

Chemical and Allied Products Industry (SIC 28) with at 

least one existing facility that operates a CWIS, holds a 

NPDES permit, and withdraws equal to or greater than two 

million gallons per day (MGD) from a water of the United 

States, and uses at least 25 percent of its intake flow for 

cooling purposes. (Facilities with these characteristics are 

hereafter referred to as facilities potentially subject to the 

Phase III regulation or “potential Phase III facilities”). 

For each of the fifteen SIC codes, Table C2B-1, following 

page, provides a description of the industry segment, a list 

of primary products manufactured, the total number of 

detailed questionnaire respondents (weighted to represent a 

national total of facilities that hold a NPDES permit and 

operate cooling water intake structures), the number of 

facilities estimated to be potentially subject to Phase III 

regulation based on the minimum withdrawal threshold of 2 

MGD, and the number of facilities estimated to be subject 

to regulation under the three regulatory analysis options. 

CHAPTER CONTENTS: 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 

Introduction..........................................................C2B-1

C2B-1 Summary Insights from this Profile ........C2B-5

C2B-2 Domestic Production...............................C2B-5

C2B-2.1 Output.............................................C2B-6

C2B-2.2 Prices ..............................................C2B-8

C2B-2.3 Number of Facilities and Firms ....C2B-10

C2B-2.4 Employment and Productivity ......C2B-12

C2B-2.5 Capital Expenditures ....................C2B-14

C2B-2.6 Capacity Utilization......................C2B-15

C2B-3 Structure and Competitiveness..............C2B-18

C2B-3.1 Firm Size ......................................C2B-18

C2B-3.2 Concentration Ratios ....................C2B-19

C2B-3.3 Foreign Trade ...............................C2B-21

C2B-4 Financial Condition and Performance...C2B-26

C2B-5 Facilities Operating Cooling Water Intake

Structures ..............................................C2B-28

C2B-5.1 Waterbody and Cooling System Type......

 ...................................................C2B-29

C2B-5.2 Facility Size..................................C2B-31

C2B-5.3 Firm Size ......................................C2B-33

References..........................................................C2B-36

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

a 

SIC SIC Description 

Total Regulated b 

to 50 

MGD 

All 

to 200 

MGD 

All 

to 100 

MGD 

CWB 

Option Option Option 

c Inorganic Chemicals (SIC 281) 

2812 28 20 16 3 11 

2813 Industrial Gases 110 4 4 0 0 

2816 26 9 0 0 0 

2819 271 30 6 0 1 

Total Inorganic Chemicals 435 64 26 3 12 

2821 Plastics Material and 305 19 11 0 4 

Nonvulcanizable 

Organic Chemicals (SIC 286)d 

2865 

Crudes and 

Pigments 

organic pigments 

59 9 4 0 4 

2869 

; 

364 52 12 3 4 

423 61 17 3 8 

2823 

Fibers 

cuprammonium process 

7 1 1 0 0 

2824 36 13 0 0 0 

2833 

and Botanical 

Products 

33 2 2 0 2 

2834 91 4 0 0 0 

Table C2B-1: Phase III Facilities in the Chemicals and Allied Products Industry (SIC 28) 

Number of Phase III facilities

Important Products Manufactured Potentially 

Facilities

Subject Subject Subject 

Alkalies and Chlorine Alkalies, caustic soda, chlorine, and soda 

ash 

Industrial gases (including organic) for 

sale in compressed, liquid, and solid forms 

Inorganic Pigments Black pigments, except carbon black, 

white pigments, and color pigments 

Industrial Inorganic 

Chemicals, Not 

Miscellaneous other industrial inorganic 

chemicals 

Elsewhere Classified 

Plastics Material and Resins (SIC 282) 

Synthetic Resins, and 

Cellulose plastics materials; phenolic and 

other tar acid resins; urea and melamine 

resins; vinyl resins; styrene resins; alkyd 

Elastomers resins; acrylic resins; polyethylene resins; 

polypropylene resins; rosin modified 

resins; coumarone-indene and petroleum 

polymer resins; miscellaneous resins 

Cyclic Organic 

Intermediates, and 

Organic Dyes and 

Aromatic chemicals, such as benzene, 

toluene, mixed xylenes naphthalene, 

synthetic organic dyes, and synthetic 

Industrial Organic 

Chemicals, Not 

Elsewhere Classified 

Aliphatic and other acyclic organic 

chemicals; solvents; polyhydric alcohols; 

synthetic perfume and flavoring materials; 

rubber processing chemicals; plasticizers; 

synthetic tanning agents chemical warfare 

gases; and esters, amines, etc. 

Total Organic Chemicals 

Other Chemical Segments 

Cellulosic Manmade Cellulose acetate and regenerated cellulose 

such as rayon by the viscose or 

Manmade Organic 

Fibers, Except 

Cellulosic 

Regenerated proteins, and polymers or 

copolymers of such components as vinyl 

chloride, vinylidene chloride, linear esters, 

vinyl alcohols, acrylonitrile, ethylenes, 

amides, and related polymeric materials 

Medicinal Chemicals Agar-agar and similar products of natural 

origin, endocrine products, manufacturing 

or isolating basic vitamins, and isolating 

active medicinal principals such as 

alkaloids from botanical drugs and herbs 

Pharmaceutical Intended for final consumption, such as 

ampoules, tablets, capsules, vials, 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

c 

a 

SIC SIC Description 

Total Regulated b 

to 50 

MGD 

All 

to 200 

MGD 

All 

to 100 

MGD 

CWB 

Option Option Option 

Preparations 

and suspensions 

2873 Nitrogenous 60 9 0 0 0 

mixtures 

2899 

; 

162 4 0 0 0 

389 34 3 0 2 

1,552 178 56 6 26 a 

b 

d 

Source: 

Table C2B-1: Phase III Facilities in the Chemicals and Allied Products Industry (SIC 28) 

Number of Phase III facilities

Important Products Manufactured Potentially 

Facilities

Subject Subject Subject 

ointments, medicinal powders, solutions, 

Fertilizers 

Ammonia fertilizer compounds and 

anhydrous ammonia, nitric acid, 

ammonium nitrate, ammonium sulfate and 

nitrogen solutions, urea, and natural 

organic fertilizers (except compost) and 

Chemicals and 

Chemical 

Preparations, Not 

Elsewhere Classified 

Fatty acids; essential oils; gelatin (except 

vegetable); sizes; bluing laundry sours; 

writing and stamp pad ink; industrial 

compounds; metal, oil, and water treating 

compounds; waterproofing compounds; 

and chemical supplies for foundries 

Total Other 

Total Chemicals and Allied Products (SIC 28) 

Total SIC Code 28 

Number of weighted detailed questionnaire survey respondents. 

Individual numbers may not add up due to independent rounding. 

SIC code 281 is officially titled “Industrial Inorganic Chemicals.” However, to avoid confusion with SIC code 2819, “Industrial 

Inorganic Chemicals, Not Elsewhere Classified,” this profile refers to SIC code 281 as the “Inorganic Chemicals segment.” 

SIC code 286 is officially titled “Industrial Organic Chemicals.” However, to avoid confusion with SIC code 2869, “Industrial Organic 

Chemicals, Not Elsewhere Classified,” this profile refers to SIC code 286 as the “Organic Chemicals segment.” 

Executive Office of the President, 1987; U.S. EPA 2000; U.S. EPA analysis, 2006. 

As shown in Table C2B-1, EPA estimates that, out of the total of 1,552 facilities with a NPDES permit and 

operating cooling water intake structures in the Chemicals and Allied Products Industry (SIC 28), 56 (or 4%) 

would be subject to regulation under the 50 MGD All option, 6 (or 0.3%) would be subject to regulation under the 

200 MGD All option, and 26 (or 1.7%) would be subject to regulation under the 100 MGD CWB option. EPA 

also estimated the percentage of total production that occurs at facilities estimated to be subject to regulation 

under each regulatory analysis option. Total value of shipments for the Chemicals and Allied Products Industry 

from the 2004 Annual Survey of Manufactures is $357.7 billion. Value of shipments, a measure of the dollar 

value of production, was selected for the basis of this estimate. Because the DQ did not collect value of 

shipments data, these data were not available for Phase III facilities. Total revenue, as reported on the DQ, was 

used as a close approximation for value of shipments for these facilities. EPA estimated the total revenue of 

facilities expected to be subject to regulation under the 50 MGD, 200 MGD and 100 MGD regulatory analysis 

options to be $30.2 billion, $13.8 billion, and $22.3 billion. Therefore, EPA estimates that the percentage of total 

production in the paper industry that occurs at facilities estimated to be subject to regulation under the 50 MGD, 

200 MGD, and 100 MGD options is 8%, 4% and 6%, respectively.. 

The responses to the Detailed Questionnaire indicate that three chemical segments account for 95% of the 

chemicals industry potential Phase III facilities: (1) Inorganic Chemicals (including SIC codes 2812, 2813, 2816, 

and 2819); (2) Plastics Material and Resins (SIC code 2821); and (3) Organic Chemicals (including SIC codes 

2865 and 2869). This profile therefore provides detailed information for these three industry groups. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-2 on the following page provides the cross-walk between SIC codes and NAICS codes for the profiled 

chemical SIC codes. The table shows that alkalies and chlorine (SIC 2812), industrial gases (SIC 2813), Plastics 

Material and Synthetic Resins, and Nonvulcanizable Elastomers (SIC 2821) have one-to-one relationships to 

NAICS codes. The other SIC codes in the three profiled chemical segments correspond to two or more NAICS 

codes. 

Table C2B-2: Relationship between SIC and NAICS Codes for the Chemicals and Allied Products Industry 

(2002)

 SIC 

Code SIC Description NAICS Code NAICS Description Establishments 

Value of 

Shipments 

($000) 

Employment 

Inorganic Chemicals (SIC 281) 

2812 Alkalies and Chlorine 325181 Alkalies and chlorine 41 2,809,496 6,253 

manufacturing 

2813 Industrial Gases 325120 Industrial gas manufacturing (pt) 572 5,864,978 10,654 

2816 Inorganic Pigments 325131 Inorganic dye and pigment 81 3,522,308 7,233 

325182 

manufacturing (

25 1,033,515 1,665 

2819 Industrial Inorganic 325131 

325188 

manufacturing (

manufacturing (

81 

631 

3,522,308 

16,084,006 

7,233 

47,474 

pt) 

Carbon black manufacturing (pt) 

Chemicals, Not 

Elsewhere Classified 

Inorganic dye and pigment 

pt) 

All other basic inorganic chemical 

pt) 

325998 All other miscellaneous chemical 1188 13,404,657 36,348 

product and preparation 

manufacturing (pt) 

331311 10 830,110 1,554 

2821 

Nonvulcanizable 

325211 

manufacturing 

690 46,825,479 67,171 

Organic Chemicals (SIC 286) 

2865 

Crudes and 

325110 

325132 

325192 

manufacturing 

manufacturing 

56 

123 

37 

21,084,070 

2,816,169 

4,935,751 

9,380 

7,647 

6,528 

2869 325110 

325120 

56 

572 

21,084,070 

5,864,978 

9,380 

10,654 

Alumina refining 

Plastics Material and Resins (SIC 282) 

Plastics Material and 

Synthetic Resins, and 

Elastomers 

Plastics material and resin 

Cyclic Organic 

Intermediates, and 

Organic Dyes and 

Pigments 

Petrochemical manufacturing (pt) 

Synthetic organic dye and pigment 

Cyclic crude and intermediate 

Industrial Organic 

Chemicals, Not 

Elsewhere Classified 

Petrochemical manufacturing (pt) 

Industrial gas manufacturing (pt) 

325188 All other basic inorganic chemical 631 16,084,006 47,474 

manufacturing (pt) 

325193 Ethyl alcohol manufacturing 72 2,288,305 2,265 

325199 

manufacturing (

685 48,290,302 77,995 

a 

Source: 

All other basic organic chemical 

pt) 

Industry data for relevant NAICS codes from the 2002 Economic Census. 

U.S. DOC, 1997; U.S. DOC, 1987, 1992, 1997, and 2002. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

C2B-1 SUMMARY INSIGHTS FROM THIS PROFILE 

A key purpose of this profile is to provide insight into the ability of chemicals firms to absorb compliance costs 

under each primary analysis option without material adverse economic/financial effects. The industry’s ability to 

withstand compliance costs is primarily influenced by two factors: (1) the extent to which the industry may be 

expected to shift compliance costs to its customers through price increases, and (2) the financial health of the 

industry and its general business outlook. 

Likely Ability to Pass Compliance Costs Through to Customers 

As reported in the following sections of this profile, the chemicals industry has a variable level of concentration, 

with some industry segments exhibiting relatively low concentration while others show somewhat higher 

concentration. Regardless of the domestic concentration level and its implications for market power, the U.S. 

chemicals industry faces increasing competitive pressure from abroad, which substantially limits any apparent 

ability of firms to pass a significant portion of their compliance-related costs through to customers. In addition, 

the relatively low share of total industry output that is estimated subject to the regulation under each analysis 

option also diminishes a firms’ ability to shift compliance costs to customers. For these reasons, in its analysis of 

regulatory impacts for the chemicals industry, EPA assumed that complying firms would be unable to pass 

compliance costs through to customers; i.e., complying facilities must absorb all compliance costs (see following 

sections and Appendix 3, Cost Pass-Through Analysis, to Chapter C3: Economic Impact Analysis for 

Manufacturers, for further information). 

Financial Health and General Business Outlook 

Over the past decade, the chemicals industry, like other U.S. manufacturing industries, has experienced a range of 

economic/financial conditions and a number of substantial challenges. In the early 1990s, the domestic chemicals 

industry was affected by reduced U.S. demand as the economy entered a recessionary period. Although domestic 

market conditions improved by mid-decade, an oversupply of crude oil, weakness in Asian markets, along with 

other domestic factors, dealt a serious blow to refiners in 1998. More recently, as the U.S. economy began 

recovery from its economic weakness, the domestic chemicals industry is showing signs of recovery with 

continuous improvements in demand levels and financial performance during 2003 to 2005. Although the 

industry weathered difficult periods over the past few years, the strengthening of the industry’s financial condition 

and general business outlook suggest improved ability to withstand additional regulatory compliance costs 

without a material financial impact. 

C2B-2 DOMESTIC PRODUCTION 

The U.S. chemical and allied products industry includes a large number of companies that, in total, produce more 

than 70,000 different chemical products. These products range from commodity materials used in other industries 

to finished consumer products such as soaps and detergents. The industry accounts for nearly 12 percent of U.S. 

manufacturing value added, and produces approximately two percent of total national gross domestic product 

(McGraw-Hill, 2000). 

Raw materials containing hydrocarbons such as oil, natural gas, and coal are primary feedstocks for the 

production of organic chemicals. Inorganic chemicals are chemicals that do not contain carbon but are produced 

from other gases and minerals (McGraw-Hill, 2000). 

The chemicals and allied products industry is highly energy intensive, accounting for seven percent of total U.S. 

energy consumption. Just over 50 percent of the industry’s energy consumption is used as feedstock in the 

production of chemical products. The remainder is used to power production processes. Oil accounts for 

approximately 42 percent of total energy consumption by the industry. For some products, e.g., petrochemicals, 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

energy costs account for up to 85 percent of total production costs. Overall, total energy costs represent seven 

percent of the value of chemical industry shipments (S&P, 2001). 

C2B-2.1 Output 

Figure C2B-1 shows constant dollar value of shipments and value added for the three profiled segments 

between 1987 and 20041. Value of shipments and value added are two common measures of manufacturing 

output. Change in these values over time provides insight into the overall economic health and outlook for an 

industry. Value of shipments is the sum of receipts earned from the sale of outputs; it indicates the overall size of 

a market or the size of a firm in relation to its market or competitors. Value added, defined as the difference 

between the value of shipments and the value of inputs used to make the products sold, measures the value of 

production activity in a particular industry. 

The Organic Chemicals segment experienced a decrease in both value of shipments and value added between 

1988 and 1993, followed by volatility through 1998. The mid 1990s were marked by increased competition in the 

global market for petrochemicals, which comprise the majority of organic chemical products. The increased 

competition stems from the considerable capacity expansions for these products seen in developing nations. 

(McGraw-Hill, 2000). Value of shipments for the segment increased through 2000, while value added remained 

flat. Both value of shipments and value added declined in 2001 as the segment faced decreased demand due to 

the economic slowdown, but have risen significantly and continuously since that year. In 2004, both value of 

shipments and value added were higher than during any other year in the time period analyzed. 

The Plastics Material and Resins and Inorganic Chemicals segments remained somewhat more stable over the 

period between 1987 and 2004. In the early 1990s, domestic producers benefited from the relatively weak dollar, 

which made U.S. products more competitive in the global market. During the later part of the 1990s, the strength 

of the U.S. economy bolstered domestic end-use markets, offsetting the effect of reduced U.S. export sales, which 

resulted from increased global competition and a strengthened dollar (McGraw-Hill, 2000). The global economic 

slowdown that began in 2000 led to decreased production, in particular, of chemical goods that are used in the 

production processes of other industries, notably steel, apparel, textiles, forest products, and technology. During 

2002 to 2004, the values of shipments and value added of the Plastics Material and Resins segment increased 

significantly, reaching maximum levels observed in the analyzed time period by 2004. The value of shipments 

and value added of the Inorganic Chemicals segment, on the other hand, has remained relatively stable since 

2000. 

In the early 2000s, the industry struggled to maintain earnings against the global economic decline. Currently, the 

industry continues to face high raw material and energy costs, as well as an increase in competition from abroad. 

Although the U.S. economy has improved recently, the chemical industry has lagged in increasing growth of sales 

and earnings. This may change in the future, as the American Chemistry Council reported that the chemical 

industry should experience positive growth only slightly lower than GDP in 2004 (C&EN, 2003c). Recent 

increases in the value of shipments and value added indicate improved performance. This should better position 

firms to incur costs associated with regulatory compliance. 

1

 Terms highlighted in bold and italic font are further explained in the glossary. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

(millions, $2005) 

198719881989199019911992199319941995199619971998199920002001200220032004 

( 

) 

( 

) 

( ) 

( ) 

( 

) 

( 

) 

Value Added 

0 

198719881989199019911992199319941995199619971998199920002001200220032004 

) 

) 

( 

) 

( 

) 

( 

) 

a 

. 

Source: 

Figure C2B-1: Value of Shipments and Value Added for Profiled Chemicals Industry Segments 

Value of Shipments 

20,0 0 0 

30,0 0 0 

40,0 0 0 

50,0 0 0 

60,0 0 0 

70,0 0 0 

80,0 0 0 

90,0 0 0 

1 00,0 0 0 

1 10,0 0 0 

1 20,0 0 0 

O r ga n ic Ch em ic als N A I CS 

t o SI C

O r ga n ic Ch em ic als SI C 

28 65 , 28 69 

P last ics M at erial an d Resin s 

NAICS t o SI C

P last ics M at erial an d Resin s 

SI C 2 821 

In or ga nic Ch em icals N A I CS 

t o SI C

In or ga nic Ch em icals SI C 

28 12 , 28 13 , 28 16 , 28 19 

5 , 0 0 0 

1 0 ,0 0 0 

1 5 ,0 0 0 

2 0 ,0 0 0 

2 5 ,0 0 0 

3 0 ,0 0 0 

3 5 ,0 0 0 

4 0 ,0 0 0 

4 5 ,0 0 0 

O r ga n ic Ch em ic als (N A I C S 

t o SI C 

O r ga n ic Ch em ic als (SI C 

2 8 6 5 , 2 8 6 9 

P last ics M a t e ria l an d R e sin s 

N A I CS t o SI C) 

P last ics M a t e ria l an d R e sin s 

(SIC 2 8 2 1 

In o r ga n ic C h em ic a ls N A I CS 

t o SI C 

In o r ga n ic C h em ic a ls SIC 

2 8 1 2 , 2 8 1 3 , 2 8 1 6 , 2 8 1 9 

Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

Table C2B-3 provides the Federal Reserve System’s index of industrial production for the three profiled 

segments, which shows trends in production since 1989. This index reflects total output in physical terms, 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

whereas value of shipments and value added reflects the value of output in economic terms. Table C2B-3 shows 

varying trends in the three segments since 1989, but sharp declines in production in all three segments in 2000 or 

2001. These declines were caused by the marked slowdown in the U.S. economy, which affected demand in 

major chemical-using segments such as steel, apparel, textiles, forest products, and the technology sectors 

(Chemical Marketing Reporter, 2001). 

Production continued to decline through 2001 and has fluctuated annually since that year. In 2002, production 

increased somewhat before dipping again in 2003. The decline was followed by gains in 2004, and yet more 

declines in 2005. Between 1989 and 2005, the Basic Inorganic Chemicals and Organic Chemicals segments saw 

overall production declines of 5.3 and 3.3 percent, respectively, while the Plastics Materials and Resins segment 

saw an overall 28.5 percent production increase. 

Table C2B-3: Chemicals Industry Industrial Production Index (Annual Averages) 

Basic Inorganic Chemicalsa Plastics Material and Resinsb Organic Chemicalsc 

Year Index Percent Index Percent Index Percent 

2002=100 Change 2002=100 Change 2002=100 Change 

1989 101.3 74.3 102.4 

1990 103.8 2.4% 75.0 1.0% 108.9 6.4% 

1991 99.3 -4.3% 72.1 -3.8% 103.8 -4.7% 

1992 100.9 1.6% 78.4 8.7% 104.4 0.6% 

1993 97.9 -3.0% 76.9 -1.9% 99.4 -4.8% 

1994 103.2 5.5% 87.8 14.1% 94.1 -5.4% 

1995 102.5 -0.7% 88.5 0.8% 95.0 1.0% 

1996 102.0 -0.5% 85.7 -3.2% 95.4 0.4% 

1997 113.4 11.2% 94.3 10.1% 97.4 2.1% 

1998 103.8 -8.5% 102.0 8.2% 101.4 4.1% 

1999 111.6 7.5% 105.9 3.8% 103.1 1.7% 

2000 110.3 -1.2% 105.1 -0.8% 95.7 -7.1% 

2001 95.1 -13.7% 95.4 -9.2% 91.7 -4.2% 

2002 100.0 5.1% 100.0 4.9% 100.0 9.0% 

2003 98.4 -1.6% 94.9 -5.1% 98.7 -1.3% 

2004 105.9 7.5% 100.8 6.2% 100.7 2.1% 

2005d 96.0 -4.0% 95.4 -4.6 99.0 -1.0 

Total Percent Change 

1989-2005 -5.3% 28.5% -3.3% 

Average Annual -0.3% 1.6% -0.2% Growth Rate 

a

 Includes NAICS 32512-8. 

b

 Includes NAICS 325211. 

 Includes NAICS 32511,9. 

d

 Value for Plastics Materials and Resins through 11 months of 2005. 

Source: Economagic, 2006. 

C2B-2.2 Prices 

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and 

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment. 

C2B-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 

c 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Figure C2B-2 shows the producer price index for the profiled chemical segments. Selling prices for the products 

of the Organic and Inorganic Chemicals segments increased from 1987 to 1989 and remained stable through 

1994. Between 1994 and 1995, prices increased sharply, followed by a period of relatively stable prices through 

1999. The sharp price rises for Organic Chemicals and Plastics Material and Resins in 2000 resulted in part from 

increases in the price of natural gas, which is the feedstock for 70 percent of U.S. ethylene production. High 

natural gas prices put U.S. organic chemicals and, to a lesser extent, plastic resin producers at a disadvantage 

relative to foreign producers who rely on naphta and gas oil as a feedstock. Natural gas prices declined, however, 

in 2001 easing pressure on U.S. producers (Chemical Marketing Reporter, 2001). Price increases for Plastics 

Material and Resins also reflected a shift by U.S. producers away from production of commodity resins to 

specialty and higher-value-added products (McGraw-Hill, 2000). Prices for Plastics Material and Resins followed 

a trend similar to the other two chemical industry segments but with larger fluctuations (see Figure C2B-2). 

(C&EN, 2003c). Prices for all three chemical segments declined slightly in 2002 before rising steeply through 

2003 to 2005.2 

Chemical and plastics prices fluctuate in large part as a result of varying energy prices. Basic petrochemicals, 

which comprise the majority of organic chemical products, depend heavily on energy commodities as inputs to 

the production process – energy input costs may account for up to 85 percent of total product costs. The prices of 

natural gas and oil therefore influence the production costs and the selling price for these products. High basic 

petrochemical prices affect prices for chemical intermediates and final end products, including organic chemicals 

and plastics. 

Another factor influencing prices for commodity chemical products is the cyclical nature of market supply and 

demand conditions. The Plastics, Organic Chemicals, and Inorganic Chemicals segments are characterized by 

large capacity additions that can lead to fluctuations in prices in response to imbalances in supply and demand. 

2

 Note that data 2004 and 2005 price data were only available for the Plastics Materials and Resins and Inorganic 

Chemicals segments. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

( 

) 

Note: 

Source:

Figure C2B-2: Producer Price Indexes for Profiled Chemicals Industry Segments 

6 0 . 0 

7 0 . 0 

8 0 . 0 

9 0 . 0 

1 0 0 . 0 

1 1 0 . 0 

1 2 0 . 0 

1 3 0 . 0 

1 4 0 . 0 

1 5 0 . 0 

P la st ic s M a t e r ia l a n d R e s in s 

SI C 2 8 2 1 ) 

I n o r g a n ic C h e m ic a ls ( SI C 

2 8 1 2 , 2 8 1 3 , 2 8 1 6 , 2 8 1 9 

O r g a n ic C h e m ic a ls ( SI C 

2 8 6 5 , 2 8 6 9 ) 

 For Inorganic Chemicals and Organic Chemicals, data presented are the average of PPI values for the corresponding 

SIC/NAICS codes of the industry segments. Data for 2004 and 2005 was collected by corresponding NAICS code(s) and 

appended to SIC code data for Plastics Materials and Resins and Inorganic Chemicals after converting all data to a common base 

year. Data comparability issues between SIC code and NAICS code data did not allow the same methodology for Organic 

Chemicals. Therefore, SIC code data for Organic Chemicals is presented through 2003, after adjusting to the same base year 

(12/03) as the other industry segments. 

 BLS, 2006. 

C2B-2.3 Number of Facilities and Firms 

According to the Statistics of U.S. Businesses, the number of facilities in the Inorganic Chemicals segment 

remained relatively stable between 1989 and 1997, followed by four consecutive years of decreases in the number 

of facilities. Although the number of facilities increased slightly in 2003, the Inorganic Chemicals segment 

experienced an overall 13.7 percent decline in the number of facilities over the 1990 to 2003 time period. The 

other two segments saw overall increases in the number of facilities over the 1989 to 2003 time period, though the 

Organic Chemicals segment saw declines in 1999 through 2002. The Plastics Material and Resins segment saw 

significant increases in the number of facilities reported between 1993 and 1996, reflecting growth in the demand 

for plastics in a number of end-uses (McGraw-Hill, 2000). Table C2B-4 shows the downward trend in the 

number of facilities producing inorganic chemical products following a peak in 1991. The decrease is partly 

attributable to the consolidation within the Inorganic Chemicals segment (S&P, 2001). 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-4: Number of Facilities for Profiled Chemical Segmentsa 

Year 

Inorganic Chemicals 

Change 

al and Resins 

Change 

Organic Chemicals 

Change 

1990 1,421 517 837 

1991 1,508 6.1% 529 2.3% 851 1.7% 

1992 1,466 -2.8% 460 -13.0% 888 4.3% 

1993 1,476 0.7% 502 9.1% 908 2.3% 

1994 1,460 -1.1% 499 -0.6% 902 -0.7% 

1995 1,425 -2.4% 558 11.8% 907 0.6% 

1996 1,396 -2.0% 630 12.9% 868 -4.3% 

1997 1,414 1.3% 593 -5.9% 945 8.9% 

1998b

 1,310 -7.3% 565 -4.7% 1,093 15.6% 

1999b 1,309 -0.1% 586 3.7% 1,076 -1.5% 

2000b 1,300 -0.7% 597 1.9% 1,072 -0.4% 

2001b 1,266 -2.6% 621 4.0% 1,064 -0.7% 

2002b 1,182 -6.6% 695 11.9% 1,052 -1.2% 

2003b 1,227 3.7% 802 15.4% 1,074 2.1% 

1990-2003 

Rate 

-13.7% 

-1.1% 

55.1% 

3.4% 

28.3% 

1.9% 

a 

b 

(

. 

Source: 

Number of 

Facilities 

Percent 

Plastics Materi 

Number of 

Facilities 

Percent Number of 

Facilities 

Percent 

Total Percent Change 

Average Annual Growth 

The Statistics of U.S. Business is derived from Census County Business Patterns data, and reports somewhat different numbers of 

firms and facilities than other Census data sources. 

Before 1998, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in the 

North American Industry Classification System NAICS). For this analysis, EPA converted the NAICS classification data to the SIC 

code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. SBA, 1989-2003. 

The trend in the number of firms between 1989 and 2003 is similar to the number of facilities. The number of 

firms in the Inorganic Chemicals segment peaked in 1992, and then declined continuously during 1993 to 2002, 

before increasing slightly in 2003. The Organic Chemicals segment showed more volatility before peaking in 

1998 with 710 firms. The number of firms in this segment declined slightly over 1999 to 2002, before reaching a 

new high of 717 firms in 2003. The number of firms in the Plastics Material and Resins segment increased 

substantially between 1993 and 1996, from 284 to 403 firms, before decreasing in the next two years. Starting in 

1999, the Plastics Material and Resins segment showed five years of positive growth in the number of firms. 

Table C2B-5 on the following page shows the number of firms in the three profiled chemical segments between 

1990 and 2003. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-11 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-5: Number of Firms for Profiled Chemical Segmentsa 

Inorganic Chemicals Plastics Material and Resins Organic Chemicals 

Year Number of Percent Number of Percent Number of Percent 

Firms Change Firms Change Firms Change 

1990 640 301 579 

1991 678 5.9% 319 6.0% 584 0.9% 

1992 699 3.1% 255 -20.1% 611 4.6% 

1993 683 -2.3% 284 11.4% 648 6.1% 

1994 677 -0.9% 295 3.9% 644 -0.6% 

1995 657 -3.0% 343 16.3% 644 0.0% 

1996 625 -4.9% 403 17.5% 596 -7.5% 

1997 611 -2.2% 358 -11.2% 674 13.1% 

1998b 618 1.1% 322 -10.1% 710 5.3% 

1999b 609 -1.3% 337 4.7% 684 -3.6% 

2000b 611 0.2% 352 4.5% 683 -0.1% 

2001b 606 -0.8% 375 6.5% 692 1.3% 

2002b 552 -8.9% 443 18.1% 685 -1.0% 

2003b 592 7.3% 554 25.1% 717 4.7% 

Total Percent Change 

1990-2003 -7.5% 84.1% 23.9% 

Average Annual -0.6% 4.8% 1.7% Growth Rate 

a The Statistics of U.S. Business is derived from Census County Business Patterns data, and reports somewhat different numbers of 

firms and facilities than other Census data sources. 

b Before 1998, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in the 

North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC 

code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. SBA, 1989-2003. 

C2B-2.4 Employment and Productivity 

Figure C2B-3 below provides information on employment from the Annual Survey of Manufactures. With the 

exception of minor short-lived fluctuations, employment in the Organic Chemicals and Plastics Material and 

Resins segments remained relatively stable between 1988 and 2000 before seeing declines of greater than 4.5 

percent in 2001. Slight increases in employment in 2002 were followed by further declines during 2003 to 2004. 

The Inorganic Chemicals segment, however, experienced a significant decrease in employment from 103,400 to 

80,200 employees over the 1992 to 1996 period. This decrease reflects the industry’s restructuring and 

downsizing efforts intended to reduce costs in response to competitive challenges. Employment in this segment 

remained fairly constant over the next two years before experiencing three years of employment declines greater 

than 4 percent. A brief increase in employment in 2002 was followed by further declines in both 2003 and 2004. 

From 1987 to 2004, the Inorganic Chemicals segment had the largest overall decrease in employment at 28 

percent. The Organic Chemicals segment employment declined 24 percent, while the Plastics Material and 

Resins segment was the only segment to increase employment, which rose by 2.6 percent for the period. 

C2B-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Figure C2B-3: Employment for Profiled Chemical Segments (000s) 

1 4 0 

1 3 0 

1 2 0 

1 1 0 

1 0 0 

90 

80 

70 

60 

50 

40 

O r ga n ic C h em ic als ( N A I C S 

t o SI C ) 

O r ga n ic C h em ic als ( SI C 

2 8 6 5 , 2 8 6 9 ) 

In o r ga n ic C h em icals (N A I C S 

t o SI C ) 

In o r ga n ic C h em icals (SIC 

2 8 1 2 , 2 8 1 3 , 2 8 1 6 , 2 8 1 9 ) 

P last ics M a t e rial an d R e sin s 

( N A I CS t o SI C) 

P last ics M a t e rial an d R e sin s 

( SI C 2 8 2 1 ) 

198719881989199019911992199319941995199619971998199920002001200220032004

a Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

Table C2B-6 presents the change in value added per labor hour, a measure of labor productivity, for each of 

the profiled industry segments between 1988 and 2004. The trends in each segment show considerable volatility 

through the 1990s into the 2000s. The gains in productivity in the Inorganic Chemicals segment reflect firms’ 

attempts to reduce costs by restructuring production and materials handling processes in response to maturing 

domestic markets and increased global competition (S&P, 2001). Over the 1988 to 2004 period, all three 

segments saw significant increases in productivity. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-13 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Inorganic Chemicals Organic Chemicals 

Table C2B-6: Productivity Trends for Profiled Chemical Segments ($2005) 

Plastics Material and Resins 

Value Value Value 

Year Value 

Added 

Prod. 

Hours 

Added/Hour Value 

Added 

Prod. 

Hours 

Added/Hour Value 

Added 

Prod. 

Hours 

Added/Hour 

($mill.) (mill.) $/hr. Percent 

Change 

($mill.) (mill.) $/hr. Percent 

Change 

($mill.) (mill.) $/hr Percent 

Change 

1988 19,020 114 168 19,547 80 245 39,548 152 261 

1989 20,550 109 189 12.8% 18,540 84 222 -9.6% 41,520 155 269 3.1% 

1990 22,120 115 193 2.2% 16,756 83 203 -8.3% 39,120 156 251 -6.5% 

1991 20,875 121 173 -10.6% 14,620 81 181 -10.9% 34,622 156 222 -11.6% 

1992 21,686 120 180 4.4% 16,215 79 207 14.2% 33,541 155 216 -2.8% 

1993 20,134 108 186 3.4% 15,163 81 187 -9.3% 33,469 156 215 -0.5% 

1994 18,703 101 186 -0.5% 19,009 89 213 13.4% 36,148 146 248 15.6% 

1995 19,808 100 198 6.6% 21,429 92 234 10.1% 41,191 148 279 12.4% 

1996 19,789 97 204 3.3% 18,289 81 227 -3.1% 33,979 158 215 -23.0% 

1997a 20,377 91 224 9.4% 20,710 84 248 9.2% 41,575 150 277 28.7% 

1998a 26,790 92 293 30.8% 22,162 83 266 7.5% 33,665 147 230 -17.0% 

1999a 19,203 88 219 -25.2% 21,302 84 252 -5.4% 34,780 143 244 6.2% 

2000a 15,961 94 171 -22.0% 20,582 87 236 -6.3% 34,987 138 253 3.7% 

2001a 16,694 87 191 12.2% 16,516 80 206 -12.9% 24,482 135 181 -28.4% 

2002a 16,989 86 197 2.8% 17,723 91 195 -5.3% 31,192 133 235 29.9% 

2003a 17,344 82 212 7.8% 18,745 87 215 10.2% 31,966 130 247 4.9% 

2004 a 16,992 77 222 4.6% 23,844 82 290 35.0% 42,251 122 346 40.4% 

Total 

Percent 

Change -10.7% -32.5% 32.4% 22.0% 3.1% 18.3% 6.8% -19.7% 33.0% 

1988-2004 

Average 

Annual 

Percent -0.7% -2.4% 1.8% 1.2% 0.2% 1.1% 0.4% -1.4% 1.8% 

Change 

a Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in the 

North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC 

code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2B-2.5 Capital Expenditures 

The chemicals industry is relatively capital-intensive. According to the Census’s 2001 Annual Survey of 

Manufactures, facilities in NAICS 325, which includes the entire profiled chemical SIC codes, had aggregate 

capital spending of almost $19 billion in 2001. Capital-intensive industries are characterized by large, 

technologically complex manufacturing facilities, which reflect the economies of scale required to manufacture 

products efficiently. New capital expenditures are needed to extensively modernize, expand, and replace 

existing capacity to meet growing demand. All three profiled chemical industry segments experienced substantial 

increases in capital expenditures through the 1990s. Table C2B-7 on the following page shows that capital 

expenditures in the Inorganic Chemicals segment increased, in real terms, from $1.216 billion in 1987 to $2.803 

billion in 1998. Although the following five years saw declines in capital expenditures, the Inorganic Chemicals 

segment increased capital expenditures by 14.8 percent from 1987 to 2004. The Plastics segment more than 

doubled its capital expenditures from 1987 through 1999, before significant reductions occurred in the subsequent 

two years. The Organic Chemicals segment peaked in 1996, and has seen its capital expenditures decline 

C2B-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

continuously until 2004, when expenditures increased slightly. Overall, capital expenditures in this segment 

declined by almost 33 percent from 1988 to 2004. Much of the growth in capital expenditures was driven by 

investment in capacity expansions to meet the increase in global demand for chemical products. Domestically, 

the continued substitution of synthetic materials for other basic materials and rising living standards caused 

consistent growth in the demand for chemical commodities (S&P, 2001). As the economy slowed in 2000, 

chemical industry firms curtailed capital expenditures in the face of weakening financial performance. As the 

economy picked up steam, an early 2003 survey of 19 chemical companies found that businesses sought to start 

increasing capital projects in 2003 (C&EN, 2003b). 

Year 

Inorganic Chemicals Organic Chemicals 

Capital 

Change 

Capital 

Change 

Capital 

Change 

1987 1,216 1,910 n/a 

1988 1,242 2.1% 2,378 24.5% 4,713 

1989 1,909 53.7% 2,806 18.0% 5,807 23.2% 

1990 1,826 -4.3% 3,348 19.3% 7,022 20.9% 

1991 1,827 0.1% 2,989 -10.7% 6,972 -0.7% 

1992 2,017 10.4% 2,216 -25.9% 6,174 -11.4% 

1993 1,496 -25.8% 2,443 10.3% 5,109 -17.2% 

1994 1,620 8.3% 3,150 28.9% 4,358 -14.7% 

1995 2,079 28.3% 2,829 -10.2% 5,953 36.6% 

1996 2,391 15.0% 3,325 17.6% 7,457 25.3% 

1997a 2,347 -1.9% 3,435 3.3% 6,832 -8.4% 

1998a 2,803 19.5% 3,987 16.0% 5,804 -15.0% 

1999a 2,373 -15.3% 4,286 7.5% 5,340 -8.0% 

2000a 2,320 -2.2% 2,516 -41.3% 5,129 -4.0% 

2001a 2,193 -5.5% 2,017 -19.8% 3,860 -24.7% 

2002a 1,514 -31.0% 2,225 10.3% 3,611 -6.5% 

2003a 1,210 -20.1% 1,586 -28.7% 2,981 -17.4% 

2004a 1,397 15.4% 1,882 18.7% 3,169 6.3% 

1987(8)-2004 

Growth Rate 

14.8% 

0.8% 

-1.5% 

-0.1% 

-32.8% 

-2.4% 

a 

(

. 

Source: 

Table C2B-7: Capital Expenditures for Profiled Chemical Segments (in millions, $2005) 

Plastics Material and Resins 

Expenditures 

Percent 

Expenditures 

Percent 

Expenditures 

Percent 

Total Percent Change 

Average Annual 

Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in the 

North American Industry Classification System NAICS). For this analysis, EPA converted the NAICS classification data to the SIC 

code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2B-2.6 Capacity Utilization 

Capacity utilization measures actual output as a percentage of total potential output given the available 

capacity. Capacity utilization reflects excess or insufficient capacity in an industry and is an indication of whether 

new investment is likely. To take advantage of economies of scale, chemical commodities are typically produced 

in large facilities. Capacity additions in this industry are often made on a relatively large scale and can 

substantially affect the industry’s capacity utilization rates. Figure C2B-4 presents the capacity utilization index 

from 1989 to 2004 for specific 4-digit SIC codes within each of the profiled segments in the chemicals industry. 

Capacity utilization in the Organic Chemicals segment remained the most stable through this time period with 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-15 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

only moderate fluctuations between 1989 and 1999, followed by decreased utilization rates in 2000 and 2001, 

before rebounding in 2002. Plastics Material and Resins capacity utilization showed a downward trend, as the 

production of many commodity resins shifted overseas. U.S. producers responded by emphasizing the 

manufacture of specialty and higher-value-added products and by rationalizing capacity to improve profitability 

(McGraw-Hill, 2000). 

Overall, the Inorganic Chemicals segment demonstrated the most volatility in capacity utilization between 1989 

and 2002. The chlor-alkali industry (SIC code 2812) experienced an almost consistent decline in capacity 

utilization since its high of 96 percent from 1992 through 1994. This decrease reflects the enactment of treaties 

and legislation designed to reduce the emission of chlorinated compounds into the environment. These 

regulations decreased the demand for chlorine, which, together with caustic soda, accounts for more than 75 

percent of production by this segment. The significant increase in capacity utilization in the industrial gases 

segment (SIC code 2813) in the mid 1990s reflects the expansion of key intermediate purchasers of chemical 

commodities such as the primary metals and electronics industries. As these markets and the economy in general 

started to slow, utilization rates declined as well. Similarly, capacity utilization in the pigments and other 

inorganic chemicals segments (SIC codes 2816 and 2819) remained relatively stable between 1989 and 1998, 

before dropping in the early 2000s. Capacity utilization in the inorganic pigments industry increased significantly 

in 2002 before declining again over 2003 to 2004; no such rebound is evident in the industrial inorganic 

chemicals segment, where capacity utilization has been declining each year since 1998. The stability in these 

segments through 1999 reflects the fact that these are essentially mature markets where the demand for products 

tends to track growth in gross domestic product (GDP) (McGraw-Hill 2000). As the economy continued its 

sluggish performance in the early 2000s, utilization within this segment dampened, as demand for product 

decreased. 

C2B-16 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

60 

65 

70 

75 

80 

85 

90 

95 

1989199019911992199319941995199619971998199920002001200220032004 

(

 ( ) 

(

 (

 ( ) 

(

 ( ) 

60 

65 

70 

75 

80 

85 

90 

95 

100 

1989199019911992199319941995199619971998199920002001200220032004 

(

(

Figure C2B-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Chemical Segments 

100 

A lka lie s a n d C hlo rine N A IC S to 

S IC ) 

A lka lie s a n d C hlo rine S IC 2812 

Ino rga nic P igm e nts N A IC S to 

S IC ) 

Ino rga nic P igm e nts S IC 2816) 

In d u s tria l G a s e s N A IC S to S IC 

Indus tria l G a s e s S IC 2813) 

Indus tria l In o rga nic C he m ic a ls , 

N EC (NAIC S to S IC ) 

Indus tria l In o rga nic C he m ic a ls , 

N EC S IC 2819

P last ics Mat erial and Resins 

NAICS t o SIC) 

P last ics Mat erial and Resins 

SIC 2821) 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-17 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Figure C2B-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Chemical Segments 

100 

95 

90 

85 

80 

75 

70 

65 

60 

Cy clic Organ ic Crudes an d 

Interm ediates (NAICS to 

SIC) 

Cy clic Organ ic Crudes an d 

Int erm ediat es (SIC 2865) 

Indust rial Organic Chem icals, 

NEC (NAICS t o SIC) 

Indust rial Organic Chem icals, 

NEC (SIC 2869) 

1989199019911992199319941995199619971998199920002001200220032004

Source: U.S. DOC, 1989-2004. 

a Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

C2B-3 STRUCTURE AND COMPETITIVENESS 

The chemicals industry continues to restructure and reduce costs in response to competitive challenges, including 

global oversupply for commodities. In the early 1990s, the chemical industry’s cost cutting came largely from 

restructuring and downsizing. The industry has taken steps to improve productivity, and consolidated to cut costs. 

Companies seeking growth within these relatively mature industry segments have made acquisitions to achieve 

production or marketing efficiencies. The Plastics Material and Resins segment, for example, experienced sizable 

consolidations in the late 1990s into 2000 (S&P, 2001). 

C2B-3.1 Firm Size 

The Small Business Administration (SBA) defines small firms in the chemical industries according to the firm’s 

number of employees. Firms in the Inorganic Chemicals segment (SIC codes 2812, 2813, 2816, 2819) and in 

Industrial Organic Chemicals, NEC (SIC code 2869) are defined as small if they have 1,000 or fewer employees; 

firms in Plastics Material and Resins (SIC 2821) and Cyclic Organic Crudes and Intermediates (SIC code 2865) 

are defined as small if they have 750 or fewer employees. The size categories reported in the Statistics of U.S. 

Businesses (SUSB) do not correspond with the SBA size classifications, therefore preventing precise use of the 

SBA size threshold in conjunction with SUSB data. 

The SUSB data presented in Table C2B-8 show that in 2003, 474 of 592 firms in the Inorganic Chemicals 

segment had less than 500 employees. Therefore, at least 80 percent of firms in this segment were classified as 

small. These small firms owned 555 facilities, or 45 percent of all facilities in the segment. In the Plastics and 

Resins Industry segment, 455 of 554 firms, or 82 percent, had less than 500 employees in 2003. These small 

firms owned 493 of 802 facilities (61 percent) in the segment. In the Organic Chemicals segment, 76 percent of 

firms (546 of 717) had fewer than 500 employees, owning 55 percent of all facilities in that segment. 

C2B-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
0-19 

§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-8 below shows the distribution of firms, facilities, and receipts in the Inorganic Chemicals, Plastics 

Material and Resins, and Organic Chemicals segments by the employment size of the parent firm. 

Table C2B-8: Number of Firms and Facilities by Firm Size Category for Profiled 

Chemical Segments, 2003a 

Inorganic Chemicals Plastics Material and Resins Organic Chemicals Employment 

Number of Number of Number of Number of Number of Number of Size Category 

Firms Facilities Firms Facilities Firms Facilities 

261 261 228 230 289 291 

20-99 143 171 171 176 174 184 

100-499 70 123 56 87 83 117 

500+ 118 672 99 309 172 483 

Total 592 1,227 554 802 717 1,074 

a Before 1998, the Department of Commerce compiled data in the SIC system; since 1997, these data have been 

compiled in the North American Industry Classification System (NAICS). For this analysis, EPA converted the 

NAICS classification data to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS 

and SIC. 

Source: U.S. SBA, 1989-2003. 

C2B-3.2 Concentration Ratios 

Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is 

closely related to entry barriers with more concentrated industries generally having higher barriers. 

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common 

measures of industry concentration. The CR4 indicates the market share of the four largest firms. For example, a 

CR4 of 72 percent means that the four largest firms in the industry account for 72 percent of the industry’s total 

value of shipments. The higher the concentration ratio, the less competition there is in the industry, other things 

being equal3

. An industry with a CR4 of more than 50 percent is generally considered concentrated. The HHI 

indicates concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the 

market shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with 

market shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (602 + 302 

+ 102). The higher the index, the fewer the number of firms supplying the industry and the more concentrated the 

industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets in which the HHI 

is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 1800 are considered 

to be moderately concentrated, and those in which the HHI is in excess of 1800 are considered to be concentrated. 

Of the profiled chemicals and allied products segments, as shown in Table C2B-9, only Alkalies and Chlorine 

(SIC 2812), Industrial Gases (SIC 2813), Inorganic Pigments (SIC 2816), and Cyclic Crudes and Intermediates 

(SIC 2865) would be considered concentrated based on their CR4 and HHI values. In contrast, Industrial 

Inorganic Chemicals, NEC (SIC 2819), Plastics Material and Resins (SIC 2821), and Industrial Organic 

Chemicals, NEC (SIC 2869) would be considered competitive. The diversity of products in some of the profiled 

segments, however, makes generalizations about concentration less reliable than in industries with a more limited 

The measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a 

high concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with 

foreign producers or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage 

containers). Concentration ratios based on share of domestic production are therefore only one indicator of the extent of 

competition in an industry. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

product slate. That is, within a single SIC code, the numbers of producers may vary substantially by individual 

product – firms may possess relatively high market power in products with a smaller number of competing 

producers even though the total SIC code would appear to have a relatively low concentration. On the basis of 

concentration information, some industry segments would therefore appear to be moderately concentrated; 

accordingly, firms in these segments might possess a moderate degree of market power and thus the ability to pass 

compliance costs through to customers as price increases. However, as discussed above and more specifically in 

the following section, competition from foreign producers in both domestic and export markets, increasingly 

restrains any discretionary pricing power of U.S. firms in the profiled industry segments. 

Table C2B-9: Selected Ratios for SIC and NAICS Codes Within The Profiled Chemical Segments in 

1987, 1992, and 1997a 

Concentration Ratios 

SIC (S) or Year 20 Firm 50 Firm 4 Firm (CR4) 8 Firm (CR8) (CR20) (CR50) 

Inorganic Chemicals 

S 2812 

1987 

1992 

72% 

75% 

93% 

90% 

99% 

99% 

100% 

100% 

2,328 

1,994 

N 325181 1997 80% 92% 100% 100% 2,870 

S 2813 

1987 

1992 

77% 

78% 

88% 

91% 

95% 

96% 

98% 

99% 

1,538 

1,629 

1997 64% 85% 96% 99% 1,225 

S 2816 

1987 

1992 

64% 

69% 

76% 

79% 

94% 

93% 

99% 

99% 

1,550 

1,910 

N 325131b 1997 67% 79% 95% 100% 1,848 

S 2819 

1987 

1992 

38% 

39% 

49% 

50% 

68% 

68% 

84% 

85% 

468 

677 

N 325188c 1997 31% 42% 63% 82% 394 

NAICS (N) Code HerfindahlHirschman Index 

N 325120 

Plastics Material and Resins 

1987 20% 33% 61% 89% 248

S 2821 

1992 24% 39% 63% 90% 284 

N 325211 1997 26% 39% 64% 89% 304

Organic Chemicals 

S 2865 

1987 

1992 

34% 

31% 

50% 

45% 

77% 

72% 

96% 

94% 

542 

428 

N 325132c 1997 42% 59% 83% 97% 700 

N 325192d 1997 62% 79% 98% 100% 1701 

S 2869 

1987 

1992 

31% 

29% 

48% 

43% 

68% 

67% 

86% 

86% 

376 

336 

N 325199b 1997 25% 38% 57% 80% 256 

a The 1997 Census of Manufactures is the most recent concentration ratio data available. 

b NAICS code represents largest percentage of facilities and value of shipments within this SIC based on 1997 Bridge Between SIC 

and NAICS 

NAICS code represents largest percentage of facilities within this SIC based on 1997 Bridge Between SIC and NAICS 

d NAICS code represents largest percentage of value of shipments within this SIC based on 1997 Bridge Between SIC and NAICS 

Source: U.S. DOC, 1987, 1992, 1997, and 2002. 

C2B-20 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 

c 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

C2B-3.3 Foreign Trade 

The chemicals industry is the largest exporter in the United States. The industry generates more than 10 percent 

of the nation’s total exports, and overseas sales constitute a growing share of U.S. chemical company revenues. 

The major U.S. producers still derive 50 percent or more of their revenue from domestic sales, however (S&P, 

2001). 

This profile uses two measures of foreign competition: export dependence and import penetration. 

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic 

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that 

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests 

that higher import penetration levels will reduce market power and pricing discretion because foreign competition 

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for 

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The 

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with 

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be 

less likely to succeed in passing compliance costs through to customers. 

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales 

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not 

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing 

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated 

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the 

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to 

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through 

price increases since export sales are presumed subject to substantial competition from foreign producers. 

Table C2B-10 presents trade statistics for each of the profiled chemical segments. Both export dependence and 

import penetration experienced increases in each of these segments between 1989 and 2001. 

Globalization of markets has become a key factor in the Inorganic Chemicals segment, with both import 

penetration and export dependence growing substantially over the 14-year analysis period. During this period, 

imports rose by just over 6 percent, while exports climbed 0.4 percent. The greater growth in imports underscores 

the increasing competition from foreign producers in domestic markets. 

Increased globalization has also affected the Plastics Material and Resins segment. Imports and exports of 

plastics and resins have increased significantly over the time period, reflecting the continued growth in the global 

market. Of the three profiled chemical segments, this segment has shown the largest overall increases in values of 

imports and exports with total growth of 174 percent and 67 percent, respectively, from 1989 through 2002. 

Import penetration grew more quickly than export dependence in this segment due to declining export 

opportunities and increased competition from new foreign capacity. The United States remained a net exporter of 

plastics and resins, despite these trends. The market for organic chemicals, particularly petrochemicals, has 

become increasingly competitive. Significant capacity expansions for petrochemicals worldwide increased 

competition in domestic markets from imports and began to limit export opportunities for U.S. producers. 

Through 1999, the segment still exported more than it imported. This balance recently changed though as imports 

exceeded exports during 2000 through 2002. From 1989 through 2002, imports in this segment grew by 161 

percent, while export growth was at 39 percent. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-21 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

In 2002, the Inorganic Chemicals segment’s import penetration ratio was 24.7 percent, while the Organic 

Chemicals segment’s import penetration ratio was slightly higher at 24.8 percent. Both segments likely face 

strong competition from foreign firms in U.S. markets. The Plastics Material and Resins segment had an import 

penetration ratio of 14.0 percent in 2002, suggesting this segment does not presently face strong competition from 

foreign firms’ presence in U.S. markets. However, the import penetration ratio nearly doubled in the decade from 

1991 to 2001, which could indicate that foreign firms have begun aggressive pursuit of these U.S. markets. In 

2002, the export dependence ratio was 26 percent for the Inorganic Chemicals segment, 26 percent for the Plastics 

Material and Resins segment, and 23 percent for the Organic Chemicals segment. All three segments likely face 

significant competitive pressure in retaining these positions in export markets. Given these levels of exposure to 

competition from foreign firms in domestic and export markets, the profiled chemicals industry segments likely 

have little discretionary power to recover compliance costs through price increases. 

Recent trends in international chemicals markets imply that U.S. producers will continue to face strong 

competition from foreign producers. The industry’s trade balance declined in 2000, due to increased imports 

from Western Europe, encouraged by the strong U.S. dollar relative to the Euro, and growth in the petrochemical 

industry in the Middle East. Declines in the dollar relative to the Euro improved export performance somewhat, 

but decline in the global economy resulted in mixed trade performance in 2001 (Chemical Market Reporter, 

2001). In 2002, the chemical industry’s traditional trade surplus reversed, reaching a deficit of around $4 billion 

(C&EN, 2003a). After nine months of 2003, the deficit had ballooned to $7.7 billion (C&EN, 2003c). 

C2B-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-10: Trade Statistics for Profiled Chemical Segments 

Year (millions, $2005) (millions, $2005) 

Value of 

(millions, $2005) 

Implied 

Domestic a b 

Export c 

1989 6,035 6,852 30,090 29,274 20.6% 22.8% 

1990 5,941 6,405 32,270 31,806 18.7% 19.8% 

1991 5,687 6,625 31,294 30,357 18.7% 21.2% 

1992 5,407 6,658 31,214 29,963 18.0% 21.3% 

1993 5,123 6,117 29,255 28,262 18.1% 20.9% 

1994 5,846 6,477 26,924 26,293 22.2% 24.1% 

1995 6,825 7,520 28,538 27,843 24.5% 26.3% 

1996 7,466 7,613 28,993 28,846 25.9% 26.3% 

1997d

 6,166 7,326 29,817 28,658 21.5% 24.6% 

1998d 6,188 6,493 36,250 35,946 17.2% 17.9% 

1999d

 6,167 6,178 28,705 28,694 21.5% 21.5% 

2000d

 7,035 7,065 26,186 26,157 26.9% 27.0% 

2001d

 6,750 7,196 25,510 25,063 26.9% 28.2% 

2002d

 6,407 6,882 26,423 25,948 24.7% 26.0% 

1989-2002 

Growth Rate 

6.2% 

0.5% 

0.4% 

0.0% 

-12.2% 

-1.0% 

-11.4% 

-0.9% 

19.8% 

1.4% 

14.4% 

1.0% 

1989 2,216 7,878 47,461 41,800 5.3% 16.6% 

1990 2,488 8,605 43,040 36,924 6.7% 20.0% 

1991 2,356 9,802 39,252 31,807 7.4% 25.0% 

1992 2,676 9,094 40,626 34,208 7.8% 22.4% 

1993 3,194 9,109 40,015 34,100 9.4% 22.8% 

1994 4,074 10,467 46,336 39,943 10.2% 22.6% 

1995 4,971 12,582 52,889 45,278 11.0% 23.8% 

1996 4,988 12,646 47,897 40,239 12.4% 26.4% 

1997d

 5,163 12,759 53,139 45,543 11.3% 24.0% 

1998d

 5,250 11,940 52,327 45,637 11.5% 22.8% 

1999d

 5,528 11,957 53,300 46,871 11.8% 22.4% 

2000d

 6,462 13,892 58,537 51,106 12.6% 23.7% 

2001d

 6,143 13,004 50,770 43,910 14.0% 25.6% 

2002d

 6,071 13,121 50,407 43,358 14.0% 26.0% 

1989-2002 

Growth Rate 

173.9% 

8.1% 

66.6% 

4.0% 

6.2% 

0.5% 

3.7% 

0.3% 

164.1% 

7.8% 

56.8% 

3.5% 

Value of imports Value of exports shipments 

Consumption 

Import 

Penetration Dependence 

Inorganic Chemicals, Except Pigments 

Total Percent Change 

Average Annual 

Plastics Material and Resins 

Total Percent Change 

Average Annual 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-23 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

c 

Year (millions, $2005) (millions, $2005) 

Value of 

(millions, $2005) 

Implied 

Domestic a b 

Export c 

1989 8,300 14,134 93,226 87,392 9.5% 15.2% 

1990 8,619 13,452 89,380 84,546 10.2% 15.1% 

1991 8,742 13,445 84,596 79,894 10.9% 15.9% 

1992 9,400 13,083 82,834 79,151 11.9% 15.8% 

1993 9,300 13,258 80,601 76,643 12.1% 16.4% 

1994 10,751 15,386 85,959 81,325 13.2% 17.9% 

1995 12,862 19,011 92,397 86,247 14.9% 20.6% 

1996 13,779 16,956 89,426 86,249 16.0% 19.0% 

1997d 18,370 21,306 97,285 94,349 19.5% 21.9% 

1998d 17,702 19,269 81,847 80,281 22.1% 23.5% 

1999d 19,153 20,040 87,599 86,711 22.1% 22.9% 

2000d 23,504 22,517 97,856 98,843 23.8% 23.0% 

2001d 21,988 20,189 83,041 84,840 25.9% 24.3% 

2002d 21,653 19,641 85,421 87,434 24.8% 23.0% 

1989-2002 

Growth Rate 

160.9% 

7.7% 

39.0% 

2.6% 

-8.4% 

-0.7% 

0.0% 

0.0% 

160.8% 

7.7% 

51.7% 

3.3% 

a 

b 

d 

Source: 

Table C2B-10: Trade Statistics for Profiled Chemical Segments 

Value of imports Value of exports shipments 

Consumption 

Import 

Penetration Dependence 

Organic Chemicals, Except Gum & Wood 

Total Percent Change 

Average Annual 

Calculated by EPA as shipments + imports - exports. 

Calculated by EPA as imports divided by implied domestic consumption. 

Calculated by EPA as exports divided by shipments. 

Before 1997, data were compiled in the SIC system; since 1997, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. DOC, 2006; U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2B-24 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

0 

19891990199119921993199419951996199719981999200020012002 

( ) 

(

( ) 

(

0 

19891990199119921993199419951996199719981999200020012002 

( ) 

( ) 

) 

) 

Figure C2B-5: Value of Imports and Exports for Profiled Chemicals Industry Segments 

2,500 

5,000 

7,500 

10,000 

Exports NAICS to SIC

Exports SIC 2812, 2813, 

2819) 

Imports NAICS to SIC

Imports SIC 2812, 2813, 

2819) 

2,500 

5,000 

7,500 

10,000 

12,500 

15,000 

Exports NAICS to SIC

Exports SIC 2821

Imports (NAICS to SIC

Imports (SIC 2821

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-25 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Figure C2B-5: Value of Imports and Exports for Profiled Chemicals Industry Segments 

25 ,0 00 

22 ,5 00 

20 ,0 00 

17 ,5 00 

15 ,0 00 

12 ,5 00 

10 ,0 00 

7,50 0 

5,00 0 

2,50 0 

0 

Exp ort s (NAICS t o SIC) 

Expo rt s (2 8 65, 28 69) 

Im p ort s (NAICS t o SIC) 

Im po rt s (SIC 28 65, 28 69) 

19891990199119921993199419951996199719981999200020012002

Source: U.S. DOC, 2006. 

a Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

C2B-4 FINANCIAL CONDITION AND PERFORMANCE 

The financial performance and condition of the chemical industry are important determinants of its ability to 

withstand the costs of regulatory compliance without material, adverse economic/financial impact. To provide 

insight into the industry’s financial performance and condition, EPA reviewed two key measures of financial 

performance over the 14-year period, 1992-2005: net profit margin and return on total capital. EPA calculated 

these measures as a revenue-weighted index of measure values for public reporting firms in the respective 

industries, using data from the Value Line Investment Survey. Financial performance in the most recent financial 

reporting period (2005) is obviously not a perfect indicator of conditions at the time of regulatory compliance. 

However, examining the trend, and deviation from the trend, through the most recent reporting period gives 

insight into where the industry may be, in terms of financial performance and condition, at the time of 

compliance. In addition, the volatility of performance against the trend, in itself, provides a measure of the 

potential risk faced by the industry in a future period in which compliance requirements are faced: all else equal, 

the more volatile the historical performance, the more likely the industry may be in a period of relatively weak 

financial conditions at the time of compliance. 

Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales 

or revenues, and measures profitability, as reflected in the conventional accounting concept of net income. Over 

time, the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the 

industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from 

several factors, including: variations in aggregate economic conditions (including international and U.S. 

conditions), variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in 

overcapacity), or changes in the pricing and availability of inputs to the industry’s production processes (e.g., the 

cost of energy to the chemical process). The extent to which these fluctuations affect an industry’s profitability, 

C2B-26 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

in turn, depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a capital intensive 

industry such as the chemical and allied products industry, the relatively high fixed capital costs as well as other 

fixed overhead outlays, can cause even small fluctuations in output or prices to have a large positive or negative 

affect on profit margin. 

Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by 

the total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of 

the capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or 

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets 

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the 

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate 

over time a sufficient return on capital if the industry is to remain economically viable and attract capital. The 

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in 

return on total capital. 

Figure C2B-6 presents net profit margin and return on total capital for public-reporting firms in two chemical 

industry segments – (1) Industrial Chemicals and (2) Plastics and Synthetic Fibers – for the 14-year period, 1992 

and 2005. The Industrial Chemicals segment corresponds approximately to the Organic Chemicals and Inorganic 

Chemicals profiled industry segments; the Plastics and Synthetic Fibers segment corresponds approximately to 

the Plastics Material and Resins profiled industry segment. The financial performance information reported in 

Figure C2B-6 confirms the trends and performance discussed above in this section. 

As shown in Figure C2B-6, the Industrial Chemicals (Organic Chemicals and Inorganic Chemicals) segment has 

seen moderate volatility of financial performance over the analysis period. Return on total capital moved off a 

post-recession low near 10 percent in 1992 to achieve levels in excess of 20 percent during 1995-1997. Recovery 

of demand accompanied by industry restructuring and downsizing accounted for the upturn in performance. 

During the latter part of the decade, though, increased competition from foreign producers and demand weakness 

in Asian markets eroded this performance. As a result, return on capital fell below 15 percent in 1998, and 

remained at this lower level through 2000. In 2001, a series of factors – high energy and raw material prices at 

the start of the year, overcapacity, the terrorist attacks, and slowing U.S. and global economies at the end of the 

year – led to a further sharp decline in return on capital performance of approximately 8 percent. Starting in 2002, 

however, return on total capital has shown steady improvement, increasing to more than 15 percent by 2005. Net 

profit margin shows a similar, though less volatile, trend, with declines in 2000 through 2001, followed by steady 

improvement between 2002 and 2005. In 2005, net profit margin reached the highest values observed during the 

entire 1992 to 2005 time period. 

The same factors largely influenced performance in the Plastics and Synthetic Fibers (Plastics Material and 

Resins) segment over the 14-year period. Performance in this segment followed a similar, but less volatile, 

pattern to that of the Industrial Chemicals segment. Return on total capital rose from a low near 10 percent in 

1993 to a period high of 15 percent in 1995. Since then, performance trended down to reach a period low of 

approximately 9 percent in 2001. This segment achieved steady, though moderate improvement during 2002 to 

2005. Net profit margin again shows a similar, though less volatile, trend compared to return on capital. 

Overall, the profiled segments of the chemical industry remain at weaker levels of financial performance than 

achieved during the mid 1990s but appear to be recovering from the sharp weakness of 2001-2002. Continued 

recovery in 2006 and beyond suggests improved ability to withstand additional regulatory compliance costs 

without imposing significant financial impacts. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-27 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

0% 

5% 

10% 

15% 

20% 

25% 

19921993199419951996199719981999200020012002200320042005 

-

-

0% 

5% 

10% 

15% 

20% 

19921993199419951996199719981999200020012002200320042005 

-

-

Source: 

C2B-5 FACILITIES OPERATING COOLING WATER INTAKE S

4 

. nd in 

Figure C2B-6: Net Profit Margin and Return in Total Capital for the Chemical Industry 

Industrial Chemicals (Organic and Inorganic) 

Return on Total Capital

Industrial Chemicals 

Net Profit M argin

Industrial Chemicals 

Plastics and Synthetic Fibers 

Return on Total Cap ital

Plastics and Synthetic 

Fibers 

Net Profit M argin

Plastics and Synthetic 

Fibers 

Value Line, 2003; Value Line, 2006. 

TRUCTURES 

Section 316(b) of the Clean Water Act applies to point source facilities that use or propose to use a cooling water 

intake structure that withdraws cooling water directly from a surface waterbody of the United States. In 1982, the 

chemical and allied products industry withdrew 2,797 billion gallons of cooling water, accounting for 

approximately 3.6 percent of total industrial cooling water intake in the United States The industry ranked 2

industrial cooling water use behind the electric power generation industry (1982 Census of Manufactures). 

Data on cooling water use are from the 1982 Census of Manufactures. 1982 was the last year in which the Census of 

Manufactures reported cooling water use. 

C2B-28 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 

4 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

This section provides information for facilities in the profiled chemical and allied products segments estimated to 

be subject to regulation under the regulatory analysis options. Existing facilities that meet all of the following 

conditions could have been subject to regulation under the three regulatory analysis options: 

f Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract or 

arrangement with an independent supplier who has a cooling water intake structure; or their cooling water 

intake structure(s) withdraw(s) cooling water from waters of the United States, and at least twenty-five 

(25) percent of the water withdrawn is used for contact or non-contact cooling purposes; 

f Have a National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one; 

and 

f Meet the applicability criteria for the specific regulatory analysis option in terms of design intake flow 

and source waterbody type (i.e., 50 MGD for All Waterbodies, 100 MGD for Certain Waterbodies, or 200 

MGD for All Waterbodies). 

The regulatory analysis options also cover substantial additions or modifications to operations undertaken at such 

facilities. Although EPA initially identified the set of facilities that were estimated to be potentially subject to the 

Phase III regulation based on a minimum applicability threshold of 2 MGD, this section focuses on the facilities 

nationwide in the profiled chemical and allied products segments that are estimated to be subject to regulation 

under the DIF applicability thresholds defined by the regulatory analysis options (see Table C2B-1, above for 

additional information on the broader set of facilities potentially subject to Phase III regulation).5 

C2B-5.1 Waterbody and Cooling System Type 

Table C2B-11 show the distribution of Phase III facilities in the profiled chemical segments by type of waterbody 

and cooling system for each analysis option. The tables show that most of the Phase III facilities either have a 

once-through system or employ a combination of a once through and a recirculating system. The majority of 

existing facilities draw water from a freshwater stream or river. 

EPA applied sample weights to the sampled facilities to account for non-sampled facilities and facilities that did not 

respond to the survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information 

Collection Request (U.S. EPA, 2000). 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-29 

5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-11: Number of Facilities Estimated Subject to the 50 MGD All Option by Waterbody Type 

and Cooling System for the Profiled Chemical Segments 

Waterbody Type Recirculating 

No. % of Total 

Combination 

No. % of Total 

Once-Through 

No. % of Total No. 

Other 

% of Total 

Total 

Inorganic Chemicals 

/

Ocean 

0 

0 

0 

0 

0% 

0% 

0% 

0% 

4 

0 

0 

0 

100% 

0% 

0% 

0% 

1 

7 

4 

4 

7% 

40% 

26% 

27% 

0 

0 

4 

0 

0% 

0% 

100% 

0% 

5 

7 

9 

4 

Totala 0 0% 4 17% 16 66% 4 17% 25 

0 0% 9 84% 0 0% 0 0% 9 

0 0% 2 16% 0 0% 0 0% 2 

Totala 0 0% 10 100% 0 0% 0 0% 10 

Organic Chemicals 

0 0% 0 0% 9 100% 9 100% 18 

Totala 0 0% 0 0% 9 51% 9 41% 18 

/ 

Ocean 

0 

0 

0 

0 

0 

0% 

0% 

0% 

0% 

0% 

4 

9 

0 

2 

0 

30% 

59% 

0% 

11% 

0% 

1 

16 

4 

0 

4 

5% 

61% 

17% 

0% 

17% 

0 

9 

4 

0 

0 

0% 

67% 

33 

0% 

0% 

5 

33 

9 

2 

4 

Totala 0 15 25 13 53 

a

Source: 

Combination Other 

Total 

No. No. No. No. 

Inorganic Chemicals 

/ 0 0% 0 0% 1 50% 0 0% 1 

0 0% 0 0% 1 50% 0 0% 1 

Totala 0 0% 0 0% 2 100% 0 0% 2 

Totala 0 0% 0 0% 0 0% 0 0% 

Organic Chemicals 

/ 0 

0 

0% 

0% 

0 

0 

0% 

0% 

1 

2 

20% 

80% 

0 

0 

0% 

0% 

1 

2 

Totala 0 0% 0 0% 3 100% 0 0% 3 

/ 0 0% 0 0% 2 33% 0 0% 2 

0 0% 0 0% 3 67% 0 0% 3 

Totala 0 0 5 0 5 

a

Source: 

C2B-30 

0 

Estuary Tidal River 

Freshwater River/ Stream 

Great Lake 

Plastics Material and Resins 

Freshwater River/ Stream 

Lake/ Reservoir 

Freshwater River/ Stream 

Total Profiled Chemicals Industries 

Estuary Tidal River 

Freshwater River/ Stream 

Great Lake 

Lake/ Reservoir 

0% 28% 48% 25%

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Table C2B-12: Number of Facilities Estimated Subject to the 200 MGD All Option by Waterbody Type 

and Cooling System for the Profiled Chemical Segments 

Recirculating Once-Through Waterbody Type 

% of Total % of Total % of Total % of Total 

Estuary Tidal River 

Freshwater River/ Stream 

Plastics Material and Resins 

Estuary Tidal River 

Freshwater River/ Stream 

Total Profiled Chemicals Industries 

Estuary Tidal River 

Freshwater River/ Stream 

0% 0% 100% 0%

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-13: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Waterbody Type 

and Cooling System for the Profiled Chemical Segments 

Recirculating Combination Once-Through Other 

Waterbody Type Total 

No. % of Total No. % of Total No. % of Total No. % of Total 

Inorganic Chemicals 

Estuary/ Tidal River 0 0% 40 100% 1 15% 0 0% 5 

Freshwater River/ Stream 0 0% 0% 7 85% 0 0% 7 

Totala 0 0% 0 36% 9 64% 0 0% 12 

Plastics Material and Resins 

Freshwater River/ Stream 0 0% 4 100% 0 0% 0 0% 4 

Totala 0 0% 4 100% 0 0% 0 0% 4 

Organic Chemicals 

Estuary/ Tidal River 0 0% 0 0% 1 7% 0 0% 1 

Freshwater River/ Stream 0 0% 0 0% 8 93% 0 0% 8 

Totala 0 0% 0 0% 9 100% 0 0% 9 

Total Profiled Chemicals Industries 

Estuary/ Tidal River 0 0% 4 50% 2 11% 0 0% 6 

Freshwater River/ Stream 0 0% 4 50% 14 89% 0 0% 19 

Totala 0 0% 9 35% 16 65% 0 0% 25 

a

 Individual numbers may not add up to total due to independent rounding. 

Source: U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2B-5.2 Facility Size 

The facilities in the Inorganic Chemicals, Plastics Materials and Resins and Organic Chemicals segments that are 

estimated subject to regulation under each analysis option are relatively large, with the vast majority of facilities 

employing more than 100 employees. Figure C2B-7 show the number of facilities in the profiled chemical 

segments by employment size category for each analysis option. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-31 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

4 

00 

4 

00 

1 

00 

13 

4 

5 

2 

6 

12 

0 

2 

4 

6 

8 

10 

12 

14 

i (

Pl i (

i i ls (

Source: 

0 0 0 0 0 0 0 0 0 0 0 0 

2 

0 

3 

0 

1 

1 

2 

2 

3 

3 

<100 >=1000 

(

i (

 (

Source: 

Figure C2B-7: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment 

Size for Profiled Chemicals Industry Segments 

<100 100-249 250-499 500-999 >=1000 

Inorganic Chemcals SIC 2812, 

2813, 2816, 2819) 

ast cs SIC 2821) 

Organ c Chemca SIC 2865, 

2869) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Figure C2B-8: Number of Facilities Estimated Subject to the 200 MGD All Option by Employment 

Size for Profiled Chemicals Industry Segments 

100-249 250-499 500-999 

Inorganic Chemicals SIC 2812, 

2813, 2816, 2819) 

Plast cs SIC 2821) 

Organic Chemicals SIC 2865, 2869) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2B-32 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

0 0 0 0 0 0 

1 

00 

9 

4 

5 

2 

0 

3 

0 

1 

2 

3 

4 

5 

6 

7 

8 

9 

<100 >=1000 

(

i (

 (

Source: 

Figure C2B-9: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Employment Size for Profiled Chemicals Industry Segments 

100-249 250-499 500-999 

Inorganic Chemicals SIC 2812, 

2813, 2816, 2819) 

Plast cs SIC 2821) 

Organic Chemicals SIC 2865, 2869) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2B-5.3 Firm Size 

EPA used the Small Business Administration (SBA) small entity size standards to determine the number of 

facilities in the three profiled chemical segments that are owned by small firms. Firms in the Inorganic Chemicals 

segment (SIC codes 2812, 2813, 2816, 2819) and in Industrial Organic Chemicals, NEC (SIC code 2869) are 

defined as small if they have 1,000 or fewer employees; firms in Plastics Material and Resins (SIC 2821) and 

Cyclic Organic Crudes and Intermediates (SIC code 2865) are defined as small if they have 750 or fewer 

employees. 

As shown in Table C2B-14Table C2B-16, Table C2B-15, and Table C2B-16, large firms own all of the facilities 

estimated subject to the Phase III final regulation in this industry, regardless of the option. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-33 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-14: Number of Facilities Estimated Subject to the 50 MGD All Option by 

Firm Size for Profiled Chemical Segments 

SIC Code Total Large Small 

No. % of SIC No. % of SIC 

Inorganic Chemicals 

2812 15 100% 0 0% 15 

2813 4 100% 0 0% 4 

2816 0 0% 0 0% 0 

2819 5 100% 0 0% 5 

Total 25 100% 0 0% 25 

Plastics Material and Resins 

2821 10 100% 0 0% 10 

Organic Chemicals 

2865 4 100% 0 0% 4 

2869 13 100% 0 0% 13 

Total 18 100% 0 0% 18 

Total for Profiled Chemical Facilities 

Total 53 100% 0 0% 53 

Source: U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

Table C2B-15: Number of Facilities Estimated Subject to the 200 MGD All Option by 

Firm Size for Profiled Chemical Segments 

SIC Code Total Large Small 

No. % of SIC No. % of SIC 

Inorganic Chemicals 

2812 2 100% 0 0% 2 

2813 0 0% 0 0% 0 

2816 0 0% 0 0% 0 

2819 0 0% 0 0% 0 

Total 2 100% 0 0% 2 

Plastics Material and Resins 

2821 0 0% 0 0% 0 

Organic Chemicals 

2865 0 0 0 0% 0 

2869 3 100% 0 0% 3 

Total 3 100% 0 0% 3 

Total for Profiled Chemical Facilities 

Total 5 100% 0 0% 5 

Source: U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

C2B-34 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

Table C2B-16: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Firm Size for Profiled Chemical Segments 

Large Small 

SIC Code 

No. No. 

Total 

% of SIC % of SIC 

Inorganic Chemicals 

2812 11 100% 0 0% 11 

2813 0 0% 0 0% 0 

2816 0 0% 0 0% 0 

2819 1 100% 0 0% 1 

Total 12 100% 0 0% 12 

Plastics Material and Resins 

2821 4 100% 0 0% 4 

Organic Chemicals 

2865 4 100% 0 0% 4 

2869 4 100% 0 0% 4 

Total 8 100% 0 0% 8 

Total for Profiled Chemical Facilities 

Total 24 100% 0 0% 24 

Source: U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-35 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

REFERENCES 

Bureau of Labor Statistics (BLS). 2006. Producer Price Index. Industry Data Series: PDU2812#-Alkalies and 

Chlorine; PDU2813#-Industrial Gases; PDU2816#-Inorganic Pigments; PDU2819#-Industrial Inorganic 

Chemicals n.e.c., PDU2821#-Plastic Materials and Resins; PDU2865#-Cyclic Crudes and Intermediates; 

PDU2869#-Industrial Organic Chemicals, n.e.c.; PCU325131- Inorganic Dye and Pigment Manufacturing; 

PCU32512- Industrial Gas Mfg; PCU325181- Alkalies and Chlorine; PCU325188- All Other Basic Inorganic 

Chemical Manufacturing. Available at: http://www.bls.gov/ppi/home.htm. Downloaded March 7, 2006. 

Chemical & Engineering News (C&EN). 2003a. “Chemicals finally showed some signs of life in 2002; this year 

should be better.” pp. 16-18. January 13, 2003. 

Chemical & Engineering News (C&EN). 2003b. “Counting Pennies.” Volume 81, No. 5, pp. 17-21. February 

3, 2003. 

Chemical & Engineering News (C&EN). 2003c. “2003 Industry Review.” Volume 81, No. 51, pp. 18-26. 

December 22, 2003. Available at: http://pubs.acs.org/cen/business/8151/8151businessreview.html 

Chemical Marketing Reporter. 2001. “U.S. Chemical Industry Outlook: Trade and Domestic Demand”. v260, 

issue 25, p. 33. June 18, 2001. 

Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001. 

Economagic. 2006. Industrial Production: Industry Subtotals, Individual Series, and Special Aggregates. 

Seasonably Adjusted. Data Series: Basic Inorganic Chemicals; Plastics Material and Resin; and Organic 

Chemicals. Available at: http://www.economagic.com/frbg17.htm#IPMarket. Downloaded February 2, 2006. 

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification 

Manual. 

McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000. U.S. Industry & 

Trade Outlook ‘00. 

Standard & Poor’s. (S&P) 2001. Industry Surveys - Chemicals: Basic. July 5, 2001. 

U.S. Department of Commerce (U.S. DOC). 1989-2004. Bureau of the Census. Current Industrial Reports. 

Survey of Plant Capacity. 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of the Census. International Trade Administration. 

Industry, Trade, and the Economy: Data and Analysis. Data by NAICS and SIC. Available at: 

http://www.ita.doc.gov/td/industry/otea/industry_sector/tables_naics.htm. Downloaded February 2, 2006. 

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, 1998-2001, and 2003-2004. Bureau of the 

Census. Annual Survey of Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. 1997 Economic Census Bridge 

Between NAICS and SIC. 

U.S. Department of Commerce (U.S. DOC). 1987, 1992, 1997, and 2002. Bureau of the Census. Census of 

Manufactures. 

U.S. Environmental Protection Agency (U.S. EPA) 2000. Detailed Industry Questionnaire: Phase II Cooling 

Water Intake Structures. 

C2B-36 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

U.S. Environmental Protection Agency (U.S. EPA). 1995a. Profile of the Organic Chemicals Industry. 

September, 1995. 

U.S. Environmental Protection Agency (U.S. EPA) 1995b. Profile of the Inorganic Chemical Industry. 

September, 1995. 

U.S. Small Business Administration (U.S. SBA). 1989-2003. Statistics of U.S. Businesses. Available at: 

http://www.sba.gov/advo/research/data.html. Downloaded February 4, 2006. 

U.S. Small Business Administration (U.S. SBA). 2006. Small Business Size Standards. Available at: 

http://www.sba.gov/size/sizetable2002.html. 

Value Line. 2006. Value Line 3.0 Investment Analyzer. 

Value Line. 2003. Value Line Investment Survey. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2B-37 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2B: Chemicals and Allied Products 

THIS PAGE INTENTIONALLY LEFT BLANK
 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

Chapter C2C: Petroleum Refining 
 

(SIC 2911) 
 

INTRODUCTION 

EPA’s Detailed Industry Questionnaire, hereafter referred 

to as the DQ, identified the Petroleum Refining Industry 

(SIC 2911) with at least one existing facility that operates a 

CWIS, holds a NPDES permit, and withdraws equal to or 

greater than two million gallons per day (MGD) from a 

water of the United States, and uses at least 25 percent of 

its intake flow for cooling purposes. (Facilities with these 

characteristics are hereafter referred to as facilities 

potentially subject to the Phase III regulation or “potential 

Phase III facilities”). 

Table C2C-1, below, provides a description of the industry 

segment, a list of primary products manufactured, the total 

number of detailed questionnaire respondents (weighted to 

represent a national total of facilities that hold a NPDES 

permit and operate cooling water intake structures), the 

number of facilities estimated to be potentially subject to 

Phase III regulation based on the minimum withdrawal 

threshold of 2 MGD, and the number of facilities estimated 

to be subject to regulation under each primary analysis 

option. 

CHAPTER CONTENTS 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 

Introduction..........................................................C2C-1

C2C-1 Summary Insights from this Profile ........C2C-2

C2C-2 Domestic Production...............................C2C-3

C2C-2.1 Output.............................................C2C-4

C2C-2.2 Prices ..............................................C2C-7

C2C-2.3 Number of Facilities and Firms ......C2C-7

C2C-2.4 Employment and Productivity ........C2C-8

C2C-2.5 Capital Expenditures ....................C2C-10

C2C-2.6 Capacity Utilization......................C2C-11

C2C-3 Structure and Competitiveness..............C2C-12

C2C-3.1 Firm Size ......................................C2C-13

C2C-3.2 Concentration Ratios ....................C2C-13

C2C-3.3 Foreign Trade ...............................C2C-14

C2C-4 Financial Condition and Performance...C2C-17

C2C-5 Facilities Operating Cooling Water Intake

Structures ..............................................C2C-18

C2C-5.1 Waterbody and Cooling System Type......

 ...................................................C2C-19

C2C-5.2 Facility Size..................................C2C-20

C2C-5.3 Firm Size ......................................C2C-22

References..........................................................C2C-23

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

SIC SIC Description 

Total 

a 

Regulated b 

to 50 

MGD All 

Option 

to 200 

MGD All 

Option 

to 100 

MGD 

CWB 

Option 

2911 Petroleum 163 36 17 4 8 

Refining 

a 

b 

Source: 

EPA 

a

) 

SIC 

Code SIC Description Code Establishments ($000) 

2911 324110 203 193,547,214 61,585 

a

Source: 

Table C2C-1: Phase III Facilities in the Petroleum Refining Industry (SIC 29) 

Important Products Manufactured 

Number of Phase III Facilities

Potentially 

Facilities

Subject Subject Subject 

Gasoline, kerosene, distillate fuel oils, residual 

fuel oils, and lubricants, through fractionation 

or straight distillation of crude oil, redistillation 

of unfinished petroleum derivatives, cracking, 

or other processes; aliphatic and aromatic 

chemicals as byproducts 

Number of weighted detailed questionnaire survey respondents. 

Individual numbers may not add up due to independent rounding. 

Executive Office of the President, 1987; U.S. EPA 2000; U.S. EPA analysis, 2006. 

As shown in Table C2C-1, EPA estimates that, out of the total of 163 facilities with a NPDES permit and 

operating cooling water intake structures in the Chemicals and Allied Products Industry (SIC 28), 17 (or 10%) 

would be subject to regulation under the 50 MGD All option, 4 (or 2.5%) would be subject to regulation under the 

200 MGD All option, and 8 (or 4.9%) would be subject to regulation under the 100 MGD CWB option.. 

also estimated the percentage of total production that occurs at facilities estimated to be subject to regulation 

under each analysis option. Total value of shipments for the Paper and Allied Products Industry from the 2004 

Annual Survey of Manufactures is $288.1 billion. Value of shipments, a measure of the dollar value of 

production, was selected for the basis of this estimate. Because the DQ did not collect value of shipments data, 

these data were not available for Phase III facilities. Total revenue, as reported on the DQ, was used as a close 

approximation for value of shipments for these facilities. EPA estimated the total revenue of facilities expected to 

be subject to regulation under the 50 MGD, 200 MGD, and 100 MGD option to be $25.4 billion, $9.3 billion, and 

$15.3 billion, respectively. Therefore, EPA estimates that the percentage of total production in the petroleum 

industry that occurs at facilities estimated to be subject to regulation under the 50 MGD, 200 MGD, and 100 

MGD options is 9%, 3% and 5%, respectively. 

Table C2C-2 provides the crosswalk between SIC codes and NAICS codes for the profiled petroleum SIC codes. 

For the Petroleum Refining segment, the translation of NAICS-reported data to the SIC framework is 

straightforward as these frameworks have a simple one-to-one match for Petroleum Refining: SIC code 2911 and 

NAICS code 324110. 

Table C2C-2: Relationship between SIC and NAICS Codes for the Petroleum Refining Industry (2002

NAICS NAICS Description Value of Shipments Employment 

Petroleum Refining Petroleum Refineries 

 Industry data for relevant NAICS codes from the 2002 Economic Census. 

U.S. DOC, 1997; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2C-1 SUMMARY INSIGHTS FROM THIS PROFILE 

A key purpose of this profile is to provide insight into the ability of Petroleum Refining firms absorb compliance 

costs under each analysis option without material, adverse economic/financial effects. The industry’s ability to 

withstand compliance costs is primarily influenced by the following two factors: (1) the extent to which the 

C2C-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

industry may be expected to shift compliance costs to its customers through price increases and (2) the financial 

health of the industry and its general business outlook. 

Likely Ability to Pass Compliance Costs Through to Customers 

As reported in the following sections of this profile, the Petroleum Refining segment is relatively unconcentrated, 

which suggests that firms in this industry would have less power to pass a significant portion of their compliancerelated costs through to customers. As discussed above, given the small proportion of total value of shipments in 

the industry estimated to be subject to regulation under each option, EPA believes that the theoretical threshold 

for justifying the use of industry-wide CPT rates in the impact analysis of potential Phase III refineries has not 

been met. Even though the Petroleum Refining segment is not characterized by high competitive pressure from 

foreign markets, the low market concentration leads EPA to believe that the market power held by individual 

firms is likely to be quite small. For these reasons, in its analysis of regulatory impacts for the Petroleum 

Refining segment, EPA assumed that complying firms would be unable to pass compliance costs through to 

customers: i.e., complying facilities must absorb all compliance costs at the time of compliance (see following 

sections and Appendix 3, Cost Pass-Through Analysis, to Chapter C3: Economic Impact Analysis for 

Manufacturers, for further information). 

Financial Health and General Business Outlook 

Over the past decade, Petroleum Refining, like other U.S. manufacturing industries, has experienced a range of 

economic/financial conditions, including substantial challenges. In the early 1990s, the domestic Petroleum 

Refining segment was affected by reduced U.S. demand as the economy entered a recessionary period. Although 

domestic market conditions improved by mid-decade, oversupply of crude oil, weakness in Asian markets, along 

with other domestic factors, materially weakened refiners’ financial performance in 1998. As petroleum 

producing countries reduced crude oil supply and refiners cut production, prices rebounded in the late 1990's and 

into 2000, before another U.S. recession, the attacks of 9/11, and global economic downturn again had a negative 

effect on petroleum refiners. More recently, as the U.S. economy began recovery from its economic weakness, 

domestic petroleum refineries have appeared to recuperate, with continuous improvements in demand levels and 

financial performance during 2003 to 2005. Although the industry has weathered difficult periods over the past 

few years, the strengthening of the industry’s financial condition and general business outlook suggest improved 

ability to withstand additional regulatory compliance costs without imposing significant financial impacts. 

C2C-2 DOMESTIC PRODUCTION 

The Petroleum Refining segment accounts for about 4 percent of the value of shipments of the U.S. entire 

manufacturing sector and 0.4 percent of the manufacturing sector’s labor supply (U.S. DOE, 1999a). According 

to the Annual Survey of Manufactures, in 2001, Petroleum Refineries achieved shipments of approximately $206 

billion dollars ($2003) and employed 63,251 people. Petroleum products constitute approximately 40 percent of 

the total energy used in the United States, including virtually all of the energy consumed in transportation (U.S. 

DOE, 1999a). 

U.S. DOE Energy Information Administration (EIA) data report that there were 149 operable Petroleum 

Refineries in the U.S. as of January 2003, of which 145 were operating and four were idle (U.S. DOE, 2004)1

. 

Some data reported in this profile are taken from EIA publications. Readers should note that the Census data 

1 In addition, there was one operating and one idle refinery in Puerto Rico and one operating refinery in the Virgin 

Islands. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

reported for SIC 2911 cover a somewhat broader range of facilities than do the U.S. DOE/EIA data, and the two 

data sources are therefore not entirely comparable.2 

The petroleum industry includes exploration and production of crude oil, refining, transportation, and marketing. 

Petroleum refining is a capital-intensive process that converts crude oil into a variety of refined products. 

Refineries range in complexity, depending on the types of products produced. Nearly half of all U.S. refinery 

output is motor gasoline. 

The number of U.S. refineries has declined by almost half since the early 1980s. The remaining refineries have 

improved their efficiency and flexibility to process heavier crude oils by adding “downstream” capacity3

. While 

the number of refineries has declined, the average refinery capacity and utilization has increased, resulting in an 

increase in domestic refinery production overall. 

C2C-2.1 Output 

Table C2C-3 shows trends in production of petroleum refinery products from 1990 through 2004. In general, 

output of refined products grew over this period, reflecting growth in transportation demand and other end-uses. 

Output fell in 1991 due to the domestic economic recession, and the early years of the 2000s experienced little or 

negative growth due to the downturn of the U.S. economy and events of 9/11 (API, 2003). At the beginning of 

2002, petroleum products were in excess supply in the world market, and the focus was on the elimination of 

excess supplies and stabilization of prices (U.S. DOE, 2004). In 2003, the industry rebounded, with refinery 

processing increasing 2 percent, producing record or near record levels of gasoline and distillate (API, 2004). 

Petroleum demand in 2004 is expected to increase 1.1 percent. As the U.S. and global economy improves, 

Petroleum Refining firms should continue to see improving results in their markets and earnings. This should 

place companies in a better position to incur any costs associated with regulatory compliance. 

2

 For comparison, preliminary 1997 Census data included 244 establishments for NAICS 3241/SIC 2911, whereas U.S. 

DOE/EIA reported 164 operable refineries as of January 1997. 

3

 The first step in refining is atmospheric distillation, which uses heat to separate various hydrocarbon components in 

crude oil. Beyond this basic step are more complex operations (generally referred to as “downstream” from the initial 

distillation) that increase the refinery’s capacity to process a wide range of crude oils and increase the yield of lighter (lowboiling point) products such as gasoline. These downstream operations include vacuum distillation, cracking units, reforming 

units, and other processes (U.S. DOE, 1999a). 

C2C-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

Table C2C-3: U.S. Petroleum Refinery Product Production (million barrels per day) 

Motor Distillate Residual Other Total Percent Change Year Jet Fuel Gasoline Fuel Oil Fuel Oil Productsa Output in Total Output 

1990 6.96 2.93 1.49 

1991 6.98 2.96 1.44 

1992 7.06 2.97 1.40 

1993 7.30 3.13 1.42 

1994 7.18 3.20 1.45 

1995 7.46 3.16 1.42 

1996 7.57 3.32 1.52 

1997 7.74 3.39 1.55 

1998 7.89 3.42 1.53 

1999 7.93 3.40 1.57 

2000 7.95 3.58 1.61 

2001 8.02 3.70 1.53 

2002 8.18 3.59 1.51 

2003 8.19 3.71 1.50 

2004 8.23 3.82 1.55 

0.95 0.78 15.27 n/a 

0.93 0.76 15.26 -0.1% 

0.89 0.80 15.40 0.9% 

0.84 0.78 15.79 2.5% 

0.83 0.79 15.79 0.0% 

0.79 0.78 15.99 1.3% 

0.73 0.76 16.32 2.1% 

0.71 0.84 16.76 2.7% 

0.76 0.89 17.03 1.6% 

0.70 0.84 16.99 -0.2% 

0.70 0.79 17.24 1.5% 

0.72 0.73 17.29 0.3% 

0.60 0.77 17.27 -0.1% 

0.66 0.78 17.49 1.3% 

0.65 0.83 17.77 1.6% 

Total Percent 18.2% 30.4% 4.0% -31.6% 6.4% 16.4% Change 1990-2004 

Average Annual 1.2% 1.9% 0.3% -2.7% 0.4% 1.1% Growth Rate 

a Kerosene, lubricants, petrochemical feedstocks, waxes, and miscellaneous products. 

Source: U.S. DOE, 2005 

Value of shipments and value added are two common measures of manufacturing output4

. They provide 

insight into the overall economic health and outlook for an industry. Value of shipments is the sum of the receipts 

a manufacturer earns from the sale of its outputs; it indicates the overall size of a market or the size of a firm in 

relation to its market or competitors. Value added measures the value of production activity in a particular 

industry. It is the difference between the value of shipments and the value of inputs used to make the products 

sold. 

Figure C2C-1 on the following page shows value of shipments and value added for petroleum products from 1987 

to 2004. Value of shipments rose through 1990; however, during and following the recession of 1991, value of 

shipments fell through 1994. This was followed by some volatility in value over the next few years until 

experiencing a sharp drop in 1998, when a range of factors led to a dramatic decrease in petroleum prices. 

Increased production quotas by OPEC, increased production from Iraq through the “oil-for-food” program, weak 

demand in Asia due to their financial crisis, and a warm winter in the U.S. all increased the supply of petroleum 

products (U.S. DOE, 1999c). Estimates of worldwide petroleum supply exceeding demand during 1998 range 

from 1.47 millions barrels per day to 2.4 million barrels per day (World Oil, 1999). As crude oil producers and 

refiners cutback on production, the industry rebounded with significant improvements in 1999 and 2000, before 

the latest recession and global economic slowdown and weakening demand decreased the value of shipments in 

2001. In 2003 and 2004, however, the value of shipments increased significantly, peaking at nearly $300 billion 

in 2004. Value added generally followed the path of value of shipments over this time period, though it did not 

quite have the volatility of the value of shipments. 

 Terms highlighted in bold and italic font are further explained in the glossary. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-5 

4 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

324110) 

2911) 

198719881989199019911992199319941995199619971998199920002001200220032004 

(

Note: 

. 

Source: 

Figure C2C-1: Value of Shipments and Value Added for Petroleum Refineries (millions, $2005) 

Value of Shipments 

120,000 

140,000 

160,000 

180,000 

200,000 

220,000 

240,000 

260,000 

280,000 

300,000 

320,000 

Petroleum Refineries (NAICS 

Petroleum Refineries (SIC 

Value Added 

15 ,0 0 0 

20 ,0 0 0 

25 ,0 0 0 

30 ,0 0 0 

35 ,0 0 0 

40 ,0 0 0 

45 ,0 0 0 

50 ,0 0 0 

55 ,0 0 0 

P et roleum Refineries 

NAICS 3 241 0) 

P et ro leum Refin eries (SIC 

29 11) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2C-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

C2C-2.2 Prices 

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and 

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment. 

Figure C2C-2 shows substantial fluctuations in petroleum product prices between 1987 and 2002. Through the 

early 1990s, refiners faced declining prices due to the effects of the 1991 recession and weak demand before 

rebounding somewhat in the mid 1990s. Prices plummeted in 1998 as a massive oversupply of petroleum 

products coupled with decreased demand led to significant drops in petroleum prices. As the subsequent 

production cutbacks took hold and the glut of supply dwindled, prices recovered in 1999 and 2000, as shown in 

Figure C2C-2. The higher prices reflect low refinery product inventories and higher crude oil input prices (Value 

Line, 2001). Excess supply, the global recession, impacts from 9/11, and the relatively warm winter of 2001-

2002 led to decreases in prices in subsequent years (U.S. DOE, 2004). During 2003 to 2005, however, prices rose 

dramatically. By 2005, the price of petroleum products was nearly double the price seen in 2000, the previous 

peak year during the 1987 to 2005 time period. 

220 

200 

180 

160 

120 

140 (

324110) 

100 

80 

60 

40 

1987198819891990199119921993199419951996199719981999200020012002200320042005 

Source:

Figure C2C-2: Producer Price Index for Petroleum Refineries 

P et roleum Refineries NAICS 

 BLS, 2006. 

C2C-2.3 Number of Facilities and Firms 

The number of operable refineries fell substantially during the 1980s, with a more gradual reduction in refineries 

continuing through the 1990s and into the 2000s. This decrease resulted in part from the elimination of the Crude 

Oil Entitlements Program in the early 1980s. The Entitlements Program encouraged smaller refineries to add 

capacity throughout the 1970s. After the program was eliminated, surplus capacity and falling profit margins led 

to the closure of less efficient capacity (U.S. DOE, 1999a). The decrease in the number of refineries continued, as 

the industry consolidated to improve margins. After peaking in the early 1980s, refining capacity decreased 

throughout the rest of the decade. Refining capacity has remained relatively stable since the decrease in the 

1980s, with a slight upward trend occurring in the latter part of the 1990s into the 2000s. This trend is expected to 

continue, with no new “greenfield” refineries likely to be built in the United States, but continuing capacity 

expansion at existing facilities (S&P, 2001). 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-7 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

Table C2C-4 presents the numbers of refinery facilities and firms from 1990 to 2003 based on Statistics of U.S. 

Businesses for SIC 2911. As shown in the table, despite some gains in the early 2000s, the number of refinery 

facilities and the number of firms reporting Petroleum Refining as their primary business both declined since 

1990. 

Table C2C-4: Number of Firms and Facilities for Petroleum Refineries 

Firms Facilities 

Year 

Number Percent Change Number Percent Change 

1990 215 340 

1991 215 0.0% 346 1.8% 

1992 185 -14.0% 303 -12.4% 

1993 148 -20.0% 251 -17.2% 

1994 161 8.8% 265 5.6% 

1995 150 -6.8% 251 -5.3% 

1996 173 15.3% 275 9.6% 

1997 128 -26.0% 248 -9.8% 

1998a 155 21.1% 304 22.6% 

1999a 145 -6.5% 292 -3.9% 

2000a 162 11.7% 298 2.1% 

2001a 165 1.9% 302 1.3% 

2002a 202 22.4% 349 15.6% 

2003a 142 -29.7% 274 -21.5% 

Total Percent Change 

1990 - 2003 -34.0% -19.4% 

Average Annual Growth -3.1% -1.6% Rate 

a Before 1998, these data were compiled in the Standard Industrial Classification (SIC) system; since 1998, these data 

have been compiled in the North American Industry Classification System (NAICS). For this analysis, EPA converted 

the NAICS classification data to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS 

and SIC.. 

Source: U.S. SBA, 1989-2003. 

C2C-2.4 Employment and Productivity 

Employment in the Petroleum Refining segment declined by 22 percent between 1987 and 2004, from 74,600 to 

58,331 employees, as shown in Figure C2C-3. After increasing in the early 1990s, employment at Petroleum 

Refineries declined almost continuously through 2004, reflecting overall industry consolidation. 

C2C-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

(

 (

Note: 

. 

Source: 

Figure C2C-3: Employment for Petroleum Refineries 

54,000 

56,000 

58,000 

60,000 

62,000 

64,000 

66,000 

68,000 

70,000 

72,000 

74,000 

76,000 

Petroleum Refineries NAICS 

324110) 

Petroleum Refineries SIC 

2911) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997 these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

Table C2C-5 shows substantial year-to-year changes in labor productivity, measured by value added per 

production hour. These fluctuations reflect volatility in value added, which in turn reflect variations in the 

relationship between input prices (primarily crude oil) and refinery product prices. Changes in production hours 

from year to year were less volatile, with a net reduction over the period 1987 to 2004. Value added, however, 

was not affected as it more than doubled over the same period. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-9 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

Table C2C-5: Productivity Trends for Petroleum Refineries ($2005) 

Value Added/Hour 

Year Value Added 

(millions) 

Production Hours 

(millions) ($/hr) 

% Change in 

Value Added/ 

Hour 

1987 21,779 103 211 

1988 30,642 103 298 41.2% 

1989 30,797 105 294 -1.1% 

1990 31,357 106 296 0.7% 

1991 26,281 107 247 -16.7% 

1992 24,789 109 227 -8.1% 

1993 23,734 107 223 -1.7% 

1994 29,569 110 269 20.6% 

1995 29,185 107 274 1.8% 

1996 31,065 103 303 10.7% 

1997a 36,281 100 363 20.0% 

1998a 27,917 98 285 -21.4% 

1999a 36,103 94 384 34.4% 

2000a 41,069 92 445 15.9% 

2001a 44,145 94 472 6.1% 

2002a 30,533 85 361 -23.5% 

2003a 41,240 86 482 33.3% 

2004a 53,070 85 621 29.0% 

Total Percent 

Change 1987-2004 143.7% -17.3% 194.7% 

Annual Average 5.4% -1.1% 6.6% Growth Rate 

a

 Before 1997, these data were compiled in the Standard Industrial Classification (SIC) system; since 1997, 

these data have been compiled in the North American Industry Classification System (NAICS). For this 

analysis, EPA converted the NAICS classification data to the SIC code classifications using the 1997 

Economic Census Bridge Between NAICS and SIC. 

Source: U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 

2002. 

C2C-2.5 Capital Expenditures 

Petroleum industry capital expenditures increased substantially between 1987 and 1993, generally decreased 

afterwards through 2000, then increased significantly in 2001, as shown in Table C2C-6. During 2001 through 

2004, capital expenditures fluctuated somewhat, peaking at nearly 8 billion in 2002 before declining in both 2003 

and 2004. In 2004, the industry spent about $6.7 billion ($2005), as compared with $3.1 billion ($2005) in 1988, 

representing a 115 percent increase in expenditures during this time period. Much recent investment in Petroleum 

Refineries has been to expand and de-bottleneck units downstream from distillation, partially in response to 

environmental requirements. Changes in refinery configurations have included adding catalytic cracking units, 

installing additional sulfur removal hydrotreaters, and using manufacturing additives such as oxygenates. These 

process changes have resulted from two factors: 

f processing of heavier crudes with higher levels of sulfur and metals; and 

f regulations requiring gasoline reformulation to reduce volatiles in gasoline and production of diesel fuels 

with reduced sulfur content (U.S. EPA, 1996b). 

C2C-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

Environmentally related investments have also accounted for a substantial part of capital expenditures. In the 

future, substantial capital investments by refineries will be required to comply with: product quality regulations, 

including EPA’s Tier 2 Gasoline Sulfur Rule requiring reductions in the sulfur content of gasoline; reductions or 

elimination of the use of MTBE in gasoline; and, proposed sulfur reductions in highway diesel fuel (NPC, 2000). 

Table C2C-6: Capital Expenditures for Petroleum Refineries ($2005) 

Year Capital Expenditures 

(millions) % Change 

1987 3,117 

1988 3,446 10.6% 

1989 4,263 23.7% 

1990 5,247 23.1% 

1991 7,436 41.7% 

1992 7,968 7.2% 

1993 7,593 -4.7% 

1994 6,862 -9.6% 

1995 7,140 4.1% 

1996 6,208 -13.1% 

1997a 4,987 -19.7% 

1998a 4,845 -2.9% 

1999a 4,517 -6.8% 

2000a 5,252 16.3% 

2001a 7,463 42.1% 

2002a 7,956 6.6% 

2003a 7,268 -8.6% 

2004a 6,710 -7.7% 

Total Percent Change 

1987-2004 115.3% 

Average Annual 4.6% Growth Rate 

a Before 1997, these data were compiled in the Standard Industrial Classification (SIC) 

system; since 1997, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data 

to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and 

SIC. 

Source: U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 

1992, 1997, and 2002. 

C2C-2.6 Capacity Utilization 

Refinery capacity is frequently measured in terms of crude oil distillation capacity. EIA defines refinery capacity 

utilization as input divided by calendar day capacity, which is the maximum amount of crude oil input that can be 

processed during a 24-hour period with certain limitations. Some downstream refinery capacities are measured in 

terms of “stream days,” which is the amount a unit can process when running full capacity under optimal crude 

and product mix conditions for 24 hours (U.S. DOE, 1999a). Downstream capacities are reported only for 

specific units or products, and are not summed across products, since not all products could be produced at the 

reported levels simultaneously. 

Figure C2C-4 below shows the fluctuation in utilization rates over the period 1989-2002, based Census Bureau 

data. Capacity utilization fluctuated over a relatively lower range between 1989-1992, followed by an increase in 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-11 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

utilization rates for five straight years, concluding in 1997. After decreasing in 1998, utilization rates climbed 

until 2000, before excess supply, recession, and other factors led to decreases in rates in the early 2000s. The 

industry appears to be recovering, however, as capacity utilization increased to 93 percent in 2004. Overall 

refinery utilization has remained high over this entire time period. Capacity utilization for production of specific 

products may vary, however, as the industry adjusts to changes in the desired product mix and characteristics. 

84 

86 

88 

90 

92 

94 

96 

1989199019911992199319941995199619971998199920002001200220032004 

Note: 

. 

Source: 

Figure C2C-4: Capacity Utilization Rates (Fourth Quarter) for Petroleum Refineries 

Petroleum Refineries (NAICS 

324110) 

Petroleum Refineries (SIC 

2911) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1989-2004. 

C2C-3 STRUCTURE AND COMPETITIVENESS 

The Petroleum Refining segment in the United States is made up of integrated international oil companies, 

integrated domestic oil companies, and independent domestic refining/marketing companies. In general, the 

petroleum industry is highly integrated, with many firms involved in more than one stage of petroleum industry 

operations. Large companies, referred to as the “majors,” are fully integrated across crude oil exploration and 

production, refining, and marketing. Smaller, nonintegrated companies, referred to as the “independents,” 

generally specialize in one segment of the industry. 

Like the oil business in general, refining was dominated in the 1990s by integrated internationals, specifically a 

few large companies such as Exxon Corporation, Mobil Corporation, and Chevron Corporation. These three 

ranked in the top ten of Fortune’s 500 sales during this time period. Substantial diversification by major 

petroleum companies into other energy and non-energy segments was financed by high oil prices in the 1970s and 

1980s. With lower profitability in the 1990s, the major producers began to exit unconventional energy operations 

(e.g., oil shale) as well as coal and non-energy operations in the 1990s. Some have recently ceased chemical 

production. 

C2C-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

During the 1990s and into the early 2000s, several mergers, acquisitions, and joint ventures occurred in the 

Petroleum Refining segment in an effort to cut cost and increase profitability. This consolidation has taken place 

among the largest firms (as illustrated by the acquisition of Amoco Corporation by British Petroleum in 1999, the 

merger of Chevron and Texaco in 2001, the merger of Conoco and Phillips in 2002, and the mega-merger of 

Exxon and Mobil Corporation in 1998) as well as among independent refiners and marketers (e.g., the 

independent refiner/marketer Ultramar Diamond Shamrock (UDS) acquired Total Petroleum North America in 

1997) (U.S. DOE, 1999b, 2004). Merger activity seems to have slowed since 2002, however, possibly as 

companies seek to address financial issues or wait to see that the recent positive economic growth continues (U.S. 

DOE, 2004). 

C2C-3.1 Firm Size 

For SIC 2911, the Small Business Administration defines a small firm as having 1,500 or fewer employees. The 

size categories reported in the Statistics of U.S. Businesses (SUSB) do not correspond with the SBA size 

classifications, therefore preventing precise use of the SBA size threshold in conjunction with SUSB data. Table 

C2C-7 below shows the distribution of firms and establishments in SIC 2911 by the employment size of the 

parent firm. The SUSB data show that 163 of the 274 SIC 2911 establishments reported for 2003 (59 percent) are 

owned by larger firms (those with 500 employees or more), some of which may still be defined as small under the 

SBA definition, and 111 (41 percent) are owned by small firms (those with fewer than 500 employees). 

Table C2C-7: Number of Firms and Establishments for 

Category Number of Establishments 

0-19 59 60 

20-99 21 25 

100-499 21 26 

500+ 41 163 

Total 142 274 

Note: 

Source: 

Petroleum Refineries by Firm Employment Size Category, 2003 

Employment Size Number of Firms 

 Based on NAICS 324110 

U.S. SBA, 1989-2003. 

C2C-3.2 Concentration Ratios 

Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is 

closely related to entry barriers, with more concentrated industries generally having higher barriers. 

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common 

measures of industry concentration. The CR4 indicates the market share of the four largest firms. For example, a 

CR4 of 72 percent means that the four largest firms in the industry account for 72 percent of the industry’s total 

value of shipments. The higher the concentration ratio, the less competition there is in the industry, other things 

being equal6

. An industry with a CR4 of more than 50 percent is generally considered concentrated. The HHI 

indicates concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the 

Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry 

with a high concentration in domestic production may nonetheless be subject to significant competitive pressures if it 

competes with foreign producers or if it competes with products produced by other industries (e.g., plastics vs. aluminum in 

beverage containers). Concentration ratios based on share of domestic production are therefore only one indicator of the 

extent of competition in an industry. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-13 

6 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

market shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with 

market shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (602 + 302 

+ 102). The higher the index, the fewer the number of firms supplying the industry and the more concentrated the 

industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets in which the HHI 

is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 1800 are considered 

to be moderately concentrated, and those in which the HHI is in excess of 1800 are considered to be concentrated. 

As shown in Table C2C-15, the CR4 and the HHI for SIC 2911 are both below the benchmarks of 50 percent and 

1,000, respectively. For the Petroleum Refining segment, the HHI is 422, suggesting the sector is unconcentrated. 

With the majority of the firms in this industry having small market shares, this suggests limited potential for 

passing through to customers any increase in production costs resulting from regulatory compliance. 

SIC (S) or Total Concentration Ratios 

NAICS (N) 

Code 

Year 

Firms 

4 Firm 

(CR4) 

8 Firm 

(CR8) 

20 Firm 

(CR20) 

50 Firm 

(CR50) 

S 2911 

1987 

1992 

200 

132 

32% 

30% 

52% 

49% 

78% 

78% 

95% 

97% 

435 

414 

1997 122 29% 49% 82% 98% 422 

a The 

Source: 

Table C2C-8: Selected Ratios for Petroleum Refineries 

Number of HerfindahlHirschman Index 

N 324110 

1997 Census of Manufactures is the most recent concentration ratio data available. 

U.S. DOC, 1987, 1992, 1997, and 2002. 

C2C-3.3 Foreign Trade 

This profile uses two measures of foreign competition: export dependence and import penetration. 

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic 

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that 

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests 

that higher import penetration levels will reduce market power and pricing discretion because foreign competition 

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for 

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The 

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with 

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be 

less likely to succeed in passing compliance costs through to customers. 

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales 

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not 

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing 

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated 

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the 

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to 

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through 

price increases since export sales are presumed subject to substantial competition from foreign producers. 

C2C-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

Table C2C-9 presents trade statistics for the profiled Petroleum Refining segment from 1989 to 2002. The table 

shows that while export dependence has been relatively stable, import penetration decreased during the economic 

weakness of the early 1990s, before leveling off through the mid 1990s. Import penetration increased steadily 

through 2000 and then dropped slightly in 2001. This cycle follows the growth in the U.S. economy of the late 

1990s, followed by the subsequent economic slowdown arriving in the latter half of 2000 into 2001. Mexico 

received the largest amount of U.S. exported refined petroleum products in 2001, followed by Canada and Japan. 

Imports of refined petroleum products increased 47.3 percent from 1989 to 2001, with 46.6 percent of total 

imports coming from OPEC countries (U.S. DOE, 2003). 

The import penetration ratio for facilities in the Petroleum Refining segment in 2002 was only 15 percent, well 

below the U.S. manufacturing segment average of 22 percent. The export dependence ratio for petroleum refiners 

in 2001 was only four percent compared to the U.S. manufacturing average of 15 percent. Thus, based on the 

lack of competitive pressures from foreign markets/firms, the petroleum industry appears to be in a position to 

pass-through to consumers a significant portion of compliance-related costs associated with the Phase III 

regulation. However, given the low HHI for this industry EPA believes that existing market competition among 

domestic firms most likely nullifies any favorable influence the lack of foreign competitors would have on 

increasing the market power of firms in this industry. 

Table C2C-9: Foreign Trade Statistics for Petroleum Refining ($2005) 

Year 

Value of 

Imports 

(millions) 

Value of 

Exports 

(millions) 

Value of 

Shipments 

(millions) 

Implied 

Domestic 

Consumptiona 

Import 

Penetrationb 

Export 

Dependencec 

1989 16,837 6,162 187,227 197,902 9% 3% 

1990 19,605 8,227 219,025 230,403 9% 4% 

1991 14,458 8,438 193,023 199,042 7% 4% 

1992 13,218 7,474 176,809 182,553 7% 4% 

1993 12,358 7,155 164,853 170,055 7% 4% 

1994 11,519 6,158 159,839 165,200 7% 4% 

1995 10,668 6,491 165,743 169,920 6% 4% 

1996 22,111 7,526 188,817 203,402 11% 4% 

1997d 24,009 8,087 186,428 202,351 12% 4% 

1998d 19,825 6,027 137,306 151,104 13% 4% 

1999d 25,071 6,602 165,289 183,759 14% 4% 

2000d 44,920 9,784 241,662 276,797 16% 4% 

2001d 38,456 8,839 218,854 248,471 15% 4% 

2002d 34,278 8,322 208,236 234,192 15% 4% 

Total Percent Change 

1989-2002 103.6% 35.0% 11.2% 18.3% 

Average Annual 5.6% 2.3% 0.8% 1.3% Growth Rate 

a Calculated by EPA as shipments + imports - exports. b Calculated by EPA as imports divided by implied domestic consumption. 

Calculated by EPA as exports divided by shipments. d Before 1997, these data were compiled in the Standard Industrial Classification (SIC) system; since 1997, these data have been 

compiled in the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification 

data to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. DOC, 2006; U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

The United States consumes more petroleum than it produces, requiring net imports of both crude oil and refined 

products to meet domestic demand. In 2002, the U.S. imported 9.05 million barrels per day (MBD) of crude oil 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-15 

c 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

and 2.31 MBD of refined products. These refined product imports represented roughly 12 percent of the 19.65 

MBD of refined products supplied to U.S. consumers. The U.S. exported 0.97 MBD of refined products in 2002 

(U.S. DOE, 2003). 

Imports of refined petroleum products have fluctuated since 1985. Imports rose to 2.3 MB in the early 1980s, due 

to rapid growth in oil consumption, especially consumption of light products, which exceeded the growth in U.S. 

refining capacity. Imports then declined as a result of the 1990/91 recession and increased upgrading of refinery 

capacity resulting primarily from the 1990 Clean Air Act Amendments and other environmental requirements 

(U.S. DOE, 1997). Since the 1995 low point, imports steadily increased through 2000 with the exception of 1998, 

before dropping again, due to general economic weakness, in 2001 and 2002 (see Figure C2C-5). 

0 

5,000 

19891990199119921993199419951996199719981999200020012002 

Note: 

. 

Source: 

Figure C2C-5: Value of Imports and Exports for Petroleum Refining (millions, $2005) 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

40,000 

45,000 

50,000 

Imports (NAICS 324110) 

Imports (SIC 2911) 

Exports (NAICS 324110) 

Exports (SIC 2911) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 2006. 

Petroleum exports include heavy products such as residual fuel oil and petroleum coke, which are produced as coproducts with motor gasoline and other light products. Production of these heavier products often exceeds U.S. 

demand, and foreign demand absorbs the excess. Petroleum coke is the leading petroleum export product, 

accounting for 35 percent of petroleum exports in 2002, followed by residual fuel oil (18 percent of exports) and 

motor gasoline (almost 13 percent) (U.S. DOE, 2003). Exports generally reflect foreign demand, but other factors 

influence exports as well. For example, exports of motor gasoline increased due to high prices in Europe at the 

time of the 1990 Persian Gulf War. U.S. refiners and marketers have gained experience in marketing to diverse 

world markets, and U.S. products are now sold widely abroad (U.S. DOE, 1997). As reported by the International 

Trade Administration and shown in Figure C2C-5, the real value of petroleum exports has fluctuated between $5 

and $10 billion during the years 1989 and 2002. 

C2C-16 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

C2C-4 FINANCIAL CONDITION AND PERFORMANCE 

The financial performance and condition of the Petroleum Refining segment are important determinants of its 

ability to withstand the costs of regulatory compliance without material adverse economic/financial impact. To 

provide insight into the industry’s financial performance and condition, EPA reviewed two key measures of 

financial performance over the 14-year period, 1992-2005: net profit margin and return on total capital. EPA 

calculated these measures as a revenue-weighted index of measure values for public reporting firms in the 

respective industries, using data from the Value Line Investment Survey. Financial performance in the most 

recent financial reporting period (2005) is obviously not a perfect indicator of conditions at the time of regulatory 

compliance. However, examining the trend, and deviation from the trend, through the most recent reporting 

period gives insight into where the industry may be, in terms of financial performance and condition, at the time 

of compliance. In addition, the volatility of performance against the trend, in itself, provides a measure of the 

potential risk faced by the industry in a future period in which compliance requirements are faced: all else equal, 

the more volatile the historical performance, the more likely the industry may be in a period of relatively weak 

financial conditions at the time of compliance. 

Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales 

or revenue, and measures profitability, as reflected in the conventional accounting concept of net income. Over 

time, the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the 

industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from 

several factors, including: variations in aggregate economic conditions (including international and U.S. 

conditions), variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in 

overcapacity), or changes in the pricing and availability of inputs to the industry’s production processes (e.g., the 

cost of energy to the petroleum refining process). The extent to which these fluctuations affect an industry’s 

profitability, in turn, depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a 

capital intensive industry such as Petroleum Refining, the relatively high fixed capital costs as well as other fixed 

overhead outlays, can cause even small fluctuations in output or prices to have a large positive or negative affect 

on profit margin. 

Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by 

the total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of 

the capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or 

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets 

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the 

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate, 

over time, a sufficient return on capital if the industry is to remain economically viable and attract capital. The 

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in 

return on total capital. 

Figure C2C-6 below shows trends in net profit margins and return on total capital for the Petroleum Refining 

segment between 1992 and 2005. Through the first half of the 1990s, unusually low product margins, low 

profitability, and substantial restructuring characterized the petroleum industry. These low profit margins resulted 

from three supply-side factors – (1) increases in operating costs as a result of governmental regulations; (2) 

expensive upgrading of processing units to accommodate lower-quality crude oils;7

 and (3) upgrading of 

 Crude oils processed by U.S. refineries have become heavier and more contaminated with materials such as sulfur. 

This trend reflects reduced U.S. dependence on the more expensive high gravity (“light”) and low sulfur (“sweet”) crude oils 

produced in the Middle East, and greater reliance on crude oil from Latin America (especially Mexico and Venezuela), which 

is relatively heavy and contains higher sulfur (“sour”) (U.S. DOE, 1999a). 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-17 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

operations to adapt to changes in demand for refinery products8 – coupled with lower product prices, resulting 

from competitive pressures (API, 1999). In the late 1990s, the petroleum industry pursued cost-cutting measures 

throughout their operations (Rodekohr, 1999)9

. These cost-cutting measures, along with increases in the prices of 

petroleum refining products, resulted in significantly improved financial performance in the Petroleum Refining 

segment. Refinery profits remained high in 2000 and the first half of 2001, due to low product inventories and 

high operating rates. The latter half of 2001 and 2002 saw the effects of the global recession, the attacks of 9/11, 

and a mild winter. These factors, coupled with world supply in excess of demand, led to decreases in refiner 

margins, as crude oil prices increases and petroleum product prices decreased. In 2003, as the U.S. economy 

began recovery from its economic weakness, the domestic Petroleum Refining segment returned to relatively 

strong financial performance. The segment’s performance continued to improve in 2004 and 2005, reaching the 

highest return on total capital and net profit margin observed over the time period analyzed by 2005. 

0% 

5% 

10% 

15% 

20% 

25% 

19921993199419951996199719981999200020012002200320042005 

C2C-5 FACILITIES OPERATING COOLING WATER INTAKE S

 (

Figure C2C-6: Net Profit Margin and Return on Total Capital for Petroleum Refining 

Return on Total Capital -

Petroleum Refining 

Net Profit Margin -

Petroleum Refining 

Source: Value Line, 2003; Value Line, 2006. 

TRUCTURES 

Section 316(b) of the Clean Water Act applies to point source facilities that use, or propose to use, a cooling water 

intake structure that withdraws cooling water directly from a surface waterbody of the United States. In 1982, the 

Petroleum and Coal Products industry SIC 29) withdrew 590 billion gallons of cooling water, accounting for 

Demand for lighter products such as gasoline and diesel fuel has increased, and demand for heavier products has 

decreased. 

9

 Reductions in costs resulted from: 

< divesting marginal refineries and gasoline outlets; 
 

< divesting less profitable activities (e.g., gasoline credit cards); 
 

< reducing corporate overhead costs, including eliminating redundancies through restructuring;
 

< outsourcing some administrative activities; and 
 

< use of new technologies requiring less labor. 
 

C2C-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

approximately 0.8 percent of total industrial cooling water intake in the United States10. The industry ranked 4th 

in industrial cooling water use, behind the electric power generation industry and the chemical and primary metals 

industries (1982 Census of Manufactures). 

This section provides information for facilities in the petroleum segment estimated to be subject to regulation for 

the regulatory analysis options. Existing facilities that meet all of the following conditions are expected to be 

subject to regulation: 

f Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract or 

arrangement with an independent supplier who has a cooling water intake structure; or their cooling water 

intake structure(s) withdraw(s) cooling water from waters of the United States, and at least twenty-five 

(25) percent of the water withdrawn is used for contact or non-contact cooling purposes; 

f Have a National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one; 

and 

f 	 Meet the applicability criteria for the specific regulatory analysis option in terms of design intake flow 

and source waterbody type (i.e., 50 MGD for All Waterbodies, 100 MGD for Certain Waterbodies, or 200 

MGD for All Waterbodies). 

The regulatory analysis options also cover substantial additions or modifications to operations undertaken at such 

facilities. Although EPA initially identified the set of facilities that were estimated to be potentially subject to the 

Phase III regulation based on a minimum applicability threshold of 2 MGD, this section focuses on the facilities 

nationwide in the petroleum segment that are estimated to be subject to regulation under the DIF applicability 

thresholds defined by the regulatory analysis options (see Table C2C-1, above for additional information on the 

broader set of facilities potentially subject to regulation).5 

C2C-5.1 Waterbody and Cooling System Type 

Table C2C-10 show the distribution of Phase III facilities by type of water body and cooling system for each 

option. 

10 Data on cooling water use are from the 1982 Census of Manufactures. 1982 was the last year in which the Census of 

Manufactures reported cooling water use. 

5 EPA applied sample weights to the sampled facilities to account for non-sampled facilities and facilities that did not 

respond to the survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information 

Collection Request (U.S. EPA, 2000). 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 	 C2C-19 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

Total Combination 

Number Total Number Total Number Total 

0 0% 3 35% 2 40% 5 

2 100% 4 41% 2 40% 8 

0 0% 2 24% 0 0% 2 

Ocean 0 0% 0 0% 1 20% 1 

Totala 2 9 5 17 

a

Source: 

Total Combination 

Number Total Number Total Number Total 

0 0% 2 68% 1 100% 3 

0 0% 1 32% 0 0% 1 

Totala 0 3 1 4 

a

Source: 

Total Combination 

Number Total Number Total Number Total 

0 0% 2 40% 1 100% 3 

1 100% 2 39% 0 0% 3 

0 0% 1 21% 0 0% 1 

Totala 1 5 1 8 

a

Source: 

Table C2C-10: Number of Facilities Estimated Subject to the 50 MGD All Option by 

Waterbody Type and Cooling System for the Petroleum Refining Segment 

Water Body Type 

Cooling System 

Recirculating Once-Through 

% of % of % of 

Estuary/ Tidal River 

Freshwater Stream/ River 

Great Lake 

13% 56% 32% 

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Table C2C-11: Number of Facilities Estimated Subject to the 200 MGD All Option by 

Waterbody Type and Cooling System for the Petroleum Refining Segment 

Water Body Type 

Cooling System 

Recirculating Once-Through 

% of % of % of 

Estuary/ Tidal River 

Freshwater Stream/ River 

0% 76% 24% 

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Table C2C-12: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Waterbody Type and Cooling System for the Petroleum Refining Segment 

Water Body Type 

Cooling System 

Recirculating Once-Through 

% of % of % of 

Estuary/ Tidal River 

Freshwater Stream/ River 

Great Lake 

14% 72% 14%

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

According to the American Petroleum Institute and EPA, water use at Petroleum Refineries has been declining 

because facilities are increasing their reuse of water (U.S. EPA, 1996a). 

C2C-5.2 Facility Size 

All petroleum refinery facilities that are estimated to be subject to regulation under the regulatory analysis options 

are relatively large. Figure C2C-7 show the number of potential Phase III facilities by employment size category 

for the regulatory analysis options. 

C2C-20 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

0 

3 

2 

8 

3 

0 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

ineri ( ) 

Source: 

0 0 0 

3 

1 

0 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

ineries (

Source: 

Figure C2C-7: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment 

Size for the Petroleum Refinery Segment 

<100 100-249 250-499 500-999 >=1000 

Petroleum Ref es SIC 2911

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Figure C2C-8: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment 

Size for the Petroleum Refinery Segment 

<100 100-249 250-499 500-999 >=1000 

Petroleum Ref SIC 2911) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-21 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

0 0 

1 

4 

2 

0 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

<100 100-249 250-499 >=1000 

i

Source: 

C2C-5.3 

Large Small 

SIC Total 

No. No. 

2911 17 100% 0 0% 17 

Source: 

Large Small 

SIC 

No. No. 

Total 

2911 4 100% 0 0% 4 

Source: 

Large Small 

SIC 

No. No. 

Total 

2911 8 100% 0 0% 8 

Source: 

Figure C2C-9: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Employment Size for the Petroleum Refinery Segment 

500-999 

Petroleum Ref neries (SIC 2911) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Firm Size 

EPA used the Small Business Administration (SBA) small entity thresholds to determine the number of facilities 

in the petroleum-refining segment that owned by small firms. Firms in this industry are considered small if they 

employ fewer than 1,500 people. As shown in Table C2C-13, Table C2C-14, and Table C2C-15, all of the 

facilities that are estimated to be subject to regulation are owned by large business, regardless of the option. 

Table C2C-13: Number of Facilities Estimated Subject to the 50 MGD All Option by Firm Size 

for the Petroleum Refinery Segment 

% of SIC % of SIC 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

Table C2C-14: Number of Facilities Estimated Subject to the 200 MGD All Option by Firm Size 

for the Petroleum Refinery Segment 

% of SIC % of SIC 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

Table C2C-15: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Firm 

Size for the Petroleum Refinery Segment 

% of SIC % of SIC 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

C2C-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

REFERENCES 

American Petroleum Institute (API). 2004. “Year-end API monthly statistical report.” January 14, 2004. 
 

American Petroleum Institute (API). 2003. “Year-end statistical report, 2002.” January 15, 2003. 
 

American Petroleum Institute (API). 1999. Policy Analysis and Strategic Planning Department. Economic State 
 

of the U.S. Petroleum Industry. February 26, 1999. 

Bureau of Labor Statistics (BLS). 2006. Producer Price Index. Industry Data Series: PCU324110-Petroleum
 

Refineries. Available at: http://www.bls.gov/ppi/home.htm. Downloaded February 2, 2006. 
 

Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001. 
 

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification 
 

Manual. 
 

National Petroleum Council (NPC). 2000. U.S. Petroleum Refining. Assuring the Adequacy and Affordability of 
 

Cleaner Fuels. Executive Summary. June 2000. 
 

Rodekohr, Dr. Mark. Financial Developments in ‘96-‘97: How the U.S. Majors Survived the 1998 Crude Oil 
 

Price Storm. Presentation. May 27, 1999. Available at: 
 

http://www.eia.doe.gov/emeu/finance/highlite7/sld001.htm
 

Standard & Poor’s. (S&P) 2001. Industry Surveys - Oil & Gas: Production & Marketing. March 8, 2001. 
 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of the Census. International Trade Administration. 

Industry, Trade, and the Economy: Data and Analysis. Data by NAICS and SIC. Available at: 

http://www.ita.doc.gov/td/industry/otea/industry_sector/tables_naics.htm. Downloaded February 2, 2006. 

U.S. Department of Commerce (U.S. DOC). 1989-2004. Bureau of the Census. Current Industrial Reports. 

Survey of Plant Capacity. 

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, 1998-2001, and 2003-2004. Bureau of the 

Census. Annual Survey of Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. 1997 Economic Census Bridge 

Between NAICS and SIC. 

U.S. Department of Commerce (U.S. DOC). 1987, 1992, 1997, and 2002. Bureau of the Census. Census of 

Manufactures. 

U.S. Department of Energy (U.S. DOE) 2005. Energy Information Administration. Annual Energy Review 

2004. DOE/EIA-0384(2004). August 2005. 

U.S. Department of Energy (U.S. DOE). 2004. Energy Information Administration. Performance Profiles of 

Major Energy Producers 2002. DOE/EIA-0206(04). February 2004. 

U.S. Department of Energy (U.S. DOE). 2003. Energy Information Administration. Annual Energy Review 

2002. DOE/EIA-0384(2002). October 2003. 

U.S. Department of Energy (U.S. DOE). 1999a. Energy Information Administration. Petroleum: An Energy 

Profile, 1999. p. 25. DOE/EIA-0545(99). July 1999. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2C-23 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2C: Petroleum Refining 

U.S. Department of Energy (U.S. DOE). 1999b. Energy Information Administration. The U.S. Petroleum 

Refining and Gasoline Marketing Industry. Recent Structural Changes in U.S. Refining: Joint Ventures, Mergers, 

and Mega-Mergers. July 9, 1999. 

U.S. Department of Energy (U.S. DOE). 1999c. Energy Information Administration. Petroleum Marketing 

Annual 1998. DOE/EIA-0487(98). October 1999. 

U.S. Department of Energy (U.S. DOE). 1997. Energy Information Administration. Petroleum 1996: Issues and 

Trends. p. 15. DOE/EIA-0615(96). September 1997. 

U.S. Department of Energy (U.S. DOE). Financial Reporting System (FRS) historical data. 

http://www.eia.doe.gov/emeu/aer/finance.html 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling 

Water Intake Structures. 

U.S. Environmental Protection Agency (U.S. EPA). 1996a. Office of Water. Preliminary Data for the 
 

Petroleum Refining Category. EPA-821-R-96-016. July, 1996. 
 

U.S. Environmental Protection Agency (U.S. EPA). 1996b. Office of Solid Waste. Study of Selected Petroleum 
 

Refining Residuals: Industry Study. August, 1996. 
 

U.S. Small Business Administration (U.S. SBA). 2006. Small Business Size Standards. Available at: 
 

http://www.sba.gov/size/sizetable2002.html. 
 

U.S. Small Business Administration (U.S. SBA). 1989-2003. Statistics of U.S. Businesses. Available at: 
 

http://www.sba.gov/advo/stats/int_data.html 
 

Value Line. 2006. Value Line 3.0 Investment Analyzer. 
 

Value Line. 2003. Value Line Investment Survey.
 

Value Line. 2001. “Petroleum (Integrated) Industry.” September 21, 2001. 
 

World Oil. 1999. “1998: A year of infamy.” February 1, 1999. Vol. 220. No.2 Available at: 
 

http://www.worldoil.com/magazine/MAGAZINE_DETAIL.asp?ART_ID=478&MONTH_YEAR=Feb-1999 
 

C2C-24 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Chapter C2D: Steel (SIC 331) 

INTRODUCTION 

EPA’s Detailed Industry Questionnaire, hereafter referred 

to as the DQ, identified five 4-digit SIC codes in the Steel 

Works, Blast Furnaces, and Rolling and Finishing Mills 

Industries (SIC 331) with at least one existing facility that 

operates a CWIS, holds a NPDES permit, and withdraws 

equal to or greater than two million gallons per day (MGD) 

from a water of the United States, and uses at least 25 

percent of its intake flow for cooling purposes (facilities 

with these characteristics are hereafter referred to as 

facilities potentially subject to the Phase III regulation or 

“potential Phase III facilities”). 

For each of the five SIC codes, Table C2D-1, following 

page, provides a description of the industry segment, a list 

of primary products manufactured, the total number of 

detailed questionnaire respondents (weighted to represent a 

national total of facilities that hold a NPDES permit and 

operate cooling water intake structures), the number of 

facilities estimated to be potentially subject to Phase III 

regulation based on the minimum withdrawal threshold of 2 

MGD, and the number of facilities estimated to be subject 

to regulation for the regulatory analysis options. 

CHAPTER CONTENTS 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 

Introduction..........................................................C2D-1

C2D-1 Summary Insights from this Profile ........C2D-3

C2D-2 Domestic Production...............................C2D-4

C2D-2.1 Output.............................................C2D-5

C2D-2.2 Employment and Productivity ......C2D-11

C2D-2.3 Capital Expenditures ....................C2D-13

C2D-2.4 Capacity Utilization......................C2D-14

C2D-3 Structure and Competitiveness..............C2D-15

C2D-3.1 Firm Size ......................................C2D-15

C2D-3.2 Concentration Ratios ....................C2D-16

C2D-3.3 Foreign Trade ...............................C2D-17

C2D-4 Financial Condition and Performance...C2D-19

C2D-5 Facilities Operating Cooling Water Intake

Structures ..............................................C2D-21

C2D-5.1 Waterbody and Cooling System Type......

 ...................................................C2D-22

C2D-5.2 Facility Size..................................C2D-23

C2D-5.3 Firm Size ......................................C2D-25

References..........................................................C2D-27

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

a 

Table C2D-1: Phase III Facilities in the Steel Industry (SIC 331) 

Number of Phase III Facilities

Potentially Subject to Subject to Subject to 

SIC SIC Description Important Products Manufactured 50 MGD 200 MGD 100 MGD Total Regulated All CWB Facilitiesb All 

Option Option Option 

3312 Steel Works, Blast 161 46 21 14 19 

Ovens), and 

3315 122 7 3 0 0 

3316 

Bars 

;

57 10 0 0 0 

3317 

Tubes 

130 5 1 0 1 

309 21 5 0 1 

3313 6 2 2 0 0 

Total Steel (SIC 331) 

476 68 27 14 20 

a

b

Source: 

Steel Mills (SIC 3312) 

Hot metal, pig iron, and silvery pig iron from 

Furnaces 

(Including Coke 

iron ore and iron and steel scrap; converting 

pig iron, scrap iron, and scrap steel into steel; 

hot-rolling iron and steel into basic shapes, 

Rolling Mills such as plates, sheets, strips, rods, bars, and 

tubing; merchant blast furnaces and byproduct 

or beehive coke ovens 

Steel Products (SICs 3315, 3316, 3317) 

Steel Wiredrawing 

and Steel Nails and 

Drawing wire from purchased iron or steel 

rods, bars, or wire; further manufacture of 

Spikes products made from wire; steel nails and 

spikes from purchased materials 

Cold-Rolled Steel 

Sheet, Strip, and 

Cold-rolling steel sheets and strip from 

purchased hot-rolled sheets cold-drawing 

steel bars and steel shapes from hot-rolled 

steel bars; producing other cold finished steel 

Steel Pipe and Production of welded or seamless steel pipe 

and tubes and heavy riveted steel pipe from 

purchased materials 

Total Steel Products 

Other Segments 

Electrometallurgica 

l Products, Except 

Ferro and nonferrous metal additive alloys by 

electrometallurgical or metallothermic 

Steel processes, including high percentage 

ferroalloys and high percentage nonferrous 

additive alloys 

Total SIC Code 331 

 Number of weighted detailed questionnaire survey respondents. 

 Individual numbers may not add up due to independent rounding. 

Executive Office of the President, 1987; U.S. EPA 2000; U.S. EPA analysis, 2006. 

As shown in Table C2D-1, EPA estimates that, out of the total of 476 facilities with a NPDES permit and 

operating cooling water intake structures in the Steel Industry (SIC 331), 27 (or 4%) would be subject to 

regulation under the 50 MGD All option, 14 (or 2.9%) would be subject to regulation under the 200 MGD All 

option, and 20 (or 4.2%) would be subject to regulation under the 100 MGD CWB option. EPA also estimated 

the percentage of total production that occurs at facilities estimated to be subject to regulation for each primary 

analysis option. Total value of shipments for the steel industry from the 2004 Annual Survey of Manufacturers is 

$92.8 billion. Value of shipments, a measure of the dollar value of production, was selected for the basis of this 

estimate. Because the DQ did not collect value of shipments data, these data were not available for Phase III 

facilities. Total revenue, as reported on the DQ, was used as a close approximation for value of shipments for 

these facilities. EPA estimated the total revenue of facilities expected to be subject to regulation under the 50 

MGD, 200 MGD and 100 MGD to be $32 billion, $24.3 billion, and $26.8 billion, respectively. Therefore, EPA 

C2D-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

estimates that the percentage of total production in the steel industry that occurs at facilities estimated to be 

subject to regulation under the 50 MGD, 200 MGD, and 100 MGD options is 34%, 26%, and 29%, respectively.. 

The responses to the Detailed Questionnaire indicate that two main steel segments account for the largest numbers 

of potential Phase III facilities: (1) Steel Mills (SIC code 3312) and (2) Steel Products (SIC codes 3315, 3316, and 

3317). The remainder of the steel industry profile therefore focuses on these two industry segments 

Table C2D-2 provides the crosswalk between SIC codes and the new NAICS codes for the profiled steel SIC 

codes. The table shows that both cold finishing of steel shapes (SIC 3316) and steel pipe and tubes (SIC 3317) 

have a one-to-one relationship to NAICS codes. The other SIC codes in the profiled steel segments correspond to 

two NAICS codes. 

Table C2D-2: Relationships between SIC and NAICS Codes for the Steel Industries (2002) 

Value of SIC NAICS Number of SIC Description NAICS Description Shipments Employment Code Code Establishments ($1000) 

Blast furnaces and All other petroleum and coal 324199 82 1,895,666 3,191 steel mills products manufacturing (pt) 3312 

331111 379 46,221,417 117,016 

3313 

products 

products 

331112 

331492 

manufacturing 

aluminum) (pt) 

22 

235 

819,311 

2,686,875 

2,333 

9,669 

3315 products 

products 

331222 

332618 manufacturing (

338 

1,672 

3,905,687 

42,314 

18,576 

5,879,897 

3316 331221 manufacturing 147 5,004,079 12,202 

3317 331210 183 6,240,489 21,858 

a

Source: 

Blast furnaces and 

steel mills Iron and steel mills (pt) 

Electrometallurgical 

Electrometallurgical 

Electrometallurgical 

ferroalloy product 

Secondary smelting, refining, 

and alloying of nonferrous 

metal (except copper and 

Steel wire and related 

Steel wire and related 

Steel wire drawing 

Other fabricated wire product 

pt) 

Cold finishing of steel 

shapes 

Rolled steel shape 

Steel pipe and tubes 

Iron and steel pipes and tubes 

manufacturing from 

purchased steel 

 Industry data for relevant NAICS codes from the 2002 Economic Census. 

U.S. DOC, 1997; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2D-1 SUMMARY INSIGHTS FROM THIS PROFILE 

A key purpose of this profile is to provide insight into the ability of steel industry firms to absorb compliance 

costs under each primary analysis option without material adverse economic/financial effects. The industry’s 

ability to withstand compliance costs is primarily influenced by two factors: (1) the extent to which the industry 

may be expected to shift compliance costs to its customers through price increases and (2) the financial health of 

the industry and its general business outlook. 

Likely Ability to Pass Compliance Costs Through to Customers 

As reported in the following sections of this profile, the steel industry is relatively unconcentrated, which would 

suggest that firms in this industry would have difficulty in passing a significant portion of their complianceJune 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

related costs through to customers. In addition, the domestic steel industry faces high competition from imports 

into the U.S. market, further curtailing the potential of firms in this industry to pass through to customers a 

significant portion of their compliance-related costs. As discussed above, given the relatively small proportion of 

total value of shipments in the industry estimated subject to regulation under the primary analysis options, EPA 

believes that the theoretical threshold for justifying the use of industry-wide CPT rates in the impact analysis of 

existing Phase III steel facilities has not been met. For these reasons, in its analysis of regulatory impacts for the 

steel industry, EPA assumed that complying firms would be unable to pass compliance costs through to 

customers: i.e., complying facilities must absorb all compliance costs at the time of compliance (see following 

sections and Appendix 3, Cost Pass-Through Analysis, to Chapter C3: Economic Impact Analysis for 

Manufacturers, for further information). 

Financial Health and General Business Outlook 

Over the past decade, the steel industry, like other U.S. manufacturing industries, experienced a range of 

economic/financial conditions, including substantial challenges. The U.S. steel industry went through a difficult 

restructuring process in the 1980s and early 1990s, including the closing of a number of inefficient mills, 

substantial investment in new technologies, and reductions in the labor force. Although U.S. demand for steel 

was strong in the late 1990s, low-priced imports increased substantially in 1998, which caused a number of U.S. 

steel bankruptcies and steelworker layoffs. The increased imports resulted from the Asian financial crisis, with 

the associated decline in Asian demand for steel and currency devaluations. Tariffs provided temporary relief 

through 2002; however, all tariffs were removed by the end of 2003. The steel industry was also negatively 

affected by economic recession in 2000 and 2001 and has been slow to recover. In 2004, however, the industry’s 

financial performance improved significantly, with 2004, followed by 2005, showing the highest financial 

performance over the survey timeframe. The industry has weathered difficult periods over the past few years and 

may be in position for better performance with continued strengthening of the U.S. economy. However, until 

such improvement manifests more concretely, the industry’s relatively weak financial condition suggest a lower 

ability (among the industries subject to the 316(b) regulation) to withstand additional regulatory compliance costs 

without imposing significant financial impacts. 

C2D-2 DOMESTIC PRODUCTION 

Steel is one of the most important products of the U.S. industrial metals industry. For most of the twentieth 

century, the U.S. steel industry consisted of a few large companies utilizing an integrated steelmaking process to 

produce the raw steel used in a variety of commodity steel products. The integrated process requires a large 

capital investment to process coal, iron ore, limestone, and other raw materials into molten iron, which is then 

transformed into finished steel products (S&P, 2001). In recent decades, the integrated steel industry has 

undergone a dramatic downsizing as a result of increased steel imports, decreased consumption by the auto 

industry, and the advent of “minimills” (S&P, 2001). While the traditional integrated facilities using basic 

oxygen furnaces (BOF) still account for a substantial percent of U.S. steel mill product production, the share of 

electric arc furnace (EAF) facilities using scrap steel as an input has grown steadily1

. By 2002, about 72 

companies operating about 107 steelmaking plants used the EAF steelmaking process; these non-integrated, 

minimill facilities produced 46.1 million metric tons of steel, an increase of about eight percent compared with 

that of 2001, and accounted for 50.4 percent of total steelmaking (USGS, 2002). The range of products produced 

by EAFs has also expanded over time. Initially, EAFs produced primarily lower-quality structural materials. 

1 Production from open hearth furnaces, which dominated production until the early 1950s, ended in 1991. BOF facilities 

have traditionally been referred to as integrated producers, because they combined iron-making from coke, production of pig 

iron in a blast furnace, and production of steel in the BOF. In recent years, some facilities have closed their coke ovens. 

These BOF facilities are no longer fully integrated. 

C2D-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Starting in the 1990s, EAFs began producing higher quality sheet products as well. All recent capacity additions 

have been at EAF facilities. 

Basic steel mill products include carbon steel, steel alloys, and stainless steel. Steel forming and finishing 

operations may take place at facilities co-located with steelmaking or at separate facilities. These operations take 

steel (in the form of blooms, billets, and slabs) and use heating, rolling or drawing, pickling, cleaning, 

galvanizing, and electroplating processes in various combinations to produce finished bars, wire, sheets, and coils 

(semifinished steel products). Establishments that produce hot rolled products, along with basic BOF and EAF 

steelmaking facilities, are included in SIC 3312. SIC codes 3315, 3316, and 3317 perform additional processing 

of steel bars, wires, sheets, and coils (including cold-rolling of sheets) to produce steel products for a variety of 

end-uses (U.S. EPA, 1995). 

The steel industry is the fourth largest energy-consuming industry in the U.S. economy. Energy costs account for 

approximately 17 percent of the total manufacturing cost (AISI, 2000). Steelmakers use coal, oil, electricity, and 

natural gas to fire furnaces and run process equipment. Minimill producers require large quantities of electricity 

to operate the electric arc furnaces used to melt and refine scrap metal, while integrated steelmakers depend on 

coal for up to 60 percent of their total energy requirements (McGraw-Hill, 1998). 

C2D-2.1 Output 

Steel mill products are sold to service centers (which buy finished steel, often process it further, and sell to a 

variety of fabricators, manufacturers, and construction industry clients), to vehicle producers, and to the 

construction industry. The rapid growth in sales of heavy sports utility vehicles contributed to increased U.S. 

steel consumption in the 1990s. Efforts to increase the fuel efficiency of vehicles have eroded steel’s position in 

the automotive market as a whole, however, as aluminum and plastic have replaced steel in many automotive 

applications. Other end-uses for steel include a wide range of agricultural, industrial, appliance, transportation, 

and container applications. Use of steel in beverage cans has been largely replaced by aluminum. 

Table C2D-3 shows trends in production from the two major groups of steel producers: BOF and EAF facilities. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Table C2D-3: U.S. Steel Production by Type of Producer 

Steel Production Percent from Percent from Year 

Million MT % Change BOF EAF

1990a 89.7 59.1% 37.3% 

1991b 79.7 -11.15% 60.0% 38.4% 

1992 84.3 5.77% 62.0% 38.0% 

1993 88.8 5.34% 60.6% 39.4% 

1994 91.2 2.70% 60.7% 39.3% 

1995 95.2 4.39% 59.6% 40.4% 

1996 95.5 0.32% 57.4% 42.6% 

1997 98.5 3.14% 56.2% 43.8% 

1998 98.6 0.10% 54.9% 45.1% 

1999 97.4 -1.22% 53.7% 46.3% 

2000 102 4.72% 53.0% 47.0% 

2001 90.1 -11.67% 52.6% 47.4% 

2002 91.6 1.66% 49.6% 50.4% 

2003 93.7 2.29% 49.0% 51.0% 

2004 99.7 6.40% 47.8% 52.2% 

2005c 92.4 -7.32% 44.9% 55.1% 

Total Percent Change 3.0% 

1990-2005 

Average Annual 0.2% 

Growth Rate 

a 3.5 percent of 1990 production was from open hearth furnaces. b 1.6 percent of 1991 production was from open hearth furnaces. c

 Estimated. 

Source: AISI, 2001b; USGS, 1997;USGS, 2001; USGS 2004; USGS, 2006; USGS, Iron 

and Steel Statistical Compendium. 

This table shows the cyclical nature of the U.S. steel industry, with variations in growth from year to year 

reflecting general U.S. and world economic conditions, persistent excess production capacity worldwide, the 

competitive strength of imports, and trends in steel’s share of the automotive and other end-use markets for steel. 

The U.S. steel industry went through a difficult restructuring process in the 1980s and early 1990s, including the 

closing of a number of inefficient mills, substantial investment in new technologies, and reductions in the labor 

force. The U.S. became a world leader in low-cost production, lead by the minimill producers. Although U.S. 

demand for steel was strong in the late 1990s, low-priced imports increased substantially in 1998, which led to a 

number of U.S. steel bankruptcies and steelworker layoffs. The increased imports resulted from the Asian 

financial crisis, with the associated decline in Asian demand for steel and currency devaluations. The U.S. 

government initiated the Steel Action Program in response to the crisis, focusing on strong enforcement of trade 

laws through the World Trade Organization and bilateral efforts to address market-distorting practices abroad2

. 

The industry began to show signs of recovery in the second half of 1999, and by early 2000 capacity utilization 

recovered to above 90 percent and earnings were up for most major steel companies (U.S. DOC, 2000). 

However, beginning in 2000, the weakening of the U.S. economy significantly reduced steel demand and total 

U.S. steel production fell by nearly 12 percent in 2001. In March 2002, the U.S. steel industry received temporary 

relief under Section 201 of the 1974 Trade Act with 3 years of tariffs ranging up to 30 percent on certain steel 

2 World steel trade is characterized by noncompetitive practices in a number of countries, which have resulted in 

substantial friction over trade issues since the late 1960s. Since 1980, almost 40 percent of the unfair trade practice cases 

investigated in the U.S. have been related to steel products (U.S. DOC, 2000). 

C2D-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

imports. Relief from imports was nullified to some extent when the U.S. Department of Commerce exempted 727 

imported steel products from the tariff in June 2002. By year-end, 2002 was the fourth highest steel import year 

in U.S. history (USGS, 2002). Removal of all tariffs occurred on December 4, 2003 (S&P, 2004). 

The steel industry is recovering, but slowly, from the import penetration in the late 90's followed by the economic 

recession in 2001. In 2003, the integrated steel industry had poor operating results, as high raw material costs 

outweighed increased sales and higher volumes. As a result, most domestic steel producers instituted a raw 

material surcharge to offset sharply rising costs for raw materials such as scrap, iron ore and coke. Additionally, 

worldwide capacity remains in excess of long-term needs. Imports will most likely rise in 2004 after the removal 

of tariffs. However, to the extent that imports put downward pressure on prices, they may force the shutdown of 

marginal capacity currently operating. These capacity reductions will reduce domestic supply, and may set the 

stage for better financial performance in later years (S&P, 2004). 

Value of shipments and value added are two common measures of manufacturing output3

. Change in these 

values over time provides insight into the overall economic health and outlook for an industry. Value of 

shipments is the sum of receipts earned from the sale of outputs; it indicates the overall size of a market or the 

size of a firm in relation to its market or competitors. Value added, defined as the difference between the value of 

shipments and the value of inputs used to make the products sold, measures the value of production activity in a 

particular industry. 

Figure C2D-1 presents trends in constant-dollar value of shipments and value added for Steel Mills and Steel 

Products. Value of shipments and value added from Steel Mills declined in the early 1990s, and recovered 

through 1997, prior to the 1998 import crisis and the later U.S. economic recession. The segment’s value of 

shipments continued to decline through 2001, but has risen continuously since 2002, peaking at nearly $75 billion 

in 2004. Steel Mills value added, on the other hand, continued to decline until 2003, increasing slightly in 2004. 

Value of shipments and value added for Steel Products were less volatile, increasing gradually over 1990 through 

1997. Value added stayed relatively constant through 2004, while value of shipments declined until 2003, then 

increased slightly in 2004. 

3

 Terms highlighted in bold and italic font are further explained in the glossary. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-7 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

(millions, $2005) 

0 

198719881989199019911992199319941995199619971998199920002001200220032004 

( 

l ( ) 

( ) 

( 

0 

198719881989199019911992199319941995199619971998199920002001200220032004 

(

 ( ) 

( ) 

(

Note: 

. 

Source: 

Figure C2D-1: Value of Shipments and Value Added for Profiled Steel Industry Segments 

Value of Shipments 

1 0 , 0 0 0 

2 0 , 0 0 0 

3 0 , 0 0 0 

4 0 , 0 0 0 

5 0 , 0 0 0 

6 0 , 0 0 0 

7 0 , 0 0 0 

8 0 , 0 0 0 

St e e l M ills N A I CS t o SI C) 

St e e l M i ls SI C 3 3 1 2 

St e e l P r o duc t s N A I CS t o SI C

St e e l P r o duc t s SI C 3 3 1 5 , 3 3 1 6 , 

3 3 1 7 ) 

Value Added 

2,000 

4,000 

6,000 

8,000 

10 ,000 

12 ,000 

St eel M ills NAICS t o SIC) 

St eel M ills SIC 3312 

St eel P ro ducts NAICS to SIC

St eel P ro duct s SIC 3315, 3 316, 

331 7) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2D-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

B2D-2.2 Prices 

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and 

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment. 

Figure C2D-2 below shows that prices increased from 1987 to 1989 and then decreased in the early 1990s, due to 

a depressed domestic economy and the resulting decline in the demand for steel. Prices rebounded sharply 

through 1995 before eroding again, due to the global oversupply and increases in exports discussed above. Basic 

steel prices declined sharply with the growth of imports in the late 1990s, recovered in 2000, but dropped again in 

2001 with the decline in steel demand (S&P, 2001; AISI, 2001a). Prices began to rise in 2002 with the beginning 

of economic recovery, and then proceeded to increase dramatically during 2003 to 2005. In 2005, both Steel 

Products and Steel Mills segments recorded the highest prices observed during the 1987 to 2005 time period. 

90 

100 

110 

120 

130 

140 

150 

160 

170 

180 

190 

200 

1987198819891990199119921993199419951996199719981999200020012002200320042005 

( 

) 

( 

Note: 

Source:

Figure C2D-2: Producer Price Index for Profiled Steel Industry Segments 

St e e l P r o duc t s N A I C S 3 3 1 2 1 0 , 

3 3 1 2 2 1 , 3 3 1 2 2 2 

St e e l M ills N A I C S 3 3 1 1 1 1 ) 

 Data for 2005 were preliminary at the time of this writing. The NAICS values shown in this figure match the historical 

values of the profiled SIC codes. As data by SIC were only available through 2003, the representative NAICS codes are 

presented for evaluation through 2005. 

 BLS, 2006. 

B2D-2.3 Number of Facilities and Firms 

The number of operating Steel Mills fluctuated significantly between 1990 and 2003, as the U.S. industry 

underwent a substantial restructuring. Table C2D-4 shows substantial decreases in the number of facilities in 

1992 and 1993 due to a significant decrease in global demand for Steel Products and resulting overcapacity. This 

decrease was followed by a significant recovery in 1995 and 1996. The number of facilities continued to rise 

through 2001, with the largest increase around 1999. This increase may have resulted in part from the advent of 

minimills, as discussed above. The import crisis in 1998 ultimately led to bankruptcy for a number of U.S. 

producers, including LTV and Bethlehem Steel (S&P, 2001). Additionally, 7 major bankruptcies occurred over 

2002 and early 2003, including Bayou Steel Corp, Kentucky Electric Steel Inc, Slater Steel Inc, and Weirton Steel 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-9 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Corp (USGS, 2004). Nonetheless, the Steel Mills segment saw an overall 74 percent increase in the number of 

facilities during 1990 to 2003. 

In contrast to the volatility in the number of Steel Mills, the number of facilities in the Steel Products segment has 

remained relatively stable between 1990 and 2003, with decreases towards the end of the period. 

Table C2D-4: Number of Facilities in the Profiled Steel Industry Segments 

Steel Mills Steel Products 

Year Number of Percent Number of Percent 

Facilities Change Facilities Change 

1990 497 776 

1991 531 6.8% 807 4.0% 

1992 412 -22.4% 831 3.0% 

1993 343 -16.7% 833 0.2% 

1994 339 -1.2% 804 -3.5% 

1995 391 15.3% 791 -1.6% 

1996 483 23.5% 770 -2.7% 

1997 297 -38.5% 727 -5.6% 

1998a 398 34.0% 865 19.0% 

1999a 685 72.1% 919 6.2% 

2000a 981 43.2% 1,026 11.7% 

2001a 1,352 37.9% 1,028 0.2% 

2002a 1,249 -7.6% 953 -7.3% 

2003a 866 -30.7% 918 -3.6% 

Total Percent Change 74.2% 18.3% 

1990-2003 

Average Annual 4.4% 1.3% 

Growth Rate 

a Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the 

NAICS classification data to the SIC code classifications using the 1997 Economic Census Bridge 

Between NAICS and SIC. 

Source: U.S. SBA, 1989-2003. 

The trend in the number of firms over the period between 1990 and 2003 is similar to the trend in the number of 

facilities in both industry segments. The number of firms in the Steel Mill segment decreased to a period-low of 

216 in 1997, before increasing significantly over 1998 to 2001. This rise in the number of Steel Mill firms was 

followed by slight declines in 2002 and 2003. Overall, however, the number of Steel Mill firms increased by just 

over 83 percent between 1990 and 2003. The number of firms in the Steel Products segment also decreased from 

1992 to 1998, before rising steadily through 2001, then declining slightly in 2002 and 2003. 

Table C2D-5 shows the number of firms in the two profiled steel segments between 1990 and 2003. 

C2D-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Year 

Table C2D-5: Number of Firms in the Profiled Steel Industry Segments 

Steel Mills Steel Products 

Number of Firms Percent Change Number of Firms Percent Change 

1990 408 597 

1991 433 6.1% 635 6.4% 

1992 321 -25.9% 661 4.1% 

1993 261 -18.7% 641 -3.0% 

1994 258 -1.1% 618 -3.6% 

1995 309 19.8% 607 -1.8% 

1996 397 28.5% 583 -4.0% 

1997 216 -45.6% 544 -6.7% 

1998a 314 45.3% 666 22.4% 

1999a 593 89.0% 716 7.4% 

2000a 885 49.2% 810 13.2% 

2001a

 1,254 41.6% 811 0.1% 

2002a 1,140 -9.0% 757 -6.7% 

2003a 748 -34.4% 767 1.4% 

83.3% 28.5% 

1990-2003 

4.8% 1.9% 

Growth Rate 

a

. 

Source: 

Total Percent Change 

Average Annual 

 Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in the North 

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data 

to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. SBA, 1989-2003. 

C2D-2.2 Employment and Productivity 

Figure C2D-3, following page, provides information on Employment from the Annual Survey of Manufactures 

for the Steel Mills and Steel Products segments. As shown in the figure, employment levels in the Steel Mills 

segment decreased by a total of 43 percent between 1987 and 2004. Employment is a significant cost component 

for steelmakers, accounting for approximately 30 percent of total costs (McGraw-Hill, 1998). Labor cost 

reductions enabled Steel Mills to improve profitability and competitiveness in the face of limited opportunity for 

price increase in the highly competitive market for Steel Products. The steady decline in employment reflects the 

smaller number of Steel Mill facilities and firms, in conjunction with aggressive efforts to improve worker 

productivity in order to cut labor costs and improve profits (McGraw-Hill, 1998). Employment declined further 

as a result of the 1998 import crisis, with almost 26,000 U.S. steelworkers reportedly losing their jobs (AISI, 

2001a). Employment in the Steel Products segment over the period 1987-2001 remained fairly constant, before 

experiencing moderate declines in the subsequent three years. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-11 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

(

 ( ) 

( ) 

(

a

 (

. 

Source: 

Figure C2D-3: Employment for Profiled Steel Industry Segments 

25,000 

50,000 

75,000 

1 00,000 

1 25,000 

1 50,000 

1 75,000 

2 00,000 

2 25,000 

St eel Mills NAICS t o SIC) 

St eel M ills SIC 3312

St eel P ro ducts NAICS to SIC

St eel P ro duct s SIC 3315, 3 316, 

3317) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in the 

North American Industry Classification System NAICS). For this analysis, EPA converted the NAICS classification data to the 

SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

Table C2D-6 presents the change in value added per labor hour, a measure of labor productivity, for the Steel 

Mill and Steel Products segments between 1987 and 2004. Labor productivity at Steel Mills increased slightly 

over this period. Value added per labor hour increased around 14.4 percent between 1987 and 2004. Much of 

this increase in labor productivity can be attributed to the restructuring of the U.S. steel industry and the increased 

role of minimills in production. Minimills are capable of producing rolled steel from scrap with substantially 

lower labor needs than integrated mills (McGraw-Hill, 1998). Labor productivity in the Steel Products segment 

has also fluctuated, but increased by 17.8 percent overall from 1987 to 2004. 

C2D-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Table C2D-6: Productivity Trends for the Profiled Steel Industry Segments ($2005) 

Steel Mills Steel Products 

Value Production Value Added/Hour Value Production Value Added/Hour Year 

Added Hours Percent Added Hours Percent 

(millions) (millions) $/hr Change (millions) (millions) $/hr Change 

1987 9,836 306 32 2,499 108 23 

1988 10,418 324 32 -0.2% 2,706 94 29 24.4% 

1989 10,219 348 29 -8.5% 2,597 112 23 -19.9% 

1990 10,069 315 32 8.9% 2,595 93 28 21.0% 

1991 9,213 279 33 3.3% 2,485 106 23 -16.7% 

1992 9,131 277 33 -0.3% 2,573 87 30 26.9% 

1993 8,880 268 33 0.7% 2,707 109 25 -16.1% 

1994 9,050 266 34 2.4% 2,729 91 30 20.9% 

1995 9,130 263 35 2.3% 2,809 114 25 -17.7% 

1996 8,902 260 34 -1.6% 2,806 134 21 -15.1% 

1997a 8,708 252 35 1.2% 2,806 110 25 21.1% 

1998a 8,669 245 35 2.0% 2,867 113 25 -0.1% 

1999a 8,186 237 35 -2.1% 2,747 108 26 0.5% 

2000a 8,315 241 34 -0.4% 2,803 109 26 0.4% 

2001a 7,200 283 25 -26.1% 2,516 97 26 1.3% 

2002a 6,660 194 34 35.3% 2,404 91 27 2.1% 

2003a 6,251 180 35 0.9% 2,186 85 26 -2.9% 

2004a 6,780 184 37 6.0% 2,162 79 27 6.4% 

Total Percent Change -31.1% -39.8% 14.4% -13.5% -26.5% 17.8% 

1987-2004 

Average Annual -2.2% -2.9% 0.8% -0.8% -1.8% 1.0% 

Growth Rate 

a

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in the North 

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code 

classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2D-2.3 Capital Expenditures 

Steel production is a capital intensive process. The integrated production process requires a capital investment of 

approximately $2,000 per ton of capacity for plants and equipment. The nonintegrated process employed in 

minimills is significantly less capital intensive with capital costs of approximately $500 per ton of capacity 

(McGraw-Hill, 1998). 

New capital expenditures are needed to modernize, expand, and replace existing capacity to meet growing 

demand. Capital expenditures in the Steel Mills and the Steel Products segments between 1987 and 2004 are 

presented in Table C2D-7, following page. The table shows that capital expenditures in both the Steel Products 

and the Steel Mills dropped significantly between 1987 and 2004. Capital outlays increased in the late 1980s and 

early 1990s, rising by a total of 112 percent from 1987 to 1991. This substantial increase coincides with the 

advent of thin slab casting, a technology that allowed minimills to compete in the market for flat rolled sheet steel. 

The significant decreases in capital expenditures by Steel Mills that followed this expansion reflect the bottoming 

out of the demand for Steel Products in the early 1990s. The recovery in capital expenditures in the mid 1990s 

reflected increased demand and higher utilization rates (McGraw-Hill, 1998). However, the import crisis of the 

late 1990s and later weakening of the U.S. economy put pressure on the domestic industry, and expenditures for 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-13 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

new capacity decreased steadily since 1997 (McGraw-Hill, 2000). In 2004, however, capital expenditures in both 

the Steel Mills and Steel Products sectors rose by 45 and 11 percent, respectively. 

Table C2D-7: Capital Expenditures for the Profiled Steel Industry Segments (millions, $2005) 

Steel Mills Steel Products 

Year Capital Capital 

Expenditures Percent Change Expenditures Percent Change 

1987 1,869 831 

1988 2,804 50.0% 633 -23.8% 

1989 3,566 27.2% 719 13.5% 

1990 3,509 -1.6% 718 -0.1% 

1991 3,965 13.0% 511 -28.8% 

1992 2,869 -27.6% 527 3.0% 

1993 2,256 -21.4% 575 9.2% 

1994 3,246 43.9% 664 15.4% 

1995 3,348 3.2% 648 -2.4% 

1996 3,366 0.5% 698 7.7% 

1997a 3,046 -9.5% 642 -8.0% 

1998a 2,993 -1.7% 613 -4.5% 

1999a 2,537 -15.2% 518 -15.6% 

2000a 2,308 -9.0% 538 3.9% 

2001a 1,675 -27.4% 412 -23.4% 

2002a

 1,452 -13.3% 457 10.9% 

2003a 1,006 -30.7% 454 -0.7% 

2004a 1,459 45.0% 503 10.8% 

-21.9% -39.4% 

1987-2004 

-1.4% -2.9% 

Growth Rate 

a

. 

Source: 

Total Percent Change 

Average Annual 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification 

data to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2D-2.4 Capacity Utilization 

Capacity utilization measures actual output as a percentage of total potential output given the available 

capacity. Capacity utilization provides insight into the extent of excess or insufficient capacity in an industry, and 

into the likelihood of investment in new capacity. Figure C2D-4 presents the capacity utilization index from 1989 

to 2004 for the 4-digit SIC codes that make up the Steel Mill and Steel Products segments. As shown in the 

figure, the index follows similar trends in each segment. For all segments, capacity utilization peaked in 1994 and 

decreased through 2001. Capacity utilization remained relatively constant through 2003 and 2004 for both 

segments, though the Steel Mills segment showed slight declines during both years. This trend reflects the overcapacity in the U.S. steel industry, which has followed the substantial capacity additions in the late 1980s and 

early 1990s and increased imports throughout the 1990s. Worldwide capacity remains in excess of long-term 

needs (S&P, 2004). 

C2D-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

50 

60 

70 

80 

90 

100 

1989199019911992199319941995199619971998199920002001200220032004 

( ) 

( ) 

( ) 

(

Note: 

Source: 

Figure C2D-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Steel Industry Segments 

St eel Mills NAICS t o SIC

St eel Mills SIC 3 3 12

St eel P ro ducts NAICS to SIC

St eel P roduct s SIC 3315 , 3316, 

33 17) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. DOC, 1989-2004. 

C2D-3 STRUCTURE AND COMPETITIVENESS 

The companies that manufacture steel operate in a highly capital intensive industry. The Steel Mill segment is 

comprised of two different kinds of facilities, integrated mills and minimills. The integrated steelmaking process 

requires expensive plant and equipment purchases that will support production capacities ranging from two 

million to four million tons per year. Until the early 1960s, integrated steelmaking was the dominant method of 

U.S. steel manufacturing. Since then, the integrated steel business underwent dramatic downsizing due to 

competition from minimills and imports. These trends reduced the number of integrated steelmakers (S&P, 

2001). Minimills vary in size, from capacities of 150,000 tons at small facilities to larger facilities with annual 

capacities of between 400,000 tons and two million tons. Integrated companies have significant capital costs of 

approximately $2,000 per ton of capacity compared with minimills’ $500 per ton. Because minimills do not 

require as much investment in capital equipment as integrated steelmakers, minimills have been able to lower 

prices, driving integrated companies out of many of the commodity steel markets (S&P, 2001). The advent of 

minimills, with their lower initial capital investments, has made it easier for new producers to enter the market. 

C2D-3.1 Firm Size 

For both Steel Mills and Steel Products, the Small Business Administration defines a small firm as having 1,000 

or fewer employees. The size categories reported in the Statistics of U.S. Businesses (SUSB) do not correspond 

with the SBA size classifications, therefore preventing precise use of the SBA size threshold in conjunction with 

SUSB data. Table C2D-8 below shows the distribution of firms, facilities, and receipts by the employment size of 

the parent firm. The SUSB data presented in Table C2D-8 show that in 2003, 674 of 748 firms in the Steel Mills 

segment had less than 500 employees. Therefore, at least 90 percent of firms in this segment were classified as 

small. These small firms owned 691 facilities, or 80 percent of all facilities in the segment. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-15 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Of the 767 firms with facilities that manufacture Steel Products, 677, or 88 percent, employ fewer than 500 

employees, and are therefore considered small businesses. Small firms own 78 percent of facilities in the 

industry. 

Table C2D-8: Number of Firms and Facilities by Employment Size 

Category in the Profiled Steel Industry Segments, 2003a 

Steel Mills Steel Products 

Employment 

Number of Number of Number of Number of Size Category 

Firms Facilities Firms Facilities 

0-19 491 494 413 413 

20-99 120 122 156 161 

100-499 63 75 108 140 

500+ 74 176 91 204 

Total 748 866 767 918 

a Before 1998, data were compiled in the SIC system; since 1997, these data have been 

compiled in the North American Industry Classification System (NAICS). For this analysis, 

EPA converted the NAICS classification data to the SIC code classifications using the 1997 

Economic Census Bridge Between NAICS and SIC. 

Source: U.S. SBA, 1989-2003. 

C2D-3.2 Concentration Ratios 

Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is 

closely related to entry barriers with more concentrated industries generally having higher barriers. 

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common 

measures of industry concentration. The CR4 indicates the market share of the four largest firms. For example, a 

CR4 of 72 percent means that the four largest firms in the industry account for 72 percent of the industry’s total 

value of shipments. The higher the concentration ratio, the less competition there is in the industry, other things 

being equal4

. An industry with a CR4 of more than 50 percent is generally considered concentrated. The HHI 

indicates concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the 

market shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with 

market shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (602

 + 302 

+ 102

). The higher the index, the fewer the number of firms supplying the industry and the more concentrated the 

industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets in which the HHI 

is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 1800 are considered 

to be moderately concentrated, and those in which the HHI is in excess of 1800 are considered to be concentrated. 

Table C2D-9 shows that Steel Mills have an HHI of 445 and that Steel Products, comprised of SIC 3315, 3316, 

and 3317, have HHIs of 223, 631, and 200, respectively. The Steel Mills and Steel Products segments are 

considered competitive, based on standard measures of concentration. The CR4 and the HHI for the relevant SIC 

codes are below the benchmarks of 50 percent and 1,000, respectively. Moreover, the table shows that each of the 

industry segments generally became more competitive between 1987 and 1997. The relatively low concentration 

4

 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry 

with a high concentration in domestic production may nonetheless be subject to significant competitive pressures if it 

competes with foreign producers or if it competes with products produced by other industries (e.g., plastics vs. aluminum in 

beverage containers). Concentration ratios based on share of production are therefore only one indicator of the extent of 

competition in an industry. 

C2D-16 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

values suggest that this factor would not increase the industry’s overall ability to pass through compliance costs as 

price increases to customers. 

Table C2D-9: Selected Ratios for the Profiled Steel Industry Segments 

SIC (S) or Total Concentration Ratios 

NAICS (N) Year Number of 4 Firm 8 Firm 20 Firm 50 Firm HerfindahlCode Firms (CR4) (CR8) (CR20) (CR50) Hirschman Index 

Steel Mills 

S 3312 

1987 

1992 

271 

135 

44% 

37% 

63% 

58% 

81% 

81% 

94% 

96% 

607 

551 

N 331111b 1997 191 33% 53% 75% 94% 445 

S 3315 

1987 

1992 

274 

271 

21% 34% 54% 78% 212 

19% 32% 54% 80% 201 

1997 199 21% 36% 56% 80% 223 

S 3316 

1987 

1992 

156 

158 

45% 62% 82% 95% 654 

43% 60% 81% 96% 604 

N 331221b 1997 153 44% 60% 81% 96% 631 

S 3317 

1987 

1992 

155 

166 

23% 34% 58% 85% 242 

19% 31% 53% 80% 194 

1997 166 20% 30% 52% 82% 200 

a The 

b

and NAICS 

Source: 

Steel Products 

N 331222 

N 331210 

1997 Census of Manufactures is the most recent concentration ratio data available. 

 NAICS code represents largest percentage of facilities and value of shipments within this SIC based on 1997 Bridge Between SIC 

U.S. DOC, 1987, 1992, 1997, and 2002. 

C2D-3.3 Foreign Trade 

This profile uses two measures of foreign competition: export dependence and import penetration. 

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic 

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that 

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests 

that higher import penetration levels will reduce market power and pricing discretion because foreign competition 

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for 

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The 

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with 

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be 

less likely to succeed in passing compliance costs through to customers. 

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales 

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not 

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing 

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated 

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-17 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to 

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through 

price increases since export sales are presumed subject to substantial competition from foreign producers. 

The global market for steel continues to be extremely competitive. From 1945 until 1960, the U.S. steel industry 

enjoyed a period of tremendous prosperity and was a net exporter until 1959. However, by the early 1960s, 

foreign steel industries had thoroughly recovered from World War II and had begun construction of new plants 

that were more advanced and efficient than the U.S. integrated steel mills. Foreign producers also enjoyed lower 

labor costs, allowing them to take substantial market share from U.S. producers. This increased competition from 

foreign producers, combined with decreased consumption in some key end use markets, served as a catalyst for 

the restructuring and downsizing of the U.S. steel industry. The industry emerged from this restructuring 

considerably smaller, more technologically advanced and internationally competitive (S&P, 2001). 

Table C2D-10 presents trade statistics for the profiled steel industry segments from 1990 to 2002. The table 

shows that while the trend in export dependence has been relatively stable, import penetration increased almost 

continuously from the early 1990s until 1998 and fluctuated annually during 1999 to 2002. Historically, the U.S. 

steel industry has exported a relatively small share of shipments compared to the steel industries of other 

developed nations (McGraw-Hill, 2000). U.S. exports rose in 1995 to the highest level since 1941, and remained 

relatively high through 2002. Imports penetration rose to 21 percent in 1998, after hovering around 15 percent in 

the early 1990s. This increase in imports reflected excess steel capacity worldwide and the competitiveness of 

foreign steel producers, as described previously. Canada received the largest amount of U.S. exported steel in 

2003, followed by Mexico. Imports of steel mill products increased 8.4 percent from 2001 to 2002. Brazil, 

Canada, the EU, Japan, the Republic of Korea, Mexico, Russia, and Turkey were major sources of steel mill 

product imports (USGS, 2002). 

The steel industry’s import penetration ratio was 18.2 percent in 2002, implying that the industry currently faces 

moderate competition from foreign firms in setting prices for U.S. sales. However, as noted above, the removal 

of temporary import restrictions will leave the industry more exposed to competition from foreign producers. The 

steel industry’s export dependence ratio in 2002 was 7.3 percent; therefore, the industry will not likely be affected 

by competitive pressures from abroad in export sales. This finding implies that competitive pressures from 

foreign firms/markets do not characterize the steel industry and thus market power and cost pass through potential 

are not diminished by export penetration. However, it is questionable that firms in an industry will have a 

comparatively high cost pass-through potential simply because firms in that industry are not active in export 

markets. From the standpoint of firms gaining market power, EPA believes that the finding of low export 

dependence diminishes the importance of export competition as indicator of market power. Thus, other indicators 

must be relied upon to gauge the amount of market power firms in the steel industry are expected to hold. On 

balance, the U.S. steel industry is subject to significant international competitive pressure, largely manifesting 

though the penetration of foreign product into domestic markets. Although the U.S. industry’s competitiveness 

against foreign producers improved in recent years, the industry remains substantially vulnerable to foreign 

competition, indicating a low likelihood that steel industry producers subject to the 316(b) regulation would be 

able to pass a material share of compliance costs through to customers. 

C2D-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Table C2D-10: Import Penetration and Export Dependence: Steel Mill Products ($2005) 

c 

Value of Value of Value of Implied Export Year Exports Domestic b c 

(millions) (millions) (millions) a 

1989 13,710 4,259 87,290 96,742 14.2% 4.9% 

1990 12,253 4,064 85,638 93,827 13.1% 4.7% 

1991 11,076 5,134 75,827 81,769 13.5% 6.8% 

1992 11,040 4,141 75,383 82,282 13.4% 5.5% 

1993 11,794 3,789 75,925 83,930 14.1% 5.0% 

1994 16,696 3,980 82,449 95,166 17.5% 4.8% 

1995 15,709 5,953 87,314 97,070 16.2% 6.8% 

1996 16,547 5,191 87,487 98,842 16.7% 5.9% 

1997d

 17,440 6,105 90,133 101,468 17.2% 6.8% 

1998d

 20,886 5,747 86,768 101,908 20.5% 6.6% 

1999d 16,173 5,249 81,817 92,740 17.4% 6.4% 

2000d 18,479 5,883 80,551 93,147 19.8% 7.3% 

2001d

 14,044 5,496 69,930 78,479 17.9% 7.9% 

2002d

 14,593 5,132 70,535 79,997 18.2% 7.3% 

6.4% 20.5% -19.2% -17.3% 

1989-2002 

0.5% 1.4% -1.6% -1.5% 

Growth Rate 

a

b

d

. 

Source: 

Import Imports Shipments Penetration Dependence Consumption

Total Percent Change 

Average Annual 

 Calculated by EPA as shipments + imports - exports. 

 Calculated by EPA as imports divided by implied domestic consumption. 

 Calculated by EPA as exports divided by shipments. 

 Before 1997, data were compiled in the SIC system; since 1998, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 2006; U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2D-4 FINANCIAL CONDITION AND PERFORMANCE 

The financial performance and condition of the steel industry are important determinants of its ability to withstand 

the costs of regulatory compliance without material, adverse economic/financial impact. To provide insight into 

the industry’s financial performance and condition, EPA reviewed two key measures of financial performance 

over the 14-year period, 1992-2005: net profit margin and return on total capital. EPA calculated these measures 

as a revenue-weighted index of measure values for public reporting firms in the respective industries, using data 

from the Value Line Investment Survey. Financial performance in the most recent financial reporting period 

(2005) is obviously not a perfect indicator of conditions at the time of regulatory compliance. However, 

examining the trend, and deviation from the trend, through the most recent reporting period gives insight into 

where the industry may be, in terms of financial performance and condition, at the time of compliance. In 

addition, the volatility of performance against the trend, in itself, provides a measure of the potential risk faced by 

the industry in a future period in which compliance requirements are faced: all else equal, the more volatile the 

historical performance, the more likely the industry may be in a period of relatively weak financial conditions at 

the time of compliance. 

Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales 

or revenue, and measures profitability, as reflected in the conventional accounting concept of net income. Over 

time, the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the 

industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-19 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

several factors, including: variations in aggregate economic conditions (including international and U.S. 

conditions), variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in 

overcapacity), or changes in the pricing and availability of inputs to the industry’s production processes (e.g., the 

cost of energy to the steel production process). The extent to which these fluctuations affect an industry’s 

profitability, in turn, depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a 

capital intensive industry such as the steel industry, the relatively high fixed capital costs as well as other fixed 

overhead outlays, can cause even small fluctuations in output or prices to have a large positive or negative affect 

on profit margin. 

Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by 

the total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of 

the capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or 

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets 

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the 

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate 

over time a sufficient return on capital if the industry is to remain economically viable and attract capital. The 

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in 

return on total capital. 

Figure C2D-5, following page, presents trends in net profit margins and return on total capital for the steel 

industry between 1992 and 2003. The graph shows considerable volatility in the trend over this period. After 

registering improvement in financial performance in the first half of the 1990s, steel industry financial 

performance declined markedly from 1997/1998 forward to 2003, due first to increasing imports and later to 

general economic weakness. Measures of financial performance improved in 2002 when the U.S. steel industry 

received temporary relief with tariffs ranging up to 30 percent on certain steel imports, but in 2003 the integrated 

steel industry again had poor operating results, as high raw material costs outweighed increased sales and higher 

volumes. In 2004, the industry rebounded, with returns on both total capital and net profit margins reaching the 

highest values observed during the entire analysis period. In 2005, the industry saw a slight weakening in 

financial performance. However, overall financial performance remained substantially higher than in the prior 

years of the analysis period. 

C2D-20 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

0% 

2% 

4% 

6% 

8% 

10% 

12% 

14% 

16% 

18% 

20% 

22% 

Figure C2D-5: Net Profit Margin and Return on Total Capital for the Iron and Steel Industry 

-4% 

-2% 

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

Return on Total Capital - Iron and 

Steel Industry 

Net Profit Margin - Iron and Steel 

Industry 

Source: Value Line, 2003; Value Line, 2006. 

C2D-5 FACILITIES OPERATING COOLING WATER INTAKE STRUCTURES 

Section 316(b) of the Clean Water Act applies to point source facilities that use or propose to use a cooling water 

intake structure that withdraws cooling water directly from a surface waterbody of the United States. In 1982, the 

Primary Metals industries as a whole (including Nonferrous and Steel producers) withdrew 1,312 billion gallons 

of cooling water, accounting for approximately 1.7 percent of total industrial cooling water intake in the United 

States5

. The industry ranked 3rd in industrial cooling water use, behind the electric power generation industry, and 

the chemical industry (1982 Census of Manufactures). 

This section provides information for facilities in the profiled steel segments estimated to be subject to regulation 

under the primary analysis options. Existing facilities that meet all of the following conditions would have been 

subject to regulation under the three regulatory analysis options: 

f Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract or 

arrangement with an independent supplier who has a cooling water intake structure; or their cooling water 

intake structure(s) withdraw(s) cooling water from waters of the U.S., and at least twenty-five (25) 

percent of the water withdrawn is used for contact or non-contact cooling purposes; 

f Have an National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one; 

and 

f Meet the applicability criteria for the specific regulatory analysis option in terms of design intake flow 

and source waterbody type (i.e., 50 MGD for All Waterbodies, 100 MGD for Certain Waterbodies, or 200 

MGD for All Waterbodies). 

5

 Data on cooling water use are from the 1982 Census of Manufactures. 1982 was the last year in which the Census of 

Manufactures reported cooling water use. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-21 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

The analysis options also cover substantial additions or modifications to operations undertaken at such facilities. 

Although EPA initially identified the set of facilities that were estimated to be potentially subject to the Phase III 

regulation based on a minimum applicability threshold of 2 MGD, this section focuses on the facilities nationwide 

in the profiled steel segments that are estimated to be subject to regulation under the DIF applicability thresholds 

defined by the primary analysis options (see Table C2D-1, above for additional information on the broader set of 

facilities potentially subject to Phase III regulation).6 

C2D-5.1 Waterbody and Cooling System Type 

Minimills use electric-arc-furnaces (EAF) to make steel from ferrous scrap. The electric-arc-furnace is 

extensively cooled by water, which is in turn recycled through cooling towers (U.S. EPA, 1995). This is 

important to note since most new steel facilities are minimills. 

Table C2D-11, Table C2D-12, and Table C2D-16 show the distribution of Phase III facilities in the profiled steel 

segments by type of water body and cooling system for each analysis option. The tables show that most of the 

Phase III facilities employ a combination of a once-through and recirculating systems or an “other” system. The 

largest proportion of existing facilities draws water from a freshwater stream or river. 

Table C2D-11: Number of Facilities Estimated Subject to the 50 MGD All Option by Waterbody Type 

and Cooling System for the Profiled Steel Industry Segments 

Cooling Systems 

Recirculating Combination Once-Through Other Water Body Type 

% of % of % of % of Total

Number Number Number Number Total Total Total Total 

Steel Mills 

Freshwater Stream/ River 1 

0 

100% 

0% 

3 

9 

29% 

71% 

1 

1 

50% 

50% 

4 

0 

100% 

0% 

10 

10 

Totala 1 12 2 4 20 

Lake/Reservoir 

0 

0 

0% 

0% 

3 

1 

73% 

27% 

0 

0 

0% 

0% 

0 

0 

0% 

0% 

3 

1 

Totala 0 4 0 0 4 

Freshwater Stream/ River 

Lake/Reservoir 

1 

0 

0 

100% 

0% 

0% 

7 

9 

1 

40% 

53% 

7% 

1 

1 

0 

50% 

50% 

0% 

4 

0 

0 

100% 

0% 

0% 

13 

10 

1 

Totala 1 16 2 4 24 

a 

Source: 

Great Lake 

6% 61% 12% 22% 

Steel Products 

Freshwater Stream/ River 

0% 100% 0% 0% 

Total for Profiled Steel Industries 

Great Lake 

5% 68% 10% 18% 

Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

6

 EPA applied sample weights to the sampled facilities to account for non-sampled facilities and facilities that did not 

respond to the survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information 

Collection Request (U.S. EPA, 2000). 

C2D-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Table C2D-12: Number of Facilities Estimated Subject to the 200 MGD All Option by Waterbody Type 

and Cooling System for the Profiled Steel Industry Segments 

Total Total Total Total 

Total 

Freshwater Stream/ River 0 

0 

0% 

0% 

1 

9 

12% 

88% 

0 

0 

0 

0 

3 

0 

100% 

0% 

4 

9 

Totala

 0 10 76% 0 0% 3 24% 13 

0 0% 3 100% 0 0% 0 0% 3 

Totala 0 3 100% 0 0 3 

Freshwater Stream/ River 

Totala 

0 

0 

0 

0% 

0% 

4 

9 

13 

33% 

67% 

80% 

0 

0 

0 

0 

0 

0% 

3 

0 

3 

100% 

0% 

20% 

7 

9 

16 

a 

Source: 

Total Total Total Total 

Total 

Freshwater Stream/ River 1 

0 

100% 

0% 

2 

9 

21% 

79% 

0 

1 

0% 

100% 

4 

0 

100% 

0% 

8 

10 

Totala 1 7% 11 62% 1 7% 4 25% 17 

Lake/Reservoir 

0 

0 

0% 

0% 

3 

1 

73% 

27% 

0 

0 

0% 

0% 

0 

0 

0% 

0% 

3 

1 

Totala

 0 4 100% 0 0 4 

Freshwater Stream/ River 

Lake/Reservoir 

Totala 

1 

0 

0 

1 

100% 

0% 

0% 

5% 

5 

9 

1 

15 

36% 

57% 

8% 

70% 

0 

1 

0 

1 

0% 

100% 

0% 

5% 

4 

0 

0 

4 

100% 

0% 

0% 

20% 

11 

10 

1 

22 

a 

Source: 

Water Body Type 

Cooling Systems 

Recirculating 

Number % of 

Combination 

Number % of 

Once-Through 

Number % of 

Other 

Number % of 

Steel Mills 

Great Lake 

0% 

Steel Products 

Freshwater Stream/ River 

0% 0% 0% 

Total for Profiled Steel Industries 

Great Lake 

0% 

Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Table C2D-13: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Waterbody 

Type and Cooling System for the Profiled Steel Industry Segments 

Water Body Type 

Cooling Systems 

Recirculating 

Number % of 

Combination 

Number % of 

Once-Through 

Number % of 

Other 

Number % of 

Steel Mills 

Great Lake 

Steel Products 

Freshwater Stream/ River 

0% 0% 0% 

Total for Profiled Steel Industries 

Great Lake 

Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2D-5.2 Facility Size 

The facilities in the Steel Mills and Steel Products segments that are estimated subject to regulation are relatively 

large, with no facilities employing fewer than 250 people. Figure C2D-6 show the number of Phase III facilities 

by employment size category. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-23 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

00 00 

1 

0 

1 

0 

17 

4 

0 

2 

4 

6 

8 

10 

12 

14 

16 

18 

ills (

(

Source: 

00 00 00 0 0 

13 

0 

0 

2 

4 

6 

8 

10 

12 

14 

(

(

Source: 

Figure C2D-6: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment 

Size for Profiled Steel Industry Segments 

<100 100-249 250-499 500-999 >=1000 

Steel M SIC 3312) 

Steel Products SIC 3315, 3316, 

3317) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Figure C2D-7: Number of Facilities Estimated Subject to the 200 MGD All Option by Employment 

Size for Profiled Steel Industry Segments 

<100 100-249 250-499 500-999 >=1000 

Steel Mills SIC 3312) 

Steel Products SIC 3315, 3316, 3317) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2D-24 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

0 0 00 

1 

0 

1 

0 

15 

1 

0 

2 

4 

6 

8 

10 

12 

14 

16 

<100 >=1000 

Steel Mills (

 (

Source: 

C2D-5.3 

As shown in Table C2D-14, Table C2D-15, 

Large SIC Code Total 

Number % of SIC Number % of SIC 

Figure C2D-8: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Employment Size for Profiled Steel Industry Segments 

100-249 250-499 500-999 

SIC 3312) 

Steel Products SIC 3315, 3316, 3317) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Firm Size 

EPA used the Small Business Administration (SBA) small entity size standards to determine the number of 

Section 316(b) profiled steel industry facilities owned by small firms. Firms in the Steel Mills and Steel Products 

segments are defined as small if they have 1000 or fewer employees. 

and Table C2D-16, large firms own all of the Steel Mill and Steel Products facilities estimated subject to the 

regulation under the three primary analysis options. 

Table C2D-14: Number of Facilities Estimated Subject to the 50 MGD All Option by Firm 

Size for the Profiled Steel Segments 

Small 

Steel Mills 

3312 20 100% 0 0% 20 

3315 3 100% 0 0% 3 

3316 0 0% 0 0% 0 

3317 1 100% 0 0% 1 

Total 4 0 0% 4 

Totala

 24 0 24 

a

Source: 

Steel Products 

100% 

Total for Profiled Steel Facilities 

100% 0% 

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-25 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

Large SIC Code Total 

Number % of SIC Number % of SIC 

Table C2D-15: Number of Facilities Estimated Subject to the 200 MGD All Option by 

Firm Size for the Profiled Steel Segments 

Small 

Steel Mills 

3312 13 100% 0 0% 13 

3315 0 0% 0 0% 0 

3316 0 0% 0 0% 0 

3317 0 0% 0 0% 0 

Total 0 0 0% 0 

Totala

 13 0 13 

a

Source: 

Large SIC Code Total 

Number % of SIC Number % of SIC 

3312 17 100% 0 0% 17 

3315 0 0% 0 0% 0 

3316 0 0% 0 0% 0 

3317 1 100% 0 0% 1 

Total 0 0 0% 0 

Totala

 18 0 18 

a

Source: 

Steel Products 

0% 

Total for Profiled Steel Facilities 

100% 0% 

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

Table C2D-16: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Firm Size for the Profiled Steel Segments 

Small 

Steel Mills 

Steel Products 

0% 

Total for Profiled Steel Facilities 

100% 0% 

 Individual numbers may not add up to total due to independent rounding. 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

C2D-26 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

REFERENCES 

American Iron and Steel Institute (AISI). 2001a. “Imports Continue at Severely Depressed Prices; United U.S. 

Steel Industry Urges Effective 201 Trade Remedy.” September 25, 2001. 

American Iron and Steel Institute (AISI). 2001b. July 2001 Selected Steel Industry Data. 

Bureau of Labor Statistics (BLS). 2006. Producer Price Index. Industry Data Series: PCU331111-Iron and Steel 

Mills; PCU 331210-Iron/Steel Pipe & Tube Mfg from Purchased Steel; PCU 331221-Rolled Steel Shape 

Manufacturing; PCU331222-Steel Wire Drawing. Available at: http://www.bls.gov/ppi/home.htm. Downloaded 

February 1, 2006. 

Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001. 

Economagic. 2006. Industrial Production: Industry Subtotals, Individual Series, and Special Aggregates. 

Seasonably Adjusted. Data Series: Raw Steel and Iron and Steel Products. Available at: 

http://www.economagic.com/frbg17.htm#IPMarket. Downloaded February 2, 2006. 

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification 

Manual. 

McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000. U.S. Industry & 

Trade Outlook ‘00. 

McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 1998. U.S. Industry & 

Trade Outlook ‘98. 

Standard & Poors (S&P). 2004. Sub-Industry Outlook: Steel. February 21, 2004. 

Standard & Poors (S&P). 2001. Industry Surveys - Metals: Industrial. July 12, 2001. 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of the Census. International Trade Administration. 

Industry, Trade, and the Economy: Data and Analysis. Data by NAICS and SIC. Available at: 

http://www.ita.doc.gov/td/industry/otea/industry_sector/tables_naics.htm. Downloaded February 2, 2006. 

U.S. Department of Commerce (U.S. DOC). 1989-2004. Bureau of the Census. Current Industrial Reports. 

Survey of Plant Capacity. 

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, 1998-2001, and 2003-2004. Bureau of the 

Census. Annual Survey of Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1987, 1992, 1997, and 2002. Bureau of the Census. Census of 

Manufactures. 

U.S. Department of Commerce (U.S. DOC). 2000. International Trade Administration. Report to the President: 

Global Steel TradeSStructural Problems and Future Solutions. July, 2000. 

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. Bridge Between NAICS and SIC. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling 

Water Intake Structures. 

U.S. Environmental Protection Agency (U.S. EPA). 1995. Profile of the Iron and Steel Industry. EPA 310-R95-005. September, 1995. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2D-27 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2D: Steel 

United States Geological Survey (USGS). 2006. Mineral Commodity Summaries. Iron and Steel. Author: 

Michael D. Fenton. Available at: 

http://minerals.usgs.gov/minerals/pubs/commodity/iron_&_steel/index.html#mcs 

United States Geological Survey (USGS). 2004. Mineral Commodity Summaries. Iron and Steel. Author: 

Michael D. Fenton. Available at: 

http://minerals.usgs.gov/minerals/pubs/commodity/iron_&_steel/index.html#mcs 

United States Geological Survey (USGS). 2002. Minerals Yearbook. Iron and Steel. Author: Michael D. 

Fenton. 

United States Geological Survey (USGS). 2001. Mineral Commodity Summaries. Iron and Steel. Author: 

Michael D. Fenton. Available at: 

http://minerals.usgs.gov/minerals/pubs/commodity/iron_&_steel/index.html#mcs 

United States Geological Survey (USGS). 1997. Mineral Commodity Summaries. Iron and Steel. Author: 

Michael D. Fenton. Available at: 

http://minerals.usgs.gov/minerals/pubs/commodity/iron_&_steel/index.html#mcs 

United States Geological Survey (USGS). Historical Statistics for Mineral Commodities in the United States. 

Iron and Steel. 

United States Geological Survey (USGS). Iron and Steel Statistical Compendium. 

U.S. Small Business Administration (U.S. SBA). 2006. Small Business Size Standards. Available at: 

http://www.sba.gov/size/sizetable2002.html. 

U.S. Small Business Administration (U.S. SBA). 1989-2003. Statistics of U.S. Businesses. Available at: 

http://www.sba.gov/advo/research/data.html. Downloaded February 4, 2006. 

Value Line. 2006. Value Line 3.0 Investment Analyzer. 

Value Line. 2003. Value Line Investment Survey. 

Value Line. 2001. Metals & Mining (Diversified) Industry. July 27, 2001. 

C2D-28 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Chapter C2E: Aluminum (SIC 333/5) 

I

EPA’s Detailed Industry Questionnaire

CHAPTER CONTENTS 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 

SIC 

Total 

a 

Regulated b 

to 50 

MGD All 

Option 

to 200 

MGD All 

Option 

to 100 

MGD 

CWB 

Option 

3334 

Production of 

Aluminum 

31 11 1 1 1 

3353 57 10 3 0 0 

Total 88 21 5 1 1 

a

b

Source: 

NTRODUCTION 

, hereafter referred 

to as the DQ, identified two 4-digit SIC codes in the 

Nonferrous Metals industries (SIC codes 333/335) with at 

least one existing facility that operates a CWIS, holds a 

NPDES permit, withdraws equal to or greater than two 

million gallons per day (MGD) from a water of the United 

States, and uses at least 25 percent of its intake flow for 

cooling purposes (facilities with these characteristics are 

hereafter referred to as facilities potentially subject to the 

Phase III regulation or “potential Phase III facilities”). 

For these two SIC codes, Table C2E-1, below, provides a 

description of the industry segment, a list of primary 

products manufactured, the total number of detailed 

questionnaire respondents (weighted to represent a national 

total of facilities that hold a NPDES permit and operate 

cooling water intake structures), the number of facilities 

estimated to be potentially subject to regulation based on 

the minimum withdrawal threshold of 2 MGD, and the 

number of facilities estimated to be subject to the 

regulatory analysis options. 

Introduction.......................................................... C2E-1

C2E-1 Summary Insights from this Profile ........ C2E-2

C2E-2 Domestic Production............................... C2E-3

C2E-2.1 Output............................................. C2E-4

C2E-2.2 Prices .............................................. C2E-7

C2E-2.3 Number of Facilities and Firms ...... C2E-8

C2E-2.4 Employment and Productivity ...... C2E-10

C2E-2.5 Capital Expenditures .................... C2E-12

C2E-2.6 Capacity Utilization...................... C2E-13

C2E-3 Structure and Competitiveness.............. C2E-14

C2E-3.1 Firm Size ...................................... C2E-14

C2E-3.2 Concentration Ratios .................... C2E-15

C2E-3.3 Foreign Trade ............................... C2E-16

C2E-4 Financial Condition and Performance... C2E-19 

C2E-5 Facilities Operating Cooling Water Intake 

Structures .............................................. C2E-21 

C2E-5.1 Waterbody and Cooling System Type......

 ................................................... C2E-22

C2E-5.2 Facility Size.................................. C2E-23

C2E-5.3 Firm Size ...................................... C2E-25

References.......................................................... C2E-27

Table C2E-1: Phase III Facilities in the Aluminum Industries (SIC 333/335) 

SIC Description Important Products Manufactured 

Number of Facilities

Potentially 

Facilities

Subject Subject Subject 

Primary Producing aluminum from alumina and in 

refining aluminum by any process 

Aluminum Sheet, 

Plate, and Foil 

Flat rolling aluminum and aluminum-base 

alloy basic shapes, such as rod and bar, 

pipe and tube, and tube blooms; 

producing tube by drawing 

 Number of weighted detailed questionnaire survey respondents. 

 Individual numbers may not add up due to independent rounding. 

Executive Office of the President, 1987; U.S. EPA 2000; U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

As shown in Table C2E-1, EPA estimates that, out of the total of 88 facilities with a NPDES permit and operating 

cooling water intake structures in the Aluminum Industries (SIC 333/335), 5 (or 6%) facilities are estimated to be 

subject to the 50 MGD option, while 1 or (1.1%) facility is expected to be subject to each of the other two 

regulatory analysis options. EPA also estimated the percentage of total production that occurs at facilities 

estimated to be subject to the regulatory analysis options. Total value of shipments for the Aluminum Industries 

(SIC 333/335) from the 2004 Annual Survey of Manufacturers is $18.3 billion. Value of shipments, a measure of 

the dollar value of production, was selected for the basis of this estimate. Because value of shipments data were 

not collected using the DQ, these data were not available for the sample of Phase III manufacturing facilities 

potentially subject to the regulatory analysis options. Total revenue, as reported on the DQ, was used as a close 

approximation for value of shipments for these facilities. EPA estimates the total revenue of facilities in the 

aluminum industry subject to the 50 MGD, 200 MGD, and 100 MGD options is $5.3 billion, $0.5 billion, and 

$0.5 billion, respectively. Therefore, EPA estimates that the percentage of total domestic aluminum production 

that occurs at facilities estimated to be subject to the 50 MGD, 200 MGD, and 100 MGD options is 29%, 3%, and 

3%, respectively. 

Table C2E-2 provides the crosswalk between SIC codes and the new NAICS codes for the profiled aluminum SIC 

codes. The table shows that both of the profiled 4-digit SIC codes in the aluminum industry have a one-to-one 

relationship to NAICS codes. 

Table C2E-2: Relationships between SIC and NAICS Codes for the Aluminum Industries (2002a

) 

Value of SIC 

Code SIC Description NAICS 

Code NAICS Description Number of Establishments Shipments 

($1000) 

Employment 

3334 Primary aluminum 331312 Primary aluminum 40 4,748,435 12,197 

production 

3353 Aluminum sheet, 331315 Aluminum sheet, plate, and 103 11,964,636 19,362 

plate, and foil foil manufacturing 

a

 Industry data for relevant NAICS codes from the 2002 Economic Census. 

Source: U.S. DOC, 1997; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2E-1 SUMMARY INSIGHTS FROM THIS PROFILE 

A key purpose of this profile is to provide insight into the ability of aluminum industry firms to absorb 

compliance costs under the regulatory analysis options without material adverse economic/financial effects. The 

industry’s ability to withstand compliance costs is primarily influenced by two factors: (1) the extent to which the 

industry can shift compliance costs to its customers through price increases, and (2) the financial health of the 

industry and its general business outlook. 

Likely Ability to Pass Compliance Costs Through to Customers 

As reported in the following sections of this profile, the aluminum industry is moderately concentrated. This 

potentially supports the notion that firms in this industry may be able to pass a significant portion of their 

compliance-related costs through to consumers. However, the domestic Primary Aluminum Production segment 

faces significant competition from imports into the U.S. market. In addition, facilities in the Aluminum Sheet, 

Plate, and Foil segment have a notable reliance on sales into foreign markets. The substantial competitive 

pressure from abroad weakens the potential of firms in this industry to pass through to customers a significant 

portion of their compliance-related costs. As discussed above, given the relatively small proportion of total value 

of shipments in the industry potentially subject to regulation under the regulatory analysis options, EPA believes 

that the theoretical threshold for justifying the use of industry-wide CPT rates in the impact analysis of existing 

C2E-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Phase III aluminum facilities has not been met. For these reasons, in its analysis of regulatory impacts for the 

aluminum industry, EPA assumed that complying firms would be unable to pass compliance costs through to 

customers: i.e., complying facilities must absorb all compliance costs at the time of compliance (see following 

sections and Appendix 3, Cost Pass-Through Analysis, to Chapter C3: Economic Impact Analysis for 

Manufacturers, for further information). 

Financial Health and General Business Outlook 

Over the past decade, the aluminum industry, like other U.S. manufacturing industries, has experienced a range of 

economic/financial conditions, including substantial challenges. In the early 1990s, the domestic aluminum 

industry was adversely affected by reduced U.S. demand and the dissolution of the Soviet Union, which resulted 

in substantially increased Russian aluminum exports. Although domestic market conditions improved by middecade, weakness in Asian markets, along with growing Russian exports, dampened performance during the latter 

half of the 1990s. Demand for aluminum industry products declined again in 2000 through 2002, reflecting 

weakness in both the U.S. and world economies, and again resulted in oversupply and declining financial 

performance. More recently, as the U.S. economy began recovering from economic weakness, the domestic 

aluminum industry is showing signs of recovery with higher demand levels and improving financial performance 

over the course of 2004 and 2005. Although the industry has weathered difficult periods over the past few years, 

the strengthening of the industry’s financial condition and general business outlook suggest improved ability to 

withstand additional regulatory compliance costs without imposing significant financial impacts. 

C2E-2 DOMESTIC PRODUCTION 

Commercial production of aluminum using the electrolytic reduction process, known as the Hall-Heroult process, 

began in the late 1800s. The production of primary aluminum involves mining bauxite ore and refining it into 

alumina, one of the feedstocks for aluminum metal. Direct electric current is used to split the alumina into molten 

aluminum metal and carbon dioxide. The molten aluminum metal is then collected and cast into ingots. 

Technological improvements over the years have improved the efficiency of aluminum smelting, with a particular 

emphasis on reducing energy requirements. Currently, no commercially viable alternative exists to the 

electrometallurgical process (Aluminum Association, 2001). 

In 2003, aluminum recovered from purchased scrap was about 2.8 million tons, of which about 60% came from 

new (manufacturing) scrap and 40% from old scrap (discarded aluminum products). Aluminum recovered from 

old scrap was equivalent to about 17% of apparent consumption (USGS, 2004a). Recycling consists of melting 

used beverage cans and scrap generated from operations. Recycling saves approximately 95% of the energy costs 

involved in primary smelting from bauxite (S&P, 2001). In contrast to the steel industry, aluminum minimills 

have had limited impact on the profitability of traditional integrated aluminum producers. Aluminum minimills 

are not able to produce can sheet of the same quality as that produced by integrated facilities. As a result, they are 

able to compete only in production of commodity sheet products for the building and distributor markets, which 

are considered mature markets. According to Standard & Poor’s (2001), construction of new minimill capacity is 

unlikely given the potential that added capacity would drive down prices in the face of slow growth in the markets 

for minimill products. No secondary smelters (included, along with secondary smelting of other metals, in SIC 

code 3341) were reported in EPA’s Detailed Industry Questionnaire. These facilities are therefore not addressed 

in this profile. 

Facilities in SIC code 3353 produce semi-fabricated products from primary or secondary aluminum. Examples of 

semi-fabricated aluminum products include (Aluminum Association, undated): 

f sheet (cans, construction materials, and automotive parts); 

f plate (aircraft and spacecraft fuel tanks); 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

f foil (household aluminum foil, building insulation, and automotive parts); 

f rod, bar, and wire (electrical transmission lines); and 

f extrusions (storm windows, bridge structures, and automotive parts). 

U.S. aluminum companies are generally vertically integrated. The major aluminum companies own large bauxite 

reserves, mine bauxite ore and refine it into alumina, produce aluminum ingot, and operate the rolling mills and 

finishing plants used to produce semi-fabricated aluminum products (S&P, 2001). 

As noted, the production of primary aluminum is an electrometallurgical process, which is extremely energy 

intensive. Electricity accounts for approximately 30% of total production costs for primary aluminum smelting. 

The aluminum industry is therefore a major industrial user of electricity, spending more than $2 billion annually. 

The industry has pursued opportunities to reduce its use of electricity as a means of lowering costs. In the last 50 

years, the average amount of electricity needed to make a pound of aluminum has declined from 12kilowatt hours 

to approximately 7 kilowatt hours (Aluminum Association, undated). 

C2E-2.1 Output 

The largest single source of demand for aluminum is the transportation segment, primarily the manufacture of 

motor vehicles. Demand for lighter, more fuel-efficient vehicles has increased demand for aluminum in auto 

manufacturing, at the expense of steel (S&P, 2001). Until 1996, containers were the largest U.S. market for 

aluminum. Production of beverage cans is a major use of aluminum sheet, and aluminum has entirely replaced 

steel in the beverage can market. Other major uses of aluminum include construction (including aluminum 

siding, windows, and gutters) and consumer durables (USGS, 2001a). 

Demand for aluminum reflects the overall state of the domestic and world economies, as well as long-term trends 

in materials use in major end-use sectors. Because aluminum production involves large fixed investments and 

capacity adapts slowly to fluctuations in demand, the industry has experienced alternating periods of excess 

capacity and tight supplies. The early 1980s was a period of oversupply, high inventories, and excess capacity. 

By 1986, excess capacity was closed, inventories were low, and demand increased substantially. The early 1990s 

were affected by reduced U.S. demand and the dissolution of the Soviet Union, resulting in large increases in 

Russian exports of aluminum. By the mid-1990s, global production declined, demand rebounded, and aluminum 

prices rose. Subsequent increased production reflected an overall increase in the demand for aluminum with 

stronger domestic economic growth, driven by increased consumption by the transportation, container, and 

construction segments. The economic crises in Asian markets in the later 1990s, along with growing Russian 

exports, again resulted in a period of oversupply, although U.S. demand for aluminum remained strong. Demand 

declined again in 2000 through 2002 due to slower growth in both the U.S. and the world economy, resulting in 

oversupply. The surplus was mitigated somewhat as demand in the automotive and housing markets remained 

relatively high through mid-2003. In addition, the California energy crisis in 2000 and 2001 reduced production 

from primary smelters located in the Pacific Northwest (Aluminum Association, 1999; USGS, 1999c; USGS, 

1998; USGS, 1994c; Value Line, 2001). Production in China increased during this period, and although increased 

Chinese consumption helped reduce the surplus slightly, the country switched from being a net importer to a net 

exporter. Additionally, interest rates are likely to increase which may decrease U.S. demand for aluminum from 

major industrial end markets (aerospace, automotive, home-construction, and commercial-construction). 

However, with the economy showing signs of recovery the aluminum industry saw higher demand levels in 2003. 

If the economy remains strong, demand is expected to continue at 2003 levels (Value Line, 2003a, 2003b; S&P 

2004). 

Table C2E-3 shows trends in output of aluminum by Primary Aluminum producers and recovery of aluminum 

from old and new scrap. Secondary production grew from 24% to just over 30% of total domestic production 

C2E-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

over the period from 1991 to 2005. Primary production of aluminum recorded a net decrease over the 15-year 

period, with a particularly sharp decline in 2001. As noted above, this decrease reflects reduced domestic and 

world demand for aluminum, and curtailed production at a number of Pacific Northwest mills caused by the 

California energy crisis (S&P 2001; USGS, 2001a). Production remained fairly constant for the final four years 

of the period. 

Year 

MT 

) 

MT MT 

1991 4,121 1,320 5,441 

1992 4,042 -1.9% 1,610 22.0% 5,652 3.9% 

1993 3,695 -8.6% 1,630 1.2% 5,325 -5.8% 

1994 3,299 -10.7% 1,500 -8.0% 4,799 -9.9% 

1995 3,375 2.3% 1,510 0.7% 4,885 1.8% 

1996 3,577 6.0% 1,580 4.6% 5,157 5.6% 

1997 3,603 0.7% 1,530 -3.2% 5,133 -0.5% 

1998 3,713 3.1% 1,500 -2.0% 5,213 1.6% 

1999 3,779 1.8% 1,570 4.7% 5,349 2.6% 

2000 3,688 -2.4% 1,370 -12.7% 5,058 -5.4% 

2001 2,637 -28.5% 1,210 -11.7% 3,847 -23.9% 

2002 2,707 2.7% 1,170 -3.3% 3,877 0.8% 

2003 2,703 -0.1% 1,070 -8.5% 3,773 -2.7% 

2004 2,516 -6.9% 1,160 8.4% 3,676 -2.6% 

2005a 2,500 -0.6% 1,100 -5.2% 3,600 -2.1% 

-39.3% -16.7% -33.8% 

1991-2005 

Average annual -3.5% -1.3% -2.9% 

growth rate 

Source: 

Value of shipments and 1 

. 

Value of 

Value added, defined as the difference between the value of 

particular industry. 

Table C2E-3: U.S. Aluminum Production 

Aluminum Ingot 

Primary Production 

Thousand % Change 

Secondary Production 

(from old scrap

Thousand % Change 

Total Production 

Thousand % Change 

Total percent change 

USGS 1995a, 1999a, 2002a, 2006a 

value added are two common measures of manufacturing output Change in these 

values over time provides insight into the overall economic health and outlook for an industry. 

shipments is the sum of receipts earned from the sale of outputs; it indicates the overall size of a market or the 

size of a firm in relation to its market or competitors. 

shipments and the value of inputs used to make the products sold, measures the value of production activity in a 

Figure C2E-1 reports constant dollar value of shipments and value added for the Primary Aluminum, and 

Aluminum Sheet, Plate, and Foil segments between 1987 and 2004. 

1

 Terms highlighted in bold and italic font are further explained in the glossary. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

(millions, $2005) 

0 

198719881989199019911992199319941995199619971998199920002001200220032004 

il 

( 

il ( 

( 

( 

0 

198719881989199019911992199319941995199619971998199920002001200220032004 

(

 (

(

 (

Note: 

. 

Figure C2E-1: Value of Shipments and Value Added for Profiled Aluminum Industry Segments 

Value of Shipments 

2 , 0 0 0 

4 , 0 0 0 

6 , 0 0 0 

8 , 0 0 0 

1 0 , 0 0 0 

1 2 , 0 0 0 

1 4 , 0 0 0 

1 6 , 0 0 0 

1 8 , 0 0 0 

2 0 , 0 0 0 

A lum in um Sh eet , P lat e, an d F o 

N A I CS t o SI C) 

A lum in um Sh eet , P lat e, an d F o SIC 

3 3 5 3 ) 

P r im a r y A lum in um P r o duc t io n 

N A I CS t o SI C) 

P r im a r y A lum in um P r o duc t io n SI C 

3 3 3 4 ) 

Value Added 

20 0 

40 0 

60 0 

80 0 

1,00 0 

1,20 0 

1,40 0 

1,60 0 

Alum in um Sheet , P lat e, an d Fo il 

NAICS t o SIC) 

Alum in um Sheet , P lat e, an d Fo il SIC 

335 3) 

P rim ary Alum in um P ro duct io n 

NAICS t o SIC) 

P rim ary Alum in um P ro duct io n SIC 

333 4) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

Source: U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

The value of Primary Aluminum shipments shows generally the same pattern as the quantity data shown in Table 

C2E-3. Trends in production over 1990 to 2004 reflect trends in demand for aluminum; both production and 

C2E-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

value of shipments have fallen with increases n the percentage of domestic demand provided by imports, and in 

the secondary production of aluminum, which substitutes in some but not all markets for primary production. 

Value added by aluminum production excludes the value of purchased materials and services (including 

electricity), and shows less fluctuation since 1990 than value of shipments. 

Demand for semi-finished aluminum products reflects demand from the transportation, container, and building 

industries. Real value of shipments of Aluminum Sheet, Plate, and Foil declined from the late 1980s through 

1993, and then recovered by mid-decade, before turning down again in the late 1990s. Demand for semi-finished 

products has been affected by strong growth in both the container and packaging segment and the auto segment 

(S&P, 2001). 

Both industry segments show lower values for the constant dollar value of shipments and value added at the end 

of the 18-year analysis period than at the beginning of the period. These declining values reflect the overall 

maturity of the aluminum production industry and the increasing role of foreign production in meeting total U.S. 

demand. 

C2E-2.2 Prices 

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and 

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment. 

The price trends shown for Primary Aluminum in Figure C2E-2 reflect the fluctuations in world supply and 

demand discussed in the previous section. During the early 1980s, the aluminum industry experienced 

oversupply, high inventories, excess capacity, and weak demand, resulting in falling prices for aluminum. By 

1986, much of the excess capacity had been permanently closed, inventories had been worked down, and 

worldwide demand for aluminum increased strongly. This resulted in price increases through 1988, as shown in 

Figure C2E-2. 

In the early 1990s, the dissolution of the Soviet Union had a major impact on aluminum markets. Large quantities 

of Russian aluminum that formerly had been consumed internally, primarily in military applications, were sold in 

world markets to generate hard currency. At the same time, world demand for aluminum was decreasing. The 

result was increasing inventories and depressed aluminum prices. 

The United States and five other primary aluminum producing nations signed an agreement in January 1994 to 

curtail global output, in response to the sharp decline in aluminum prices. At the time of the agreement, there was 

an estimated global overcapacity of 1.5 to 2.0 million metric tons per year (S&P, 2000). 

By the mid-1990s, production cutbacks, increased demand, and declining inventories led to a sharp rebound of 

prices. Prices declined again during the late 1990s, however, when the economic crises in Asian markets reduced 

the demand for aluminum (USGS, 2001b). During 2000, prices rebounded sharply despite the continuing trend of 

high Russian production and exports. However, economic recession caused prices to fall again through 

2002(S&P, 2001-2004). Prices seen by both segments increased sharply in 2003, and continued to rise in 2004 

and 2005, reaching peak levels for the Aluminum Sheet, Plate and Foil segment. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-7 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

80 

90 

1987198819891990199119921993199419951996199719981999200020012002200320042005 

( 

( 

Note: 

Source:

C2E-2.3 Number of Facilities and Firms 

Year Number of Companies 

1995 13 22 

1996 13 22 

1997 13 22 

1998 13 23 

1999 12 23 

2000 12 23 

2001 12 23 

2002 7 16 

2003 7 15 

2004 6 14 

2005 6 15 

Source:

Figure C2E-2: Producer Price Indexes for Profiled Aluminum Industry Segments 

1 0 0 

1 1 0 

1 2 0 

1 3 0 

1 4 0 

1 5 0 

1 6 0 

1 7 0 

P r im a r y A lu m in u m N A I C S 

3 3 1 3 1 2 ) 

A l u m i n u m Sh e e t , P l a t e a n d F o i l 

N A I C S 3 3 1 3 1 5 ) 

 Data for 2005 was preliminary at the time of this writing. The NAICS values shown in this figure match the historical 

values of the profiled SIC codes. As data by SIC were only available through 2003, the representative NAICS codes are 

presented for evaluation through 2005. 

 BLS, 2006. 

U.S. Geological Survey data indicate that the number of Primary Aluminum facilities and the number of firms 

that own them remained fairly constant over the period 1995 through 2005, as shown in Table C2E-4. The 

number of domestic companies and plants sharply declined in 2002 and dropped again in 2004. Furthermore, in 

2002, the 10 domestic producers had a total of 7 smelters that were either temporarily or permanently idled. The 

bulk of the idled capacity resulted from curtailed production at a number of Pacific Northwest mills caused by the 

California energy crisis. Most of the smelters outside of this region continued to operate at or near their 

engineered capacities (S&P 2001; USGS, 2001a; USGS, 2002c). 

Table C2E-4: Primary Aluminum Production - Number of Companies and Plants 

Number of Plants 

 USGS, 1995a-2006a 

C2E-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Statistics of U.S. Businesses covers a larger number of facilities classified under SIC 3334 than do the USGS 

data, and also provide data on SIC 3353 (Aluminum Sheet, Plate, and Foil). These data, shown in Table C2E-5 

and Table C2E-6, show more fluctuation in the number of establishments and the number of firms. 

Table C2E-5 shows that the number of Primary Aluminum facilities decreased by 30 percent between 1991 and 

1995, with the majority of this decrease, 27 percent, occurring between 1991 and 1993. The number of facilities 

in the Aluminum Sheet, Plate, and Foil segment showed a more consistent trend, increasing each year except in 

1993. In 1998, the number of facilities decreased in both segments. Since then, the number of Primary Aluminum 

facilities has continuously grown, while the number of Aluminum Sheet, Plate, and Foil facilities showed some 

fluctuation. 

Table C2E-5: Number of Facilities for Profiled Aluminum Industry Segments 

Primary Aluminum Production Aluminum Sheet, Plate, and Foil 

Year Number of 

Establishments Percent Change Number of Establishments Percent Change 

1990 54 64 

1991 57 5.6% 73 14.1% 

1992 52 -8.8% 73 0.0% 

1993 44 -15.4% 63 -13.7% 

1994 41 -6.8% 69 9.5% 

1995 40 -2.4% 76 10.1% 

1996 51 27.5% 81 6.6% 

1997 34 -33.3% 91 12.3% 

1998a 28 -17.6% 79 -13.2% 

1999a 29 3.6% 93 17.7% 

2000a 32 10.3% 103 10.8% 

2001a 38 18.8% 111 7.8% 

2002a 50 31.6% 95 -14.4% 

2003a 54 8.0% 99 4.2% 

0.0% 54.7% 

1989-2003 

0.0% 3.4% 

Growth Rate 

a 

. 

Source: 

Total Percent Change 

Average Annual 

Before 1998, these data were compiled in the SIC system; since 1998, these data have been compiled in the North 

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. SBA, 1989-2003. 

The trend in the number of firms over the period between 1990 and 2003 is similar to the trend in the number of 

facilities in both industry segments. Table C2E-6 on the following page presents SUSB information on the 

number of firms in each segment between 1990 and 2003. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-9 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Table C2E-6: Number of Firms for Profiled Aluminum Industry Segments 

Year Primary Aluminum Production Aluminum Sheet, Plate, and Foil 

Number of Firms Percent Change Number of Firms Percent Change 

1990 38 43 

1991 41 7.9% 53 23.3% 

1992 36 -12.2% 53 0.0% 

1993 33 -8.3% 45 -15.1% 

1994 30 -9.1% 47 4.4% 

1995 30 0.0% 51 8.5% 

1996 40 33.3% 56 9.8% 

1997 23 -42.5% 66 17.9% 

1998a 19 -17.4% 56 -15.2% 

1999a 20 5.3% 66 17.9% 

2000a 22 10.0% 73 10.6% 

2001a 28 27.3% 82 12.3% 

2002a 43 53.6% 74 -9.8% 

2003a 43 0.0% 76 2.7% 

Total Percent Change 13.2% 76.7% 

1990-2003 

Average Annual 1.0% 4.5% 

Growth Rate 

a Before 1998, these data were compiled in the SIC system; since 1998, these data have been compiled in the North 

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the 

SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. SBA, 1989-2003. 

C2E-2.4 Employment and Productivity 

Figure C2E-3, below, provides information on employment from the Annual Survey of Manufactures for the 

Primary Aluminum and Aluminum Sheet, Plate, and Foil segments. Trends in Primary Aluminum facility 

employment reflect trends in both production and producers’ efforts to compete with less labor-intensive 

minimills through improvements in labor productivity (McGraw-Hill, 2000). The figure shows that employment 

in the Primary Aluminum segment has declined steadily since 1992, even in years of increased production. 

Employment in the Aluminum Sheet, Plate, and Foil segment declined from 1987 through 1994, but rose between 

1995 and 1997, before declining again during 1997 to 2004. Employment in the Primary Aluminum Production 

segment increased during the 1987 to 1992 period, but fell persistently over the remainder of the 1990s and 

through 2004. 

C2E-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

(

 (

(

 (

Note: 

. 

Source: 

Figure C2E-3: Employment for Profiled Aluminum Industry Segments 

8,0 0 0 

10,0 0 0 

12,0 0 0 

14,0 0 0 

16,0 0 0 

18,0 0 0 

20,0 0 0 

22,0 0 0 

24,0 0 0 

26,0 0 0 

28,0 0 0 

Alum inum Sh eet , P lat e, an d Fo il 

NAICS t o SIC) 

Alum inum Sh eet , P lat e, an d Fo il SIC 

3353) 

P rim ary Alum in um P ro duct io n 

NAICS t o SIC) 

P rim ary Alum in um P ro duct io n SIC 

3334) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

Table C2E-7 presents the change in value added per labor hour, a measure of labor productivity, for the Primary 

Aluminum Production and Aluminum Sheet, Plate, and Foil segments between 1987 and 2004. The trend in labor 

productivity in both segments showed volatility over this period, reflecting variations in capacity utilization. 

Value added per hour in the Primary Aluminum segment showed a 0.4 percent net increase over the entire period 

1987 and 2004. Value added per hour in the Aluminum Sheet, Plate, and Foil segment, however, saw an 11.6 

percent decrease over the whole period between 1987 and 2001. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-11 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Year Value 

(millions) 

Production 

Hours 

(millions) ($/hour) Change 

Value 

(millions) 

Production 

Hours 

(millions) ($/hour) Change 

1987 871 28 31 n/a 1,397 40 35 n/a 

1988 991 32 31 -1.5% 1,427 41 35 -0.4% 

1989 1,023 30 34 9.1% 1,417 41 35 0.3% 

1990 1,031 32 32 -4.9% 1,403 40 35 1.7% 

1991 1,031 32 32 0.0% 1,327 39 34 -4.4% 

1992 1,046 32 32 0.8% 1,316 40 33 -2.3% 

1993 923 29 32 -1.7% 1,298 39 34 2.0% 

1994 878 27 33 2.5% 1,219 37 33 -0.7% 

1995 907 28 32 -1.8% 1,250 38 33 -1.7% 

1996 896 29 31 -1.9% 1,289 39 33 1.5% 

1997a 831 26 32 1.4% 1,381 41 34 0.8% 

1998a 849 27 32 0.0% 1,259 39 33 -2.6% 

1999a 788 26 30 -4.9% 1,229 37 34 2.7% 

2000a 743 24 30 0.4% 1,178 35 34 1.4% 

2001a 638 19 33 8.0% 1,071 32 33 -1.8% 

2002a

 678 19 35 7.2% 1,080 33 33 -1.5% 

2003a 574 18 32 -10.6% 986 32 31 -7.3% 

2004a 540 17 32 0.2% 1,007 33 31 0.5% 

-38.0% -38.3% 0.4% -28.0% -18.5% -11.6% 

1987-2004 

-2.8% -2.8% 0.0% -1.9% -1.2% -0.7% 

Growth Rate 

a 

(

. 

Source: 

Table C2E-7: Productivity Trends for Profiled Aluminum Segments ($2005) 

Primary Production of Aluminum 

Value Added/Hour 

Added Percent 

Aluminum Sheet, Plate, and Foil 

Value Added/Hour 

Added Percent 

Total Percent Change 

Average Annual 

Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in the 

North American Industry Classification System NAICS). For this analysis, EPA converted the NAICS classification data to the SIC 

code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2E-2.5 Capital Expenditures 

Aluminum production is a highly capital-intensive process. Capital expenditures are needed to modernize, 

replace, and when market conditions warrant, expand capacity. Environmental requirements also require major 

capital expenditures. 

Capital expenditures in the Primary Aluminum Production and Aluminum Sheet, Plate, and Foil segments 

between 1987 and 2004 are presented in Table C2E-8. The table shows that capital expenditures in the Primary 

Aluminum segment increased throughout the early 1990s, reaching a high in 1992 and again in 1998. In between 

these two periods of increased capital investment there was a significant decrease of 46 percent between 1992 and 

1994. These decreases resulted from the production cutbacks and capacity reductions implemented in response to 

oversupply conditions prevalent in the market for aluminum. Capital expenditures declined between 1999 and 

2003, but increased significantly in 2004. 

Capital expenditures in the Aluminum Sheet, Plate, and Foil segment also fluctuated considerably between 1987 

and 2004, with the highest values occurring in 1990, two years earlier than in the Primary Aluminum segment. 

Producers of Aluminum Sheet, Plate, and Foil reduced capital expenditures by approximately 50 percent between 

1988 and 1997. Outlays increased by 62 percent in 2001, but declined again in both 2002 and 2003. 

C2E-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Table C2E-8: Capital Expenditures for Profiled Aluminum Segments (millions, $2005) 

Year Primary Aluminum Production Aluminum Sheet, Plate, and Foil 

Capital Expenditures Percent Change Capital Expenditures Percent Change 

1987 266 n/a 673 n/a 

1988 217 -18.2% 776 15.4% 

1989 260 19.4% 788 1.5% 

1990 258 -0.6% 936 18.8% 

1991 276 6.8% 753 -19.6% 

1992 279 1.2% 543 -27.9% 

1993 212 -24.0% 306 -43.6% 

1994 150 -29.2% 340 11.1% 

1995 185 23.0% 461 35.5% 

1996 247 34.0% 478 3.7% 

1997a 376 52.2% 389 -18.5% 

1998a 458 21.8% 369 -5.3% 

1999a 403 -12.2% 373 1.2% 

2000a 393 -2.3% 389 4.1% 

2001a 283 -28.0% 630 62.0% 

2002a 160 -43.3% 310 -50.8% 

2003a 90 -44.0% 207 -33.2% 

2004a 129 43.4% 207 0.1% 

Total Percent Change -51.5% -69.2% 

1987-2004 

Average Annual -4.2% -6.7% 

Growth Rate 

a Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2E-2.6 Capacity Utilization 

Capacity utilization measures actual output as a percentage of total potential output given the available capacity. 

Capacity utilization reflects excess or insufficient capacity in an industry and is an indication of whether new 

investment is likely. Capacity utilization is also closely linked to financial performance for industries with 

substantial fixed costs, such as the aluminum industry. Like integrated steel mills, the aluminum manufacturing 

process requires a large capital base to transform raw material into finished product. Because of the resulting high 

fixed costs of production, earnings can be very sensitive to production levels, with high output levels relative to 

capacity needed for plants to remain profitable. 

Figure C2E-4 shows capacity utilization from 1989 to 2004 for the Primary Aluminum Production and Aluminum 

Sheet, Plate, and Foil segments. The figure shows that for most of the 1990s, the Primary Aluminum segment 

was characterized by excess capacity. Although capacity utilization for this segment was in the high 90 percent 

range between 1990 and 1992, domestic utilization fell sharply in 1993 as large amounts of Russian aluminum 

entered the global market for the first time (McGraw-Hill, 1999). Capacity utilization remained at this lower level 

through 1999. In 2000 and 2001, capacity utilization fell again reflecting the general weakening of product 

demand during the Asian economic crisis and later, general economic weakness in the U.S. and world economies. 

Reflecting the economic recovery, product demand increased and capacity utilization rose during 2002 through 

2004. In 2004, capacity utilization for the Primary Aluminum segment was above 90 percent. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-13 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Although also experiencing year-to-year fluctuation, capacity utilization in the Aluminum Sheet, Plate, and Foil 

segment grew overall between 1989 and 1998. This growth resulted largely from the continued strength of rolled 

aluminum products, which account for more than 50 percent of all shipments from the aluminum industry. 

Increased consumption by the transportation segment, the largest end-use segment for aluminum sheet, plate, and 

foil, is responsible for bringing idle capacity into production (McGraw-Hill, 1999) However, falling demand in 

these segments after 1998 and through 2001, led to a marked fall-off in capacity utilization. Again, reflecting the 

economic recovery that began in 2002, capacity utilization in this segment had risen substantially by 2004. 

60 

70 

80 

90 

100 

1989199019911992199319941995199619971998199920002001200220032004 

(

 (

(

 (

Note: 

. 

Source: 

Figure C2E-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Aluminum Segments 

P rim ary Alum in um P ro duct ion 

NAICS t o SIC) 

P rim ary Alum in um P ro duct ion SIC 

333 4) 

Alum inum Sh eet , P lat e, an d Fo il 

NAICS t o SIC) 

Alum inum Sh eet , P lat e, an d Fo il SIC 

335 3) 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1989-2004. 

C2E-3 STRUCTURE AND COMPETITIVENESS 

Aluminum production is a highly-concentrated industry. A number of large mergers among aluminum producers 

have increased the degree of concentration in the industry. For example, Alcoa (the largest aluminum producer) 

acquired Alumax (the third largest producer) in 1998 and Reynolds (the second largest producer) in May 2000. 

Alcan acquired Algroup in 2000 and Pechiney in 2004. Three companies now account for just over 50 percent of 

global aluminum output (S&P, 2004). Some sources speculate that, with increased consolidation resulting from 

mergers, aluminum producers might refrain from returning idle capacity to production as demand for aluminum 

grows, which could reduce the cyclical volatility in production and aluminum prices that has characterized the 

industry in the past (S&P, 2000). 

C2E-3.1 Firm Size 

The Small Business Administration (SBA) defines a small firm for SIC codes 3334 and 3353 as a firm with 1,000 

or fewer and 750 or fewer employees, respectively. The Statistics of U.S. Businesses (SUSB) provide 

employment data for firms with 500 or fewer employees and do not specify data for companies with 500-750 

C2E-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

employees for SIC 3353 and 500-1000 for SIC 3334. Therefore, based on 2001 data for firms with up to 500 

employees, 

f 34 of the 43 firms in the Primary Aluminum Production segment had less than 500 employees. 

Therefore, at least 79 percent of this segment’s firms are classified as small. These small firms owned 35 

facilities, or 65 percent of all facilities in the segment. 

f 61 of the 76 firms in the Aluminum Sheet, Plate and Foil segment had less than 500 employees. 

Therefore, at least 80 percent of this segment’s firms are classified as small. These small firms owned 62 

facilities, or 63 percent of all facilities in the segment. 

Table C2E-9 below shows the distribution of firms and facilities in SIC 3334 and 3353 by the employment size of 

the parent firm. 

Aluminum Industry Segments, 2003a 

0-19 26 26 39 39 

20-99 5 6 14 14 

100-499 3 3 8 9 

500+ 9 19 15 37 

Total 43 54 76 99 

a 

. 

Source: 

C2E-3.2 

Concentration is closely 

equal2 

. The HHI indicates 

2

 + 302 2). 

Table C2E-9: Number of Firms and Facilities by Employment Size Category for the Profiled 

Employment 

Size Category 

Primary Aluminum Production 

Number of Firms Number of Facilities 

Aluminum Shee 

Number of Firms 

t, Plate, and Foil 

Number of Facilities 

Before 1998, data were compiled in the SIC system; since 1997, these data have been compiled in the North American 

Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code 

classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. SBA, 1989-2003. 

Concentration Ratios 

Concentration is the degree to which industry output is concentrated in a few large firms. 

related to entry barriers with more concentrated industries generally having higher barriers. 

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common measures of 

industry concentration. The CR4 indicates the market share of the four largest firms. For example, a CR4 of 72 

percent means that the four largest firms in the industry account for 72 percent of the industry’s total value of 

shipments. The higher the concentration ratio, the less competition there is in the industry, other things being 

An industry with a CR4 of more than 50 percent is generally considered concentrated. 

concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the market 

shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with market 

shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (60 + 10

The higher the index, the fewer the number of firms supplying the industry and the more concentrated the 

industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets in which the HHI 

2

 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry 

with a high concentration in domestic production may nonetheless be subject to significant competitive pressures if it 

competes with foreign producers or if it competes with products produced by other industries (e.g., plastics vs. aluminum in 

beverage containers). Concentration ratios based on share of domestic production are therefore only one indicator of the 

extent of competition in an industry. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-15 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 1800 are considered 

to be moderately concentrated, and those in which the HHI is in excess of 1800 are considered to be concentrated. 

Table C2E-10 shows that Primary Aluminum has an HHI of 1231 and Aluminum Sheet, Plate and Foil has an 

HHI of 1447. The Primary Aluminum and Aluminum Sheet, Plate, and Foil segments, with HHI values of 1231 

and 1447, respectively, appear to be moderately concentrated. Thus, based on this factor, firms in the aluminum 

industry enjoy moderate amounts of market power, which may enable them to pass-through costs at a more than 

negligible rate. However, an accurate assessment of the cost pass-through potential of firms in the Aluminum 

industry must be considered in conjunction with other measures of market power. 

The four largest firms in Primary Aluminum Production accounted for 59 percent of total U.S. primary capacity in 

1997. Consolidation in the industry since the early 1990s has increased concentration. With the merger of Alcoa, 

Inc. and Reynolds in May 2000, the single merged company accounted for 50 percent of domestic primary 

aluminum capacity, and the four largest U.S. producers control 72 percent of the domestic capacity (Alcoa Inc. for 

50 percent, Century Aluminum Co. for almost 10 percent, and Noranda Aluminum Inc. and Ormet Primary 

Aluminum Corp. for 6 percent each) reported at the end of 2002 (USGS, 2002c). 

Table C2E-10: Selected Ratios for the Profiled Aluminum Segments, 1987, 1992, and 1997 

Concentration Ratios 

SIC (S) or Total 

NAICS (N) Year Number 4 Firm 8 Firm 20 Firm 50 Firm HerfindahlCode of Firms (CR4) (CR8) (CR20) (CR50) Hirschman 

Index 

1987 34 74% 95% 99% 100% 1,934 S 3334 

1992 30 59% 82% 99% 100% 1,456 

N 331312 1997 13 59% 82% 100% N/A 1,231 

S 3353 1987 39 74% 91% 99% 100% 1,719 

1992 45 68% 86% 99% 100% 1,633 

1997 41 65% 85% 98% 100% 1,447 

Source: 

N 331315 

Note: The 1997 Census of Manufactures is the most recent concentration ratio data available. 

U.S. DOC, 1987, 1992, 1997, and 2002. 

C2E-3.3 Foreign Trade 

This profile uses two measures of foreign competition: export dependence and import penetration. 

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic 

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that 

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests 

that higher import penetration levels will reduce market power and pricing discretion because foreign competition 

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for 

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The 

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with 

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be 

less likely to succeed in passing compliance costs through to customers. 

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales 

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not 

C2E-16 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing 

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated 

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the 

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to 

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through 

price increases since export sales are presumed subject to substantial competition from foreign producers. 

Table C2E-11 reports export dependence and import penetration for both the Primary Aluminum Production and 

the Aluminum Sheet, Plate, and Foil segments, since 1993. Imports of Primary Aluminum rose dramatically in 

1994, primarily due to the large exports from Russian producers. Representatives of major aluminum producing 

countries met in late 1993 and 1994 to address the excess global supply of primary aluminum. Those discussions 

resulted in the Russian Federation’s agreement to reduce production by 500,000 MTs per year, and plans for other 

producers to cut their production and to assist Russian producers to improve their environmental performance and 

stimulate the development of internal demand for the Russian production (USGS, 1994c). Nonetheless, imports 

have continued to represent a substantial and growing proportion of U.S. demand, reaching an estimated 41 

percent in 2002 for Primary Aluminum Production. By 2002, Canada was the largest supplier of imports, 

supplying more than one-half of total imports. Russia continued to be the second largest supplier of aluminum 

materials to the U.S. (USGS, 2002c). The majority of U.S. exports (two-thirds) are shipped to Canada and 

Mexico. 

As discussed previously, the import penetration ratio for the Primary Aluminum Production segment in 2002 was 

41 percent, which is nearly twice the U.S. manufacturing segment average of 22 percent. The export ratio for 

Primary Aluminum Production in 2001 was eight percent; therefore, competitive pressures from abroad in export 

sales are less likely to affect this segment. On balance, the U.S. Primary Aluminum Production segment is 

subject to significant international competitive pressure, largely manifesting though the penetration of foreign 

product into domestic markets. This finding indicates a low likelihood that Primary Aluminum producers subject 

to the 316(b) regulation would be able to pass a material share of compliance costs through to customers. 

In 2002, the import penetration ratio for facilities in the Aluminum Sheet, Plate, and Foil segment was 11 percent, 

which is one-half of the U.S. manufacturing segment average of 22 percent. In 2002, the export dependence ratio 

for this segment was 13 percent, or just below the average for U.S. manufacturers. This industry segment appears 

to face lower competition from foreign producers in domestic markets than the Primary Aluminum Production 

segment, but this segment competes more vigorously in foreign markets, where it is more exposed to foreign 

competition than the Primary Aluminum Production segment. On balance, this industry segment is likely to face 

moderate competitive pressure from foreign producers, whether in domestic or export markets, in attempting to 

recover regulation-induced increases in production costs through price increase. 

Overall, the competitive pressure from foreign firms/markets may offset the finding, stated above, that the 

aluminum industry would appear to possess market power from being a moderately concentrated industry. As a 

result, from a total market perspective, the industry is not likely to possess any substantial market power 

advantage in being able to pass compliance costs through to customers as price increases. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-17 
c 

§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Table C2E-11: Import Share and Export Dependence for the Profiled Aluminum Segments ($2005) 

Value of Value of Imports Value of Exports Shipments Implied Import Export Year Domestic Penetrationb Dependencec (millions) (millions) (millions) Consumptiona 

Primary Aluminum Production 

1993d 2,727 686 

1994d 4,322 666 

1995d 4,491 840 

1996d 3,631 815 

1997d 4,176 738 

1998e 4,387 643 

1999e 4,547 702 

2000e 4,817 714 

2001e 4,472 511 

2002e 4,507 464 

7,667 9,708 28.1% 9.0% 

11,563 15,220 28.4% 5.8% 

10,905 14,557 30.9% 7.7% 

9,664 12,481 29.1% 8.4% 

8,230 11,669 35.8% 9.0% 

7,591 11,335 38.7% 8.5% 

6,559 10,403 43.7% 10.7% 

6,933 11,036 43.6% 10.3% 

8,128 12,090 37.0% 6.3% 

7,087 11,130 40.5% 6.5% 

Total Percent Change 65.2% -32.4% -7.6% 14.6% 

1993-2002 

Average Annual 5.7% -4.3% -0.9% 1.5% 

Percent Change 

Aluminum Sheet, Plate, and Foil 

1993d 1,062 1,879 

1994d 1,344 2,294 

1995d 2,000 3,188 

1996d 1,533 2,845 

1997d 1,504 2,865 

1998e 1,616 2,698 

1999e 1,650 2,552 

2000e 1,816 2,576 

2001e 1,579 2,231 

2002e 1,693 1,945 

14,547 13,730 7.7% 12.9% 

17,251 16,301 8.2% 13.3% 

16,869 15,681 12.8% 18.9% 

15,281 13,968 11.0% 18.6% 

14,302 12,942 11.6% 20.0% 

13,820 12,738 12.7% 19.5% 

12,269 11,367 14.5% 20.8% 

13,138 12,378 14.7% 19.6% 

16,912 16,260 9.7% 13.2% 

15,101 14,849 11.4% 12.9% 

Total Percent Change 59.5% 3.5% 3.8% 8.1% 

1993-2002 

Average Annual 5.3% 0.4% 0.4% 0.9% 

Percent Change 

a

 Calculated by EPA as shipments + imports - exports. 

b

 Calculated by EPA as imports divided by implied domestic consumption. 

 Calculated by EPA as exports divided by shipments. 

d

 As no ITA data is available before 1997, Export and Import values are taken from USGS Mineral Yearbooks for years 1993-1997. 

“Metals and Alloys, Crude” represent SIC 3334 and “Plate, Sheets, Bars, Strip, etc.” is equivalent to SIC 3353. 

e

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North 

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code 

classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: USGS 1993c-1997c; U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002; 

U.S. DOC, 2006. 

Table C2E-12 shows trends in exports and imports separately for aluminum metal and alloys and for semifinished products separately. U.S. aluminum companies have a large overseas presence, which makes it difficult 

to analyze import data. Reported import data may reflect shipments from an overseas facility owned by a U.S. 

firm. The import data therefore do not provide a completely accurate picture of the extent to which foreign 

companies have penetrated the domestic market for aluminum. This table shows that imports have grown 

substantially in both categories between 1993 and 2004. Exports of primary aluminum have generally declined, 

C2E-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

with some fluctuation over the period. Exports of semi-finished aluminum products rose steadily until 1999, 

before declining during 2000 to 2003. Exports did, however, rebound in 2004. 

Year a

 Exportb a Exportb 

Quantity Value Quantity Value Quantity Value Quantity Value 

1993 1,840 2,150 400 541 400 837 594 1,481 

1994 2,480 3,480 339 536 507 1,082 719 1,847 

1995 1,930 3,690 369 690 622 1,643 812 2,619 

1996 1,910 3,040 417 682 498 1,283 760 2,382 

1997 2,060 3,500 352 606 562 1,519 882 2,746 

1998 2,400 3,660 265 449 649 1,715 893 2,723 

1999 2,650 3,760 318 515 735 1,777 907 2,564 

2000 2,490 4,030 273 468 791 2,088 845 2,380 

2001 2,560 3,930 192 320 683 1,762 751 2,120 

2002 2,790 4,040 206 337 796 1,922 706 1,880 

2003 2,870 4,270 214 351 653 1,510 690 1,900 

2004 3,250 5,880 298 565 724 1,950 795 2,380 

76.6% 173.5% -25.5% 4.4% 81.0% 133.0% 33.8% 60.7% 1993-2004 

5.3% 9.6% -2.6% 0.4% 5.5% 8.0% 2.7% 4.4% Growth Rate 

Source:

a

b

Table C2E-12: Trade Statistics for Aluminum and Semi-fabricated Aluminum Products 

(Quantities in thousand metric tons; Values in $millions) 

Metals and Alloys, Crude Plate, Sheets, Bars, Strip, etc. 

Import Import

Total Percent Change 

Average Annual 

 USGS 1994c-2004c. 

 Table 10: U.S. Imports for Consumption of Aluminum, by Class 

 Table 9: U.S. Exports of Aluminum, by Class 

C2E-4 FINANCIAL CONDITION AND PERFORMANCE 

The financial performance and condition of the aluminum industry are important determinants of its ability to 

withstand the costs of regulatory compliance without material, adverse economic/financial impact. To provide 

insight into the industry’s financial performance and condition, EPA reviewed two key measures of financial 

performance over the 14-year period, 1992-2005: net profit margin and return on total capital. EPA calculated 

these measures as a revenue-weighted index of measure values for public reporting firms in the respective 

industries, using data from the Value Line Investment Survey. Financial performance in the most recent financial 

reporting period (2005) is obviously not a perfect indicator of conditions at the time of regulatory compliance. 

However, examining the trend, and deviation from the trend, through the most recent reporting period gives 

insight into where the industry may be, in terms of financial performance and condition, at the time of 

compliance. In addition, the volatility of performance against the trend, in itself, provides a measure of the 

potential risk faced by the industry in a future period in which compliance requirements are faced: all else equal, 

the more volatile the historical performance, the more likely the industry may be in a period of relatively weak 

financial conditions at the time of compliance. 

Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales or 

revenues, and measures profitability, as reflected in the conventional accounting concept of net income. Over 

time, the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the 

industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-19 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

a several factors, including: variations in aggregate economic conditions (including international and U.S. 

conditions), variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in 

overcapacity), or changes in the pricing and availability of inputs to the industry’s production processes (e.g., the 

cost of energy to the aluminum production process). The extent to which these fluctuations affect an industry’s 

profitability, in turn, depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a 

capital intensive industry such as the aluminum industry, the relatively high fixed capital costs as well as other 

fixed overhead outlays, can cause even small fluctuations in output or prices to have a large positive or negative 

affect on profit margin. 

Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by the 

total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of the 

capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or 

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets 

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the 

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate 

over time a sufficient return on capital if the industry is to remain economically viable and attract capital. The 

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in 

return on total capital. 

Figure C2E-5, following page, shows net profit margin and return on total capital for the aluminum industry 

between 1992 and 2005. The graph shows considerable volatility. Performance was very low between 1988 and 

1993, reflecting general economic weaknesses and oversupply in the market (McGraw-Hill, 2000). By the mid1990s, performance improved as demand recovered and aluminum prices increased. Performance declined again 

though in 2000 through 2002, reflecting economic downturn in both the U.S. and world economies. By 2003, 

financial performance began to level off compared to the significant declines experienced in the three prior years 

and by 2004, had begun to improve. The industry saw further improvements in financial performance in 2005. 

These results point to improving financial performance in 2006 and beyond as U.S. economic conditions continue 

to strengthen. 

C2E-20 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

0% 

2% 

4% 

6% 

8% 

10% 

12% 

14% 

16% 

Figure C2E-5: Net Profit Margin and Return on Total Capital for the Aluminum Industry 

-4% 

-2% 

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

Return on Total Capital - Aluminum 

Industry 

Net Profit Margin - Aluminum 

Industry 

Source: Value Line, 2003c; Value Line, 2006. 

C2E-5 FACILITIES OPERATING COOLING WATER INTAKE STRUCTURES 

Section 316(b) of the Clean Water Act applies to point source facilities that use or propose to use a cooling water 

intake structure that withdraws cooling water directly from a surface waterbody of the United States. In 1982, the 

Primary Metals industries as a whole (including Steel and Non-ferrous producers) withdrew 1,312 billion gallons 

of cooling water, accounting for approximately 1.7 percent of total industrial cooling water intake in the United 

States3

. The industry ranked 3rd in industrial cooling water use, behind the electric power generation industry, 

and the chemical industry (1982 Census of Manufactures). 

This section provides information for facilities in the profiled aluminum segments estimated to be subject to 

regulation under the regulatory analysis options. Existing facilities that meet all of the following conditions 

would have been subject to the regulation under the three regulatory analysis options: 

f Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract or 

arrangement with an independent supplier who has a cooling water intake structure; or their cooling water 

intake structure(s) withdraw(s) cooling water from waters of the U.S., and at least twenty-five (25) 

percent of the water withdrawn is used for contact or non-contact cooling purposes; 

f Have an National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one; 

and 

f Meet the applicability criteria for the specific regulatory analysis option in terms of design intake flow 

and source waterbody type (i.e., 50 MGD for All Waterbodies, 100 MGD for Certain Waterbodies, or 200 

MGD for All Waterbodies). 

3

 Data on cooling water use are from the 1982 Census of Manufactures. 1982 was the last year in which the Census of 

Manufactures reported cooling water use. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-21 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

The regulatory options also cover substantial additions or modifications to operations undertaken at such 

facilities. Although EPA initially identified the set of facilities that were estimated to be potentially subject to the 

Phase III regulation based on a minimum applicability threshold of 2 MGD, this section focuses on the facilities 

nationwide in the profiled steel segments that are estimated to be subject to regulation based on the design intake 

flow and waterbody applicability criteria set forth in the regulatory analysis options (see Table C2E-1, above for 

additional information on the broader set of facilities potentially subject to regulation). 4 

C2E-5.1 Waterbody and Cooling System Type 

Table C2E-13, Table C2E-14, and Table C2E-18 show the distribution of Phase III facilities in the profiled 

aluminum segment by type of water body and cooling system. The table shows that the majority of the potential 

Phase III facilities use a once-through cooling system. None of the facilities withdraw from an estuary, the most 

sensitive type of water body. 

Table C2E-13: Number of Facilities Estimated Subject to the 50 MGD All Option by 

Waterbody Type and Cooling System for the Profiled Aluminum Segments 

Cooling System 

Water Body Type Recirculating Once-Through Total 

Number % of Total Number % of Total 

Primary Production of Aluminum 

Lake or Reservoir 1 100% 0 0% 1 

Aluminum Sheet, Plate, and Foil 

Great Lake 0 0% 3 100% 3 

Total for Profiled Aluminum Facilities 

Lake or Reservoir 1 100% 0 0% 1 

Great Lake 0 0% 3 100% 3 

Total 1 27% 3 73% 4 

Source: U.S. EPA, 2000; U.S. EPA analysis, 2006. 

4

 EPA applied sample weights to the sampled facilities to account for non-sampled facilities and facilities that did not 

respond to the survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information 

Collection Request (U.S. EPA, 2000). 

C2E-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

Table C2E-14: Number of Facilities Estimated Subject to the 200 MGD All Option by 

Waterbody Type and Cooling System for the Profiled Aluminum Segments 

Cooling System 

Water Body Type Recirculating Once-Through Total 

Number % of Total Number % of Total 

Primary Production of Aluminum 

Lake or Reservoir 1 100% 0 0% 1 

Aluminum Sheet, Plate, and Foil 

Total 0 0% 0 0% 0 

Total for Profiled Aluminum Facilities 

Lake or Reservoir 1 100% 0 0% 1 

Total 1 100% 0 0% 1 

Source: U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Table C2E-15: Number of Facilities Estimated Subject to the 100 MGD CWB Option 

by Waterbody Type and Cooling System for the Profiled Aluminum Segments 

Cooling System 

Water Body Type Recirculating Once-Through Total 

Number % of Total Number % of Total 

Primary Production of Aluminum 

Lake or Reservoir 1 100% 0 0% 1 

Aluminum Sheet, Plate, and Foil 

Total 0 0% 0 0% 0 

Total for Profiled Aluminum Facilities 

Lake or Reservoir 1 100% 0 0% 1 

Total 1 100% 0 0% 1 

Source: U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2E-5.2 Facility Size 

The 316(b) facilities in the aluminum industry are relatively large. The single Primary Aluminum producer 

employs at least 1,000 people, while all three Aluminum Sheet, Plate and Foil manufacturers have between 500 

and 999 employees. Figure C2E-6 show the number of Phase III facilities by employment size category. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-23 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

0 

3 

1 

0 

0 

1 

2 

3 

4 

i i luminum 

(

A lumi l l 

(

Source: 

0 0 

1 

0 

0 

1 

2 

3 

4 

i i luminum (

3334) 

Alumi l l (

3353) 

Source: 

Figure C2E-6: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment 

Size for the Profiled Aluminum Segments 

500-999 >=1000 

Pr mary Produc t on of A 

SIC 3334) 

num Sheet, Pate, and Foi

SIC 3353) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Figure C2E-7: Number of Facilities Estimated Subject to the 200 MGD All Option by Employment 

Size for the Profiled Aluminum Segments 

500-999 >=1000 

Pr mary Product on of A SIC 

num Sheet, Pate, and Foi SIC 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2E-24 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

0 0 

1 

0 

0 

1 

2 

3 

4 

>=1000 

3334) 

3353) 

Source: 

C2E-5.3 

SIC Code 

Number 

Large 

% of SIC Number % of SIC 

Total 

3334 1 100% 0 0% 1 

3353 3 100% 0 0% 3 

Total 4 100% 0 0% 4 

Source: 

SIC Code 

Number 

Large 

% of SIC Number % of SIC 

Total 

3334 1 100% 0 0% 1 

3353 0 0% 0 0% 0 

Total 1 100% 0 0% 1 

Source: 

Figure C2E-8: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Employment Size for the Profiled Aluminum Segments 

500-999 

Primary Production of Aluminum (SIC 

Aluminum Sheet, Plate, and Foil (SIC 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Firm Size 

EPA used the Small Business Administration (SBA) small entity size standards to determine the number of 

Section 316(b) profiled aluminum industry facilities owned by small firms. Firms in the Primary Production of 

Aluminum segment are defined as small if they have 1000 or fewer employees; firms in the Aluminum Sheet, 

Plate, and Foil segment are defined as small if they have 750 or fewer employees. Table C2E-16, Table C2E-17, 

and Table C2E-18 show that large firms own all of the aluminum facilities estimated subject to regulation under 

the regulatory analysis options. 

Table C2E-16 Number of Facilities Estimated Subject to the 50 MGD All Option by Firm 

Size for the Profiled Aluminum Segments 

Small 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

Table C2E-17: Number of Facilities Estimated Subject to the 200 MGD All Option by Firm 

Size for the Profiled Aluminum Segments 

Small 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-25 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

SIC Code 

Number 

Large 

% of SIC Number % of SIC 

Total 

3334 1 100% 0 0% 1 

3353 0 0% 0 0% 0 

Total 1 100% 0 0% 1 

Source: 

Table C2E-18: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Firm Size for the Profiled Aluminum Segments 

Small 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

C2E-26 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

REFERENCES 

The Aluminum Association. 2001. The Aluminum Situation. September 2001.
 

The Aluminum Association. 1999. “Northwest Smelter Restarts Are Seen Unlikely”, Industry News. October 
 

29, 1999. 
 

The Aluminum Association. Undated. Aluminum: An American Industry in Profile. 
 

Bureau of Labor Statistics (BLS). 2006. Producer Price Index. Industry Data Series: PCU331312-Primary 
 

Aluminum Production; PCU331315-Aluminum Sheet, Plate, & Foil Mfg. Available at: 
 

http://www.bls.gov/ppi/home.htm. Downloaded February 1, 2006. 
 

Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001. 
 

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification 
 

Manual. 
 

McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000. U.S. Industry & 
 

Trade Outlook ‘00. 
 

McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 1999. U.S. Industry & 
 

Trade Outlook ‘99. 
 

Standard & Poor’s (S&P). 2004. Sub Industry Outlook- Alcoa Inc. February 21, 2004. 
 

Standard & Poor’s (S&P). 2001. Industry Surveys - Metals: Industrial. July 12, 2001. 
 

Standard & Poor’s (S&P). 2000. Industry Surveys - Metals: Industrial. January 20, 2000. 
 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of the Census. International Trade Administration. 

Industry, Trade, and the Economy: Data and Analysis. Data by NAICS and SIC. Available at: 

http://www.ita.doc.gov/td/industry/otea/industry_sector/tables_naics.htm. Downloaded February 2, 2006. 

U.S. Department of Commerce (U.S. DOC). 1989-2004. Bureau of the Census. Current Industrial Reports. 

Survey of Plant Capacity. 

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, 1998-2001, and 2003-2004. Bureau of the 

Census. Annual Survey of Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1987, 1992, 1997, and 2002. Bureau of the Census. Census of 

Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. 1997 Economic Census Bridge 

Between NAICS and SIC. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling 

Water Intake Structures. 

United States Geological Survey (USGS). 1995a-2006a. Mineral Commodity Summaries. Aluminum. Author: 

Patricia Plunkert. 

United States Geological Survey (USGS). 1993c-2004c. Minerals Yearbook. Aluminum. Author: Patricia 

Plunkert. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2E-27 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2E: Aluminum 

United States Geological Survey (USGS). 2001b-2003b. Mineral Industry Surveys. Aluminum. Author: Patricia 

Plunkert. 

United States Geological Survey (USGS). 2002. Historical Statistics for Mineral and Material Commodities in 

the United States. Aluminum. Authors: 

United States Geological Survey (USGS). 1998. Metal Prices in the United States through 1998. Available at: 

http://minerals.usgs.gov/minerals/pubs/metal_prices/metal_prices1998.pdf 

U.S. Small Business Administration (U.S. SBA). 2006. Small Business Size Standards. Available at: 

http://www.sba.gov/size/sizetable2002.html. 

U.S. Small Business Administration (U.S. SBA). 1989-2003. Statistics of U.S. Businesses. Available at: 
 

http://www.sba.gov/advo/research/data.html. Downloaded February 4, 2006. 
 

Value Line. 2006. Value Line 3.0 Investment Analyzer. 
 

Value Line. 2003a. Metal Fabricating Industry. March 28, 2003. 
 

Value Line. 2003b. Metals & Mining (Diversified) Industry. April 25, 2003. 
 

Value Line. 2003c. Value Line Investment Survey. 
 

Value Line. 2001. Metals & Mining (Diversified) Industry. July 27, 2001. 
 

C2E-28 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

Chapter C2F: Profile of Food and Kindred 
 

Products Industry (SIC 20) 
 

INTRODUCTION 

In framing its analysis and data gathering for the section 

316(b) Regulation for Phase III Facilities, EPA initially 

focused on the electric power industry and five 

manufacturing industries – Paper, Chemicals, Petroleum, 

Aluminum, Steel (the “Primary Manufacturing 

Industries”) – that were estimated to account for over 90 

percent of cooling water usage, according to Census of 

Manufactures data. Accordingly, EPA targeted its Detailed 

Industry Questionnaire (the “DQ”) to these industries. 

Although the DQ was targeted to these industries, EPA 

received 22 questionnaires from in-scope facilities with 

operations in industries other than these major coolingwater intensive industries (these industries are referred to as 

the “Other Industries”). These questionnaires were 

received as part of the non-utility electric power generators 

sample frame; however, further inspection found these 

facilities to be cooling water-dependent facilities whose 

primary operations lie in businesses outside the electric 

power industry or Primary Manufacturing Industries. 

These 22 questionnaires represent eight 2-digit SIC 

industries: Agriculture Production - Crops (SIC 01); Metal 

Mining (SIC 10); Mining and Quarrying of Nonmetallic 

Minerals, except fuels (SIC 14); Food and Kindred 

Products (SIC 20); Textile Mill Products (SIC 22); Lumber and Wood Products, except furniture (SIC 24); 

Fabricated Metal Products, except machinery and transportation equipment (SIC 34); and Transportation 

Equipment (SIC 37). However, over half (12)of the 22 questionnaires received were from facilities in the Food 

and Kindred Products industry (SIC 20). Moreover, from the 1982 Census of Manufactures (the most recent 

Economic Census to report data on cooling water use by industrial sector), the Food and Kindred Products sector 

was the fifth largest user of cooling water – i.e., the next 2-digit SIC sector behind the Primary Manufacturing 

Industries (both Aluminum and Steel fall under the 2-digit SIC 33 for primary metal industries). Given the 

substantial number of questionnaires received from in-scope facilities in the Food and Kindred Products industry, 

and its relatively high reliance on cooling water, EPA prepared an industry profile for the Food and Kindred 

Products industry. 

CHAPTER CONTENTS 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 

Introduction.......................................................... C2F-1

C2F-1 Summary Insights from this Profile ........ C2F-3

C2F-2 Domestic Production............................... C2F-4

C2F -2.1 Output............................................. C2F-4

C2F -2.2 Number of Facilities and Firms ...... C2F-8

C2F -2.3 Employment and Productivity ...... C2F-10

C2F -2.4 Capital Expenditures .................... C2F-11

C2F -2.5 Capacity Utilization...................... C2F-12

C2F-3 Structure and Competitiveness.............. C2F-14

C2F -3.1 Firm and Facility Size .................. C2F-14

C2F -3.2 Concentration Ratios .................... C2F-15

C2F -3.3 Foreign trade................................. C2F-16

C2F-4 Financial Condition and Performance... C2F-18 

C2F-5 Facilities Operating Cooling Water Intake 

Structures .............................................. C2F-22 

C2F -5.1 Waterbody and Cooling System Type......

 ................................................... C2F-23

C2F -5.2 Facility Size.................................. C2F-23

C2F -5.3 Firm Size ...................................... C2F-25

References.......................................................... C2F-26

EPA used the cooling water usage-based multiplier of 3.11, as documented at NODA and in the public record of 

the Phase III final regulation, to estimate the industry-level costs and impacts of Phase III regulatory compliance 

for the Food and Kindred Products industry. Therefore, these 12 sampled facilities represent 37 facilities in the 

Food and Kindred Products Industry. Table C2F-1, following page, lists the five 4-digit SIC codes from which 

the 22 Food and Kindred Products industry surveys were received, the number of potentially regulated facilities 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2F-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

(based on a minimum applicability threshold of two MGD), and the number of facilities estimated to be subject to 

regulation under the regulatory analysis options. Although the questionnaires received fall in only five of the 

forty-eight 4-digit SIC codes within the Food and Kindred Products industry, EPA knows of no basis to exclude 

any of the remaining 4-digit codes from consideration in this profile. Accordingly, this profile focuses on the 

entirety of SIC 20, Food and Kindred Products. 

Table C2F-1: Phase III Facilities in the Food and Kindred Products Industry (SIC 20) 

Subject to 

SIC 

SIC 

Description Important Products Manufactured 

Potentially 

Regulated 

Facilities 

Subject to 

50 MGD 

All Option 

Subject to 

200 MGD 

All Option 

100 MGD 

CWB 

Option 

2046 Wet Corn 

Milling 

Corn oil cake and meal; corn starch; corn 

syrup; dextrose, fructose; glucose; high 

fructose syrup; starches 

12 6 3 3 

2061 Cane sugar, 

except refining 

Cane sugar; molasses; granulated sugar; 

powdered sugar; raw sugar; cane syrup (all 

made from sugarcane) 

2 0 0 0 

Molasses, blackstrap; granulated sugar; 

2062 Cane sugar 

refining 

powdered sugar; refined sugar; syrup (all 

made from purchased raw cane or sugar 12 0 0 0 

syrup) 

Beet sugar; molasses; granulated sugar; 

2063 Beet sugar liquid sugar; powdered sugar; syrup (all 6 0 0 0 

made from sugar beets) 

Distilled and blended liquors, except brandy; 

2085 Distilled and 

blended liquors 

gin; rum; vodka; whiskey; cocktails; 

cordials; eggnog; grain alcohol for medicinal 3 3 0 3 

and beverage purposes 

Total SIC Code 20 37 9 3 6 

Source: Executive Office of the President, 1987; U.S. EPA 2000; U.S. EPA analysis, 2006. 

The Food and Kindred Products industry includes facilities that process or manufacture food and beverages for 

human consumption, feed for animals, and other related products. Statistics for the industry were previously 

recorded under the Standard Industry Classification (SIC) code of 20, for Food and Kindred Products. SIC 20 

included 9 industry groups at the 3-digit SIC level, and 48 industries at the 4-digit SIC level. Under the SIC 

system, beverage manufacturing was included in SIC 20, the Food and Kindred Products sector. In 1997, the U.S. 

Census Bureau began reporting economic activity in the North American Industry Classification System 

(NAICS), which replaced the SIC system (U.S. DOC, 1997a). Under NAICS, the previous SIC 20 sector is 

recorded in two 3-digit NAICS sectors: (1) NAICS 311, Food Manufacturing, and (2) NAICS 312, Beverage and 

Tobacco Product Manufacturing. This profile focuses on NAICS 311, Food Manufacturing, and NAICS 3121, 

the Beverage Manufacturing subsector within NAICS 312, and excludes consideration, to the extent possible, of 

the tobacco-manufacturing sector. Because the analysis period for this profile extends across the SIC-to-NAICS 

transition, most of the data series presented in the profile include data from both the SIC system and NAICS: for 

years before 1997, data are from the SIC system; for 1997 and after, data are from NAICS. Table C2F-2, 

following page, summarizes the relationship between SIC and NAICS codes used for this profile and provides 

summary information on the relevant NAICS sectors from the 2002 Economic Census. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

Table C2F-2: Relationship between SIC and NAICS Codes for the Food Manufacturing and Beverage 

Manufacturing Segments (2002a

) 

SIC Code SIC Description NAICS 

Code 

NAICS 

Description Establishments 

Value of 

Shipments 

($000) 

Employment 

20--

(excluding 

2082, 2084, 

2085, 2086, 

Food and Kindred Products 311 Food 

Manufacturing 27,897 456,586,656 1,505,776 

and 2097) 

2082 Malt Beverages 

2084 

2085 

2086 

Wines, Brandy, and Brandy 

Spirits 

Distilled and Blended Liquors 

Bottled and Canned Soft 

Drinks and Carbonated Waters 

3121 Beverage 

Manufacturing 2,903 65,153,490 136,074 

2097 Manufactured Ice 

a

 Industry data for relevant NAICS codes from the 2002 Economic Census. 

Source: U.S. DOC, 1997; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2F-1 SUMMARY INSIGHTS FROM THIS PROFILE 

A key purpose of this profile is to provide insight into the ability of firms in the Food and Kindred Products 

industry to absorb compliance costs from the regulatory analysis options without material adverse 

economic/financial effects. The industry’s ability to withstand compliance costs is primarily influenced by two 

factors: (1) the extent to which the industry may be expected to shift compliance costs to its customers through 

price increases and (2) the financial health of the industry and its general business outlook. 

Likely Ability to Pass Compliance Costs Through to Customers 

As reported in the following sections of this profile, the Food Manufacturing and Beverage Manufacturing 

segments face somewhat limited foreign competitive pressures, and, based on this factor, would have some 

latitude to pass through to customers any increase in production costs resulting from regulatory compliance. 

However, within the U.S. market, the Food Manufacturing and Beverage Manufacturing segments have relatively 

low concentrations. Although niche product and/or regional segments are likely to face lighter overall 

competition, the lack of industry concentration, as described later in this profile, suggests that firms in this 

industry may have little ability to recover compliance costs through increased prices – particularly if the increased 

costs do not occur in a relatively uniform way throughout the industry. Given the likelihood that only a relatively 

small subset of facilities and firms in this industry will face additional costs as a result of the regulatory options 

considered for the section 316(b) Phase III regulation, EPA believes that a conservative assumption of no-costpass-through is appropriate for analysis of the impact on this industry. For the facility impact analysis, EPA 

therefore assumed that Food and Kindred Products facilities would not be able to pass on to customers any 

increases in production costs incurred through compliance with the regulatory options considered for the section 

316(b) Phase III regulation – i.e., the firms would absorb all regulatory compliance costs. 

Financial Health and General Business Outlook 

Unlike the more cyclical sectors in the Primary Manufacturing Industries, the Food and Kindred Products 

industry, being a consumer staples industry, was not as strongly affected by the economic downturn that occurred 

in the early 2000s. The industry was able to maintain a moderate level of positive financial performance over the 

data period, and recent trends suggest the industry should be able to continue the moderate, steady growth, 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

accompanied by moderate financial performance, that it has historically achieved. In an effort to increase sales, 

profits, and market share, Food and Kindred Products industry firms have pursued mergers and acquisitions, 

looked into foreign market opportunities, reduced costs, and introduced new products (Harris, 2002). In addition, 

the industry has exhibited substantially less fluctuation in capacity utilization and financial performance than 

more cyclical industries, such as the five Primary Manufacturing Industries. Though foreign competition is 

growing, the industry also experiences less international competition than firms in the Primary Manufacturing 

Industries, as indicated by the industry’s lower reliance on export sales and the lower extent of import penetration 

in domestic markets. On the whole, the Food and Kindred Products industry has maintained a steadily increasing 

level of capital expenditures over the data period and has correspondingly recorded moderately increasing labor 

productivity. These factors suggest that the industry’s capital equipment base has been maintained and regularly 

improved over the analysis period, and that the business faces no inordinate needs for capital expenditure due, for 

example, to offset a period in which capital expenditure substantially retrenched because of declining business 

performance. Within the broader Food and Kindred Products industry, the Food Manufacturing segment has 

generally achieved more stable growth and financial performance than the Beverage segment. Nevertheless, the 

general financial health and outlook for the overall industry appear positive. Favorable product demand trends, 

efficient production capability, and effective management of production costs and supply chains all point to a 

favorable industry outlook, both near and longer term. As a result, EPA concludes that the Food and Kindred 

Products industry should be able to withstand the cost of section 316(b) Phase III compliance requirements under 

the regulatory options without material adverse financial impact. Indeed, EPA judges overall that the Food and 

Kindred Products industry is currently in better economic/financial condition overall than the Primary 

Manufacturing Industries. 

C2F-2 DOMESTIC PRODUCTION 

The Food and Kindred Products industry is one the largest manufacturing industries in the United States, with the 

Food Manufacturing and Beverage segments accounting for approximately one-sixth of U.S. industrial activity 

(McGraw-Hill, 2000). The Food Manufacturing segment alone accounts for over 10 percent of all manufacturing 

shipments (U.S. DOC, undated). The industry is considered mature, however, and firms are seeking new avenues 

for increased sales. With total food industry shipments growing more slowly than GDP, U.S. producers have 

actively sought growth opportunities in overseas markets. Although exports still represent a small share of 

domestic shipments, changes in global food consumption could lead to increased demand and trade for processed 

food products. As developing countries experience growth in income, the demand for higher quality food 

products, such as meat products, present an opportunity for U.S. firms to increase exports. In developed 

countries, consumer demand for food is based more on tastes, quality, convenience, and value added, again 

providing an avenue for firms to expand sales (U.S. DOC, undated). 

C2F -2.1 Output 

Figure C2F-1 and Figure C2F-2, following pages, show trends in constant dollar value of shipments and 

value added for the Food Manufacturing and Beverage Manufacturing segments.1 Change in these values over 

time provides insight into the overall economic health and outlook for an industry. Value of shipments is the sum 

of receipts earned from the sale of outputs; it indicates the overall size of a market or the size of a firm in relation 

to its market or competitors. Value added, defined as the difference between the value of shipments and the value 

of inputs used to make the products sold, measures the value of production activity in a particular industry. 

The trends over time in value of shipments and value added show that both the Food Manufacturing and Beverage 

Manufacturing segments have achieved generally stable performance over the 1987-2004 period: these industries 

1 Terms highlighted in bold and italic font are further explained in the glossary. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

have not been substantially affected by fluctuations in the performance trend of the aggregate U.S. economy. The 

lack of major swings in shipments and value added results largely from the consumer staple-character of the 

industry. Over the 1987-2004 period, both segments ended with a higher total value of shipments and value 

added (in inflation-adjusted dollars) than in 1987. In 2003, 40 percent of respondents to Food Engineering’s State 

of Food Manufacturing Survey expected output to increase by over 6 percent, with almost 20 percent forecasting 

an increase of up to 6 percent in output (Higgins, 2003). In 2004, the value of shipments rose by 3.1 and 2.5 

percent for the Food Manufacturing and Beverage Manufacturing industries, respectively. Over the 18-year time 

period analyzed, Food Manufacturing and Beverage Manufacturing segments increased their value of shipments 

by 44 percent and 16 percent, respectively. Increases in value added over the period were 89 percent for Food 

Manufacturing, and 33 percent for Beverage Manufacturing. The general trends suggest that firms in these 

industries have been able to increase shipments and value added, a sign that the industries are able to find ways to 

expand their market and continue to grow. 

(millions, $2005) 

198719881989199019911992199319941995199619971998199920002001200220032004 

Food Mfg.

Beverage Mfg.

Note: 

Source: 

Figure C2F-1: Value of Shipments for Food Manufacturing and Beverage Manufacturing Segments 

300,000 

330,000 

360,000 

390,000 

420,000 

450,000 

480,000 

510,000 

540,000 

570,000 

600,000 

60 ,0 00 

63 ,0 00 

66 ,0 00 

69 ,0 00 

72 ,0 00 

75 ,0 00 

78 ,0 00 

81 ,0 00 

84 ,0 00 

87 ,0 00 

90 ,0 00 

Fo o d M fg. NAICS 

Fo o d M fg. SIC 

Bev erage M fg. NAICS 

Bev erage M fg. SIC 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2F-5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

(millions, $2005) 

198719881989199019911992199319941995199619971998199920002001200220032004 

Food Mfg.

Beverage Mfg.

Note: 

Source: 

Figure C2F-2: Value Added for Food Manufacturing and Beverage Manufacturing Segments 

60,000 

80,000 

1 00,000 

1 20,000 

1 40,000 

1 60,000 

1 80,000 

2 00,000 

2 20,000 

2 40,000 

26,000 

29,000 

32,000 

35,000 

38,000 

41,000 

44,000 

47,000 

50,000 

53,000 

Fo o d M fg. N AICS 

Fo o d M fg. SIC 

Bev erage M fg. NAICS 

Bev erage M fg. SIC 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

Table C2F-3, following page, provides the Federal Reserve System’s index of industrial production for the 

profiled Food Manufacturing and Beverage Manufacturing segments, showing trends in production between 1989 

and 2005. This index more closely reflects total output in physical terms, whereas value of shipments and value 

added reflect the economic value of production. The production index is expressed as a percentage of output in 

the base year, 2002. With the exception of modest decreases in production during 1995 to 1996 and 2002 to 

2003, the Food Manufacturing segment has seen year-to-year production increases over the period, with an 

overall increase in production of approximately 30 percent from 1989 to 2005. The Beverage Manufacturing 

segment, on the other hand, saw production mostly rising from 1989 through the 1990s, before hitting a peak in 

1998 and decreasing slightly for the next few years. Production then rebounded in 2002, and has since continued 

to increase. Over the entire period, the segment achieved an increase in production of over 23 percent. Going 

forward, businesses in these sectors are turning towards automation of plant processes to increase production 

(Higgins, 2004). 

C2F-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

Table C2F-3: U.S. Food and Beverage Manufacturing Industry Industrial Production Index 

Year Food Manufacturing (NAICS 311) Beverage Manufacturing (NAICS 3121) 

Index 2002=100 Percent Change Index 2002=100 Percent Change 

1989 79.7 89.7 

1990 82.1 3.1% 90.9 1.3% 

1991 83.6 1.8% 92.1 1.3% 

1992 85.2 1.9% 92.6 0.6% 

1993 87.5 2.7% 92.4 -0.2% 

1994 88.0 0.6% 96.3 4.2% 

1995 90.2 2.6% 96.9 0.7% 

1996 88.4 -2.1% 101.2 4.4% 

1997 90.8 2.8% 102.8 1.6% 

1998 94.8 4.4% 104.3 1.5% 

1999 95.8 1.0% 99.1 -5.0% 

2000 97.5 1.7% 98.9 -0.3% 

2001 97.5 0.1% 98.8 -0.1% 

2002 100.0 2.5% 100.0 1.3% 

2003 99.6 -0.4% 101.7 1.7% 

2004 100.8 1.3% 104.6 2.8% 

2005 103.3 2.5% 110.5 5.7% 

Total Percent Change 29.6% 23.2% 

1989-2005 

Average Annual 1.6% 1.3% 

Growth Rate 

Source: Economagic, 2006 

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and 

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment. 

As shown in Figure C2F-3, price levels in the U.S. Food Manufacturing and Beverage Manufacturing Segments 

have risen steadily from 1987 to 2005, with both segments seeing a Compound Annual Growth Rate of 

approximately 2%. It is estimated that consumers spend only 10 percent of their disposable income on food 

purchases. Of this 10 percent, 6 percent is for food to be consumed in the home and 4 percent for food consumed 

away from home. As disposable income rises with sustained economic growth, consumer demand is also 

expected to increase (U.S. DOC, undated). 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

Segments 

1987198819891990199119921993199419951996199719981999200020012002200320042005 

Source:

Figure C2F-3: Producer Price Indexes for Food Manufacturing and Beverage Manufacturing 

100 

110 

120 

130 

140 

150 

160 

Beverage Mfg. NAICS 

Food Mfg. NAICS 

 BLS, 2006. 

C2F -2.2 Number of Facilities and Firms 

As reported in the Statistics of U.S. Businesses, the number of facilities in the Food Manufacturing segment 

increased by 19% between 1990 and 2003. The number of firms in this segment grew by about 24% during this 

time period. In the Beverage Manufacturing segment, the number of facilities and number of firms increased 

even more dramatically. Between 1990 and 2001, the number of facilities in the Beverage Manufacturing 

segment grew by just over 40%, from 2,200 facilities in 1990 to 3,082 facilities in 2003. The number of firms in 

Beverage Manufacturing grew more rapidly, with an increase of 44% over the analysis period. Table C2F-4, and 

Table C2F-5, following page, present the number of facilities and firms for the Food Manufacturing and Beverage 

Manufacturing segments between 1990 and 2003. 

C2F-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

Year 

Percent Change Percent Change 

1990 16,740 2,200 

1991 16,790 0.3% 2,211 0.5% 

1992 17,824 6.2% 2,287 3.4% 

1993 18,114 1.6% 2,281 -0.3% 

1994 17,795 -1.8% 2,293 0.5% 

1995 17,726 -0.4% 2,333 1.7% 

1996 18,587 4.9% 2,576 10.4% 

1997 18,558 -0.2% 2,660 3.3% 

1998a

 20,088 8.2% 2,601 -2.2% 

1999a 19,954 -0.7% 2,671 2.7% 

2000a 19,902 -0.3% 2,748 2.9% 

2001a

 20,340 2.2% 3,033 10.4% 

2002a

 19,136 -5.9% 3,099 2.2% 

2003a

 19,873 3.9% 3,082 -0.5% 

18.7% 40.1% 

1.3% 2.6% 

a 

Source: 

Year 

Table C2F-4: Number of Facilities Owned by Firms in the Food and Beverage Manufacturing Segments 

Food Manufacturing 

Number of 

Facilities 

Beverage Manufacturing 

Number of 

Facilities 

Total Percent Change 1990-2003 

Average Annual Growth Rate 

Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. SBA, 1989-2003. 

Table C2F-5: Number of Firms in the Food and Beverage Manufacturing Segments 

Food Manufacturing Beverage Manufacturing 

Number of Firms Percent Change Number of Firms Percent Change 

1990 13,346 1,789 

1991 13,418 0.5% 1,818 1.6% 

1992 14,409 7.4% 1,875 3.1% 

1993 14,698 2.0% 1,867 -0.4% 

1994 14,378 -2.2% 1,893 1.4% 

1995 14,330 -0.3% 1,954 3.2% 

1996 15,189 6.0% 2,192 12.2% 

1997 15,189 0.0% 2,235 2.0% 

1998a 16,656 9.7% 2,137 -4.4% 

1999a 16,559 -0.6% 2,196 2.8% 

2000a 16,533 -0.2% 2,267 3.2% 

2001a 16,960 2.6% 2,558 12.8% 

2002a 15,796 -6.9% 2,616 2.3% 

2003a 16,561 4.8% 2,576 -1.5% 

Total Percent Change 1990-2003 24.1% 44.0% 

Average Annual Growth Rate 1.7% 2.8% 

a Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using 

the 1997 Economic Census Bridge Between NAICS and SIC. 

Source: U.S. SBA, 1989-2003. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

C2F -2.3 Employment and Productivity 

The U.S. Food and Kindred Products industry is among the most modern in the world. A steady trend of industry 

growth and accompanying capital outlays have both increased production capacity and led to installation of 

increasingly modern and more efficient, higher technology, production equipment (see Section C2F -2.4, below). 

The higher technology production equipment requires a more skilled labor force (Higgins, 2003). At the same 

time, the higher technology equipment reduces the number of employees needed per dollar of production 

(Higgins, 2004). 

Employment has followed different profiles in the two segments between 1987 and 2003. After a sharp 

increase from 1987 to 1988, Food Manufacturing segment employment followed a relatively stable profile from 

year to year, decreasing by no more than 2.5 percent and increasing by no more than 3.5 percent. Over the entire 

period, segment employment increased by 37 percent. The Beverage Manufacturing segment, however, has 

experienced more volatility over the period, with both a year-to-year increase and decrease in employment of 

greater than 5 percent at times. Overall, the Beverage Manufacturing segment faced decreasing employment 

almost every year from 1987 through 1994, before reversing course and experiencing gains from 1994 through 

2001. These gains, however, were followed by consecutive declines in 2002 and 2003, with 11 and 8 percent 

decreases, respectively. This most recent two-year period alone has largely accounted for the total decline of 21% 

in the Beverage Manufacturing segment over the entire period. Recent trends towards more automated production 

and out-sourcing of some tasks could lead to even further reduced employment in these segments in future years 

(Higgins, 2004). 

Figure C2F-4 presents employment for the two profiled segments between 1987 and 2001. 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 

Note: 

Source: 

Figure C2F-4: Employment for Food Manufacturing and Beverage Manufacturing Segments 

800,000 

880,000 

960,000 

1,040,000 

1,120,000 

1,200,000 

1,280,000 

1,360,000 

1,440,000 

1,520,000 

1,600,000 

Food Mfg. 

100,000 

110,000 

120,000 

130,000 

140,000 

150,000 

160,000 

170,000 

180,000 

190,000 

200,000 

Beverage Mfg. 

Food Mfg. NAICS 

Food Mfg. SIC 

Beverage Mfg. NAICS 

Beverage Mfg. SIC 

 Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled 

in the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data 

to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC. 

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2F-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
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Table C2F-6, following page, presents the change in value added per labor hour, a measure of labor 

productivity, for the two profiled industry segments between 1987 and 2004. As shown in the table, labor 

productivity in the Food Manufacturing segment has generally grown steadily and at a modest rate, with only four 

years showing declines in productivity between 1987 and 2004. Similarly, the Beverage Manufacturing segment 

also experienced four years in which productivity declined. However, year-to-year changes have shown greater 

volatility, with both increases and decreases in productivity nearing 12 percent at several points during the 1987 

to 2004 time period. Overall, productivity in both Food Manufacturing and Beverage Manufacturing increased by 

29 and 48 percent over the observed time period, respectively, with substantial gains occurring in the years since 

2001. Technology improvement in the industry is playing an important role in increasing production, as 

automation allows output levels to increase without significant increases in employment (U.S. DOC, undated). 

Year Value 

($ millions) 

Production 

Hours 

(millions) $/hr Change 

Value 

($ millions) 

Production 

Hours 

(millions) $/hr Change 

1987 120,746 1,522 79 n/a 29,624 148 200 n/a 

1988 160,316 1,916 84 5.5% 30,410 145 209 4.6% 

1989 156,284 1,917 82 -2.6% 29,797 142 211 0.7% 

1990 164,558 1,999 82 1.0% 29,134 140 208 -1.3% 

1991 160,577 1,996 80 -2.3% 30,240 139 217 4.5% 

1992 172,835 2,105 82 2.0% 31,231 140 223 2.7% 

1993 179,335 2,133 84 2.4% 30,800 144 214 -4.0% 

1994 181,319 2,161 84 -0.2% 32,301 138 234 9.1% 

1995 187,669 2,181 86 2.6% 32,604 139 235 0.4% 

1996 178,850 2,162 83 -3.9% 34,711 139 250 6.5% 

1997a 190,869 2,200 87 4.9% 34,947 149 235 -6.0% 

1998a 199,089 2,232 89 2.8% 35,991 148 244 3.7% 

1999a 200,928 2,270 89 -0.7% 34,758 140 248 1.9% 

2000a 205,427 2,284 90 1.6% 33,641 153 220 -11.4% 

2001a 209,742 2,266 93 2.9% 34,642 150 231 5.2% 

2002a 216,737 2,261 96 3.6% 35,399 139 255 10.1% 

2003a 221,351 2,262 98 2.1% 39,420 138 285 11.9% 

2004a 227,654 2,229 102 4.4% 39,315 133 295 3.6% 

88.5% 46.4% 28.7% 32.7% -10.1% 47.6% 

3.8% 2.3% 1.5% 1.7% -0.6% 2.3% 

Growth Rate 

a 

. 

Source: 

Table C2F-6: Productivity Trends for Food and Beverage Manufacturing Segments ($2005) 

Added 

Food Manufacturing 

Value Added/Hour 

Percent 

Beverage Manufacturing 

Value Added/Hour 

Added Percent 

Total Percent 

Change, 1987-2004 

Average Annual 

Before 1997, data were compiled in the SIC system; since 1997, these data have been compiled in the North American 

Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code 

classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2F -2.4 Capital Expenditures 

The Food Manufacturing and Beverage Manufacturing industries are capital intensive, and need to invest in new 

machinery, retrofit older equipment, or expand their plants in order to increase production (Higgins, 2002). 

Capital-intensive industries are characterized by a large value of capital equipment per dollar value of production. 

In order to modernize, expand, and replace existing capacity, new capital expenditures are needed. In 2004, 

the total level of capital expenditures for the Food Manufacturing and Beverage Manufacturing segments was $14 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

billion ($2005). Approximately 82% of that spending (see Table C2F-7) occurred in the Food Manufacturing 

segment. 

From 1987 to 2004, capital expenditures in the Food Manufacturing increased by almost 58 percent, with a high 

of $14.5 billion ($2005) in 1999. In the years that followed, expenditures decreased substantially, at nearly 7% a 

year on average, before eventually increasing again in 2004. The Beverage Manufacturing segment has also seen 

substantial growth in the level of capital expenditures. Over the same time period, expenditures in this segment 

increased by nearly 42 percent, with a peak of $3.3 billion in 2002. Expansion or retrofitting of facilities is a 

priority to keep production trending upward (Higgins, 2002). In 2003, food manufacturers operated at capacities 

above 80 percent, the Institute for Supply Management’s threshold indicating need for increased capital 

investment (Higgins, 2003). Recent years have seen increased capital expenditure budgets, with budgeting for 

2004 being the strongest in several years (Higgins, 2004). 

(millions, $2005) 

Year 

Percent Change Percent Change 

1987 7,293 n/a 1,839 n/a 

1988 9,194 26.1% 1,904 3.6% 

1989 9,939 8.1% 1,839 -3.4% 

1990 10,554 6.2% 1,617 -12.0% 

1991 10,478 -0.7% 1,825 12.8% 

1992 10,967 4.7% 1,880 3.0% 

1993 10,254 -6.5% 1,655 -11.9% 

1994 10,601 3.4% 1,936 16.9% 

1995 12,294 16.0% 2,226 15.0% 

1996 11,827 -3.8% 2,170 -2.5% 

1997a 12,600 6.5% 2,799 29.0% 

1998a 13,286 5.4% 2,582 -7.7% 

1999a 14,496 9.1% 2,617 1.4% 

2000a 13,434 -7.3% 2,946 12.6% 

2001a 12,525 -6.8% 2,750 -6.6% 

2002a 11,677 -6.8% 3,311 20.4% 

2003a 11,234 -3.8% 2,501 -24.5% 

2004a 11,499 2.4% 2,605 4.2% 

57.7% 41.7% a 

2.7% 2.1% 

Growth Rate 

a 

. 

Source: 

Table C2F-7: Capital Expenditures for Food and Beverage Manufacturing Segments 

Food Manufacturing Beverage Manufacturing 

Capital Expenditures Capital Expenditures 

Total Percent 

Change 1987- 2004

Average Annual 

Before 1997, data were compiled in the SIC system; since 1997, these data have been compiled in the North American 

Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code 

classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

C2F -2.5 Capacity Utilization 

Capacity utilization measures output as a percentage of total potential output from available capacity. 

Capacity utilization reflects excess or insufficient capacity in an industry and is an indication of whether new 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

investment is likely. The degree of fluctuation in capacity utilization is also an indicator of the relative stability of 

demand and business conditions in an industry. 

As shown in Figure C2F-5, following page, capacity utilization in the Food Manufacturing and Beverage and 

Tobacco Manufacturing2

 industries has generally trended downward over the period 1986 to 20053. The food 

manufacturing industry, however, has not experienced the volatility that the beverage and tobacco manufacturing 

industry has experienced over this period. Food manufacturing capacity utilization rates have generally remained 

between 80 and 85 percent, while the beverage and tobacco industry has experienced a high of roughly 85 percent 

in 1996, followed by a significant decline to below 70 percent by 2002. Looking at both segments together, after 

peaking in 1988 at about 85 percent, capacity utilization generally trended downward to a low of approximately 

77 percent in 2002. Over the following two years, capacity utilization increased significantly, rising to nearly 81 

percent by 2004. The recent uptrend in utilization suggests overall improving financial performance in these 

industries. At the same time, the fact that capacity utilization has remained at a moderate level – lows 70s to mid 

80s percent –implies that the industries do not face requirements for large outlays near-term to increase 

production capacity. 

Figure C2F-5: Capacity Utilization for Food Manufacturing and Beverage and Tobacco 

Manufacturinga 

65 

70 

75 

80 

85 

90 

19861987198819891990199119921993199419951996199719981999200020012002200320042005 

(

311) 

(

a 

Food Manufact uring NAICS 

Bev erage an d T o bacco 

Manufact uring NAICS 312) 

The Federal Reserve provides capacity utilization data for the combined NAICS 312 (Beverage and Tobacco Manufacturing) 

sectors. The Federal Reserve does not provide capacity utilization data for just the Beverage Manufacturing sector. 

Source: Federal Reserve Board, 2005. 

2

 The Federal Reserve provides capacity utilization data for the combined NAICS 312 (Beverage and Tobacco 

Manufacturing) sector. The Federal Reserve does not provide capacity utilization data for just the Beverage Manufacturing 

sector. 

3

 More recent capacity utilization data is available than for other metrics, and is therefore presented to the latest complete 

year of available data. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

C2F-3 STRUCTURE AND COMPETITIVENESS 

Food Manufacturing and Beverage Manufacturing companies range in size from multi-billion dollar corporations 

to small producers with revenues a fraction of the size of the large producers. Many of the companies in these 

segments are diversified producers of multiple food or beverage products. Since food is a necessary purchase, 

demand is less affected by the ups and downs of the economy than for other industries. 

The Food Manufacturing and Beverage Manufacturing segments have consolidated over the profile time period as 

companies moved to diversify their product offerings and gain market share. The segments have also looked 

abroad to tap into the emerging markets of foreign countries. In the Food Manufacturing industry, 415 merger 

and acquisition transactions were reported in 2003, down from a high of 813 in 1998. These acquisitions and 

mergers permit companies to acquire more efficient manufacturing plants, close inefficient plants, expand product 

lines, and increase market share in a mature market (U.S. DOC, undated). Some recent mega-mergers in the Food 

Manufacturing segment include the Kraft Foods’ acquisition of Nabisco, General Mills’ acquisition of Pillsbury, 

and Tyson’s bringing beef and pork firm IBP into its lineup. One aspect of current consumption trends that might 

be beneficial to the Food Manufacturing firms is the fact that consumers are cooking less, with half of every food 

dollar being spent on food away from home. Devoting resources to products geared towards restaurants, vending 

machines, and other food service providers could reward firms with higher profit margins (Yahoo, 2005b). 

The Beverage Manufacturing segment has also recorded a number of acquisitions and mergers. Pepsi added the 

Quaker Oats Company and Gatorade. Cadbury Schweppes acquired the Snapple line, following the industry trend 

towards non-carbonated beverages, the area of the market that non-alcoholic manufacturers are looking to for 

growth opportunities (Value Line, 2004). Product differentiation is a key strategy for larger firms to increase 

brand awareness and market share (Yahoo, 2005a). As sales in the United States slow, firms in the non-alcoholic 

beverage industry are seeing their largest gains from non-U.S. markets (Value Line, 2004). 

Alcoholic beverage manufacturers have also consolidated during this time period. Anheuser-Busch lost the rank 

of world’s largest brewer due to the merger of Inbrew and Brazil’s Ambev. The merger between Adolph Coors 

and Molson further consolidated the industry. Brewers are also looking for acquisitions in China, which is seen 

as an untapped market. Spirits and wine manufacturers have also moved to consolidate, with Constellation 

Brands purchasing The Robert Modavi Corporation, a leader in wine making, as well as working in a joint 

venture with the French vintner Domaines Barons de Rothschild. Diageo and France’s Pernod Ricard bought 

Seagrams Company, after outbidding the tandem of Bacardi and Brown-Forman (Yahoo, 2005a). 

C2F -3.1 Firm and Facility Size 

For almost all NAICS codes in the Food Manufacturing and Beverage Manufacturing segments, the Small 

Business Administration defines a small firm as having fewer than 500 employees. The exceptions are NAICS 

codes 311221, 311312, 311313, 311821, and 312140, which are considered small if the firm has fewer than 750 

employees, and NAICS codes 311223, 311225, 311230, and 311422, which are deemed small if the firm employs 

fewer than 1,000 employees. The size categories reported in Statistics of U.S. Businesses (SUSB) do not 

correspond with the SBA size classifications, therefore preventing precise use of the SBA size threshold in 

conjunction with SUSB data. Table C2F-8, following page, reports the size distribution of firms and facilities in 

the Food Manufacturing and Beverage Manufacturing segments for 2003. As shown in the table, small 

establishments dominate both segments: 

f 15,448 of 16,561 (93%) firms in the Food Manufacturing segment had fewer than 500 employees. These 

small firms owned 16,105 facilities, or 81% of all facilities in the segment. 

f 2,500 of 2,576 (97%) firms in the Beverage Manufacturing segment had fewer than 500 employees. 

These small firms owned 2,587 facilities, or 84% of all Beverage Manufacturing facilities. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

Because some six-digit NAICS codes within the Food Manufacturing and Beverage Manufacturing segments 

have small business size thresholds of greater than 500 employees, the reported numbers and percentages of 

businesses with fewer than 500 employees represent lower bounds of the number and percentage of small 

businesses in these industry segments. 

Comparing the two sectors to manufacturing industries in general, the percentage of small firms in the food and 

beverage industry is comparable to the percentage of small firms in all manufacturing industries combined. In 

2003, approximately 94 percent of the firms in NAICS 311 and 3121 had fewer than 500 employees, compared to 

almost 99 percent for all manufacturing firms (U.S. SBA, 2002). However, compared to the Primary 

Manufacturing Industries, the Food Manufacturing and Beverage Manufacturing industries have a significantly 

higher percentage of firms within the industry identified as small. As noted below, however, the larger companies 

within each segment dominate in terms of producing the majority of shipments for each segment, with the 50 

largest firms in Food Manufacturing accounting for 51 percent of shipments, while the 50 largest companies in 

Beverage Manufacturing producing an even greater share of shipments, at 79 percent of the total (see Table 

C2F-8, following page). 

Manufacturing Segments, 2003a 

Category 

0-19 10,519 10,548 1,934 1,936 

20-99 3,509 3,703 435 464 

100-499 1,420 1,854 131 187 

500+ 1,113 3,768 76 495 

Total 16,561 19,873 2,576 3,082 

a 

. 

Source: 

Table C2F-8: Number of Firms and Facilities by Size Category for Food and Beverage 

Employment Size Food Manufacturing (NAICS 311) Beverage Manufacturing (NAICS 3121) 

No. of Firms No. of Facilities No. of Firms No. of Facilities 

Before 1998, data were compiled in the SIC system; since 1997, these data have been compiled in the North American 

Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code 

classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. SBA, 1989-2003. 

C2F -3.2 Concentration Ratios 

Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is closely 

related to entry barriers, with more concentrated industries generally having higher barriers. 

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common 

measures of industry concentration. The CR4 indicates the market share of the four largest firms. For example, a 

CR4 of 72 percent means that the four largest firms in the industry account for 72 percent of the industry’s total 

value of shipments. The higher the concentration ratio, the less competition there is in the industry, other things 

being equal.4

 An industry with a CR4 of more than 50 percent is generally considered concentrated. The HHI 

indicates concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the 

market shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with 

market shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (3,600 + 

4

 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry 

with a high concentration in domestic production may nonetheless be subject to significant competitive pressures if it 

competes with foreign producers or if it competes with products produced by other industries (e.g., plastics vs. aluminum in 

beverage containers). Concentration ratios based on share of domestic production are therefore only one indicator of the 

extent of competition in an industry. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

900 + 100). The higher the index, the fewer the number of firms supplying the industry and the more 

concentrated the industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets 

in which the HHI is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 

1800 are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 are 

considered to be concentrated. 

As shown in Table C2F-9, following page, the Food Manufacturing segment has an HHI of 91, and the Beverage 

Manufacturing segment has an HHI of 532. At these HHI levels, the two industry segments, especially the Food 

Manufacturing segment, appear quite unconcentrated. With relatively low concentration in the affected 

industries, firms are unlikely to possess the market power to recover regulatory compliance costs through price 

increases, particularly if those costs do not apply relatively uniformly and broadly throughout the industry. 

The concentration ratios also show that each segment operates in unconcentrated markets. The Beverage 

Manufacturing segment has the higher concentration of the two segments, with a CR4 of 41 percent. This is 

slightly lower than the 50 percent threshold, which would begin to indicate concentration in the market. The CR4 

for the Food Manufacturing segment is considerably lower at only 14 percent. In this segment, the top 50 

companies control roughly half of the market, indicating a rather unconcentrated market segment. As noted 

above, however, mergers and acquisitions are occurring in both segments, which will likely lead to increased 

concentration. Also, certain subsectors within each segment can be highly concentrated. For example, within the 

soft drink market, Coca-Cola claims around 50% of the global market, followed by Pepsi with roughly 21% and 

Cadbury-Schweppes with 7% (Yahoo, 2005a). 

Table C2F-9: Selected Concentration Ratios for Food Manufacturing and Beverage Manufacturing 

Segments, 1997a 

Concentration Ratios 

Total 

NAICS Code Year Number of 

Firms 4 Firm (CR4) 8 Firm (CR8) 20 Firm 

(CR20) 

50 Firm 

CR50) 

HerfindahlHirschman 

Index 

311 1997 21,958 14% 22% 35% 51% 91 

3121 1997 2,169 41% 52% 66% 79% 532 

a The 1997 Census of Manufactures is the most recent concentration ratio data available by NAICS code. 

Source: U.S. DOC, 1987, 1992, 1997, and 2002. 

C2F -3.3 Foreign trade 

This profile uses two measures of foreign competition: export dependence and import penetration. 

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic 

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that 

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests 

that higher import penetration levels will reduce market power and pricing discretion because foreign competition 

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for 

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The 

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with 

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be 

less likely to succeed in passing compliance costs through to customers. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales 

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not 

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing 

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated 

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the 

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to 

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through 

price increases since export sales are presumed subject to substantial competition from foreign producers. 

Table C2F-10, following page, presents trade statistics for the combined Food Manufacturing and Beverage 

Manufacturing segments. Due to data limitations, it is not possible to accurately separate the two segments; 

therefore, they are presented together. Imports and exports play a small role in these two segments, with import 

penetration and export dependence ratios of 6.2 and 6.3 percent, respectively, in 2001. Both measures of foreign 

competition are well below the U.S. manufacturing averages for 2001. Given just these measures, it would be 

reasonable to assume that these segments do not face significant foreign competitive pressures, and would have 

more latitude in passing through to customers any increase in production costs resulting from regulatory 

compliance. However, as noted above, the HHI of the Food Manufacturing and Beverage Manufacturing 

segments is 91 and 532 respectively, suggesting firms in these segments have low market power, limiting their 

ability to pass through any increase in production costs. 

Table C2F-10: Trade Statistics for Combined Food and Beverage Manufacturing Segments 

Year (millions, $2005) 

Value of Exports 

(millions, $2005) (millions, $2005) 

Implied Domestic a b 

Export c 

1989 20,426 20,917 451,370 450,879 4.5% 4.6% 

1990 21,177 21,191 463,736 463,722 4.6% 4.6% 

1991 19,893 22,437 445,213 442,669 4.5% 5.0% 

1992 20,723 24,833 462,462 458,352 4.5% 5.4% 

1993 20,019 25,312 470,713 465,420 4.3% 5.4% 

1994 21,243 27,846 468,573 461,970 4.6% 5.9% 

1995 22,044 30,604 477,200 468,640 4.7% 6.4% 

1996 24,652 31,071 479,552 473,132 5.2% 6.5% 

1997a 26,188 32,229 493,238 487,196 5.4% 6.5% 

1998d 27,241 30,511 494,083 490,813 5.6% 6.2% 

1999d 29,082 28,779 485,511 485,815 6.0% 5.9% 

2000d

 30,036 29,728 484,977 485,284 6.2% 6.1% 

2001d 30,539 30,749 491,424 491,214 6.2% 6.3% 

2002d 32,661 28,822 489,876 493,715 7.0% 6.0% 

59.9% 37.8% 8.5% 9.5% 

Change 1989-2002 

Compound Annual 3.7% 2.5% 0.6% 0.7% 

Growth Rate 

a

b

d

. 

Source: 

Value of Imports Value of Shipments 

Consumption

Import 

Penetration Dependence

Total Percent 

 Calculated by EPA as shipments + imports - exports. 

 Calculated by EPA as imports divided by implied domestic consumption. 

 Calculated by EPA as exports divided by shipments. 

 Before 1997, data were compiled in the SIC system; since 1997, these data have been compiled in the North American Industry 

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using the 

1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 2006; U.S. DOC, 1988-1991, 1993-1996, 1998-2001; and 2003-2004; U.S. DOC, 1987, 1992, 1997, and 2002. 

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c 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

As shown in Figure C2F-6, following page, Food and Beverage Manufacturing imports remained relatively 

constant from 1989 through 1995, before beginning a steady climb through 2002. Over these seven years, Food 

and Beverage Manufacturing imports grew by approximately 48 percent, from $22.0 billion ($2005) in 1995 to 

$32.7 billion in 2002. Food and Beverage Manufacturing exports increased from 1989 through 1997, with a high 

of approximately $32.2 billion in that year. Since then, Food and Beverage Manufacturing exports have remained 

relatively stable, averaging $30 billion from 1998 to 2002. For most of this period, the Food and Beverage 

Manufacturing segments recorded a positive trade balance, even though the value of imports was growing. 

However, in 1999, imports exceeded exports by just over $300 million. By 2002, this trade deficit widened to 

over $3.5 billion. 

Manufacturing Segments (millions, $2005) 

19891990199119921993199419951996199719981999200020012002 

a 

. 

Source: 

Figure C2F-6: Value of Imports and Exports for Food Manufacturing and Beverage 

1 5 ,0 0 0 

1 7 ,5 0 0 

2 0 ,0 0 0 

2 2 ,5 0 0 

2 5 ,0 0 0 

2 7 ,5 0 0 

3 0 ,0 0 0 

3 2 ,5 0 0 

3 5 ,0 0 0 

3 7 ,5 0 0 

4 0 ,0 0 0 

Fo o d & Bev erage Im p o rt s N A ICS 

Fo o d & Be v e r age I m p o r t s SI C 

Fo o d & Be v e rage E x p o rt s N A ICS 

Fo o d & Bev er a ge E x p o r t s SI C 

Before 1997, the Department of Commerce compiled data in the SIC system; since 1997, these data have been compiled in 

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to 

the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC

U.S. DOC, 2006. 

C2F-4 FINANCIAL CONDITION AND PERFORMANCE 

Financial performance in the Food Manufacturing and Beverage Manufacturing segments is not as closely linked 

to macroeconomic cycles as it is in other, more cyclical manufacturing industries. As products from these 

segments are generally “consumer staples,” they are not as affected by swings in the U.S. economy as other 

manufactured products, such as those from the five Primary Manufacturing Industries. As a result, businesses in 

these segments have been able to maintain a moderate level of positive financial performance over the profile 

time period, including the U.S. recession of the early 2000s, which more substantially affected other 

manufacturing industries such as pulp and paper and steel. Although the Food Manufacturing segment 

experienced some business weakness from the economic slowdown of the early 2000s, the effects were milder 

compared to other manufacturing industries. By 2002, business conditions improved and the Food Manufacturing 

segment returned to positive growth (Higgins, 2002). In 2003, the food and beverage companies were expected to 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

fare much better than U.S. manufacturers generally in overall revenue growth, being ranked third out of major 

U.S. manufacturing industries in revenue growth expectations (Higgins, 2003). 

This profile uses two measures of financial condition and performance: Net Profit Margin and Return on 

Total Capital. 

Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales or 

revenue, and measures profitability, as reflected in the conventional accounting concept of net income. Over 

time, the firms in an industry, and the industry collectively, must generate a sufficient profit margin if the industry 

is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from several 

factors, including: variations in aggregate economic conditions (including international and U.S. conditions), 

variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in overcapacity), or 

changes in the pricing and availability of inputs to the industry’s production processes (e.g., the cost of energy to 

the manufacturing process). The extent to which these fluctuations affect an industry’s profitability, in turn, 

depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a capital intensive industry 

such as the food and beverage industry, the relatively high fixed capital costs as well as other fixed overhead 

outlays, can cause even small fluctuations in output or prices to have a large positive or negative affect on profit 

margin. 

Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by the 

total of shareholders’ equity and long-term debt (total capital). This concept measures the total productivity of the 

capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or 

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets 

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the 

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate 

over time a sufficient return on capital if the industry is to remain economically viable and attract capital. The 

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in 

return on total capital. 

EPA calculated net profit margin and return on total capital using data from the Value Line Investment Survey for 

U.S. firms identified by Value Line as operating primarily in the Food and Kindred Products industry and 

specifically in the following business segments: Food Processing (112 firms), Beverage-soft drink (15 firms), and 

Beverage-alcoholic (20 firms). The data series were calculated on a revenue-weighted basis using the Value 

Line-reported items: Net Profit Margin, Return on Total Capital, and Revenue. These data series thus represent 

the performance of a broad, but not exhaustive, set of publicly traded firms in these business segments over the 

analysis period. The data series excludes privately held firms and publicly held firms not reported in the Value 

Line database. The Value Line-based Food Processing data series may be taken to align approximately with the 

NAICS 311 sector, Food Manufacturing; the Beverage-soft drink and Beverage-alcoholic data series align 

approximately with the NAICS 3121 sector, Beverage Manufacturing. 

Figure C2F-7, following page, shows trends in net profit margins for food processing, alcoholic beverage, and 

soft drink beverage firms between 1992 and 2005. All three business segments reported positive margins over the 

entire period. Being a lower risk segment of the overall Food and Kindred Products industry, the food-processing 

segment has the lowest net profit margin of the three groups, roughly 5 percent, but its margin remained the most 

stable over the time period. Margins in both beverage segments rose from approximately 8 percent in 1992 to just 

over 12 percent by 2005. However, the soft drink segment exhibited greater year-to-year volatility while the 

alcoholic beverage segment’s margin experienced relatively steady growth over the period. 

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0% 

3% 

6% 

9% 

12% 

15% 

19921993199419951996199719981999200020012002200320042005 

(

 ( ) 

0% 

3% 

6% 

9% 

12% 

15% 

19921993199419951996199719981999200020012002200320042005 

Figure C2F-7: Net Profit Margin for Food and Beverage Manufacturers 

Beverage Soft Drink) 

Beverage Alcoholic

Food Processing 

Beverage (Soft Drink) 

Beverage (Alcoholic) 

Food Processing 

Source: Value Line, 2003; Value Line, 2006. 

Figure C2F-8, following page, presents trends in return on total capital for the three segments. Again, all three 

business segments reported positive returns over the entire period. Of the three segments, the soft drink beverage 

segment recorded the highest average return on capital over the analysis period, followed by the alcoholic 

beverage segment and the food processing segments. Similar to the trend in net profit margin, the alcoholic 

beverage segment has shown the least volatility of the three segments in return on total capital, increasing from 14 

percent in 1992 to about 17 percent by 2005, without experiencing any substantial shifts in performance over the 

time period. Since the onset of the U.S. recession in early 2000, the food-processing segment has shown the 

lowest return on total capital, decreasing from a high of almost 18 percent in 1999 to a low of 10 percent in 2002. 

The segment has rebounded since 2002, with returns to capital increasing to about 12 percent by 2005. Although 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

the soft drink beverage segment achieved higher overall returns than the other segments, this segment has also 

exhibited substantial year-to-year volatility. 

0% 

4% 

8% 

12% 

16% 

20% 

24% 

28% 

19921993199419951996199719981999200020012002200320042005 

) 

) 

0% 

4% 

8% 

12% 

16% 

20% 

24% 

28% 

19921993199419951996199719981999200020012002200320042005 

Figure C2F-8: Return on Total Capital for Food and Beverage Manufacturers 

Beverage (Soft Drink

Beverage (Alcoholic

Food Processing 

Beverage (Soft Drink) 

Beverage (Alcoholic) 

Food Processing 

Source: Value Line, 2003; Value Line, 2006. 

Overall, the business outlook for the Food and Kindred Products industry, both in aggregate and for the individual 

segments, is generally positive. Over the past several years, the Food Processing Segment has enjoyed generally 

stronger financial performance than the U.S manufacturing industry as a whole. Reflecting this strong 

performance, securities market returns for the food-processing segment have substantially exceeded the 

performance of the broader securities market. Between 2000 and mid-year 2005, the Standard & Poor’s Packaged 

Foods/Meats segment index gained nearly 80 percent, while the Standard & Poor’s 500 Index recorded a loss of 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

approximately 5 percent (Standard & Poor’s, 2005a). Near-term, this segment is experiencing some margin 

pressure from rising costs of energy and other input commodities, and from pension funding burdens. However, 

the longer-term outlook remains positive as the segment has modernized its capital stock and achieved substantial 

operating efficiencies through mergers and acquisitions and other restructurings to reduce operating costs. 

Finally, rising global income and trade liberalization are also expected to contribute to growing demand and 

additional market opportunities for U.S. producers (Standard & Poor’s, 2005a). 

The business outlook for the Soft Drink Segment is generally favorable. As shown in Figure C2F-7 and Figure 

C2F-8, this segment has performed better financially than the Food Processing Segment in recent years. The 

near-term business outlook remains generally positive for U.S. producers in this segment, in particular due to 

improved productivity and general strengthening of domestic and international markets for this segment’s 

products (Standard & Poor’s, 2005b). 

The outlook for the Alcoholic Beverage Segment is also generally favorable. This segment is composed of two 

sub-industry segments, the Brewers sub-segment and Distillers/Vintners sub-segment. Although the Brewers subsegment has achieved generally good financial performance over the past five years (increase of approximately 35 

percent in the Standard & Poor’s sub-segment index vs. Standard & Poor’s 500 Index loss of approximately 5 

percent), near-term this sub-segment is expected to record more modest gains, largely due to moderating growth 

in demand for this segment’s products. At the same time, this sub-segment has achieved substantial productivity 

improvements and is positioned to achieve moderate growth and financial performance longer-term (Standard & 

Poor’s, 2005c). The outlook for the Distillers/Vintners sub-segment is generally more favorable. After recording 

very strong financial performance since 2000 (increase of approximately 140 percent in the Standard & Poor’s 

sub-segment index vs. Standard & Poor’s 500 Index loss of approximately 5 percent), this sub-segment remains 

positioned to benefit from favorable demographic trends and a generally stable trend of modestly rising product 

demand. Consolidation and increased productivity also contribute to a favorable financial outlook for this subsegment (Standard & Poor’s, 2005d). 

C2F-5 FACILITIES OPERATING COOLING WATER INTAKE STRUCTURES 

Point source facilities that use or propose to use a cooling water intake structure that withdraws cooling water 

directly from a surface water body of the United States are potentially subject to Section 316(b) of the Clean 

Water Act. In 1982, the Food and Kindred products industry withdrew 272 billion gallons of cooling water, 

accounting for approximately 5 percent of total manufacturing cooling water intake in the United States. The 

industry ranked 6th in industrial cooling water use, behind the electric power generation industry, chemical, 

primary metals, petroleum and coal products, and paper and allied products industries (U.S. DOC, 1982). 

This section provides information for the facilities in the Food and Kindred Products industry that EPA estimates 

to be subject to regulation under the regulatory analysis options. Existing facilities that meet all of the following 

conditions would have been subject to regulation under the three regulatory analysis options: 

f Have a National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one; 

f Use or propose to use one or more cooling water intake structures to withdraw water from waters of the 

United States; 

f Use at least twenty-five (25) percent of the water withdrawn exclusively for contact or non-contact 

cooling purposes; and 

f Meet the applicability criteria for the specific regulatory analysis option in terms of design intake flow 

and source waterbody type (i.e., 50 MGD for All Waterbodies, 100 MGD for Certain Waterbodies, or 200 

MGD for All Waterbodies). 

C2F-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

The regulatory options also cover substantial additions or modifications to operations undertaken at such 

facilities. Although EPA initially identified the set of facilities that were estimated to be potentially subject to the 

Phase III regulation based on a minimum applicability threshold of 2 MGD, this section focuses on the facilities 

nationwide in the profiled Food and Kindred Products industry segments that are estimated to be subject to 

regulation based on the design intake flow and waterbody applicability criteria set forth in the regulatory analysis 

options (see Table C2F-1, above for additional information on the broader set of facilities potentially subject to 

regulation). 

C2F -5.1 Waterbody and Cooling System Type 

Table C2F-11, Table C2F-12, and Table C2F-16, following page, report the distribution of the Food and Kindred 

Products industry facilities by type of water body and cooling system for each analysis option. All of the Section 

316(b) Food and Kindred Products facilities withdraw cooling water from either a freshwater river or stream. 

Table C2F-11: Number of Food and Kindred Products Facilities Estimated Subject to the 50 MGD All 

Option by Waterbody Type and Cooling System 

Combination 

No. No. No. No. 

Other 

Total 

0 0% 3 33% 3 33% 3 33% 9 

Source: Source:

Combination 

No. No. No. No. 

Other 

Total 

0 0% 0 100% 3 100% 0 0% 3 

Source: Source:

Combination 

No. No. No. No. 

Other 

Total 

0 0% 0 100% 3 50% 3 50% 6 

Source: Source:

Recirculating Waterbody Type % of Total % of Total Once-Through 

% of Total % of Total 

Freshwater River/ Stream 

 U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Table C2F-12: Number of Food and Kindred Products Facilities Estimated Subject to the 200 MGD All 

Option by Waterbody Type and Cooling System 

Recirculating Waterbody Type % of Total % of Total 

Once-Through 

% of Total % of Total 

Freshwater River/ Stream 

 U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Table C2F-13: Number of Food and Kindred Products Facilities Estimated Subject to the 100 MGD 

CWB Option by Waterbody Type and Cooling System 

Recirculating Waterbody Type % of Total % of Total Once-Through 

% of Total % of Total 

Freshwater River/ Stream 

 U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2F -5.2 Facility Size 

Figure C2F-11, Figure C2F-10, and Figure C2F-11 below, show the employment size category for the Food and 

Kindred Products industry facilities estimated subject to regulation under the regulatory analysis options. The 

majority of the facilities have equal or greater than 100, but fewer than 500 employees. Three of the facilities (33 

percent) have between 500 and 999 employees, with no facilities employing greater than 1,000 employees. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2F-23 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

0 

3 3 3 

0 

0 

1 

2 

3 

4 

i ( ) 

Source: 

4 

1 

2 

3 

3 

i (

0 0 0 0 

0 

Source: 

Figure C2F-9: Number of Facilities Estimated Subject to the 50 MGD All Option by Employment 

Size for the Profiled Food Manufacturing and Beverage Segments 

<100 100-249 250-499 500-999 >=1000 

Food & K ndred Products SIC 20

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Figure C2F-10: Number of Facilities Estimated Subject to the 200 MGD All Option by 

Employment Size for the Profiled Food Manufacturing and Beverage Segments 

Food & K ndred Products SIC 20) 

<100 100-249 250-499 500-999 >=1000 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

C2F-24 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

20 

0 

3 

0 

3 

0 

0 

1 

2 

3 

4 

<100 100-249 250-499 500-999 >=1000 

i

Source: 

C2F -5.3 

As shown in Table 

Large Small 

SIC Code SIC Description Total 

Number Number 

9 100% 0 0% 9 

Source: 

Large Small 

SIC Code SIC Description Total 

Number Number 

3 100% 0 0% 3 

Source: 

Large Small 

SIC Code SIC Description Total 

Number Number 

3 100% 0 0% 3 

Source: 

20 

20 

Figure C2F-11: Number of Facilities Estimated Subject to the 100 MGD CWB Option by 

Employment Size for the Profiled Food Manufacturing and Beverage Segments 

Food & K ndred Products (SIC 20) 

U.S. EPA, 2000; U.S. EPA analysis, 2006. 

Firm Size 

EPA used the Small Business Administration (SBA) small entity size standards to determine the number of 

facilities in the Food and Kindred Products facility dataset that are owned by small firms. Depending on their SIC 

code, firms are defined as small based on either their revenues or number of employees. 

C2F-14, Table C2F-15, and Table C2F-16, large firms own all of the Food and Kindred Products facilities 

estimated to be subject to regulation, regardless of the analysis option considered. 

Table C2F-14: Number of Facilities Estimated Subject to the 50 MGD All Option by Firm Size for the 

Food and Kindred Products Industry 

% of SIC % of SIC 

Food and Kindred Products 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

Table C2F-15: Number of Facilities Estimated Subject to the 200 MGD All Option by Firm Size for the 

Food and Kindred Products Industry 

% of SIC % of SIC 

Food and Kindred Products 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

Table C2F-16: Number of Facilities Estimated Subject to the 100 MGD CWB Option by Firm Size for 

the Food and Kindred Products Industry 

% of SIC % of SIC 

Food and Kindred Products 

U.S. EPA, 2000; D&B, 2001; U.S. SBA 2006; U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2F-25 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

REFERENCES 

Bureau of Labor Statistics (BLS). 2006. Producer Price Index. Industry Data Series: PCU311-Food Mfg.; 
 

PCU3121-Beverage Mfg. Available at: http://www.bls.gov/ppi/home.htm. Downloaded February 1, 2006. 
 

Dun & Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum. August 2001. 
 

Economagic. 2006. Industrial Production: Industry Subtotals, Individual Series, and Special Aggregates.
 

Seasonably Adjusted. Data Series: Food; Beverage. Available at: 
 

http://www.economagic.com/frbg17.htm#IPMarket. Downloaded February 2, 2006. 
 

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification 
 

Manual.
 

Federal Reserve Board. 2005. Capacity Utilization: Manufacturing, Mining, and Utilities. Data extracted 
 

February 4, 2006. Available at: http://www.federalreserve.gov/Releases/G17/ipdisk/utl_sa.txt 
 

Harris, J.M. 2002. “Food manufacturing.” U.S. Food Marketing System, 2002/AER-811. Economic Research 
 

Service/USDA. 
 

Higgins, K. 2004. “The state of food manufacturing: processors bring out the checkbooks and focus on 
 

productivity and people.” Food Engineering. September 2, 2004. 
 

Higgins, K. 2003. “The state of food manufacturing: processors address changing priorities.” Food Engineering. 
 

October 1, 2003. 
 

Higgins, K. 2002. “State of food manufacturing: stuck in neutral.” Food Engineering. September 1, 2002.
 

McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000. U.S. Industry &
 

Trade Outlook ‘00.
 

Standard & Poor’s. 2005a. Industry Outlook: Packaged Foods/Meats. June 11, 2005. The McGraw-Hill 
 

Companies. 
 

Standard & Poor’s. 2005b. Industry Outlook: Soft Drinks. June 11, 2005. The McGraw-Hill Companies. 
 

Standard & Poor’s. 2005c. Industry Outlook: Brewers. June 11, 2005. The McGraw-Hill Companies. 
 

Standard & Poor’s. 2005d. Industry Outlook: Distillers/Vintners. June 11, 2005. The McGraw-Hill Companies. 
 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of the Census. International Trade Administration. 

Industry, Trade, and the Economy: Data and Analysis. Data by NAICS and SIC. Available at: 

http://www.ita.doc.gov/td/industry/otea/industry_sector/tables_naics.htm. Downloaded February 2, 2006. 

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, 1998-2001, and 2003-2004. Bureau of the 

Census. Annual Survey of Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1989, 1992, 1997, and 2002. Bureau of the Census. Census of 

Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. 1997 Economic Census Bridge 

Between NAICS and SIC. 

C2F-26 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2F: Food and Kindred Products 

U.S. Department of Commerce (U.S. DOC). Undated. 2004 Industry Outlook for Processed Foods. 

International Trade Administration. Downloaded on May 6, 2005. Available at: 

http://www.ita.doc.gov/td/ocg/outlook_food04.pdf 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling 

Water Intake Structures. 

U.S. Small Business Administration (U.S. SBA). 2006. Small Business Size Standards. Available at: 

http://www.sba.gov/size/sizetable2002.html. 

U.S. Small Business Administration (U.S. SBA). 1989-2003. Statistics of U.S. Businesses. Available at: 

http://www.sba.gov/advo/research/data.html. Downloaded February 4, 2006. 

U.S. Small Business Administration (U.S. SBA). 2002. Employer Firms, and Employment by Employment Size 

of Firm by NAICS Codes, 2002. Available at: http://www.sba.gov/advo/stats/us_02_n6.pdf 

Value Line. 2006. Value Line 3.0 Investment Analyzer. 

Value Line. 2004. Soft Drink Industry. February 6, 2004. 

Value Line. 2003. Value Line Investment Survey.
 

Yahoo. 2005a. Beverages Industry Profile. Downloaded May 6, 2005. Available at: 
 

http://biz.yahoo.com/ic/profile/bevalc_1042.html
 

Yahoo, 2005b. Food Industry Profile. Downloaded May 6, 2005. Available at: 

http://biz.yahoo.com/ic/profile/fodmfg_1349.html 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2F-27 
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THIS PAGE INTENTIONALLY LEFT BLANK
 

C2F-28 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2G: Other Industries 

Chapter C2G: Facilities in Other Industries 
 

(Various SICs) 
 

INTRODUCTION 

The preceding profile sections focus on the six Primary 

Manufacturing Industries – Paper and Allied Products, 

Chemicals and Allied Products, Petroleum Refining, Steel, 

Aluminum, and Food and Kindred Products – identified, 

after electric power generators, as using the largest amount 

of cooling water in their operations and most likely, after 

electric power generators, to be within the scope of the 

316(b) Phase III regulation. However, facilities in other 

industries use cooling water and would therefore also be 

subject to the final regulation if they meet the regulation’s 

specifications. This section of the profile provides information on a sample of facilities in these Other Industries. 

CHAPTER CONTENTS 


 


 

Introduction..........................................................C2G-1

C2G-1 Facilities Operating Cooling Water Intake 

Structures ................................................C2G-2 

C2G-1.1 Waterbody and Cooling System Types .... 

 .....................................................C2G-2 

C2G-1.2 Facility Size....................................C2G-3 

C2G-1.3 Firm Size ........................................C2G-5 

References............................................................C2G-6

Although EPA targeted its Detailed Industry Questionnaire at the electric power industry and manufacturing 

industries that use large amounts of cooling water, the Agency received 10 questionnaire responses from facilities 

with business operations in industries other than these major cooling water-intensive industries. EPA originally 

believed these facilities to be non-utility electric power generators; however, inspection of their responses 

indicated that the facilities were better understood as cooling water-dependent facilities whose principal 

operations lie in businesses other than the electric power industry or the Primary Manufacturing Industries. 

Unlike the sample facility observations for the six Primary Manufacturing Industries, the sample of observations 

from Other Industries is not based on a scientifically framed sample and the information from this sample of 

observations may not be reliably extrapolated beyond these facilities. As a result, EPA’s profile of information 

for the Other Industries facilities is restricted to these 10 sample facilities and is not presented as national 

estimates. 

Of the 10 Other Industries facilities, 7 withdraw at least 50 million gallons of water a day and are thus would be 

subject to regulation under the regulatory analysis options considered for existing facilities. These facilities fall in 

a wide range of businesses, as defined by 2-digit SIC industry group. Table C2G-1, following page, presents the 

number of responses received from facilities in the Other Industries by industry group. The information 

summarized in the following sections focuses on these Other Industries facilities that EPA estimates will be 

subject to regulation under the regulatory analysis options. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2G-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2G: Other Industries 

Table C2G-1: Facilities in Other Industries by 2-digit SIC code Estimated Subject to Regulation Under 

the Regulatory Analysis Options 

No. of 

Facilities 

SIC 

Code SIC Description Important Operations 

2 10 Metal mining Mining, developing mines, or exploring for metallic minerals (ores); ore dressing 

and beneficiating operations, whether performed at mills operated in conjunction 

with the mines served or at mills, such as custom mills, operated separately. 

3 34 Fabricated metal products, Ferrous and nonferrous metal products, such as metal cans, tinware, handtools, 

except machinery and cutlery, general hardware, nonelectric heating apparatus, fabricated structural 

transportation equipment metal products, metal forgings, metal stampings, ordnance (except vehicles and 

guided missiles), and a variety of metal and wire products, not elsewhere 

classified. 

1 37 Transportation equipment Equipment for transportation of passengers and cargo by land, air, and water. 

1 49 Electric, gas, and sanitary Generation, transmission, and/or distribution of electricity or gas or steam. 

services Water and irrigation systems, and sanitary systems engaged in the collection and 

disposal of garbage, sewage and other wastes by means of destroying or 

processing materials. 

Source: U.S. EPA, 2000; Executive Office of the President, 1987. 

C2G-1 FACILITIES OPERATING COOLING WATER INTAKE STRUCTURES 

Section 316(b) of the Clean Water Act applies to point source facilities that use or propose to use a cooling water 

intake structure and that withdraws cooling water directly from a surface waterbody of the United States. This 

section provides information for facilities in Other Industries subject to regulation under the regulatory analysis 

options. The regulatory analysis options apply to existing facilities that meet all of the following conditions: 

f Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract or 

arrangement with an independent supplier who has a cooling water intake structure; or their cooling water 

intake structure(s) withdraw(s) cooling water from waters of the U.S., and at least twenty-five (25) 

percent of the water withdrawn is used for contact or non-contact cooling purposes; 

f Have an National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one; 

and 

f Meet the applicability criteria for the specific regulatory analysis option in terms of design intake flow 

and source waterbody type (i.e., 50 MGD for All Waterbodies, 100 MGD for Certain Waterbodies, or 200 

MGD for All Waterbodies). 

The regulatory options also cover substantial additions or modifications to operations undertaken at such 

facilities. 

C2G-1.1 Waterbody and Cooling System Types 

Table C2G-2, Table C2G-3, and Table C2G-7, following page, summarize information on the Other Industries 

facilities by type of water body and cooling system for each option. All of these facilities have a once-through 

system. Plants with once-through cooling water systems withdraw between 70 and 98 percent more water than 

those with recirculating systems. 

C2G-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2G: Other Industries 

Table C2G-2: Other Industries Facilities Estimated Subject to the 50 MGD All Option by Water Body 

and Cooling System Type 

Cooling System 

Water Body Type Recirculating Combination Once-Through Other 

% of % of % of % of Totala 

Number Number Number Number Total Total Total Total 

Other Industries 

Estuary/ Tidal River 0 0% 0 0% 1 15% 0 0% 1 

Freshwater Stream/River 0 0% 0 0% 3 40% 0 0% 3 

Great Lake 0 0% 0 0% 2 30% 0 0% 2 

Ocean 0 0% 0 0% 1 15% 0 0% 1 

Totala 0 0% 0 0% 7 100% 0 0% 7 

a

 Individual numbers may not sum to total due to independent rounding. 

Source: U.S. EPA, 2000; U.S. EPA Analysis, 2006. 

Table C2G-3: Other Industries Facilities Estimated Subject to the 200 MGD All Option by Water Body 

and Cooling System Type 

Cooling System 

Water Body Type Recirculating Combination Once-Through Other 

% of % of % of % of Totala 

Number Number Number Number Total Total Total Total 

Other Industries 

Estuary/ Tidal River 0 0% 0 0% 1 50% 0 0% 1 

Great Lake 0 0% 0 0% 1 50% 0 0% 1 

Totala 0 0% 0 0% 2 100% 0 0% 2 

a

 Individual numbers may not sum to total due to independent rounding. 

Source: U.S. EPA, 2000; U.S. EPA Analysis, 2006. 

Table C2G-4: Other Industries Facilities Estimated Subject to the 100 MGD CWB Option by Water Body 

and Cooling System Type 

Cooling System 

Water Body Type Recirculating Combination Once-Through Other 

% of % of % of % of Totala 

Number Number Number Number Total Total Total Total 

Other Industries 

Estuary/ Tidal River 0 0% 0 0% 1 25% 0 0% 1 

Freshwater Stream/River 0 0% 0 0% 1 25% 0 0% 1 

Great Lake 0 0% 0 0% 2 50% 0 0% 2 

Totala 0 0% 0 0% 4 100% 0 0% 4 

a

 Individual numbers may not sum to total due to independent rounding. 

Source: U.S. EPA, 2000; U.S. EPA Analysis, 2006. 

C2G-1.2 Facility Size 

Figure C2G-3, Figure C2G-2, and Figure C2G-3 show the employment size category for the Other Industries 

facilities that EPA estimates will be subject to the regulation under each analysis option. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2G-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2G: Other Industries 

4 

0 0 0 

3 

0 

1 

2 

3 

4 

i 

Source: 

0 0 0 0 

2 

0 

1 

2 

3 

4 

i 

Source: 

Figure C2G-1: Other Industries Facilities Estimated Subject to the 50 MGD All Option by 

Employment Size 

<100 100-249 250-499 500-999 >=1000 

Other Industr es 

U.S. EPA, 2000; U.S. EPA Analysis, 2006. 

Figure C2G-2: Other Industries Facilities Estimated Subject to the 200 MGD All Option by 

Employment Size 

<100 100-249 250-499 500-999 >=1000 

Other Industr es 

U.S. EPA, 2000; U.S. EPA Analysis, 2006. 

C2G-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2G: Other Industries 

2 

0 0 0 

2 

0 

1 

2 

3 

4 

<100 >=1000 

Source: 

Figure C2G-3: Other Industries Facilities Estimated Subject to the 100 MGD CWB Option by 

Employment Size 

100-249 250-499 500-999 

Other Industries 

U.S. EPA, 2000; U.S. EPA Analysis, 2006. 

C2G-1.3 Firm Size 

EPA used the Small Business Administration (SBA) small entity size standards to determine the number of the 

Other Industries facilities that are owned by small firms. Depending on their SIC code, firms are defined as small 

based on either revenues or number of employees. As reported in Table C2G-5, Table C2G-6, and Table C2G-7, 

large firms own all of the Other Industries facilities that EPA estimates will be subject to regulation. 

Table C2G-5: Other Industries Facilities Estimated Subject to the 50 MGD All Option by 

Firm Size

 Large Small Total 

Other Industries 7 0 7 

Source: U.S. EPA, 2000; D&B, 2001; U.S. SBA, 2006; U.S. EPA Analysis, 2006. 

Table C2G-6: Other Industries Facilities Estimated Subject to the 200 MGD All Option by 

Firm Size

 Large Small Total 

Other Industries 2 0 2 

Source: U.S. EPA, 2000; D&B, 2001; U.S. SBA, 2006; U.S. EPA Analysis, 2006. 

Table C2G-7: Other Industries Facilities Estimated Subject to the 100 MGD CWB Option by 

Firm Size

 Large Small Total 

Other Industries 4 0 4 

Source: U.S. EPA, 2000; D&B, 2001; U.S. SBA, 2006; U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C2G-5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Phase III Existing Facilities Chapter C2G: Other Industries 

REFERENCES 

Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum. August 2001. 

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification 

Manual. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling 

Water Intake Structures. 

U.S. Small Business Administration (U.S. SBA). 2006. Small Business Size Standards. Available at: 

http://www.sba.gov/size/sizetable2002.html. 

C2G-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C2: Profile of Manufacturers 

GLOSSARY 

Capital expenditures: As reported in the Economic Censuses, reflects permanent additions and major 

alterations, as well as replacements and additions to capacity, for which depreciation, depletion, or Office of 

Minerals Exploration accounts are ordinarily maintained. Reported capital expenditures include work done on 

contract, as well as by the mine forces. Totals for expenditures include the costs of assets leased from other 

concerns through capital leases. Excluded are expenditures for land and cost of maintenance and repairs charged 

as current operating expenses. Also excluded are capital expenditures for mineral land and rights, which are 

shown as a separate item. 

Capacity utilization: Indicates the extent to which plant capacity is being used and shows potential excess or 

insufficient capacity. This profile reports capacity utilization as published by the U.S. Bureau of Census in the 

Survey of Plant Capacity published in the Current Industrial Reports. The utilization rate is equal to an output 

index divided by a capacity index. Output is measured by seasonally adjusted indexes of industrial production, 

and is based on actual output in 1992. The capacity indexes attempt to capture the concept of sustainable practical 

capacity, which is defined as the greatest level of output that a plant can maintain within the framework of a 

realistic work schedule, taking account of normal downtime, and assuming sufficient availability of inputs to 

operate the machinery and equipment in place. 

Concentration ratio: The combined percentage of total industry output accounted for by the largest producers 

in the industry. For example, the four-firm concentration ratio (CR4) refers to the market share of the four largest 

firms. The higher the concentration ratio, the more concentrated the industry. A market is generally considered 

highly concentrated if the CR4 is greater than 50 percent. 

Coverage ratio: The ratio of primary products shipped by the establishments classified in the industry to the 

total shipments of such products that are shipped by all manufacturing establishments, wherever classified. An 

industry with a high coverage ratio accounts for most of the value of shipments of its primary products, whereas 

an industry with a low coverage ratio produces a smaller portion of the total value of shipments of its primary 

products produced by all sources. 

Employment: Total number of full-time equivalent employees, including production workers and nonproduction workers. 

Export dependence: The share of shipments by domestic producers that is exported; calculated by dividing 

the value of exports by the value of domestic shipments. 

Herfindahl-Hirschman index (HHI): An alternative measure of concentration. Equal to the sum of the 

squares of the market shares for the largest 50 firms in the industry. The higher the index, the more concentrated 

the industry. The Department of Justice uses the HHI for antitrust enforcement purposes. The benchmark used 

by DOJ is 1,000, where any industry with an HHI less than 1,000 is considered to be unconcentrated. The 

advantage of the HHI over the concentration ratio is that the former gives information about the dispersion of 

market share among all the firms in the industry, not just the largest firms (Arnold, 1989). 

Import penetration: The share of all consumption in the U.S. that is provided by imports; calculated by 

dividing imports by reported or apparent domestic consumption (the latter calculated as domestic value of 

shipments minus exports plus imports). 

Labor productivity: Amount of output produced per unit of labor input on average. Calculated in this profile 

as real value added divided by production hours. This measure indicates how an industry uses labor as an input in 

the production process. Changes over time in labor productivity may reflect changes in the relative use of labor 

versus other inputs to produce output, due to technological changes or cost-cutting efforts. Changing patterns of 

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labor utilization relative to output are particularly important in understanding how regulatory requirements may 

translate into job losses, both in aggregate and at the community level. 

Net Profit Margin: is calculated as after-tax income before nonrecurring gains and losses as a percentage of 

sales or revenue, and measures profitability, as reflected in the conventional accounting concept of net income. 

Nominal values: Dollar values expressed in current dollars. 

Operating margin: Measure of the relationship between input costs and the value of production, as an 

indicator of financial performance and condition. Everything else being equal, industries and firms with lower 

operating margins will generally have less flexibility to absorb the costs associated with a regulation than those 

with higher operating margins. Operating margins were calculated in this profile by subtracting the cost of 

materials and total payroll from the value of shipments. Operating margin is only an approximate measure of 

profitability, since it does not consider capital costs and other costs. It is used to examine trends in revenues 

compared with production costs within an industry; it should not be used for cross-industry comparisons of 

financial performance. 

Primary product shipments: An establishment is classified in a particular industry (4-digit SIC codes) if its 

shipments of the primary products of that industry exceed in value its shipments of the products of any other 

single industry. An establishment=s primary product shipments are those products considered primary to its 

industry. 

Producer production indexes (PPI): A family of indexes that measures the average change over time in 

selling prices received by domestic producers of goods and services (Bureau of Labor Statistics, PPI Overview). 

Real values: Nominal values normalized using a price index to express values in a single year=s dollars. 

Removes the effects of price inflation when evaluating trends in dollar measures. 

Return on Total Capital: calculated as annual net profit, plus one-half of annual long-term interest, divided by 

the total of shareholders’ equity and long-term debt (total capital). This concept measures the total productivity of 

the capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or 

liability element). 

Secondary product shipments: An establishment=s products that are considered secondary to the industry 

in which the establishment is classified and primary to other industries. For example, a petroleum refinery 

classified in SIC code 2911 would produce petroleum products as primary products, but might produce organic 

chemicals as secondary products. 

Value added: A measure of manufacturing activity, derived by subtracting the cost of purchased inputs 

(materials, supplies, containers, fuel, purchased electricity, contract work, and contract labor) from the value of 

shipments (products manufactured plus receipts for services rendered), and adjusted by the addition of value 

added by merchandising operations (i.e., the difference between the sales value and the cost of merchandise sold 

without further manufacture, processing, or assembly) plus the net change in finished goods and work-in-process 

between the beginning-and end-of-year inventories. Value added avoids the duplication in value of shipments as 

a measure of economic activity that results from the use of products of some establishments as materials by 

others. Value added is considered to be the best value measure available for comparing the relative economic 

importance of manufacturing among industries and geographic areas. 

Value of shipments: Net selling values of all products shipped as well as miscellaneous receipts. Includes all 

items made by or for an establishments from materials owned by it, whether sold, transferred to other plants of the 

same company, or shipped on consignment. Value of shipments is a measure of the dollar value of production, 

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and is often used as a proxy for revenues. This profile uses value of shipments to indicate the size of a market and 

how the size differs from year to year, and to calculate operating margins. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

Chapter C3: Economic Impact Analysis for 

Manufacturers 

INTRODUCTION 

This chapter assesses the expected economic effect of the 

regulatory analysis options considered for regulation of 

Phase III Manufacturing Facilities on the Manufacturers 

that would be subject to national categorical requirements 

under each analysis option. The analysis focuses on 

impacts in six key manufacturing industries – Paper, 

Chemicals, Petroleum, Aluminum, Steel, and Food and 

Kindred Products (the “Primary Manufacturing 

Industries”) – in which a substantial number of facilities 

would be subject to regulation. EPA’s analysis of the 

regulation’s expected impact in these industries is based on 

a statistically valid sample survey of facilities in these six 

industries. The sample survey indicates that the regulation 

would potentially subject as many as 155 facilities in the 

Primary Manufacturing Industries1

 to national 

requirements. 

This chapter also considers the effect of the regulation on 

facilities in other industries (“Other Industries”) that would 

be within the scope of the regulatory options. The facility 

impact analysis for Other Industries is restricted to a 

CHAPTER CONTENTS 

Introduction............................................................ C3-1

C3-1 Data Sources ............................................. C3-3

C3-2 Methodology ............................................. C3-3

C3-2.1 Market-Level Impacts ...................... C3-5

C3-2.2 Impact Measures............................... C3-5

C3-3 Results..................................................... C3-15

C3-3.1 Baseline Closures ........................... C3-16 

C3-3.2 Number of Facilities with Regulatory 

Requirements.................................. C3-16 

C3-3.3 Post-Compliance Impacts ............... C3-17 

C3-3.4 Compliance Costs........................... C3-17 

C3-3.5 Summary of Facility Impacts ......... C3-18 

C3-3.6 Firm Impacts................................... C3-19 

Glossary ............................................................... C3-21

Abbreviations....................................................... C3-22

References............................................................ C3-23

Appendices to Chapter C3 ................................... C3-24

sample of 4 facilities for which EPA received surveys, but which are not part of the statistically valid sample. As 

a result, EPA’s analysis for the Other Industries group is limited to these known facilities. EPA has not estimated 

the number of facilities in the Other Industries group that may be subject to the regulation because EPA does not 

believe that this number can be reliably extrapolated from the sample of known facilities in this group. However, 

because the statistically valid survey group of six industries (i.e., for the six Primary Manufacturing Industries and 

Electric Generators) reflects 99% of total cooling water withdrawals, EPA believes that few additional facilities in 

the Other Industries group are potentially subject to the regulatory analysis options. 

Although EPA was able to undertake impact analysis for the Other Industries group using only the sample of 

known facilities for this group, EPA believes that its analysis for the Other Industries group provides a sufficient 

basis for regulation development. EPA’s review of the engineering characteristics of cooling water intake and use 

in the Other Industries group indicates that cooling water intake and use in these industries do not differ 

materially from cooling water intake and use in the electric power industry and the Primary Manufacturing 

Industries. In addition, EPA specifically analyzed the economic impacts of the three regulatory analysis options 

on the 4 sample facilities in the Other Industries group and found no economic impact of the regulatory analysis 

options on these facilities. For these reasons, EPA believes that its findings of no economic impact to the known 

1

 EPA applied sample weights to 199 sample facilities to account for non-sampled facilities and facilities that did not 

respond to the survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information 

Collection Request (U.S. EPA, 1999). 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

facilities in the Other Industries group, and thus the practicability of the three regulatory analysis options, are 

generally applicable to the full breadth of industries, including the Other Industries group, within the regulation’s 

scope.

Based on the sum of the sample-weighted estimate of 155 facilities in the Primary Manufacturing Industries and 

the 4 known facilities in the Other Industries group, EPA included a total of 159 potentially regulated facilities in 

the economic impact analysis for the Manufacturers segment. The total number of Manufacturers segment 

facilities considered in the economic impact analysis (159) differs from the number of facilities potentially subject 

to regulation (161), as reported in Chapter A1: Introduction, and as used as the basis for calculating the social 

costs of the regulatory analysis options. EPA determined that the survey responses of 6 sample facilities lacked 

certain financial data needed for the facility impact analysis while containing sufficient data to support estimates 

of facility counts and compliance costs. EPA therefore retained these sample facilities (8 sample weighted 

facilities) in the analyses to estimate the total number of Manufacturers facilities potentially subject to regulation 

and for the calculation of social cost but excluded them from the economic impact analysis. When these sample 

facilities were excluded from the impact analysis, the sample weights for remaining facilities within the affected 

sample frames were adjusted upwards to account for their removal. The difference in the reported facility totals 

in the impact and social cost analyses reflects the removal of these 6 facilities and the use of adjusted sample 

weights. Both values are valid statistical estimates of the same, but unknown, value of the Manufacturers’ facility 

population. 

EPA undertook the economic impact analysis to aid in assessing the economic achievability of alternative 

regulatory options and, on the basis of that assessment, to aid in defining a potential final regulation. Measures of 

economic impact include facility closures and associated losses in employment, financial stress short of closure 

(“moderate impacts”), and firm-level impacts. Severe impacts are facility closures and the associated losses in 

jobs at facilities that close due to the regulation. EPA also assessed moderate economic impacts to support its 

evaluation of regulatory options and to understand better the regulation’s economic impacts. Moderate 

impacts are adverse changes in a facility’s financial position that are not threatening to its short-term viability. 

The firm impact analysis assesses whether firms that own multiple facilities are likely to incur more significant 

impacts than indicated by the facility impact analysis. Impacts may be more significant at the firm level than at 

the facility level if a firm owns a number of facilities that incur significant cost. In addition, a firm-level analysis 

is needed to assess impacts on small businesses, as required by the Regulatory Flexibility Act and SBREFA. 

Other chapters consider the impacts on small entities (Chapter D1: Regulatory Flexibility Analysis) and impacts 

on governments (Chapter D2: UMRA Analysis). 

This chapter presents the impact analysis results for the three regulatory analysis options: the “50 MGD for All 

Waterbodies” option (“50 MGD All”), the “200 MGD for All Waterbodies” option (“200 MGD All”), and the 

“100 MGD for Certain Waterbodies” Option (“100 MGD CWB”). These options differ with regard to (1) their 

design intake flow (DIF) applicability thresholds (50, 100, and 200 MGD, respectively); and (2) the type of 

waterbodies to which they would apply (the options with the 50 and 200 MGD applicability thresholds would 

apply to all waterbody types while the 100 MGD applicability threshold option would apply only to certain 

waterbody types – an ocean, estuary, tidal river/stream, or one of the Great Lakes). Facilities meeting these 

applicability criteria would be required to meet similar requirements to those required in the final Phase II 

regulation, including a 80-95% reduction in impingement mortality and a 60-90% reduction in entrainment. 

Facilities not meeting these criteria would have continued to be subject to 316(b) requirements established by 

permit writers based on their Best Professional Judgment (BPJ). As a result, the number of facilities required to 

meet the national categorical requirements would vary under each of the three regulatory analysis options. Of the 

2

 Measures of economic impact include facility closures and associated losses in employment, financial stress short of 

closure (“moderate impacts”), and firm-level impacts. 

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three options presented here, the 100 MGD for Certain Waterbodies Option would subject the smallest number of 

facilities to national categorical requirements, with the 200 MGD for All Waterbodies Option and the 50 MGD 

for All Waterbodies Option subjecting successively larger numbers of facilities to national requirements. 

As outlined in Chapter A1: Introduction, EPA considered several additional regulatory options based on varying 

flow regimes and waterbody types, in arriving at the regulatory analysis options. Summary results for these 

supplemental options can be found in Appendix B3A1 to this chapter. 

This chapter describes the methodology used to assess economic impacts for the Manufacturers’ facilities, and 

presents the results of the analyses. 

C3-1 DATA SOURCES 

The economic impact analyses rely on data provided in the financial portion of the detailed questionnaires 

distributed by EPA to facilities potentially subject to the Phase III regulation. The survey financial data included 

facility and parent firm income statements and balance sheets for the three years 1996, 1997, and 1998. 

In addition to the survey data, a number of secondary sources were used to characterize economic and financial 

conditions in the industries subject to the final Phase III regulation. Secondary sources used in the analyses 

include: 

f Department of Commerce economic census and survey data, including the Census of Manufactures, 

Annual Surveys of Manufactures, and international trade data; 

f U.S. Industry and Trade Outlook, published by McGraw-Hill and the U.S. Department of Commerce; 

f Value Line Investment Survey; 

f Annual Statement Studies, published by Risk Management Association (RMA); and 

f Statistics of U.S. Businesses (SUSB). 

C3-2 METHODOLOGY 

The impact analysis starts with compliance cost estimates from the EPA engineering analysis and then calculates 

how these compliance costs would affect the financial condition of Section 316(b) Manufacturers. EPA included 

the following compliance cost categories in this analysis: capital cost, annual operating and maintenance 

cost, administrative cost, and the loss of business income from potential shutdown of facilities during installation 

of compliance equipment3

. Of these cost categories, only operating and maintenance and certain administrative 

costs recur annually. The remaining costs occur only once at the beginning of compliance or on a multi-year 

interval over the period of the compliance analysis. Some of the impact analyses require combining the annually 

recurring and non-recurring costs into a single, annual equivalent value. For combining the annually recurring 

and non-recurring costs in this analysis, EPA calculated the annual equivalent cost of the non-recurring cost 

categories and added these annualized costs to the annually recurring operating and maintenance cost. 

To derive the constant annual value of the non-annual costs, EPA annualized each cost component over the 

component’s estimated useful life, using a 7.0% discount rate. The cost of compliance equipment, which includes 

fine-mesh traveling screens, with and without fish handling, and fish handling and return systems, was annualized 

over 10 years; initial permitting cost and the income loss from installation shutdown were annualized over 30 

3

 See Appendix C3A2 for details of the downtime cost calculation. 

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years; and re-permitting cost was annualized over 5 years4. For more information on the compliance cost 

components developed for this analysis, see Chapter C1: Summary of Cost Categories and Key Analysis Elements 

for Existing Facilities and Technical Development Document for the Final Section 316(b) Phase III Existing 

Facilities Rule (U.S. EPA, 2006). 

As discussed in Chapter C1, the various economic information used in this analysis were initially provided in 

dollars of different years. For example, facility financial data obtained in the 316(b) survey for Manufacturers are 

for the years 1996, 1997, and 1998, while the technology costs of regulatory compliance were estimated in dollars 

of the year 2002. To support a consistent analysis using these data that were initially developed in dollars of 

different years, EPA needed to bring the dollar values to a common analysis year. For this analysis, EPA adjusted 

all dollar values to constant dollars of the year 2004 (average or mid-year, depending on data availability) using 

an appropriate inflation adjustment index. For adjusting compliance costs, EPA used the Construction Cost 

Index (CCI) published by the Engineering News-Record. For financial statement information, EPA used the 

Gross Domestic Product Implicit Price Deflator (GDP Deflator) to bring dollar values to mid-2004. The 

values used to adjust the dollar values to constant dollars can be found in Chapter B1. 

For the impact analysis, EPA first eliminated from analysis those facilities showing materially inadequate 

financial performance in the baseline, that is, in the absence of the regulation. EPA judged these facilities, which 

are referred to as baseline closures, to be at substantial risk of financial failure regardless of any financial 

impacts of the 316(b) regulation. Second, for the remaining facilities, EPA evaluated how compliance costs 

would likely affect facility financial health. A facility is identified as a regulatory closure if it would have 

operated under baseline conditions but would fall below an acceptable financial performance level when subject 

to the new regulatory requirements. 

EPA’s analysis also identified facilities that would likely incur moderate impacts from compliance with the 

regulation. EPA anticipates that these facilities would experience moderate deterioration of financial performance 

but not at a level sufficient to cause the facility to fail financially. The test of moderate impacts examined two 

financial ratios – pre-tax return on assets and interest coverage ratio – calculated on a baseline and postcompliance basis. Incremental moderate impacts are attributed to the regulation if both financial ratios exceeded 

threshold values in the baseline (i.e., no moderate impacts in the baseline), but at least one financial ratio fell 

below the threshold value in the post-compliance case. 

For the assessment of firm-level effects, EPA compared annualized after-tax compliance cost to firm revenue and 

reports the estimated number and percentage of firms incurring compliance cost in three cost-to-revenue ranges: 

less than 1.0%; at least 1.0% but less than 3.0%; and 3.0% or greater. Although EPA’s sample-based data support 

specific estimates of the number of facilities, these data do not support a specific estimate of the number of 

entities that own these facilities. As a result, EPA estimated the number of entities owning facilities in the 

manufacturing industries as a range, based on alternative assumptions about the potential ownership of regulated 

facilities. In its comparison of compliance cost to firm revenue, EPA also used this same range concept, which 

yields approximate upper and lower bound estimates of the value of compliance cost that might be incurred by an 

entity, based on the number of regulated facilities that it owns. 

4

 The annualization approach used for the facility impact analysis differs from that used to develop the social cost 

estimate presented in Chapter C1: Summary of Cost Categories and Key Analysis Elements for Existing Facilities. For the 

analysis of the social cost, the present value of total cost and the constant annual equivalent to that present value (annualized 

cost) were calculated as of the expected effectiveness date of the Phase III final regulation for Phase III facilities, beginning 

of year 2007. In contrast, for the impact analysis, the present value and annualized value of compliance cost were determined 

as of the first year of compliance of each facility (for this analysis, assumed to be 2010 to 2014). 

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Key steps in the facility- and firm-level impact methodologies are described in the following discussions. In 

addition, seven appendixes to this chapter provide detail of specific aspects of the impact analysis methodologies. 

C3-2.1 Market-Level Impacts 

Increased cost from the regulation may affect industry-level prices and output. In some instances, facilities 

incurring compliance costs may be able to pass part of these costs through to customers as price increases and 

thus reduce the compliance cost burden borne directly by complying facilities. On the basis of analysis presented 

in Appendix C3A3 and the findings from the industry profile analyses as discussed in the preceding chapter, 

Chapter C2: Profile of Manufacturers, EPA determined that an assumption of zero cost pass-through is 

appropriate for its analysis of the effect of the 316(b) regulation on manufacturing industries. The assumption of 

zero cost pass-through assumes that facilities must bear all compliance costs within baseline cash flow. Because 

facilities may be able to pass compliance costs through to consumers in some markets, this assumption may 

understate the ability of facilities to withstand the cost of 316(b) regulatory compliance without material financial 

impact. 

C3-2.2 Impact Measures 

C3-2.2.1 Test of Severe Impacts 

The assessment of severe impacts for 316(b) manufacturing facilities is based on the change in the facility’s 

estimated business value, as determined from a discounted present value analysis of baseline cash flow and the 

change in cash flow resulting from regulatory compliance. If the estimated discounted cash flow value of the 

facility is positive before considering the effects of regulatory compliance but becomes negative as a result of 

compliance outlays, then the facility is considered a regulatory closure. In this impact test, the estimated ongoing 

business value of the facility is compared with a threshold value of zero for the closure decision: as long as the 

discounted cash flow value of the facility is greater than zero, the business is earning its cost of invested capital 

and continuation of the business is warranted. If the discounted cash flow value of the facility is less than zero in 

the baseline or becomes less than zero as a result of compliance outlays, then the business would not earn its cost 

of invested capital and the business owners would be better off financially by terminating the business. As noted 

in earlier discussion, facilities for which EPA estimated a negative baseline value were considered baseline 

closures and were not tested for additional adverse impacts from regulatory compliance. 

In an alternative formulation of this concept, business owners would compare the discounted cash flow value of 

the facility with the value that the facility’s assets would bring in liquidation. In this case, the estimated ongoing 

business value would be compared with a value that may be different from zero: liquidation value could be 

positive or negative. When liquidation value is positive, business owners might benefit financially by terminating 

a business and seeking its liquidation value even when the ongoing business value is positive but less than the 

estimated liquidation value. With negative liquidation value – which generally would result from business 

termination liabilities (e.g., site clean-up) – the opposite result could occur: business owners may find it 

financially advantageous to remain in business even though the business earns less than its cost of invested 

capital, if the liquidation value of the business is “more negative”, and thus less in value, than the ongoing 

business based on the discounted cash flow analysis. EPA attempted to implement this alternative impact test 

formulation. EPA judges that the liquidation value estimates are substantially speculative and subject to 

considerable error because such an assessment requires detailed facility specific financial and operational history. 

For these reasons, EPA decided against using liquidation value for comparison with ongoing business value in the 

closure test. 

The cash flow concept used in calculating ongoing business value for the closure analysis is free cash flow 

available to all capital. Free cash flow is the cash available to the providers of capital – both equity owners and 

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creditors – on an after-tax basis from business operations, and takes into account the cash required for ongoing 

replacement of the facility’s capital equipment. Free cash flow is discounted at an estimated after-tax total cost 

of capital to yield the estimated business value of the facility. Details of the calculation of free cash flow and 

the discounting of free cash flow to yield the facility’s estimated value are explained in the following sections. 

 Calculation of Baseline Free Cash Flow and Performance of Baseline Closure Test 

Calculation of baseline free cash flow and performance of the baseline closure test involved the following steps: 

1. Average survey income statement data over response years and convert to mid-year 2004 dollars: EPA 

first adjusted facility income statement data for 1996, 1997, and 1998 to the year 1998, using the GDP 

Deflator. These data were then averaged over the months and/or years for which survey respondents 

reported data to develop an annual average income statement in 1998 constant dollars. For example, if a 

facility reported income statement data for 1996, 1997, and 1998, then a simple average was calculated 

for the three reported years. The annual average income statement in 1998 was then brought forward 

from 1998 to 2004, again using the GDP Deflator. 

2. Calculate after-tax income excluding the effects of financial structure: The questionnaire responses 

include a calculation of after-tax income in accord with conventional accounting principles. However, 

this calculation reflects the financial structure of the business, which may include debt financing and thus 

interest charges against income. Because the cash flow concept to be discounted in the business value 

analysis is cash flow available to all capital, it is necessary to restate after-tax income to exclude the 

effects of debt financing, or on a before-interest basis. This restatement involves: (1) increasing after-tax 

income by the amount of interest charges and (2) increasing taxes (and thereby reducing after-tax income) 

by the amount of tax reduction provided by interest deductibility. This adjustment amounts to adding taxadjusted interest expense to after-tax income and yields an estimate of after-tax income independent of 

capital structure or financing effects. In calculating the tax adjustment for interest, EPA used a combined 

federal/state corporate income tax rate. For this calculation, EPA used a tax rate that integrates the 

federal corporate income tax rate (35%) and state-specific state corporate income tax rates, based on 

facility location. 

The combined federal/state corporate income tax rate was calculated as follows: 

τ = τS + τF - (τS * τF) (C3-1) 

where: 

τ = estimated combined federal-state tax rate; 

τS = state tax rate; and 

τF = federal tax rate (35%). 

After-tax income, before interest, was calculated as follows: 

ATI-BI = ATI + I - τI or 

(C3-2)

ATI-BI = ATI + (1 - τ)I 

where: 

ATI-BI = after-tax income before interest; 

ATI = after-tax income from baseline financial statement; 

I = interest charge from baseline financial statement; and 

τ = estimated combined federal-state tax rate.

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3. Calculate after-tax cash flow from operations, before interest, by adjusting income for non-cash charges: 

The calculation of after-tax income may include a non-cash charge for depreciation (and potentially 

amortization). To convert income to after-tax cash flow (ATCF) from operations, it is therefore 

necessary to add back any depreciation charge to the calculation of after-tax income, before interest. 

Cash flow, before interest, was calculated as follows: 

ATCF-BI = ATI-BI +D (C3-3) 

where: 

ATCF-BI = after-tax cash flow before interest; 

ATI-BI = after-tax income before interest; and 

D = baseline depreciation. 

As a final step in the calculation of after-tax cash flow before interest, EPA eliminated the implied cash 

flow benefit of any negative taxes, as reported in the facility’s income statement and after adjustment for 

removal of interest. That is, in these calculations, negative taxes increase after-tax income and cash flow, 

and thus appear to improve the financial performance and value of the facility in terms of cash flow from 

operations. However, whether and when the implied cash flow benefit of negative taxes can be realized 

depends on the overall profitability and tax circumstances of the total enterprise, including any other 

facilities owned by the same firm, and the extent of profitability in periods before or after the survey data 

periods. To ensure this effect is not overstated, EPA therefore assumed that a facility would not receive 

the implied cash flow benefit from negative taxes – negative taxes, after adjustment for interest, were set 

to zero in the baseline analysis. This assumption is consistent with a later step in the post-compliance 

analysis in which EPA limited the cash flow benefit of tax deductions on compliance outlays not to 

exceed the amount of taxes paid as reported in the baseline income statement (and adjusted for interest). 

In theory, the application of this limit could cause some facilities that would otherwise pass the baseline 

closure analysis, instead to fail the analysis if the reported amount of negative tax, after adjustment for 

interest, would be sufficient to offset the negative cash flow from operations independent of taxes. In 

practice, though, this limitation did not affect the findings of the baseline closure analysis. This limit was 

applied as a check and did not cause a different outcome. 

4. Adjust after-tax cash flow to reflect estimated real change in business performance from the time of 

survey data collection to the present: EPA adjusted facility baseline cash flow to reflect the estimated 

real change (i.e., independent of inflation) in business performance in the manufacturing industries from 

the time of the facility survey, 1996-1998, to the present. This adjustment is intended to address two 

potential concerns that could lead to biased findings from the regulatory impact assessment: 

f First, EPA was concerned that facility survey data might have been collected during a period that 

deviated cyclically from the longer-term trend of business performance for the 316(b) manufacturing 

industries. Given the knowledge that U.S. business conditions during the latter half of the 1990s were 

cyclically strong, EPA wanted to account for the possibility that business conditions during the 316(b) 

survey period (1996-1998) might be uncharacteristically favorable for some of the Primary 

Manufacturing Industries. In this case, the business performance and valuation measures, based on 

survey data, used to assess the burden of regulatory compliance costs might overstate industry’s ability 

to bear these costs and therefore understate the potential impact of the regulatory options. 

f Second, apart from the issue of short-term deviation from trend caused by a cyclically strong 

economy, EPA was also aware from its profile analyses that some of the industries might be 

experiencing a longer-term trend of deteriorating performance. Using sample facility data that don’t 

reflect such possible trends would again potentially overstate industry’s ability to bear compliance 

costs and therefore understate the potential impact of the regulatory options. 

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To calculate the adjustment factor, EPA collected data on after-tax cash flow for public firms in the 

316(b) manufacturing industry sectors over a 14-year period and developed adjustment factors by 

industry and/or key industry segment (details of this analysis are contained in Appendix C3A4)

5

. Adjusted 

after-tax cash flow is calculated as follows: 

ATCF-BIADJ = ATCF-BI * Adj (C3-4) 

where: 

ATCF-BIADJ = after-tax cash flow before interest adjusted to reflect the real change in business 

performance; 

ATCF-BI = after-tax cash flow before interest; and 

Adj = adjustment factor to reflect the real change in business performance. 

5. Calculate free cash flow by adjusting after-tax cash flow from operations for ongoing capital equipment 

outlays: The measure of after-tax cash flow from the previous step, cash flow from operations, reflects 

the cash receipts and outlays from ordinary business operations, but includes no allowance for 

replacement of the facility’s existing capital equipment. To sustain ongoing operations, however, a 

business must expend cash for capital replacement. Accordingly, to understand the true cash flow of a 

business and thus provide a conceptually valid cash flow measure for business valuation, it is necessary to 

reduce cash flow from operations by an allowance for capital replacement. For the calculation of free 

cash flow, EPA estimated baseline capital outlays from a regression analysis of capital expenditures by 

public firms in the 316(b) industry sectors over an 11-year period (details of this analysis and estimation 

framework are contained in Appendix C3A5). Free cash flow is calculated as follows: 

FCF = ATCF-BIADJ - CAPEX (C3-5) 

where: 

FCF = free cash flow 

ATCF-BIADJ = after-tax cash flow before interest adjusted to reflect the real change in business 

performance; and 

CAPEX = estimated baseline capital outlays. 

Or on a more detailed accounting statement basis: 

FCF = REV - TC - T - τI - CAPEX (C3-6) 

where: 

FCF = free cash flow 

REV = revenue 

TC = total operating costs, excluding interest, depreciation, and taxes

T = baseline income tax 

5

 EPA also undertook an alternative case analysis in which it further adjusted baseline cash flow to reflect costs that 

facilities might incur from compliance with Federal environmental regulations that were recently promulgated and whose 

costs are not likely to be reflected fully in the ATCF adjustment analysis. This analysis, which is documented in Appendix 

C3A8, found no material effect on the facility impact analysis, as reported in this chapter. The alternative case analysis, 

which incorporated estimated compliance costs from the recent Federal environmental regulations, found one additional 

baseline closure and no change in post-compliance closures. 

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τ = estimated combined federal-state tax rate; 

I = interest charge from baseline financial statement; 

τI = the increase in tax liability resulting from calculating income on a pre-interest 

basis; and 

CAPEX = estimated annual baseline capital outlays. 

This calculation of free cash flow is based on a static representation of a facility’s business. With the 

exception of bringing estimated cash flow forward from the time of the survey, 1996-1998, to 

approximately the present, 2005, the facility impact analysis assumes, in effect, that the facility’s business 

will continue in the future – absent the effects of regulation – exactly as reflected in the baseline financial 

statements provided in the survey questionnaire 

6. Calculate baseline facility value as the present value of free cash flow over a 10-year analysis horizon: 

To calculate baseline business value, EPA discounted free cash flow over a 10-year period at an estimated 

real (i.e., excluding the effects of inflation), after-tax cost of capital of 7.0%. The use of 10 years as the 

discounting horizon reflects the expected useful life of capital equipment to be installed for 316(b) 

regulation compliance. Facility baseline business value is calculated as follows: 

9 

VALUE = ∑ FCF 

t =0 (1+CoC)

t (C3-7) 

where: 

VALUE = estimated baseline business value of the facility

FCF = free cash flow 

CoC = after-tax cost-of-capital (7.0%); and 

t = year index, t = 0-9 (10-year discounting horizon). 

In the present value calculation, yearly cash flows accrue at the beginning of the year. As a result, the 

first year of cash flows is not discounted – i.e., t = 0 for the first year of the analysis – and cash flows in 

the tenth and final year of the analysis period are discounted over a 9-year period – i.e., t = 9 in the final 

year of the analysis. 

As explained above, EPA considered a facility to be a baseline closure if its estimated business value was 

negative before incurring regulatory compliance costs. Baseline closures were neither tested for adverse impact in 

the post-compliance impact analysis nor were their compliance costs included in the tally of total costs of 316(b) 

regulatory compliance. 

 Calculation of Post-Compliance Free Cash Flow and Performance of Post-Compliance Closure Test 

For the post-compliance closure analysis, EPA recalculated annual free cash flow, accounting for changes in 

annual expenses and taxes that are estimated to result from compliance-related outlays. EPA combined the postcompliance free cash flow value and the estimated compliance capital outlay in the present value framework to 

calculate business value on a post-compliance basis. 

Calculation of post-compliance free cash flow and performance of the post-compliance closure test involved the 

following steps: 

1. Adjust baseline annual free cash flow to reflect compliance expense effects: Compliance-related effects 

on annual free cash flow include: annually recurring operating and maintenance costs; the annual 

equivalent of permitting and re-permitting costs, which recur on other than an annual basis over the life of 

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the analysis; the annual equivalent of the income loss from installation downtime (see Appendix 2); and 

related changes in taxes6

. The change in taxes includes: (1) the tax effect of these annually recurring and 

annualized expenses and (2) the tax effect from depreciation of initial compliance outlays. For 

calculating the tax effect of depreciation, EPA assumed that compliance capital outlays would be 

depreciated for tax purposes on a 10-year straight-line schedule. Post-compliance free cash flow was 

calculated as follows: 

FCFPC = FCFBL - ∆TC - τ(- ∆TC - ∆D) (C3-8) 

where: 

FCFPC = post-compliance free cash flow; 

FCFBL = baseline free cash flow, as calculated above; 

∆TC = change in total facility annual costs (excluding interest, depreciation and taxes), 

calculated as the cost of operating and maintaining compliance equivalent plus the annual 

equivalent of certain non-annual costs, as described above; 

Τ = marginal tax rate for calculating compliance-related tax effects (combined federal-state 

tax rate); and 

∆D = change in depreciation expense, calculated as compliance capital outlay (CC) divided by 

10. 

2. Limit tax adjustment to not exceed taxes as reported in baseline financial statement: The tax effect of 

compliance outlays is to reduce tax liability. As a result, in the free cash flow calculation, the tax 

adjustment generally increases cash flow and business value and, all else equal, reduces the likelihood 

that a facility will fail the post-compliance closure test. However, the extent to which a facility would 

realize this contribution to cash flow depends on its tax circumstances. In particular, some businesses 

may not be paying sufficient taxes in the baseline to take full benefit of the implied tax reduction at the 

facility level – unless the unused tax loss can be transferred to other, profitable business units in the firm, 

these businesses would not be able to use fully the implied tax reduction on a current basis. Also, the 

marginal tax rate for businesses with relatively lower pre-tax income may be less than the combined 

Federal/State tax rate used in the analysis. While businesses may be able to carry forward tax losses to 

reduce taxes in later years, EPA recognizes that the implied cash flow benefit from tax reduction may not 

be fully realized, particularly in circumstances involving single-facility firms. To reduce the risk of over 

stating this effect in its analysis, EPA therefore limited the amount of tax reduction from compliance 

outlays to be no greater than the amount of tax paid by facilities as reported in the baseline financial 

statement. The analysis effectively assumes that facilities will not be able to offset an implicit negative 

tax liability against positive tax liability elsewhere in the owning firm’s operations or to carry forward (or 

back) the negative income and its implicit negative tax liability to other positive income/positive tax 

liability operating periods. Nevertheless, some businesses may be able to benefit from tax reductions that 

6

 For the facility cash flow analysis, EPA treated the income loss from installation downtime on an annual equivalent 

basis even though this financial event occurs only once, and at the beginning of the assumed analysis period. EPA treated the 

installation downtime on an annualized basis for two reasons. First, the installation downtime is assumed to have a useful 

“financial life” of 30 years to reflect the total potential business life of the facility (note that reinstallation of the basic capital 

equipment, which is assumed to recur on a 10-year interval, does not require a new round of downtime). Since compliance 

capital equipment is assumed to have a 10-year useful life and the discounted cash flow analysis is accordingly structured as 

a 10-year analysis, including the income loss from installation downtime (which is assumed to have a 30-year useful life) as a 

one-time up-front cost would overstate its impact in the discounted cash flow calculation. Second, calculation of the 

downtime cost on an annual basis allows the tax effect from the one-time income loss to be summed with other annual tax 

effects for applying the limit to tax offsets, as explained in the next step of the analysis. 

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exceed facility baseline taxes, especially if the facility is owned by a multiple-site firm. Accordingly, 

EPA constrained the tax effect term in the free cash flow calculation, [-τ( - ∆TC - ∆D)] as specified 

above, to be no greater than baseline financial statement tax liability, T. 

3. Calculate post-compliance facility value, including post-compliance free cash flow and the compliance 

capital outlay: As in the baseline analysis, EPA calculated post-compliance facility value as the present 

value of free cash flow and accounting for the compliance capital outlay as an undiscounted cash outlay 

in the first analysis period. Facility post-compliance business value was calculated as follows: 

9 FCFPC VALUEPC = ∑ −CC (C3-9) t =0 (1+CoC)

t 

where: 

VALUEPC = estimated post-compliance business value of the facility 

FCFPC = estimated post-compliance free cash flow 

CoC = after-tax cost-of-capital (7.0%); 

t = year index, t = 0-9 (10-year discounting horizon); and 

CC = compliance capital outlay. 

EPA considered a facility to be a post-compliance closure if its estimated business value was positive in the 

baseline but became negative after adjusting for compliance-related cost, revenue and tax effects. In addition to 

tallying closure impacts in terms of the number of estimated facility closures, EPA also measured the significance 

of closures in terms of losses in employment and output. Employment losses equal the number of employees 

reported by closure facilities in survey responses; output losses equal total revenue reported for regulatory closure 

facilities. EPA estimated national results by multiplying facility results by facility sample weights.7 

C3-2.2.2 Test of Moderate Impacts 

EPA also conducted an analysis of financial stress short of closure to identify the regulation’s moderate impacts. 

Facilities incurring moderate impacts are not projected to close due to the regulatory analysis options. The 

regulation, however, might reduce their financial performance to the point where they incur greater difficulty and 

higher costs in obtaining financing for future investments. 

The analysis of moderate impacts examined two financial measures: 

Pre-Tax Return on Assets (PTRA): ratio of pre-tax operating income – earnings before interest and 

taxes (EBIT) – to assets. This ratio measures the operating performance and profitability of a business’ 

assets independent of financial structure and tax circumstances. PTRA is a comprehensive measure of a 

firm’s economic and financial performance. If a firm cannot sustain a competitive PTRA on a postcompliance basis, it will likely face difficulty financing its investments, including the outlay for compliance 

equipment. 

Interest Coverage Ratio (ICR): ratio of pre-tax operating cash flow – earnings before interest, taxes, and 

depreciation (EBITDA) – to interest expense. This ratio measures the facility’s ability to service its debt on 

the basis of current, ongoing financial performance and to borrow for capital investments. Investors and 

creditors will be concerned about a firm whose operating cash flow does not comfortably exceed its 

contractual obligations. As ICR increases, the firm’s general ability to meet interest payments and carry 

7

 For the analysis of options presented in this chapter, none of these impact measures (e.g., employment loss, output loss) 

were in fact relevant because none of the three regulatory analysis options resulted in regulatory closures. 

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credit also increases. ICR also provides a measure of the amount of cash flow available for equity after 

interest payments. 

Creditors and equity investors review the above two measures as criteria to determine whether and under what 

terms they will finance a business. PTRA and ICR also provide insight into a firm’s ability to generate funds for 

compliance investments from internally generated equity, i.e., from after-tax cash flow. The measures are defined 

as follows: 

Pre-Tax Return on Assets 

EBIT PTRA = (C3-10) TA 

where: 

PTRA = pre-tax return on assets, 

EBIT = pre-tax operating income, or earnings before interest and taxes, and 

TA = total assets. 

Or, stated in terms of 316(b) income statement accounts, 

REV − (TC + D) PTRA = TA (C3-11) 

where: 

PTRA = pre-tax return on assets; 

REV = revenue; 

TC = total operating costs (excluding interest, taxes, and depreciation/amortization); 

D = depreciation; and 

TA = total assets. 

Interest Coverage Ratio 

EBITDA ICR = (C3-12) I 

where: 

ICR = interest coverage ratio; 

EBITDA = pre-tax operating cash flow, or earnings before interest, taxes, and depreciation (and 

amortization) and 

I = interest expense. 

Or, stated in terms of 316(b) income statement accounts, 

REV − TC ICR = (C3-13) I 

where: 

ICR = interest coverage ratio; 

REV = revenue; 

TC = total operating costs (excluding interest, taxes, and depreciation/amortization); and 

I = interest expenses. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

Including the effects of 316(b) compliance costs, post-compliance PTRA and ICR are: 

[REV − (TC + ∆TC + D + ∆D)] PTRApc = (C3-14) (TA + CC )

[REV − (TC + ∆TC )] ICR pc = (C3-15) (I + ∆I )

where: 

PTRApc = pre-tax return on assets, post-compliance; 

ICRpc = interest coverage ratio, post-compliance;

∆TC = change in total facility operating costs (excluding interest, depreciation and taxes), 

calculated as operating and maintenance costs of compliance; 

∆D = change in depreciation expense, calculated as compliance capital outlay (CC) divided by 

10; 

= compliance capital outlay (assuming all of the outlay would be capitalized and reported 

as an addition to assets on the balance sheet); and 

∆I = incremental interest expense from financing of compliance capital outlay. As a 

simplifying, conservative assumption, incremental interest expense is calculated 

assuming that the compliance capital outlay is fully debt financed at the overall real costof-capital of 7.0%. The annual incremental interest value is calculated as the annualized 

value of interest payments over 10 years, assuming a constant annual payment of 

principal and interest. 

In calculating the baseline values of the PTRA and ICR measures, EPA applied the same cash flow adjustments as 

described above for the facility closure analysis, to the numerators of the PTRA and ICR measures. In the same 

way as described for the facility closure analysis, these adjustments are intended to capture the change in the 

financial performance of firms in the Primary Manufacturing Industries between the time of the 316(b) Phase III 

survey and 2003 (see Appendix C3A4). 

For evaluating 316(b) manufacturing facilities according to the moderate impact measures, EPA compared 

baseline and post-compliance PTRA and ICR to 316(b) industry-specific thresholds that were developed from 

data compiled by Risk Management Association, Inc. (RMA). RMA compiles and reports financial statement 

information by industry as provided by member commercial lending institutions. The threshold values represent 

the 25th percentile values of PTRA and ICR for statements received by RMA for the eight years from 1994 to 

2001 within relevant industries. EPA developed 316(b) industry-level values by weighting and summing the 

RMA industry values according to the definition of 316(b) industries8

. Thresholds by sector ranged from 1.8% to 

2.9% for PTRA and from 2.0 to 2.4 for ICR. Because the financial statements received by RMA are for 

businesses applying for credit from member institutions, the data don’t represent a random sample. In particular, 

the RMA data likely exclude representation from the financially weakest businesses, which are unlikely to seek 

financing from RMA member lending institutions. As a result, EPA views the threshold values as somewhat 

likely to overestimate the occurrence of moderate impacts. 

Both measures are important to financial success and firms’ ability to attract capital. Facilities failing at least one 

of the moderate impact measures in the baseline were deemed to be already experiencing moderate financial 

weakness and were not tested for additional financial impact in the moderate impact analysis. Facilities that 

passed both moderate impact tests in the baseline but failed one or both threshold comparisons, post-compliance, 

8

 See Appendix C3A6 for details of moderate impact threshold development and sector-specific threshold values. 

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were considered to incur moderate financial impacts, short of closure, as a result of the final Section 316(b) 

regulation. 

C3-2.2.3 Firm Level Impacts 

The analysis of impact on firms builds on the facility impact analysis to assess whether firms that own multiple 

facilities are likely to incur more significant impacts than indicated by the facility impact analysis. For the 

assessment of firm-level effects, EPA calculated annualized after-tax compliance costs as a percentage of firm 

revenue and reports the estimated number and percentage of affected firms incurring compliance costs in 3 costto-revenue ranges: less than 1.0%; at least 1.0% but less than 3.0%; and 3.0% or greater. These ranges are 

accepted by EPA for screening of firm-level impacts. 

EPA’s sample-based facility analysis supports specific estimates of (1) the number of facilities expected to be 

subject to the regulation and (2) the total compliance costs expected to be incurred in these facilities. However, 

the sample-based analysis does not support specific estimates of the number of firms that own manufacturing 

facilities. In addition, and as a corollary, the sample-based analysis does not support specific estimates of the 

number of regulated facilities that may be owned by a single firm, or the total of compliance costs across 

regulated facilities that may be owned by a single firm. 

For the firm level analysis, EPA therefore considered two cases based on the sample weights developed from the 

facility survey. These cases provide approximate upper and lower bound estimates on: (1) the number of firms 

incurring compliance costs and (2) the costs incurred by any firm owning a regulated facility. The cases are as 

follows: 

Case 1: Upper bound estimate of number of firms owning facilities that face requirements under the 

regulation; lower bound estimate of total compliance costs that a firm may incur. 

For this case, EPA assumed (1) that a firm owns only the regulated sample facility(ies) that it is known to own 

from the sample analysis and (2) that this pattern of ownership, observed for sampled facilities and their owning 

firms, extends over the facility population represented by the sample facilities. This case minimizes the 

possibility of multi-facility ownership by a single firm and thus maximizes the count of affected firms, but also 

minimizes the potential cost burden to any single firm. 

For each firm that owns one sample facility, no firm is assumed to own more than one regulated facility, and the 

analysis is straightforward: the firm owns one regulated facility and incurs compliance costs only for that facility. 

This configuration is assumed to exist as many as times as the facility’s sample weight. However, EPA found that 

28% of the firms identified as owning a sample facility, own more than one sample facility. Where the multiple 

facilities owned by the same firm have the same sample weight, the analysis is also straightforward: the firm is 

assumed to own and incur the compliance costs of the identified sample facilities, and the configuration is 

assumed to exist as many times as many times as the uniform sample weight of the multiple facilities. 

In some instances, however, the sample facilities that are owned by the same firm have different sample weights. 

In these cases, which required a more complex analysis, EPA accounted for the ownership of multiple sample 

facilities by a single firm, but restricted the count of the multiple facilities and their configuration of ownership 

for the firm-level cost analysis based on the sample weights of the individual sample facilities. Specifically, the 

firm is assumed to exist on a sample-weighted basis as many times as the highest of the sample weights among 

the sample facilities known to be owned by the firm. However, sample facilities with a smaller sample weight, 

and their compliance costs, can be included in the total instances of ownership by the firm for only as many times 

as their sample weights. Otherwise, the total facility count implied in the firm analysis would exceed the samplebased estimated total of facilities; correspondingly, the total of compliance costs accounted for in the firm level 

analysis would exceed the sample-based estimated total of facility compliance costs. For implementation, this 

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concept means that all of the sample facilities known to be owned by the same firm, and their compliance costs, 

can be included in the ownership configuration for only as many sample weighted instances as the smallest 

sample weight among the multiple facilities owned by the firm. Once the sample weight of the smallest sample 

weight facility is “used up,” a new multiple facility ownership is configured including only the costs for those 

facilities with weights greater than the weight of the smallest sample weight facility. This configuration is 

assumed to exist for as many sample weighted instances as the difference between the lowest sample weight and 

the next higher sample weight among the facilities owned by the firm. This process is repeated – with successive 

removal of the new lowest sample weight facility, and its compliance cost– as many times as necessary until only 

the highest sample weight facility remains in the ownership configuration. 

The survey asked respondents to provide firm-level revenue for the parent firm. For single-facility firms, firm 

revenue and compliance costs are identical to those for the facility. For multi-facility firms, EPA grouped 

together all facilities with a common parent firm from the surveys. For each firm in the analysis, firm-level 

compliance cost is: 

CC CC firm i 

i 

= ∑ (C3-16) 

where: 

CCfirm = firm-level compliance cost 

CCi = compliance cost for the surveyed facility i, known to be owned by the firm 

Case 2: Lower bound estimate of number of firms owning facilities that face requirements under the 

regulation; upper bound estimate of total compliance costs that a firm may incur. 

For this case, EPA inverted the prior assumption and assumed that any firm owning a regulated sample 

facility(ies), owns the known sample facility(ies) and all of the sample weight associated with the sample 

facility(ies). This case minimizes the count of affected firms, while tending to maximize the potential cost burden 

to any single firm. 

For this case, EPA grouped together all facilities with a common parent firm from the surveys and sample 

weighted the facility compliance costs. EPA calculated the firm-level compliance cost as: 

CCfirm = ∑ CCi (C3-17)

i 

where: 

CCfirm = firm-level compliance cost 

CCi = compliance cost for surveyed facility i owned by the firm 

Wi = sample weight for surveyed facility i owned by the firm 

As stated above, for the analysis of firm-level impacts, EPA calculated annualized after-tax compliance costs as a 

percentage of firm revenue. EPA judged that firms with annualized after-tax compliance cost of less than 1.0% of 

revenue would not be materially affected by the regulation. EPA identified firms as subject to potentially more 

serious impacts if annualized compliance cost exceeded 3.0% of revenue. 

C3-3 RESULTS 

This section presents the results of the facility impact analysis. The first section presents the results of the 

baseline closure analysis. The subsequent sections report the impact analysis results for the three regulatory 

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analysis options. Section C3-3.2 presents the number of facilities with regulatory requirements under the different 

options. Section C3-3.3 reviews post-compliance impacts. Section C3-3.4 summarizes total annualized 

compliance costs on an after-tax basis by option. Section C3-3.5 summarizes the estimated impacts by option, 

including facility impacts and total annualized compliance costs on both a pre-tax and after-tax basis. Section C3-

3.6 presents the results of the firm-level analysis for the two analytic cases described above. 

C3-3.1 Baseline Closures 

Table C3-1 reports estimated baseline closures for existing facilities in the six Primary Manufacturing Industries 

and the additional known facilities in Other Industries. EPA determined that 15 facilities (or 9.4%) of the 

estimated 155 regulated facilities in the six Primary Manufacturing Industries have a negative business value 

before incurring regulatory compliance costs. The highest percentages of baseline closures occur in the Petroleum 

industry sector (18.7%) and Paper industry sector (11.1%). One additional facility (or 25%) of the four known 

facilities in Other Industries is assessed as a baseline closure. These facilities are projected to close in the baseline 

and are not considered in the analysis of impacts attributable to the regulation. 

Appendix C3A7 provides information on historical establishment closure rates in the 316(b) industries. EPA 

compared the percentage of facilities assessed as baseline closures to typical establishment closure rates in the six 

Primary Manufacturing Industries, as reported in Statistics of U.S. Businesses (SUSB). SUSB data indicate that 

between 1.4% and 14.4% of all facilities in these industries close annually. The baseline closure rates for 

facilities in the Paper and Petroleum industry facilities are higher than the observed closure rates in these 

industries, as reported in SBA data. However, EPA based its analysis on survey data provided by the facilities 

and judges that these data and analysis provide an accurate representation of the financial condition of the 

facilities that would subject to the Phase III regulation. 

Table C3-1: Summary of Baseline Closures by Sector 

for existing facilities estimated subject to the Phase III regulation 

Total Number of Number of Baseline Percentage Closing Number Operating Sector Facilities Closures in Baseline in Baseline 

Paper 41 5 11.1% 37 

Chemicals 56 4 7.8% 52 

Petroleum 17 3 18.7% 14 

Steel 27 3 9.2% 25 

Aluminum 5 0 0.0% 5 

Food 9 0 0.0% 9 

Total Facilities in Primary 

Manufacturing Industries 155 15 9.4% 141 

Additional known facilities 4 1 25.0% 3 in Other Industriesa 

a

 Totals may not sum due to independent rounding. 

Source: U.S. EPA analysis, 2006. 

C3-3.2 Number of Facilities with Regulatory Requirements 

Of the three regulatory analysis options (50 MGD for All Waterbodies, 100 MGD for Certain Waterbodies, and 

200 MGD for All Waterbodies), the 50 MGD All option would subject the largest number of facilities, 144 

facilities, or 141 facilities in the Primary Manufacturing Industries and 3 known facilities in Other Industries to 

national categorical requirements (see Table C3-2). The other two options would subject fewer facilities to 

national requirements. The 200 MGD for All Waterbodies, would have subjected 30 facilities, or 29 facilities in 

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the Primary Manufacturing Industries and 1 of the known facilities in Other Industries, to national requirements. 

The 100 MGD for Certain Waterbodies Option, would have subjected the smallest number of facilities to national 

requirements: 24 facilities, or 22 facilities in the Primary Manufacturing Industries and 2 known facilities in the 

Other Industries. 

Table C3-2: Number of Facilities with Regulatory Requirements by Sector and Option 

Sector 

Total 

Operating 

in Baseline 

Number of Facilities with Regulatory Requirements 

50 MGD All 200 MGD All 100 MGD CWB 

Number Percentage Number Percentage Number Percentage 

Paper 

Chemicals 

Petroleum 

Steel 

Aluminum 

Food 

37 

52 

14 

25 

5 

9 

37 100.0% 

52 100.0% 

14 100.0% 

25 100.0% 

5 100.0% 

9 100.0% 

3 8.2% 

5 9.7% 

4 32.1% 

12 49.5% 

1 27.8% 

3 33.3% 

0 0.0% 

9 16.7% 

5 33.5% 

9 36.4% 

0 0.0% 

0 0.0% 

Total Facilities in Primary 

Manufacturing Industries 141 141 100.0% 29 20.7% 22 15.8% 

Additional known facilities 

in Other Industries 3 3 100.0% 1 33.3% 2 66.7% 

Source: U.S. EPA analysis, 2006. 

C3-3.3 Post-Compliance Impacts 

Of the 144 facilities estimated subject to regulation after baseline closures, EPA estimated that no facilities would 

close or incur employment losses as a result of the regulatory analysis options. 

EPA also found that none of the existing facilities would incur a moderate impact (i.e., financial stress short of 

closure) under any of the three regulatory analysis options. 

C3-3.4 Compliance Costs 

Table C3-3 reports the estimated total after-tax compliance cost to facilities in the Primary Manufacturing 

Industries and the known facilities in Other Industries by sector and for each of the three regulatory analysis 

options. The reported costs exclude costs in baseline closures. The total annualized, after-tax compliance cost 

reported in Table C3-3 represents the cost actually incurred by complying firms, assuming no recovery of costs 

from customers through increased prices and taking into account the reductions in tax liability resulting from 

incurrence of compliance outlays. The after-tax analysis uses a combined Federal/State tax rate, and accounts for 

facilities’ baseline tax circumstances. Specifically, tax offsets to compliance costs are limited not to exceed 

facility-level tax payments as reported in facility questionnaire responses. The total annualized, after-tax 

compliance cost reported here is the sum of annualized, after-tax costs by facility at the year of compliance. This 

cost calculation differs in concept from the calculation of compliance costs as included in the calculation of the 

total social costs of the regulatory options. For the social cost calculation, which is presented in Chapter E1: 

Summary of Social Costs, the year-by-year stream of total pre-tax compliance costs for all facilities is discounted 

to the assumed year of promulgation of the 316(b) final regulation for Phase III facilities – i.e., beginning of year 

2007 – and then annualized. Two social discount rate values, 3% and 7%, are used in the social cost analysis. 

Of the three regulatory analysis options, the 50 MGD All option has the highest total after-tax compliance cost, 

$26.8 million: $26.0 million for facilities in the Primary Manufacturing Industries, and $0.8 million for known 

facilities in Other Industries. The 100 MGD for Certain Waterbodies has the next higher total after-tax 

compliance cost, $12.1 million: $11.5 million for facilities in the Primary Manufacturing Industries, and $0.6 

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million for known facilities in Other Industries. The 200 MGD Option for All Waterbodies, would have the 

lowest cost, $11.8 million: $11.4 million for facilities in the Primary Manufacturing Industries, and $0.4 million 

for known facilities in Other Industries. 

Table C3-3: Total Annualized Facility Compliance Costa

 by Sector and Regulatory Option 

Sector 

50 MGD All 200 MGD All 100 MGD CWB 

Paper 4.3 1.8 0.0 

Chemicals 12.6 3.6 6.4 

Petroleum 2.4 0.9 1.4 

Steel 5.3 4.2 3.7 

Aluminum 0.4 0.0 0.0 

Food 0.9 0.9 0.0 

Total Facilities in Primary 

Manufacturing Industries $26.0 $11.4 $11.5 

Additional known facilities in Other $0.8 $0.4 $0.6 Industries 

(millions, $2004) 

After-Tax Costs 

a

 This table reflects the cost incurred by complying businesses and does not represent the cost to society from regulatory 

compliance. Chapter E1: Summary of Social Costs discusses the social cost of the final regulation and the other 

options. The values in this table exclude baseline closures. 

Source: U.S. EPA analysis, 2006. 

C3-3.5 Summary of Facility Impacts 

Table C3-4 summarizes the estimated impacts of the three regulatory analysis options for existing facilities, as 

reported in the preceding sections. 

C3-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

Table C3-4: Regulatory Impacts for All Facilities by Option, National Estimates 

50 MGD All 200 MGD All 100 MGD CWB 

Primary Manufacturing Industries 

Number of Facilities Operating in Baseline 141 141 141 

Number of Facilities with Regulatory Requirements 141 29 22 

Percentage of Facilities with Regulatory Requirements 100.0% 20.7% 15.8% 

Number of Closures (Severe Impacts) 0 0 0 

Percentage of Facilities with Regulatory Requirements Predicted 0.0% 0.0% 0.0% 

to Close 

Number of Facilities with Moderate Impacts 0 0 0 

Percentage of Facilities with Regulatory Requirements with 0.0% 0.0% 0.0% 

Moderate Impacts 

Annualized Compliance Costs (after tax, million $2004) 26.0 11.4 11.5 

Additional Known Facilities in Other Industries 

Number of Facilities Operating in Baseline 3 3 3 

Number of Facilities with Regulatory Requirements 3 1 2 

Percentage of Facilities with Regulatory Requirements 100.0% 33.3% 66.7% 

Number of Closures (Severe Impacts) 0 0 0 

Percentage of Facilities with Regulatory Requirements Predicted 0.0% 0.0% 0.0% 

to Close 

Number of Facilities with Moderate Impacts 0 0 0 

Percentage with Moderate Impacts 0.0% 0.0% 0.0% 

Annualized Compliance Costs (after tax, million $2004) 0.8 0.4 0.6 

Source: U.S. EPA analysis, 2006. 

C3-3.6 Firm Impacts 

As previously discussed, EPA’s analysis of firm-level impacts considered two analytic cases: 

f Case 1: Approximate upper bound estimate of number of firms owning facilities that face requirements 

under the regulation; approximate lower bound estimate of total compliance costs that a firm may incur, 

and 

f Case 2: Lower bound estimate of number of firms owning facilities that face requirements under the 

regulation; approximate upper bound estimate of total compliance costs that a firm may incur. 

Based on these two analytic cases, EPA estimated the number of firms owning regulated facilities in the Primary 

Manufacturing Industries to range from 50 (Case 2 estimate) to 116 (Case 1 estimate), depending on the assumed 

ownership cases outlined above for firms that own a facility with a DIF of 50 MGD or greater. An additional 2 

firms are known to own facilities in Other Industries. EPA included the additional known facilities in Other 

Industries in the firm impact analyses but since these facilities have no sample weight (i.e., they are not modeled 

to represent facilities other than themselves), the upper and lower bound estimates were not applicable to them. 

Under both Case 1 and Case 2, no firms are estimated to incur total compliance costs equal to or exceeding 1.0% 

of annual revenue under any of the three regulatory analysis options (See Table C3-5, following page). 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3-19 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

Table C3-5: Firm-Level After-Tax Annual Compliance Costs as a Percentage of Annual Revenue 

Number of Firms 

in the Analysis 

Number and Percentage with After Tax Annual Compliance Costs/Annual Revenue Equal to: 

Total 

No Costs Less than 1% 1-3% At Least 3% 

Number % Number % Number % Number % 

Primary Manufacturing Industriesa 

Case 1: Upper bound estimate of number of firms owning facilities that face requirements under the regulation; lower bound 

estimate of total compliance costs that a firm may incur 

50 MGD All 

200 MGD All 

100 MGD CWB 

116 

116 

116 

0 

87 

91 

0% 

75% 

78% 

116 

29 

25 

100% 

25% 

22% 

0 

0 

0 

0% 

0% 

0% 

0 

0 

0 

0% 

0% 

0% 

Case 2: Lower bound estimate of number of firms owning facilities that face requirements under the regulation; upper bound 

estimate of total compliance costs that a firm may incur 

50 MGD All 

200 MGD All 

100 MGD CWB 

50 

50 

50 

0 

33 

36 

0% 

66% 

72% 

50 

17 

14 

100% 

34% 

28% 

0 

0 

0 

0% 

0% 

0% 

0 

0 

0 

0% 

0% 

0% 

Other Industries 

50 MGD All 

200 MGD All 

100 MGD CWB 

2 

2 

2 

0 

2 

1 

0% 

100% 

50% 

2 

0 

1 

100% 

0% 

50% 

0 

0 

0 

0% 

0% 

0% 

0 

0 

0 

0% 

0% 

0% 

a One known facility in Other Industries is owned by a firm that owns at least one facility in the Primary Manufacturing Industries and 

is included in this category. 

Source: U.S. EPA analysis, 2006. 

C3-20 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

GLOSSARY 

after-tax cash flow (ATCF): The cash generated from business operations, after-tax, that is available to 

providers of capital – equity and debt – or for reinvestment in the business. 

baseline closures: Facilities showing inadequate financial performance in the baseline, that is, in the absence 

of the regulation. EPA’s analysis assumes these closures would have occurred with or without the regulation. 

Construction Cost Index (CCI): Measures the cost of a hypothetical package of general construction goods 

and services compared a base year. The CCI can be used where labor costs are a high proportion of total costs. 

The CCI uses 200 hours of common labor, multiplied by the 20-city average rate for wages and fringe benefits. 

(http://www.enr.com/cost/costfaq.asp) 

cost of capital: Costs incurred for a firm to obtain financing from all capital sources including, in particular, 

equity and debt. 

cost pass-through: Calculates the percentage of compliance costs that EPA expects firms subject to 

regulation to recover from customers through increased revenue. 

facility: A contiguous set of buildings or machinery on a piece of land under common ownership. 

free cash flow: Cash flow generated by the company that is available to all providers of the company’s capital, 

both creditors and shareholders. 

Gross Domestic Product (GDP) Implicit Price Deflator: The GDP Deflator is a quarterly series that 

measures the implicit change in prices, over time, of the bundle of goods and services comprising gross domestic 

product. 

interest coverage ratio (ICR): Ratio of cash operating income to interest expenses. This ratio measures the 

facility’s ability to service its debt and borrow for capital investments. 

liquidation value: Net amount that could be realized by selling the assets of a firm after paying debt. 

moderate impacts: Adverse changes in a facility’s financial position that weaken financial performance and 

may increase cost of financing but are not threatening to short-term viability. 

operating and maintenance: Costs estimated to result from operating and maintaining pollution controls 

adopted to comply with effluent guidelines. Operating costs include the costs of monitoring. 

pre-tax return on assets (PTRA): Ratio of cash operating income to assets. This ratio measures facility 

profitability. 

regulatory closure: A facility that is predicted to close because it can not afford the costs of complying with 

the regulation. 

severe impacts: Facility closures and the associated losses in jobs, earnings, and output at facilities that close 

due to the regulation. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3-21 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

ABBREVIATIONS 

ATCF: after-tax cash flow 

CCI: construction cost index 

ICR: interest coverage ratio 

PTRA: pre-tax return on assets 

C3-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

REFERENCES 

Engineering News-Record (ENR). 2006. Construction Cost Index. Available at: http://enr.ecnext.com/freescripts/comsite2.pl?page=enr_document&article=fecosu0603-constIndexHist. (Historical data requires 

subscription or purchase.) 

Federation of Tax Administrators (FTA). 2006. Range of State Corporate Income Tax Rates (for tax year 2005). 

http://www.taxadmin.org/fta/rate/corp_inc.html. Accessed January 20, 2006. 

McGraw-Hill and U.S. Department of Commerce, International Trade Administration. U.S. Industry & Trade 

Outlook. 

McKinsey & Company, Inc., et al. 2000. Valuation: Measuring and Managing the Value of Companies, 3rd

edition. New York: John Wiley & Sons, Inc. 

Risk Management Association (RMA). 1997-1998. Annual Statement Studies. 

Risk Management Association (RMA). 2000-2001. Annual Statement Studies. 

Risk Management Association (RMA). 2001-2002. Annual Statement Studies. 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of Economic Analysis (BEA). Gross Domestic 

Product. Table 1.1.9: Implicit Price Deflators for Gross Domestic Product (GDP). Release December 12, 2005. 

Available at: http://www.econstats.com/gdp/gdp__q4.htm. 

U.S. Department of Commerce (U.S. DOC). 2006. Bureau of the Census. International Trade Administration. 

Industry, Trade, and the Economy: Data and Analysis. Data by NAICS and SIC. Available at: 

http://www.ita.doc.gov/td/industry/otea/industry_sector/tables_naics.htm. 

U.S. Department of Commerce (U.S. DOC). 1989, 1992, 1997, and 2002. Bureau of the Census. Census of 

Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, 1998-2001, and 2003-2004. Bureau of the 

Census. Annual Survey of Manufactures. 

U.S. Environmental Protection Agency (U.S. EPA). 2006. Technical Development Document for the Final 

Section 316(b) Phase III Existing Facilities Rule. EPA-821-R-06-003. June 2006. 

U.S. Environmental Protection Agency (U.S. EPA). 1999. Information Collection Request (ICR), Detailed 

Industry Questionnaires: Phase II Cooling Water Intake Structures & Watershed Case Study Short 

Questionnaire. August 1999. 

U.S. Small Business Administration (U.S. SBA). 1989-2003. Statistics of U.S. Businesses. Available at: 

http://www.sba.gov/advo/research/data.html. 

Value Line. 2006. Value Line 3.0 Investment Analyzer. 

Value Line. 2003. Value Line Investment Survey. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3-23 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Chapter C3: Economic Impact for Manufacturers 

APPENDICES TO CHAPTER C3 

Chapter C3 includes 8 appendices, which are contained in the following pages: 

f Appendix C3A1: Summary of Results for Supplemental Options 

f Appendix C3A2: Calculation of Installation Downtime Cost 

f Appendix C3A3: Cost Pass-Through Analysis 

f Appendix C3A4: Adjusting Baseline Facility Cash Flow 

f Appendix C3A5: Estimating Capital Outlays for Section 316(b) Phase III Manufacturing Sectors 

Discounted Cash Flow Analyses 

f Appendix C3A6: Summary of Moderate Impact Threshold Values by Industry 

f Appendix C3A7: Analysis of Baseline Closure Rates 

f Appendix C3A8: Analysis of Other Regulations. 

C3-24 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A1: Supplemental Options 

Appendix C3A1: Summary of Results for 
 

Supplemental Options 
 

I A CONTENTS


 

subject to national categorical requirements under the 


 


 


 

f For Electric Generator facilities with a DIF 

 )

 

 

f 

 )

 

 

f For Manufacturing facilities with a DIF of 50 MGD or greater: 

 )

 ); and 

 

NUMBER OF F R REQUIREMENTS 

Total 

Operating in 

Baseline 

114 114 114 114 

355 355 355 355 

144 144 144 144 

Total 613 613 613 613 

Source: 

NTRODUCTION PPENDIX 

This appendix presents results Introduction........................................................C3A1-1 for 8 additional regulatory 

options evaluated by EPA. For these options, facility C3A1-1Number of Facilities with Regulatory 

counts and other results include only those Phase III Requirements ........................................C3A1-1 

Manufacturers that are (1) non-baseline closures and (2) C3A1-2Post-Compliance Closures ....................C3A1-2 

C3A1-3Moderate Impacts..................................C3A1-2 

option. See the main body of this chapter for a description C3A1-4After-Tax Compliance Costs.................C3A1-2

of data sources and methodologies used in these analyses. C3A1-5Overview of Impacts .............................C3A1-3 In the following tables, results are presented for the C3A1-6Firm Impacts .........................................C3A1-4 following options evaluated: 

of 2 MGD or greater, but less than 50 MGD: 

Impingement-only (I-only requirements for all facilities on all waterbodies; 

Phase II-like requirements for all facilities on all waterbodies; and 

Impingement and Entrainment (I&E) requirements for all facilities on all waterbodies. 

For Manufacturing facilities with a DIF of 2 MGD or greater, but less than 50 MGD: 

Impingement-only (I-only requirements for all facilities on all waterbodies; 

Phase II-like requirements for all facilities on all waterbodies; and 

Impingement and Entrainment (I&E) requirements for all facilities on all waterbodies. 

Impingement-only (I-only requirements for all facilities on all waterbodies; 

Phase II-like requirements for all facilities on all waterbodies (the Final Regulation

Impingement and Entrainment (I&E) requirements for all facilities on all waterbodies. 

C3A1-1 ACILITIES WITH EGULATORY 

Table C3A1-1: Number of Facilities with Regulatory Requirements by Sector and Option 

Number of Facilities with Regulatory Requirements 

Sector 

I-Only Everywhere I&E like Phase II I&E Everywhere 

Electric Generators 2-50 MGD 

Manufacturers 2-50 MGD 

Manufacturers 50+ MGD 

 U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A1-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A1: Supplemental Options 

C3A1-2 POST-COMPLIANCE CLOSURES 

For a description of this analysis, see Section B3-2.3, above. 

Table C3A1-2: Number of Facilities Estimated as Post-Compliance Closures by Option 

Number of Post-Compliance Closures Sector in Baseline I-Only Everywhere I&E like Phase II I&E Everywhere 

Total Operating 

Electric Generators 2-50 MGDa,b 114 n/a 1 n/a 

Manufacturers 2-50 MGD 355 0 0 0 

Manufacturers 50+ MGD 144 0 0 0 

Total 613 0 1 0 

a Impacts on Electric Generators under the I&E like Phase II option were performed using a methodology not comparable to the 

results presented here for manufacturers. See Chapter B5: Economic Impact Analysis for Electric Generators of the Economic Analysis 

for the Proposed Section 316(b) Rule for Phase III Facilities for a discussion of impacts on Electric Generators. 

b Analyses were not performed for the I-only Everywhere and I&E Everywhere options. 

Source: U.S. EPA analysis, 2006. 

C3A1-3 MODERATE IMPACTS 

For a description of this analysis, see Section C3-2.3, above. Impacts on Electric Generators were performed 

using a methodology not comparable to the results presented here for manufacturers. See the Economic Analysis 

for the Proposed Section 316(b) Rule for Phase III Facilities for a discussion of impacts on Electric Generators. 

Table C3A1-3: Number of Facilities Estimated as Moderate Impacts by Option 

Total Number of Moderate Impacts 

Sector Operating in 

Baseline I-Only Everywhere I&E like Phase II I&E Everywhere 

Manufacturers 2-50 MGD 355 0 0 0 

Manufacturers 50+ MGD 144 0 0 0 

Total 499 0 0 0 

Source: U.S. EPA analysis, 2006. 

C3A1-4 AFTER-TAX COMPLIANCE COSTS 

For a description of this analysis, see Section C3-2.3 above. 

Table C3A1-4: Total Annualized Facilitya

 After-Tax Compliance Cost by Option (millions, $2004) 

Sector I-Only Everywhere I&E like Phase II I&E Everywhere 

Electric Generators 2-50 MGD $2.3 $3.3 $7.9 

Manufacturers 2-50 MGD $19.8 $31.5 $50.6 

Manufacturers 50+ MGD $16.0 $26.7 $36.8 

Total $38.2 $61.6 $95.3 

a This table reflects the cost incurred by complying businesses and does not represent the cost to society from regulatory compliance. 

Chapter E1: Summary of Social Costs discusses the social cost of the final rule and other regulatory analysis options. The estimates in this 

table exclude baseline closures but include regulatory closures. 

Source: U.S. EPA analysis, 2006. 

C3A1-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A1: Supplemental Options 

C3A1-5 OVERVIEW OF IMPACTS 

For a description of this analysis, see Section C3-2.3, above. 

Table C3A1-5: Regulatory Impacts for All Facilities by Option, National Estimates 

114 114 114 

Requirements 114 114 114 

Requirements 100.0% 100.0% 100.0% 

)

a,b n/a 1 n/a 

n/a 0.01% n/a 

a,b n/a n/a n/a 

Requirements with Moderate Impacts n/a n/a n/a 

$2.3 $3.3 $7.9 

Requirements 

Requirements 

) 

Requirements with Moderate Impacts 

355 

355 

100% 

0 

0% 

0 

0% 

$19.8 

355 

355 

100% 

0 

0% 

0 

0% 

$31.5 

355 

355 

100% 

0 

0% 

0 

0% 

$50.6 

144 144 144 

144 144 144 Requirements 

100% 100% 100% Requirements 

) 0 0 0 

0% 0% 0% 

0 0 0 

0% 0% 0% Requirements with Moderate Impacts 

$16.0 $26.7 $36.8 

a 

b 

Source: 

 I-Only Everywhere I&E like Phase II I&E Everywhere 

Electric Generators 2-50 MGD 

Number of Facilities Operating in Baseline 

Number of Facilities with Regulatory 

Percentage of Facilities with Regulatory 

Number of Closures (Severe Impacts

Percentage of Facilities with Regulatory 

Requirements Predicted to Close 

Number of Facilities with Moderate Impacts

Percentage of Facilities with Regulatory 

Annualized Compliance Costs (after tax, 

million $2004) 

Number of Facilities Operating in Baseline 

Number of Facilities with Regulatory 

Percentage of Facilities with Regulatory 

Number of Closures (Severe Impacts

Percentage of Facilities with Regulatory 

Requirements Predicted to Close 

Number of Facilities with Moderate Impacts 

Percentage of Facilities with Regulatory 

Annualized Compliance Costs (after tax, 

million $2004) 

Manufacturers 2-50 MGD 

Manufacturers 50+ MGD 

Number of Facilities Operating in Baseline 

Number of Facilities with Regulatory 

Percentage of Facilities with Regulatory 

Number of Closures (Severe Impacts

Percentage of Facilities with Regulatory 

Requirements Predicted to Close 

Number of Facilities with Moderate Impacts 

Percentage of Facilities with Regulatory 

Annualized Compliance Costs (after tax, 

million $2004) 

Impacts on Electric Generators under the I&E like Phase II option were performed using a methodology not comparable to the 

results presented here for manufacturers. See the Chapter B5: Economic Impact Analysis for Electric Generators of the Economic 

Analysis for the Proposed Section 316(b) Rule for Phase III Facilities for a discussion of impacts on Electric Generators. 

Analyses were not performed for the I-only Everywhere and I&E Everywhere options. 

U.S. EPA analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A1-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A1: Supplemental Options 

C3A1-6 FIRM IMPACTS 

For a description of this analysis, see Section C3-2.3, above. 

Table C3A1-6: Firm-level After-Tax Annual Compliance Costs as a Percentage of Annual Revenue 

Number of Number and Percentage with After Tax Annual Compliance Costs/Annual Revenue Equal to: 

Firms in the No Costs Less than 1% 1-3% At Least 3% 

Analysis Total 

Number % Number % Number % Number % 

Primary Manufacturersa 

Case 1: Upper bound estimate of number of firms owning facilities that face requirements under the regulation; lower bound 

estimate of total compliance costs that a firm may incur 

I-only 339 0 0% 339 100% 0 0% 0 0% Everywhere 

I&E like Phase II 339 0 0% 339 100% 0 0% 0 0% 

I&E Everywhere 339 0 0% 339 100% 0 0% 0 0% 

Case 2: Lower bound estimate of number of firms owning facilities that face requirements under the regulation; upper bound 

estimate of the total compliance cost that a firm may incur 

I-only 109 0 0% 109 100% 0 0% 0 0% Everywhere 

I&E like Phase II 109 0 0% 109 100% 0 0% 0 0% 

I&E Everywhere 109 0 0% 109 100% 0 0% 0 0% 

a An additional 7 known facilities incur costs of less than 1% of firm revenues under each option. EPA included the additional known 

facilities in Other Industries in the firm impact analyses but since these facilities have no sample weight (i.e., they are not modeled to 

represent facilities other than themselves), the upper and lower bound estimates were not applicable to them. 

Source: U.S. EPA analysis, 2006. 

C3A1-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A2: Installation Downtime 

Appendix C3A2: Calculation of Installation 
 

Downtime Cost 
 

INTRODUCTION 

Depending on the engineering design of a facility’s cooling 

water intake system, installation of some of the compliance 

technologies considered for the regulatory analysis options 

could require a one-time, temporary shutdown of the 

facility’s cooling water system. During this period, the 

facility’s cooling-water dependent operations would most 

likely be halted, with a potential loss of revenue and 

income from those operations. Accordingly, a key element 

of the potential cost to facilities in complying with the 

316(b) Phase III regulation is the loss in income from installation downtime. Installation downtime may also 

present a cost to society, depending upon assumptions about the cost structure of the production to replace the 

goods and services not produced by complying facilities during the installation downtime. 

A CONTENTS: 


 

PPENDIX 

Introduction........................................................C3A2-1

C3A2-1Estimated Shut-Down Period for Installing 

Compliance Equipment.........................C3A2-1 

C3A2-2Calculating the Impact of Installation 

Downtime on Complying Facilities ......C3A2-2 

C3A2-3Calculating the Cost to Society of Installation 

Downtime..............................................C3A2-4 

Unlike the capital and operating cost elements of total compliance, this cost element is not estimated based solely 

on engineering analysis of compliance technology specifications. Instead, the cost of installation downtime 

depends on a number of factors additional to the engineering assessment of compliance requirements. 

Specifically, the cost of installation downtime depends on the estimated length of time that a facility’s cooling 

water intake system would be removed from service, the extent to which the facility’s business operations depend 

on cooling water, and the revenue and operating cost structure of those cooling water dependent operations. Of 

these items, the length of time that the facility’s cooling water intake system would be out of service was 

estimated as part of the engineering analysis of compliance requirements. The remaining items – the extent to 

which the facility’s business operations depend on cooling water, and the revenue and operating cost structure of 

the facility’s cooling water dependent operations – were obtained from the facility’s response to the economic/ 

financial section of the 316(b) Phase III questionnaire. EPA used this information to calculate the pre-tax income 

loss from installation downtime. 

The following sections of this appendix present the methodology used to estimate the income loss from 

installation downtime. For a detailed discussion of how facility downtime estimates were derived, see Chapter 5 

of the Technical Development Document for the Final Section 316(b) Phase III Existing Facilities Rule (U.S. 

EPA, 2006b). 

C3A2-1 ESTIMATED SHUT-DOWN PERIOD FOR INSTALLING COMPLIANCE EQUIPMENT 

Installation of some of the compliance technologies considered for the regulatory analysis options would require a 

one-time, temporary shutdown of the facility’s cooling water intake system. Table C3A2-1, below, lists the 

estimated durations of net system downtime, in weeks, for each of the compliance technology modules considered 

for compliance with the 316(b) Phase III regulatory options. The net downtime duration accounts for any 

expected annual period of cooling water system downtime for regular maintenance and repair – the net downtime 

is the number of weeks the cooling water system would need to be out of service above and beyond any regular 

maintenance downtime period. Most of the technology modules are expected to be able to be installed without 

any additional net system downtime. However, several of the technology modules are expected to require a net 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A2-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A2: Installation Downtime 

downtime ranging from a month or less to just over two months. For a detailed discussion of how facility 

downtime estimates were derived see Chapter 5 of the Phase III Technical Development Document (U.S. EPA, 

2006, DCN 9-0004) 

Table C3A2-1: Estimated Average Cooling Water System Downtime by Technology Module 

Module # Description Net Downtime (Weeks) 

1 	 Fish handling and return system 0

2 Fine mesh traveling screens with fish handling and return 0

3 New larger intake structure with fine mesh, handling and return 0 - 2 

4 Passive fine mesh screens with 1.75 mm mesh size at shoreline 7 - 9 

5 Fish barrier net 0 

6 Gunderboom 0 

Relocate intake to submerged offshore with passive fine mesh screen with 1.75 mm 

7 mesh size 7 - 9 

8 Velocity cap at inlet of offshore submerged 0 

9 Passive fine mesh screen with 1.75 mm mesh size at inlet of offshore submerged 0 

10 Shoreline tech for submerged offshore 0 

11 Double-entry, single-exit with fine mesh and fish handling and return 0 

12 Passive fine mesh screens with 0.75 mm mesh size at shoreline 7 - 9 

Relocate intake to submerged offshore with passive fine mesh screen with 0.75 mm 

13 mesh size 0 

14 Passive fine mesh screen at inlet of offshore submerged with 0.75 mm mesh size 7 - 9 

Source: U.S. EPA analysis, 2006, DCN 9-0004. 

C3A2-2 CALCULATING THE IMPACT OF INSTALLATION DOWNTIME ON COMPLYING 

FACILITIES 

Installation downtime may affect a facility’s business operations in several ways: 

1. 	 The facility will be unable to perform production or other business operations that depend on cooling 

water. 

2. 	 The facility will lose revenue from the production and sale of the goods and services that otherwise would 

have been produced by the affected production operations during the period of downtime. 

3. 	 The facility will shed the variable cost of producing the goods and services not able to be produced during 

the period of installation downtime. However, the facility will continue to incur the fixed costs of 

production associated with the affected operations. 

4. 	 If, as part of its cooling water dependent operations, the facility generates electricity for its own use, and 

some part of this self-generated electricity continues to be needed during the period of installation 

downtime, the facility may need to purchase replacement electricity. 

Together, these effects lead to a loss in pre-tax income, which EPA calculated and used as the cost of installation 

downtime in its analysis of facility impacts. EPA calculated the loss in pre-tax income by first calculating the 

annual loss in revenue in cooling water dependent operations less the variable production costs associated with 

those operations plus the cost of purchasing electricity to replace any own-generated electricity that is used by the 

facility. Second, EPA adjusted this annual pre-tax loss value to reflect the length of net installation downtime as 

estimated in the engineering analysis of compliance technology requirements. Specific elements of these 

calculations are summarized below for (1) business effects not associated with electric power generation, and (2) 

electric power generation-related effects. 

C3A2-2	 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A2: Installation Downtime 

Business Effects Not Associated with Electric Power Generation 

The 316(b) Phase III questionnaire included a series of questions aimed at understanding the potential financial 

effect of temporary or permanent shutdown of a facility’s cooling water intake system. A key data item obtained 

from the questionnaire response is the fraction of a facility’s non-electric revenue that depends on cooling water. 

This information coupled with facility income statement information obtained from the questionnaire response 

provided the basis for calculating the income loss in non-electric power-related operations. Steps in the 

calculation are as follows: 

the fraction of cooling water-dependent revenue by the total reported non-electric revenue. 

reported on the facility’s income statement provided in the questionnaire, by the fraction of cooling waterdependent revenue, as described above. This approach assumes that the variable production cost structure 

for cooling water-dependent operations is the same as that for non-cooling water-dependent operations. 

Since other cost accounts or the services they provide – e.g., labor – might also be curtailed and/or 

applied to some other beneficial service within the enterprise, the use of materials expense as the only 

component of facility operating costs that may be shed during a period of installation downtime may not 

capture all of the offset that may be available at a particular facility, but it is the only expense that would 

be uniformly available for all facilities unlike the other cost accounts. 

1. 	 

2. 	 , as 

Calculate the annual revenue loss from curtailment of cooling water-dependent operations by multiplying 

Calculate the variable production cost offset to this revenue loss by multiplying materials expense

3. Calculate annual

less

4. 	 , by 

 loss in pre-tax income from curtailment of the facilities cooling water intake system 

from non-electric power-related operations as estimated revenue loss estimated reduction in variable 

production cost. 

Calculate pre-tax income loss in non-electric power-related operations, from installation downtime

multiplying the annual pre-tax income loss by the fraction of the year indicated as the net downtime 

required for installing compliance equipment. 

Business Effects Associated with Electric Power Generation 

The analysis of installation downtime costs for cooling water-dependent electric power generation activities is the 

same in concept as that outlined for non-electric power-related operations, with the exception that facilities may 

need to incur an additional cost for purchasing replacement electricity if some of the facility’s electric power 

needs were met from its own generation. Key information obtained from facility questionnaires for calculating 

the income loss in electric power-related operations includes: (1) annual electric revenue reported as cooling 

water dependent, (2) the fuel cost of electric power generation, which is assumed to be shed during the period of 

curtailed operations, (3) the quantity of electricity consumed by the facility, and (4) the quantity of electricity 

generated by the facility. The remaining key input required for this analysis is the unit price of replacement 

electricity: for this item, EPA used the average electricity price for industrial customers by state, using data from 

the Department of Energy, Energy Information Administration, for August, 2004. EPA calculated the pre-tax 

income loss effect for electric power generation activities as follows. 

1. 	 

2. 	 Annual fuel cost of electric power generation EPA 

3. 	 ’s own 

Annual electric revenue from cooling water-dependent generation is obtained directly from the facility 

questionnaire. This value is assumed to be the annual revenue loss in electric power generation, from 

curtailment of cooling water-dependent operations. 

 is obtained directly from the facility questionnaire. 

assumes that this value is shed during the period of curtailed operations. 

Calculate self-generated electricity that is consumed by the facility as the lesser of (a) the facility

electricity generation or (b) the electricity used within the facility. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A2: Installation Downtime 

4. 	 Calculate the quantity of replacement electricity to be purchased by the facility, by multiplying the 

quantity of own-generated electricity that is consumed by the facility by the fraction of non-electric 

revenue that is cooling water dependent but subject to a maximum reduction in electricity need of 75 

percent. That is, the facility is assumed to need replacement electricity in proportion to the fraction of 

non-electric revenue that is not cooling water-dependent. As the fraction of revenue dependent on 

cooling water, and thus affected by installation downtime, increases, the need for replacement electricity 

decreases. However, even in the case where the fraction of revenue that is cooling water dependent is 

very large (e.g., 100 percent), the analysis assumes that the facility will not shed all of its electricity 

needs: the facility is assumed to always require 25 percent of its baseline electricity consumption from 

self-generated electricity. The assignment of the 25 percent minimum electricity replacement need is an 

estimate that reflects the reality that less electricity is likely to be needed to serve a lower level of 

operations during a cooling water system shutdown, while also acknowledging that all electricity need 

cannot be shed, regardless of the reduction in non-electric generating activity. The numerical 

consequence on imposing the 25 percent electricity requirement floor (as opposed to a floor of zero 

percent) is very small. 

5. 	 

6. Calculate annual

less plus 

7. 	 , by 

Calculate the cost of electricity purchased to replace self-generated electricity used by the facility by 

multiplying the quantity of replacement electricity by the average electricity price, by state, for industrial 

customers. 

 loss in pre-tax income for electric power-related operations as estimated revenue loss 

from cooling water-dependent generation estimated annual fuel cost of electric power generation 

cost of electricity purchased to replace own-generated electricity. 

Calculate pre-tax income loss in electric power-related operations, from installation downtime

multiplying the annual pre-tax income loss by the fraction of the year indicated as the net downtime 

required for installing compliance equipment. 

These values are summed to yield the total pre-tax income loss to the facility from installation downtime. 

Under the 50 MGD All Option, 3 manufacturing facilities have non-zero downtime. Of these, 2 have non-zero 

cost of downtime. The facility with zero downtime costs reported that none of its revenue was cooling water 

dependent. Of the 2 facilities with non-zero downtime cost, downtime cost as a fraction of annual revenue ranges 

from 9.2% to 11.3%. Under the 200 MGD All Option, 1 manufacturing facility has non-zero downtime. 

Downtime cost as a fraction of annual revenue for this facility equals 9.2%. Under the 100 MGD CWB Option, 

none of the manufacturing facilities have non-zero downtime. 

C3A2-3 CALCULATING THE COST TO SOCIETY OF INSTALLATION DOWNTIME 

The preceding discussion describes the calculation of the pre-tax income loss from installation downtime as used 

in the facility impact analysis. For the analysis of cost to society, the concept of cost of installation downtime 

differs from that for the private impact analysis. Specifically, under the assumption that the total quantity of 

goods and services produced and sold by the affected industries would not change as a result of the regulation (see 

Chapter E1 for further detail on the social cost analysis framework), the cost to society from installation 

downtime is the increase in cost for producing the goods and services that would otherwise have been produced 

by the affected facilities. That is, other producers are assumed to replace the production of goods and services 

lost due to installation downtime, and the cost to society is the amount, if any, by which the cost of these goods 

and services exceeds the cost at which the affected facilities would have produced these goods and services. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A2: Installation Downtime 

In concept, the cost to society could vary over a broad range depending on the structure of, and character of 

competition in, the production of goods and services in the individual markets affected by the 316(b) Phase III 

regulation. 

f At the low end of this possible range, if the replacement goods and services can be provided by other 

producers (or even the same producer but at a time before or after the downtime period) at the same 

variable production cost as otherwise would have been incurred by the affected 316(b) Phase III facilities, 

then the cost to society of installation downtime would be zero. Because the cost for alternative 

producers is the same as for the producers incurring downtime, society incurs no incremental resource 

cost when other producers provide the replacement goods and services. In this case, although the affected 

316(b) Phase III facilities might incur a financial impact from installation downtime, this impact – the 

loss in pre-tax income described in the preceding section – becomes a transfer from the producers 

incurring installation downtime losses to the producers who make up the lost production. 

f At the high end of this possible range, the cost to society would be approximately equal to the pre-tax 

income loss incurred by facilities due to installation downtime. That is, the cost to society would again be 

the lost revenue from installation downtime less the variable cost of producing the goods and services not 

produced due to the installation downtime. In this case, the variable production cost for other producers 

to replace the lost goods and services is assumed to be essentially the same as the price received for the 

sale of the goods and services not produced by the facilities incurring the installation downtime. This 

assumption is consistent with a competitive market model of increasing marginal production cost, such 

that the variable production cost of the marginal supplier of goods and services produced and sold in any 

period is approximately equal to the price received for those goods and services in the market. 

The likely reality is that the cost to society from installation downtime lies somewhere between these cases. 

Because EPA lacked specific knowledge of the overall production cost structure of the affected industries and for 

the numerous goods and services provided by the affected industries, EPA adopted the latter of the two analytic 

cases outlined above for its analysis. That is, EPA assumed that the cost to society from installation downtime 

would be the same as that estimated as the pre-tax cost of installation downtime for Manufacturers’ facilities. 

Thus the cost to society of installation would be lower to the extent that the variable production cost for 

replacement goods and services is less than the selling price of those goods and services. 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A3: Cost Pass-Through Analysis 

Appendix C3A3: Cost Pass-Through 
 

Analysis 
 

INTRODUCTION 

This appendix presents the assessment of cost pass-through 

(CPT) potential for six Primary Manufacturing Industry 

sectors in which a substantial number of facilities are 

expected to be subject to the Section 316(b) Phase III 

regulatory analysis options. This analysis considered the 

following six industry sectors: 

f SIC 20: Food and kindred products 

f SIC 26: Paper and allied products 

f SIC 28: Chemicals and allied products 

f SIC 29: Petroleum Refining 

f SIC 331: Steel 

f SIC 333/5: Aluminum 

A CONTENTS 


 


 


 

PPENDIX 

Introduction........................................................C3A3-1

C3A3-1The Choice of Firm-Specific versus SectorSpecific CPT Coefficients.....................C3A3-1 

C3A3-2Market Structure Analysis.....................C3A3-3 

C3A3-2.1 Industry Concentration .................C3A3-4 

C3A3-2.2 Import Competition ......................C3A3-6 

C3A3-2.3 Export Competition ......................C3A3-7 

C3A3-2.4 Long-Term Industry Growth ........C3A3-8 

C3A3-2.5 Conclusions ..................................C3A3-9

References........................................................C3A3-11

The purpose of the CPT analysis is to estimate the extent to which cost increases incurred by facilities in 

complying with the Section 316(b) Phase III regulatory options can be reasonably expected to be passed on to 

consumers in the form of higher prices. 

This appendix begins with a review of approaches for assessing CPT potential associated with market-wide cost 

increase scenarios. Next, a description of the methodology and specific metrics used to assess CPT potential are 

discussed and the results for each sector provided. Finally, conclusions are presented. 

From this analysis, EPA concluded that an assumption of zero cost pass-through is appropriate for analyzing the 

impact of the regulatory analysis options on facilities in the manufacturing industries. Performance of the 

financial impact analysis under this assumption means that facilities must absorb all compliance-related costs and 

operating effects (e.g., income loss from facility shutdown during equipment installation) within their baseline 

cash flow and financial condition. To the extent that facilities would be able to pass on some of the compliance 

costs to customers through price increases, the analysis overstates the potential impact on complying facilities. 

C3A3-1 THE CHOICE OF FIRM-SPECIFIC VERSUS SECTOR-SPECIFIC CPT COEFFICIENTS 

One method of examining the ability of a firm to pass-through compliance-related cost increases associated with 

the Phase III regulation is to review the firm’s historical performance in passing on previous cost increases to 

consumers. For example, Ashenfelter et al. (1998) estimate the cost pass-through rate facing an individual firm, 

and distinguish that rate from the rate at which a firm passes through cost changes common to all firms in an 

industry, by regressing the price a firm charges on both its costs and the costs of another firm in the industry. The 

estimated firm-specific CPT rate relates a change in the prices charged by a specific firm to a change in its 

production costs, assuming no changes in the production cost for rival producers of that product. However, 

estimating firm specific CPT rates is extremely complex. For example, in order to estimate firm-specific CPT 

rates for every Phase III manufacturing firm included in the sample of Detailed Industry Questionnaire (DQ) 

respondents, EPA would require, for each firm, detailed information on the products sold, the markets in which 

these products are sold, as well as information identifying major competitors in each market. The Detailed 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A3: Cost Pass-Through Analysis 

Industry Questionnaire did not obtain this information from surveyed facilities. And even if such information 

were available, the analysis would remain highly challenging and subject to significant analytic error. As such, it 

is neither possible nor practical to develop firm-specific CPT coefficients for the sample of Phase III 

manufacturers. 

Moreover, even if the Agency possessed the data necessary to estimate firm-specific CPT rates, it is questionable 

whether these rates would be the appropriate measure of CPT potential for compliance-related cost increases 

stemming from the Phase III regulation. The Phase III regulation would force multiple firms in each of the 

industry sectors considered in this analysis to incur compliance-related cost increases, which implies that for most 

firms the cost increases would not only apply to them, but also to several of their competitors. Not surprisingly, 

previous studies have found that the CPT rate for changes to an individual firm’s cost differs from the rate at 

which a firm would pass through cost changes that are common to all, or a substantial fraction of, firms in an 

industry (Ashenfelter et al., 1998). It can be reasonably expected that the higher the share of firms incurring the 

cost increase, or more appropriately the higher the share of total output produced by such firms, the greater the 

ability of those firms to pass on a greater portion of those costs to the consumer. 

In cases where an industry-wide cost shock occurs, an industry-wide CPT rate would be an appropriate and 

practical way of assessing the potential of all firms in that industry to pass through that cost increase to consumers 

(EPA, 2003). An industry-wide CPT rate provides an estimate of the change in each facility’s output prices as a 

function of the increase in its production costs, assuming that the same cost increase is experienced by all firms in 

the industry. Such an industry-wide rate is relatively easier to estimate than firm-specific cost pass-through rates 

if one assumes that perfect competition exists in the industry. Among other things, perfect competition implies 

the existence of product homogeneity within the industry, homogeneity of production technology among firms in 

the industry, and homogeneity of production costs among firms (i.e., pricing is at marginal cost). Under these 

conditions, the price response to a general industry-wide change in production costs is likely to be industry-wide 

and similar across all firms. For example, in support of the recently promulgated Metal Products &Machinery 

(MP&M) industry effluent guidelines, EPA’s Office of Water (OW) estimated industry-specific CPT rates since a 

large fraction of establishments in these industries were expected to be subject to the regulation. EPA estimated 

these CPT rates by regressing annual output price indices on annual input cost indices for the MP&M industry. 

The estimated CPT coefficients were validated by a market structure analysis that assessed, for each industry, the 

potential market power enjoyed by firms in the industry and the consequent implications it had on their ability to 

pass through compliance-related costs. 

Industry-wide CPT rates can be estimated for the Phase III manufacturing sectors based on the methodology used 

for deriving industry-wide CPT rates for industries covered by the MP&M regulation. However, because the 

regulatory analysis options will affect only those facilities that operate a CWIS to withdraw cooling water from 

surface water bodies, only a subset of facilities in each industry sector would incur compliance-related cost 

increases. As the cost increase associated with the regulatory analysis options is not industry-wide, it is 

questionable whether industry-wide CPT rates are appropriate for estimating the price response of firms in the 

five industry sectors considered in the analysis of Phase III impacts. If a substantial portion of production in each 

industry occurs at facilities not subject to the regulation under each analysis option, then the use of industry-wide 

CPT rates may grossly overestimate the ability of firms in these industries to pass-through compliance-related 

costs to consumers. 

To assess the reasonableness of using industry-wide CPT rates in the analysis of impacts to Phase III 

manufacturers, EPA estimated the percentage of total production in each of the six Primary Manufacturing 

Industries sectors that occurs at facilities that are estimated to be subject to the regulatory analysis options. Value 

of shipments, a measure of the dollar value of production, was selected for the basis of this estimate. Because 

value of shipments data were not collected using the DQ, these data were not available for the sample of Phase III 

manufacturing facilities potentially subject to the regulatory analysis options. As such, total revenue, as reported 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A3: Cost Pass-Through Analysis 

on the DQ, was used as a close approximation to value of shipments for these facilities. EPA estimated the total 

revenue subject to the regulatory options by multiplying the revenue of facilities (in $2004) in the sample of 

Phase III manufacturers that were determined to be potentially subject to each option by their facility sample 

weights and summing across all facilities. Total value of shipment estimates for each industry were obtained 

from the 2004 Annual Survey of Manufacturers. Table C3A3-1 summarizes the findings of this analysis. 

Total Value of 

SIC 

Regulation (Millions 2004$) 50 MGD 200 MGD 100 MGD (Millions 2004$) All All CWB 

20 4,973 

26 19,070 

28 30,215 

29 25,388 

331 31,895 

333/35 Aluminum 5,256 

584,908 1% 0% 1% 

81,988 23% 1% 5% 

357,682 8% 4% 6% 

288,084 9% 3% 5% 

92,821 34% 26% 29% 

18,338 29% 3% 3% 

)

Table C3A3-1: Proportion of Value of Shipments Potentially Subject to Compliance-Related Costs 

Associated with the Phase III Regulation ($2004) 

Revenue for Proportion of Total Value of 

Facilities Subject to Shipments Subject to Regulation 

Industry Sector Phase III Shipments 

Food and kindred product 

Paper and allied products 

Chemicals and allied products 

Petroleum Refining 

Steel 

Notes: For the purpose of this analysis, facility revenue was used as an appropriate surrogate in the absence of value of shipments for 

sample facilities. 

Source: Section 316(b Detailed Industry Questionnaire and 2004 Annual Survey of Manufacturers. 

As shown in Table C3A3-1, the proportion of total value of shipments estimated subject to the regulation under 

the regulatory analysis options ranges from 1 percent to 34 percent depending on the industry and option 

considered. Given that less than 35 percent of the total value of shipments in each of the six industries considered 

in this analysis would be subject to regulation induced compliance costs, EPA believes that the theoretical 

threshold for justifying the use of industry-wide CPT rates in the Phase III impact analysis has not been met. The 

Agency believes that using industry-wide CPT rates in the analysis of Phase III impacts would overestimate the 

cost pass-through ability of firms incurring regulation-induced compliance costs, and thus underestimate impacts. 

At the other end of the spectrum, however, an assumption of zero CPT would provide a conservative estimate, as 

it would assume that all facilities incur one hundred percent of cost impacts. 

Given the inability to estimate firm-specific CPT rates and the finding that the use of industry-wide CPT rates 

would not be appropriate, EPA next conducted a market structure analysis to investigate the extent to which firms 

in the six industry sectors enjoy sufficient market power to pass compliance-related costs on to consumers in the 

form of higher prices. 

C3A3-2 MARKET STRUCTURE ANALYSIS 

Information on the competitive structure and market characteristics of an industry provide insight into the likely 

ranges of supply and demand elasticities and the sensitivity of output prices to input costs. For example, when 

input costs increase, the profit-maximizing firm attempts to maintain its profits by increasing output prices, to the 

extent permitted by market power. The amount of the cost increase that the firm can pass on as higher prices 

depends on the relative market power of the firm and its customers. The market structure analysis described in 

this section attempts to measure the market power enjoyed by firms in each of the six industries. This analysis is 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A3: Cost Pass-Through Analysis 

combined with information from industry review documents such as McGraw Hill’s U.S. Industry and Trade 

Outlook to reach conclusions regarding the CPT ability of firms in each industry. 

The market structure analysis consists of a review of economic data for the following four indicators of market 

power: industry concentration; import competition; export competition; and long term growth. Each of these 

indicators is discussed in detail below. EPA notes that the impact of each of these four indicators of market 

power varies from industry to industry. Furthermore, the results presented for each indicator must be interpreted 

with caution because even though for a particular industry an indicator may predict high cost pass-through 

potential, the specific features of the industry may result in the indicator having diminished significance in 

predicting market power. 

C3A3-2.1 Industry Concentration 

The extent of concentration among a group of market participants is an important determinant of that group's 

market power. A group of many small firms typically has less market power than a group of a few large firms, 

because the latter are in a more advantageous position to collude with each other. All else being equal, highlyconcentrated industries are therefore expected to pass-through a higher proportion of the compliance costs that 

would result from the Phase III regulation. 

This analysis uses the Herfindahl-Hirschman Index (HHI) as a measure of market concentration1

. The HHI is 

calculated by squaring the market share of each firm competing in the market and then summing the resulting 

numbers. For example, for a market consisting of four firms with shares of thirty, thirty, twenty and twenty 

percent, the HHI is 2600 (302

 + 302 + 202 + 202 = 2600). The HHI takes into account the relative size and 

distribution of the firms in a market and approaches zero when a market consists of a large number of firms of 

relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity 

in size between those firms increases. Based on the U.S. Department of Justice’s guidelines for evaluating 

mergers, markets in which the HHI is under 1000 are considered unconcentrated, markets in which the HHI is 

between 1000 and 1800 are considered to be moderately concentrated, and those in which the HHI is in excess of 

1800 are considered to be concentrated. 

The accuracy of any analysis of market power originating from industry concentration depends to a large extent 

on properly defining the relevant market. A well-defined market requires the inclusion of all competitors and the 

exclusion of all non-competitors. Defining the relevant market too narrowly overstates market power, while 

defining the market too broadly would underestimate it. The four-digit SIC category, while not a perfect 

delineation, is most often used by industrial organization economists in their studies because, among publicly 

available data sources, these industries appear to correspond most closely to economic markets (Waldman & 

Jensen, 1997). Therefore, in Table C3A3-2 below, industry concentration data is presented for each of the fourdigit SIC codes that include at least one potentially regulated Phase III facility for which DQ data are available. 

The Herfindahl-Hirschman Index was chosen because it provides a more complete picture of industry concentration 

compared to other measures such as the four-firm and eight-firm concentration ratios. The HHI uses the market shares of all 

the firms in the industry, and these market shares are squared in the calculation to place more weight on the larger firms. In 

contrast, the four- and eight-firm concentration ratios do not use the market share of all firms in the industry, and nor do they 

provide information about the distribution of firm size. For example, if there were a significant change in the market shares 

among the firms included in the ratio, the value of the concentration ratio would not change. 

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1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A3: Cost Pass-Through Analysis 

SIC a HHIb 

Table C3A3-2: Herfindahl-Hirschman Index for Four-Digit SIC 

NAICS NAICS Description Industry 

Unconcentrated Markets (HHI < 1,000) 

20-- (excluding 311 Food Manufacturing Food and Kindred Products 91 

beverage 

manufacturing) 

3317 331210 Iron and Steel Pipes and Tubes Mfg From Purchased Steel 200 

Steel 

3315 331222 Steel Wire Drawing Steel 223 

2869 325199 All Other Basic Organic Chemical Mfg Chemicals and Allied Products 256 

2821 325211 Plastics Material and Resin Mfg Chemicals and Allied Products 304 

2819 325188 All Other Basic Inorganic Chemical Mfg Chemicals and Allied Products 394 

2911 324110 Petroleum Refineries Petroleum Refining 422 

3312 331111 Iron and Steel Mills Steel 445 

2621 32212 Paper (except newsprint) Mills and Newsprint Mills Paper and Allied Products 467 

2631 322130 Paperboard Mills Paper and Allied Products 485 

2082, 2084, 3121 Beverage Manufacturing Food and Kindred Products 532 

2085, 2086, 

2097 

3316 331221 Cold-Rolled Steel Shape Mfg Steel 631 

2611 322110 Pulp Mills 1106 

Moderately Concentrated Markets (1,000 < HHI < 1,800) 

Paper and Allied Products 

2813 325120 Industrial Gas Mfg Chemicals and Allied Products 1225 

3334 331312 Primary Aluminum Production Aluminum 1231 

3353 331315 Aluminum Sheet, Plate and Foil Mfg Aluminum 1447 

2865 325192 Cyclic Crude and Intermediate Mfg Chemicals and Allied Products 1701 

Concentrated Markets (1,800 < HHI) 

2816 325131 Inorganic Dye and Pigment Mfg Chemicals and Allied Products 1843 

2812 325181 Alkalies and Chlorine Mfg Chemicals and Allied Products 2870 

a

 NAICS code represents largest percentage of facilities and value of shipments within this SIC based on 1997 Bridge Between SIC 

and NAICS 

b

The 1997 Census of Manufacturers is the most recent concentration ratio data available. 

Source: Census of Manufacturers 1997. 

As shown in Table C3A3-2, based on their HHI, 12 four-digit SIC markets can be classified as unconcentrated, 5 

can be classified as moderately concentrated, and only 2 can be classified as concentrated. Notably, all 23 of the 

four-digit SIC categories listed as being concentrated belong to the Chemicals and Allied Products industry. 

From a market power perspective, Table C3A3-2 seems to suggest that at the four-digit SIC level only two SIC 

categories are sufficiently concentrated to argue that firms may possess sufficient market power to pass-through a 

portion of their compliance-related costs assuming that competitor firms in the same industry do not incur similar 

cost increases. 

To further examine the level of concentration in each of the six industry sectors, EPA decided to analyze HHI at 

the industry level as well. The Industry-level HHI for each sector was calculated as the average of each four-digit 

SIC HHI belonging to that sector, weighted by the value of shipments for that SIC. EPA notes that aggregating 

HHI for four-digit SIC categories into industry HHI are likely to yield estimates that in general understate market 

power. Nonetheless, estimated industry HHI should still provide meaningful insight into market power of firms 

in the industry because firms in each industry still produce similar or related products (for example, paper 

products, chemicals, etc.). Estimated Industry HHIs are presented below in Table C3A3-3. 

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SIC Industry HHI 

20 Food and Kindred Products 147

29 Petroleum Refining 422 

331 Steel 422 

28 Chemicals and Allied Products 496 

26 Paper and Allied Products 501 

333/5 Aluminum 1380 

Table C3A3-3: Herfindahl-Hirschman Index by Industry 

Source: Census of Manufacturers 1997, and U.S. EPA analysis 

Table C3A3-3 reveals that, at the industry level, the estimated HHI for five of the six industries are quite small, 

implying that they are unconcentrated markets and within these industries individual firms do not enjoy much 

market power. Notably, the Chemicals and Allied Products industry has a low HHI, which suggests that the 4 

four-digit SIC categories that were classified as having concentrated markets in reality make up a very small 

segment of the Chemicals and Allied Products industry. Thus, from the perspective of the Phase III regulatory 

analysis, the majority of firms in this industry have small market power. In addition, EPA notes that only 8 

percent of production in this is industry would potentially be subject to compliance-related cost increases, which 

suggests that the cost pass-through potential of firms from this sector incurring such expenses would be severely 

curtailed. 

An important finding in Table C3A3-3 is that the Aluminum industry, which is categorized at the three-digit SIC 

level, appears to be moderately concentrated. Thus, based solely on an analysis of industry concentration, it 

would appear that firms in the Aluminum industry might enjoy moderate amounts of market power, which may 

enable them to pass through costs at a more than negligible rate. However, as cautioned at the beginning of the 

market structure analysis, an accurate judgment of the market power enjoyed by firms in an industry must be 

reserved until all indicators have been analyzed. 

C3A3-2.2 Import Competition 

Theory suggests that imports as a percent of domestic sales are negatively associated with market power because 

competition from foreign firms limits domestic firms’ ability to exercise such power. Firms belonging to sectors 

in which imports make up a relatively large proportion of domestic sales would therefore be at a relative 

disadvantage in their ability to pass-through costs compared to firms belonging to sectors with lower levels of 

import penetration, the measure of import competition used in this analysis. Import penetration, the ratio of 

imports in a sector to the total value of domestic consumption in that sector, is particularly relevant because 

foreign producers would not incur costs as a result of the Phase III regulation. 

In this market structure analysis, EPA assumes that higher import penetration will generally imply that firms are 

exposed to greater competition from foreign producers and would thus possess less market power to increase 

prices in response to regulation-induced increases in production costs. EPA estimated import penetration ratios 

for each industry as total imports in an industry divided by total value of domestic consumption in that industry; 

where domestic consumption equals domestic production plus imports minus exports. Import penetration ratios 

estimated using 1998 census data for the six industry sectors considered in this analysis are presented below in 

Table C3A3-4. 

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SIC Implied Domestic 

Table C3A3-4: Import Penetration by Industry ($2004) 

Industry Imports (Millions) Consumption (Millions) 

Import 

Penetration 

20 Food and Kindred Products $31,782 $588,644 5.40% 

26 Paper and Allied Products $14,682 $87,280 16.82% 

28 Chemicals and Allied Products $81,491 $373,962 21.79% 

29 Petroleum Refining $33,357 $313,343 10.65% 

331 Steel $16,371 $103,297 15.85% 

333/5 Aluminum $6,032 $22,026 27.39% 

2. 

Notes: 1. Implied Domestic Consumption = Value of Shipments + Imports - Exports. 

 Most recent available import data comes from 2002 and is denominated in $2004. 

Source: 2002 U.S. Bureau of Census data and 2004 Annual Survey of Manufacturers 

The estimated import penetration ratios for the six industries range from 5 percent to 27 percent for the year 2004. 

The estimated import penetration ratio for the entire U.S. manufacturing sector (SIC 20-39) is 25 percent. 

Considering that the United States is an open economy, EPA believes it is reasonable to assume that in industries 

with import penetration ratios close to or above 25- percent domestic firms most likely face stiff competition from 

foreign firms. Such competition is likely to curtail the market power enjoyed by domestic firms and, given the 

scenario that regulation-induced cost increases are not incurred by foreign producers, would limit the ability of 

domestic firms to pass-through such costs. Thus, based on the import penetration ratios presented in Table 

C3A3-4, firms in all of the industries except Aluminum appear to be in a position to pass-through to consumers a 

significant portion of compliance-related costs associated with the Phase III primary regulatory options. 

However, given the relatively low HHIs for these industries EPA believes that existing market competition among 

domestic firms most likely nullifies any favorable influence the lack of foreign competitors would have on 

increasing the market power of firms in this industry. EPA also highlights the above average import penetration 

ratio for the Aluminum industry which suggest low market power for firms in this industry. With respect to the 

Aluminum industry, this fact may offset – from a market power perspective – the finding that the industry was 

identified above as being moderately concentrated. Thus, even though there are relatively few domestic 

producers in the U.S. Aluminum industry, the notable presence of foreign producers in U.S. markets is likely to 

markedly reduce their the market power. 

C3A3-2.3 Export Competition 

The Phase III regulation would not increase the production costs of foreign producers with whom domestic firms 

must compete in export markets. As a result, firms in industries that rely to a greater extent on export sales would 

have less latitude in increasing prices to recover cost increases resulting from regulation-induced increases in 

production costs. They would therefore have a lower CPT potential, all else being equal. 

This analysis uses export dependence, defined as the percentage of shipments from an industry that is exported, to 

measure the degree to which a sector is exposed to competitive pressures abroad in export sales. Firms in 

industries with relatively high export dependence are expected to have lesser market power than those in 

industries with relatively low export dependence due to their relatively larger reliance on sales in export markets. 

Estimated export dependence ratios for the six industry sectors considered in this analysis are presented below in 

Table C3A3-5. 

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SIC 

Table C3A3-5: Export Dependence by Industry ($2004) 

Industry Exports (Millions) Value of Shipments Export Dependence (Millions) 

20 Food and Kindred Products $28,046 $584,908 4.79% 

26 Paper and Allied Products $9,390 $81,988 11.45% 

28 Chemicals and Allied Products $65,211 $357,682 18.23% 

29 Petroleum Refining $8,098 $288,084 2.81% 

331 Steel $5,895 $92,821 6.35% 

333/5 Aluminum $2,344 $18,338 12.78% 

Notes: 1. Most recent available export data comes from 2002 and is denominated in $2004. 

Source: 2002 U.S. Bureau of Census data and 2004 Annual Survey of Manufacturers. 

The estimated export dependence ratios for the six industries range from 5 percent to 18 percent. The estimated 

export dependence ratio for the entire U.S. manufacturing sector for the same year is 17 percent. Thus, for all but 

one industry (Chemicals), the export dependence ratio is below the average for the U.S. manufacturing sector. 

This finding implies that none of these industries are characterized by strong competitive pressures from foreign 

firms/markets, and thus market power and CPT potential are not diminished by export dependence. However, it 

is questionable whether this effect works as strongly in the opposite direction, i.e., firms in an industry will have a 

comparatively high cost pass-through potential simply because firms in that industry are not active in export 

markets. From the standpoint of firms gaining market power, EPA believes that the finding of low export 

dependence diminishes the importance of export competition as an indicator of market power. Thus, the other 

three indicators must be relied upon to gauge the amount of market power that firms in each industry are expected 

to hold. For example, even though the Petroleum Refining and Steel industries have extremely low export 

dependence, the low market concentration in these industries leads EPA to believe that market power held by 

individual firms is likely to be quite small. In addition, as discussed later in this memo, recent trends in the Steel 

industry provide good reason to believe that firms in this industry are unlikely to be able to pass through a notable 

portion of regulation-induced cost increases given the current business environment they face. 

C3A3-2.4 Long-Term Industry Growth 

An industry’s competitiveness and the ability of firms to engage in price competition are likely to differ between 

declining and growing industries. Most studies have found that recent growth in revenue is positively related to 

profitability (Waldman & Jensen, 1997), which suggests a greater ability to recover costs fully. 

To examine trends in long-term growth for each of the six industry sectors considered in this analysis, EPA 

estimated the average annual growth rate in the value of shipments between 1989 and 2004 for each industry 

using data available from the U.S. Bureau of Census2

. EPA expects firms in sectors with higher growth rates to 

be better positioned to pass through compliance costs rather than being forced to absorb such cost increases in 

order to retain market share and revenue. The results of this analysis are presented in Table C3A3-6. 

The period from 1989 to 1998 represents the most recent ten-year period that includes data consistent with the survey 

period for the Detailed Industry Questionnaire (1996-1998). 

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2 
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Table C3A3-6: Average Annual Growth Rates by Industry 

Average Annual Growth 

SIC Industry Rate in Value of 

Shipments (1989 to 2004) 

20 Food and Kindred Products 1.0%

26 Paper and Allied Products -2.0% 

28 Chemicals and Allied Products 1.0% 

29 Petroleum and Coal Products 3.1% 

331 Steel 0.3% 

333/5 Aluminum -2.6% 

Source: U.S. Bureau of Census data. 

Table C3A3-6 shows that of the six industries specifically considered for this analysis, two industries experienced 

negative growth over the 1989 to 2004 time period and another experienced only marginal growth. The 

Petroleum Refining industry experienced the largest growth, displaying an average annual growth rate of 3.1 

percent. In the absence of strong growth performance during the analysis period for all six industries, it is 

unlikely that firms in any of these industries possess significant market power based on growing demand for their 

products. In effect, the long-term growth performance of all six industries does not support a conclusion that 

firms in these industries would be in a strong position to pass on a significant portion of their compliance costs. 

C3A3-2.5 Conclusions 

Given that less than 35 percent of the total value of shipments in each of the six industries considered in this 

analysis is estimated to be subject to regulation under the regulatory analysis options, and the likelihood that these 

percentages represent upper bound estimates, the likelihood that firms incurring such costs would be able to pass 

through to consumers a material portion of 316(b) compliance costs is small. To validate this hypothesis, EPA 

undertook the market structure analysis presented in the previous section. In general, the weight of evidence from 

the market structure analysis suggests that firms in all six industries are unlikely to possess significant amounts of 

market power, thereby lending support to EPA’s hypothesis that most firms would not be in a position to passthrough a significant portion of compliance costs. 

The analysis of individual indicators under the market structure analysis did reveal a few exceptions to the general 

finding of low market power in all industries. However, considering the combined impact of all four indicators of 

market power together with information on recent economic trends in these industries suggests that on the whole, 

firms in each of the six industries hold relatively low market power and CPT potential. For example, the 

estimated HHI for the Aluminum industry indicated that this sector is moderately concentrated, which would 

potentially allow firms in this industry to pass through a significant portion of their compliance-related costs. In 

contrast, however, the market structure analysis also found that the domestic Aluminum industry witnessed a 

sustained decline in production during the 1990s and also faces stiff competition from foreign producers in its 

U.S. markets. As discussed in the profile of this industry, in the early 1990s the domestic Aluminum industry was 

affected by reduced U.S. demand and the dissolution of the Soviet Union, which resulted in dramatic increases in 

Russian exports of aluminum. The recovery that followed was subsequently affected by the economic crises in 

Asian markets in the second-half of the 1990s, which along with growing Russian exports, again resulted in a 

period of oversupply. Demand for aluminum industry products declined again in 2000 through 2002, reflecting 

weakness in both the U.S. and world economies, and again resulted in oversupply and declining financial 

performance. These trends, which are reflected in the negative average annual growth rate and high import 

penetration for the domestic Aluminum industry, suggest that domestic firms in this industry hold relatively low 

market power and are not in a position to pass through significant portions of their compliance-related cost 

increases. Overall, the balance of the argument in favor of and against high cost pass-through in the Aluminum 

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industry rests with the indicators that argue against it; the lack of domestic competition in the industry is more 

than offset by the existence of stiff competition from foreign producers and the general decline witnessed by the 

domestic industry. Similarly, in the case of all other exceptions found in the market structure analysis, the weight 

of evidence – when all four indicators of market power are considered together – rests with the indicators that 

suggest low market power and CPT potential. 

Based on the findings of the market structure analysis, EPA decided to assume a zero CPT rate for all six 

industries in the analysis of Phase III impacts. EPA believes that this assumption is reasonable given the results 

of the market structure analysis and is definitely superior to using industry-wide CPT rates. In addition, EPA 

notes that by assuming a CPT rate of zero for all industries, the analysis of Phase III impacts is less likely to 

underestimate facility impacts in that the analysis assumes that facilities would incur one hundred percent of 

compliance costs. Thus, whereas an overstated CPT rate may erroneously underestimate impacts for facilities 

incurring compliance-related cost increases, the use of a CPT rate of zero errs on the side of caution, thus 

potentially overstating impacts to affected facilities. 

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REFERENCES 

Ashenfelter, Orley; David Ashmore; Jonathan B. Baker; and Signe-Mary McKernan. (1998), "Identifying the 

Firm-Specific Cost Pass-Through Rate," FTC Working Paper No. 217, January. 

McGraw-Hill (1999), U.S. Industry and Trade Outlook ‘99. McGraw-Hill Companies. 

Waldman, Don E. and Elizabeth J. Jensen (1997), Industrial Organization: Theory and Practice. AddisonWesley. 

U.S. Department of Commerce (U.S. DOC). 1989, 1992, 1997, and 2002. Bureau of the Census. Census of 

Manufactures. 

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, 1998, and 2004. Bureau of the Census. 

Annual Survey of Manufactures. 

U.S. EPA, Office of Water (2003), Effluent Limitations Guidelines and New Source Performance Standards for 

the Metal Products and Machinery Point Source Category. 

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THIS PAGE INTENTIONALLY LEFT BLANK
 

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§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

Appendix C3A4: Adjusting Baseline Facility 
 

Cash Flow 
 

INTRODUCTION 

This appendix documents EPA’s development and analysis 

of adjustment factors for the 316(b) Phase III 

manufacturing industries. This analysis presents an 

updated version of the analysis conducted for the Proposed 

Section 316(b) Rule for Phase III Facilities. The analysis 

incorporates two additional years of data, for 2004 and 

2005, which reflect the time span between the Proposed 

and Final Rules. In addition to these extra years of data, 

EPA also identified and added to the analysis two business 

sectors – Beverages and Food Processing – that were not 

previously included in the Primary Manufacturing 

Industries. Also, the set of firms included in this analysis 

differs from that used for the Proposed Rule due to business 

structural changes at the firm level, such as mergers, 

acquisitions, or bankruptcies, that occurred between the 

Proposed and Final Rule. 

To support its analysis of the potential economic impact of 

the 316(b) Phase III regulation, EPA collected economic/ financial data for the three years 1996-1998 from a 

sample of facilities in the manufacturing industries primarily expected to have been subject to the regulation. 

These facility economic/financial data are used to gauge the potential economic/financial impact of regulatory 

compliance: the facilities and their financial data serve as models for testing the financial effect of regulatory 

alternatives. For this analysis to provide valid insight into the ability of the affected industries to meet regulatory 

requirements without material adverse impact, the sample facility data should reflect business conditions that 

might be reasonably anticipated at the time of compliance. 

CHAPTER CONTENTS 

j

Introduction........................................................C3A4-1 

C3A4-1Background: Review of Overall Business 

Conditions .............................................C3A4-2 

C3A4-2Framing and Executing the Analysis ....C3A4-5 

C3A4-2.1 Identifying the Financial Data Concept to 

Be Analyzed .................................C3A4-5 

C3A4-2.2 Selecting Appropriate Data ..........C3A4-5 

C3A4-2.3 Selecting Industry Groups and Firms for 

Use in the Analysis.......................C3A4-7 

C3A4-2.4 Structuring the Analysis ...............C3A4-9 

C3A4-3Summary of Findings..........................C3A4-11 

C3A4-3.1 Comparison of Findings for Proposed and 

Final Rule Analysis ....................C3A4-17 

C3A4-4Developing an Ad ustment Concept ...C3A4-18 

References........................................................C3A4-21 

In performing its impact analyses using these data, EPA was concerned in two ways that the facility survey data 

might yield erroneous conclusions. 

f First, knowing that U.S. business conditions during the latter half of the 1990s were cyclically strong, 

EPA was concerned that business conditions during the 316(b) survey period (1996-1998) might be 

abnormally favorable for some of the six Primary Manufacturing Industries sectors covered in the Phase 

III analysis. In this case, the business performance and valuation measures, which are based on survey 

data, used to assess the burden of regulatory compliance costs might overstate industry’s ability to bear 

these costs and therefore understate the potential impact of the regulatory analysis options considered for 

the Phase III regulation. 

f Second, apart from the issue of short-term deviation from trend caused by a cyclically strong economy, 

EPA was also aware from its profile analyses that some of the industries might be experiencing a longerterm trend of deteriorating performance. Using sample facility data that don’t reflect such possible trends 

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would again potentially overstate industry’s ability to bear compliance costs and therefore understate the 

potential impact of the regulatory analysis options considered for the Phase III regulation. 

Given these concerns, EPA analyzed for the manufacturing industries (1) whether business conditions were 

“abnormally favorable” during the survey period and (2) whether business performance over a longer term might 

be following a non-neutral – in particular, negative – trend. This analysis validated EPA’s concerns that use of 

unadjusted survey data might yield erroneous conclusions from the facility impact analysis. From the findings of 

this analysis, EPA developed a basis for adjusting survey financial data to account for these effects: short-term 

deviation from trend and non-neutral long-term trend. 

C3A4-1 BACKGROUND: REVIEW OF OVERALL BUSINESS CONDITIONS 

As background for its analysis, EPA reviewed general economic data over the past several years to assess whether 

business conditions during the survey data collection period of 1996-1998 might be generally perceived as 

abnormally favorable for the U.S. economy, as a whole. This review confirmed the concern that business 

conditions in 1996-1998 were generally more favorable than the average of conditions over a longer time period. 

Figure C3A4-1 - Figure C3A4-3 present annual and average values for the period 1985-2005 for three measures 

of general economic performance: 

Figure C3A4-1: Growth in Real Domestic Product, 1985-2005. This exhibit, based on data published by the 

Department of Commerce, Bureau of Economic Analysis, focuses on the growth trend of the broad economy, 

including all sectors. Growth stronger than the average trend would indicate a strongly expanding economy 

and would generally indicate strong business performance. 

Figure C3A4-2: Capacity Utilization in Manufacturing Industries, 1985-2005. This exhibit, based on U.S. 

Federal Reserve Bank data, reports the rate of capital utilization for all manufacturing sectors. All else equal, 

when the rate of capital utilization is higher than the average trend, demand for manufacturing output is strong 

and manufacturing business performance would be generally strong. 

Figure C3A4-3: Growth in Industrial Production, 1985-2005. Like the preceding exhibit, this exhibit is 

based on data published by the U.S. Federal Reserve Bank and reports the rate of growth in the Federal 

Reserve’s Industrial Production Index, which is a measure of the real output of the manufacturing industries. 

Growth stronger than the average trend would indicate a strong expansion in the manufacturing industries and 

would generally indicate strong manufacturing business performance. 

In each case, the annual values in the period 1996-1998 are above the average trend line, indicating stronger 

overall economic performance in the survey data collection period than for the longer period presented in the 

charts. The data show a consistent year-by-year pattern over the 1996-1998 period: 

f 1996: The values for 1996 are above the longer-term average trend but are the lower than the values for 

1997, indicating that manufacturing economy was in an upswing from 1996 to 1997. 

f 1997: The values for 1997 are the highest of the values for the three years. 

f 1998: The values for 1998 are all lower than the values for 1997 and generally appear to be the beginning 

of the downswing in economic performance that occurred in the latter part of the 1990s. In the case of 

industrial production and capacity utilization in manufacturing industries, 1997 is the peak performance 

year over the 1990s decade and is followed by a decline in 1998 and subsequent years leading to the 

recession period in 2001. In the case of GDP growth, the fall-off in 1998 (from 1997) is followed by one 

more year of strong growth in 1999. Afterwards, GDP growth turns sharply lower during 2000, the 

recession year of 2001, and subsequent years. As is widely acknowledged in general business conditions 

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analyses, economic weakness during the 2000-2003 period began earlier in the manufacturing industries 

than in the general economy. 

Figure C3A4-1: Growth in Real Domestic Product, 1985-2005 

198519861987

19881989199019911992

19931994199519961997

19981999200020012002

200320042005 

-1 . 0 % 

0. 0% 

1. 0% 

2. 0% 

3. 0% 

4. 0% 

5. 0% 

Year to Year Growth in GDP, Percent 

Year 

Real GDP A v er age Gr ow t h , GDP 

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8 

8

19 5

19 6

1987198819891990

199119921993199419951996199719981999

2000200120022003

2004

2005 

i i 

1985

1986

91

1992

1993

1994

i a l

Figure C3A4-2: Capacity Utilization in Manufacturing Industries, 1985-2005 

84. 00 

82. 00 

78. 00 

80. 00 

Capacity Utilization, Percent 76. 00 

74. 00 

72. 00 

70. 00 

Year 

Capac t y Ut iliz a t io n A v er age Capac t y Ut iliz a t io n 

Figure C3A4-3: Growth in Industrial Production, 1985-2005 

8. 0% 

6. 0% 

2. 0% 

4. 0% 

Year to Year Growth in Industrial Production 

0. 0% 

-2 . 0 % 

198719881989199019

199519961997

1998

1999200020012002200320042005 

-4 . 0 % 

Year 

Pr oduc ti on A v er age G r ow t h , Indus tr Pr oduc ti on 

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C3A4-2 FRAMING AND EXECUTING THE ANALYSIS 

The objective of this analysis was to understand (1) the extent to which the business conditions and financial 

performance of the Phase III manufacturing industries reflected cyclically favorable conditions during the 316(b) 

survey period and (2) whether these industries show a non-neutral longer term trend in economic/financial 

performance – e.g., deterioration in performance over time independent of cyclical variation. If either or both of 

these conditions were found, then the data used to test for these conditions would be used to adjust relevant 

survey data items to a level consistent with normal business conditions and/or the longer term of performance. 

To meet these objectives, EPA set, as its overall approach, identification and analysis of a financial performance 

data series for the 316(b) manufacturing industries. This data series would be used to test whether financial 

performance at the time of the 316(b) survey differed from the longer term trend. At the outset, EPA recognized 

that, in all likelihood, such a data series would not report financial performance at the level of the individual 

facility – which is the unit of analysis for the 316(b) facility impact analysis (see Chapter C3: Economic Impact 

Analysis for Manufacturers) – but would report performance for individual firms or for some industry aggregate. 

As a result, EPA would need to infer the trend of performance in facility financial performance from firm- or 

industry-level performance and, in turn, apply adjustments, if needed, to facility financial data based on analysis 

of the firm- or industry-level performance. Although the use of firm- or industry-level information for adjusting 

facility data necessarily represents a limitation in this analysis, EPA judges that the effort is warranted given: (1) 

the potential for the facility impact analysis to yield erroneous findings if it is based on data that reflect cyclically 

favorable conditions and (2) the absence of facility data to support a more precise analysis. 

Key steps in framing and executing the analysis are described below. 

C3A4-2.1 Identifying the Financial Data Concept to Be Analyzed 

EPA determined that the financial data concept to be analyzed should be equivalent, or close in concept, to the 

business performance and valuation metrics used in the Phase III impact analysis. For the facility impact analysis, 

the key financial metric is after-tax, pre-interest cash flow, calculated as income before interest, depreciation and 

amortization, and adjusted to be on an after-tax basis. In the facility impact analysis, this metric is used to 

calculate the business value of a sample facility, on both a baseline – i.e., before imposition of compliance costs – 

and post-compliance basis. Using this, or a closely related, measure in the analysis of financial performance at 

the time of the facility survey would therefore support a direct test of whether and how the survey financial data – 

to be subsequently used in the facility impact analysis – might reflect cyclically favorable conditions or differ 

from the longer term trend of financial performance in an analysis. If either or both of these conditions were 

found, the data would also readily support development of a necessary adjustment to offset these potential biases 

in the survey data. 

EPA recognized that the after-tax, pre-interest cash flow measure used in the facility impact analysis would very 

likely not be directly available from financial datasets that might be practically used in this analysis. However, 

reasonable surrogates for this measure that would likely be available include: after-tax cash flow from operations 

(net income plus depreciation and amortization); earnings before interest, taxes, depreciation and amortization 

(EBITDA); net income; and earnings before interest and taxes (EBIT). 

C3A4-2.2 Selecting Appropriate Data 

Other key requirements of the data to be used in the analysis include: 

f The financial data need to be a time series, preferably annual, over a sufficiently long period (and 

including the survey period) to allow testing of (1) whether survey period business conditions were 

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cyclically favorable; and (2) whether financial performance in the industries exhibits a longer-term, nonneutral trend. 

f The data need to be at a sufficient level of industry resolution to account for variations in business 

conditions and performance not only across the six manufacturing sectors but also within certain sectors, 

where there may be substantial variation in performance by important segments. Of particular importance 

is the ability to segment the chemicals sector into its segments such as basic chemicals, plastic materials 

and resins, and pharmaceuticals. 

Based on these requirements, EPA selected the Value Line Investment Survey firm financial dataset as the data 

source for this analysis. The Value Line dataset meets analysis requirements as follows: 

f The general company dataset of the Value Line Investment Survey (VL) reports summary financial 

information for nearly all publicly traded companies in the United States for a 14-year period, 1992-2005, 

which includes the 1996-1998 Phase III survey period.1

 The individual years in this 14-year period may 

be categorized in three broad categories of economic performance: (1) eight years of “normal” economic 

performance - 1992-1996, 2000, and 2004-2005; (2) three years of “subnormal” economic performance - 

2001-2003; and (3) three years of years of “supra-normal” economic performance - 1997-1999. The 14-

year period thus captures reasonable diversity of business conditions before, after, and during the survey 

period. By including financial results for full-year 2005, the dataset also comes as close as possible to the 

present (2006) and thus would provide a basis for adjusting facility baseline financial data to essentially 

current conditions. 

f VL identifies and groups companies in a business content classification scheme that approximates 3-digit 

SIC or 4-digit NAICS classifications. These business classifications support identification of firms within 

the Phase III manufacturing industries at a level of sector detail sufficient for this analysis. Because (1) 

the dataset is by company instead of by aggregate groups and (2) the business classifications are defined 

by practical business content instead of in a rigid SIC or NAICS classification scheme, the VL dataset 

avoids the challenge confronted elsewhere in the Phase III analysis of the change in economic 

classification schemes and resulting inconsistency of aggregated data series over the year of the change.2 

f The VL dataset reports key accounting items that will readily support calculation of a financial metric, 

after-tax cash flow, that very nearly matches the principal financial metric (after-tax, pre-interest cash 

flow) underlying the Phase III facility impact analysis. 

EPA recognizes that the VL dataset, by definition, excludes firms that are not publicly traded. The studied 

industries include private, non-publicly traded firms, for which no comparable database of financial information is 

available. As a result, use of the VL dataset in this analysis could yield findings that are not representative of the 

overall industry, including the non-publicly traded firms, to the extent that non-public firms in the studied 

industries faced materially different business conditions or achieved materially different business performance 

than publicly traded firms in the same industries. Overall, EPA expects that the business conditions faced by, and 

performance achieved by, non-public firms in the studied industries are not likely to have been materially 

different from those of the public firms. As a result, EPA judges that use of the VL dataset for this analysis is 

appropriate and likely to yield reasonably representative findings for to overall industries, including publicly 

traded and non-traded firms. 

1

 At any time, VL reports only 10 years of data for firms in its data serves. The dataset used for this analysis reflects two 

separate VL datasets that were combined to provide data for the 14 years of analysis. 

2

 As described in the industry profiles, the change from SIC-based to NAICS-based reporting of economic data by federal 

government and other data sources at around 1997/98 created difficulties in aligning and ensuring consistency of time series 

data that are organized within these frameworks. 

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In addition to the VL dataset, EPA considered a range of other data sources, including: 

f Economic and business performance data published by the Federal Reserve, in particular the Federal 

Reserve Economic Data (FRED II) data series compiled by the Federal Reserve Bank of St. Louis. 

f The Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations (QFR) published by 

the U.S. Census Bureau. 

f Data series from the Bureau of Economic Analysis and data specifically available in The Survey of 

Current Business. 

These data sources were each deficient for the analysis in some material way, including: 

f Data being too aggregate to provide the industry sector and sub-sector level of resolution needed to assess 

business conditions and trends within the Phase III manufacturing sectors. 

f Data items being descriptive of general economic/financial conditions in an industry but not being 

sufficiently close to the financial performance concept needed for the analysis. 

f Data being reported in inconsistent economic classification frameworks over the desired analysis period. 

In addition to the problem of the SIC/NAICS break itself, data are sometimes reported at different levels 

of resolution before and after the SIC/NAICS break – e.g., at a 4-digit or finer level in the NAICS 

framework but only 2-digit level of resolution in the SIC framework. 

f Data not being readily available in an electronic format needed for efficient performance of the analysis. 

C3A4-2.3 Selecting Industry Groups and Firms for Use in the Analysis 

As discussed above, VL organizes firms by industry groups, which, in most instances, approximate 3-digit SIC or 

4-digit NAICS classifications. From review of the VL industry groups and the 316(b) Phase III manufacturing 

industries, EPA selected 12 VL industry groups and the firms within these industry groups as candidates for this 

analysis. Following review of the firms within these industry groups, EPA retained 87 firms for use in this 

analysis. Key considerations in selecting the firms are as follows: 

f The selected VL industry groups are those that most closely correspond to the 316(b) Phase III 
 

manufacturing industries. 
 

f Within the industry groups, only those firms whose business operations reasonably match the profile of 

business activities of the 316(b) Phase III manufacturing industries were considered candidates for the 

analysis. In some industry groups, a substantial number of firms included in the VL industry groups were 

excluded from the analysis: 

 VL includes Aluminum industry firms in its Metals and Mining industry group. However, most firms 

in this VL industry group are not involved in the Aluminum industry and thus were excluded from the 

analysis dataset. 

 In the Paper and Forest Products group, EPA retained only those firms engaged in pulp mill, paper 

mill and/or paper and paperboard manufacturing operations. Firms engaged only in timber and 

lumber production were excluded from the analysis. 

f EPA retained only those firms that are based in the United States or Canada, and for which financial 

information is available in U.S. dollars. 

f After defining an initial set of firms according to these procedures and criteria, EPA retained only those 

firms for which a full 14 years of data were available. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A4-7 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

f Finally, EPA excluded firms that had undergone a significant restructuring – e.g., a merger or 

acquisition – which materially disrupted the continuity of financial reporting. Since the analysis to be 

performed would start from a time series of cash flow, measured in absolute dollars – as opposed, for 

example, to a time series of profit percentage values – including data from firms whose continuity of 

financial reporting had been affected by merger or acquisition activity would tend to bias the analysis. In 

particular, firms engaging in mergers and acquisitions that were accounted for on a purchase-accounting 

basis instead of a pooling-of-interests basis, would be likely to show sudden jumps in revenue, net 

income, and cash flow. These sudden jumps would bias the analysis by suggesting greater business 

growth than could be reasonably be achieved by the firm or facilities within the firm on a simple, organic 

growth basis. Similarly, large contractions in business volume resulting from divestiture or termination 

of a line of business would bias the analysis in the downward direction. To apply this restriction, EPA 

examined the year-to-year revenue profiles for all firms over the 14-year analysis period. EPA researched 

annual reports and other financial reporting for those firms showing large increases or decreases from 

year to year and excluded those firms where a material business event was found that would otherwise 

disrupt the continuity of financial reporting. EPA followed this rule with only two exceptions. First, EPA 

kept firms in the analysis when the only business event/disruption of financial reporting occurred in the 

last year of financial reporting – 2005. EPA kept these firms in the analysis but excluded the final year of 

data from the analysis. Second, in its research on one firm in the paper industry, EPA found that the firm 

had recorded an unusual, non-recurring stock gain transaction in 1995 that caused revenue and net 

income to increase abnormally in that year. Although the VL net income item used in the analysis 

generally excluded income from unusual, non-recurring events, the VL data series did not exclude income 

from this transaction. Because EPA had already set aside a substantial number of firms from the paper 

industry, EPA decided to keep this firm in the analysis but exclude the single year of unusual financial 

performance from the analysis dataset.3 Applying this restriction substantially reduced the number of 

firms that were included in the analysis dataset. In particular, for the Aluminum industry, all of the firms 

in the initial VL dataset were found to have some significant discontinuity of financial reporting.4 

EPA organized the 87 firms selected for the analysis into eight 316(b) Industry Groups. Table C3A4-1, below, 

lists the VL industry groups, the 316(b) Phase III manufacturing industries and/or industry segments (as discussed 

in the industry profiles) to which the VL industry groups approximately correspond, the 316(b) Industry Groups 

for this analysis, and the number of VL firms used in the analysis for each industry group. 

3

 EPA considered removing the non-recurring item from the income statement but, because of uncertainty about the 

correct tax adjustment, rejected this approach. 

4

 Because no Aluminum industry firms could be retained in the analysis, EPA was unable to develop an after-tax cash 

flow adjustment factor for facilities in this industry. EPA considered adjusting the pre-event financial statements for the 

Aluminum industry firms – in effect, converting the purchase-accounting treatment of transactions to a pooling basis – but 

rejected this approach as requiring too many judgments. However, EPA assessed the potential effect of applying a cash flow 

adjustment factor to facilities in this industry by testing hypothetical factor values that substantially exceeded the adjustments 

– both for decrease and increase – estimated and applied for the facilities in other industries. This analysis found that the 

facility impact analysis results for the Aluminum industry did not change over this wide range of hypothesized cash flow 

adjustment factors. 

C3A4-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

Table C3A4-1: Value Line Industry Groups Selected for Analysis 

316(b) Phase III 316(b) Phase III Value Line Industry 316(b) Industry Number of Firms Manufacturing Industry Group for Group Segment(s) (as relevant) Used in Analysis Industry Analysis 

Metals and Mining Aluminum Aluminum None 

Products 6 

Chemical (basic) 

Chemical (specialty) 

Drug 

Inorganic Chemicals 

Inorganic Chemicals 

Industrial Chemicals 

Resins 

15 

15 

4 

6 

) 

14 

Food 

7 

Food Processing Food Processing Food Processing 20 

Source: 

Paper and Forest Pulp and Paper Mills Pulp and Paper Mills 

Chemical (diversified) 

Biotechnology 

Chemicals Industry 

Chemicals Industry 

Chemicals Industry 

 Chemicals Industry 

Chemicals Industry 

Organic Chemicals 

Organic Chemicals 

Plastics Material and Resins 

Pharmaceuticals 

Pharmaceuticals 

Plastics Material and 

Pharmaceuticals 

Petroleum (integrated) Petroleum Refining Petroleum Refining 

Steel (General) 

Steel (Integrated

Steel 

Steel 

Steel 

Beverages Beverages Beverages 

Value Line Investment Survey, 2005 and U.S. EPA analysis, 2006. 

C3A4-2.4 Structuring the Analysis 

The general objectives of this analysis were to: 

f Test, by 316(b) Industry Group, whether after-tax cash flow performance deviated, during the 316(b) 

survey data collection years, from normal performance over the 14-year analysis period. 

f Test, by 316(b) Industry Group, whether after-tax cash flow performance might be following a nonneutral trend over the 14-year analysis period. 

f Given a finding that either or both of these conditions are true, to develop an adjustment to baseline aftertax cash flow to account for these effects, and, to yield after-tax cash flow values for the facility impact 

analysis that more closely reflect current financial performance in the 316(b) Phase III industries. 

The overall approach to the analysis was to analyze, for each industry group, the trend of financial performance 

over the 14-year analysis period and to assess where the industry’s financial performance lay relative to that trend 

during the 316(b) survey data collection years of 1996-1998. For each industry group, EPA used as analysis 

observations an index of constant dollar-adjusted after-tax cash flow for each of the firms in the industry group. 

To analyze the trend, EPA calculated a simple regression of the index values against time. The estimated 

regression relationship provided a direct measure of the real (i.e., inflation-adjusted) trend of financial 

performance for each industry group. The 1996-1998 average of index values for each industry group were then 

compared with the trend values predicted from the estimated regression coefficients – both for the 1996-1998 

years and for the end of the analysis period – to determine the extent to which 1996-1998 survey values should be 

adjusted to reflect (1) the deviation from trend at 1996-1998 and (2) the trend from 1996-1998 to the end of the 

analysis period. 

Specific steps in this analysis were as follows: 

f Calculate After-Tax Cash Flow (ATCF) as Net Profit plus Depreciation for each firm by year. As 

discussed above, EPA sought to analyze ATCF as a close approximation of the key financial metric – 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A4-9 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

after-tax, pre-interest cash flow – used in the facility impact analysis. EPA calculated ATCF on a yearby-year basis for each firm in the analysis dataset as the sum of the VL data items: Net Profit and 

Depreciation. In the VL data framework, Net Profit is defined as net income from continuing operations 

and excluding non-recurring items. Depreciation includes both non-cash items, depreciation and 

amortization. 

To eliminate the effects of 

inflation in analyzing the trend of financial performance, EPA deflated the ATCF values for all firms to 

the end of 2005 using the GDP Deflator series published by the Department of Commerce, Bureau of 

Economic Analysis. 

As summarized above, the overall approach of the 

analysis involved a regression analysis of the trend of ATCF values for the firms in an industry group 

over the 14-year analysis period. To allow individual firms’ ATCF values to be combined in a single 

regression requires eliminating the scale effect of the different sizes of firms. For this reason, the 

inflation-adjusted ATCF values for each firm were normalized to an index series by dividing the yearly 

values by the average of values for each firm over the 14-year period. EPA used the 14-year average of 

values for this index calculation instead of the value for a single year to prevent anomalously large swings 

in the index series when the ATCF value for the year selected as the base year for the index calculation 

was very small relative to other values in the 14-year series. In addition, in calculating the index values 

for the 14-year series, EPA first removed any negative values from the series for each firm by adding to 

each value in the firm’s 14-year series, the absolute value of the most negative value for the firm plus one. 

This adjustment has the effect of “vertically” shifting the ATCF values for a firm so that all values are 

positive while retaining the mathematical “shape” of the series for the trend analysis. This adjustment 

was necessary to prevent the undesirable inversion of the index trend that would occur if a negative index 

numerator is combined with a positive series values in calculating the index series. 

f . 

f 

. 

Adjust ATCF to constant dollar values in 2005, using the GDP deflator

Calculate an index of each company’s ATCF values by year using, as an index numerator, the average 

ATCF value for the company over the 14-year period

The preceding calculations yield a constant dollar series of ATCF 

indexed to one and with an average value of one over the 14-year analysis period. To calculate the trend 

indicated by these index ATCF values, EPA estimated a weighted linear regression of the index ATCF 

values against year by industry group. These regressions were performed on a revenue-weighted basis – 

i.e., each ATCF value was weighted by the firm’s revenue value for the year – so that each firm’s 

individual ATCF trend carries a weight in proportion to its revenue in estimating the trend relationship. 

As a result, the estimated trend relationship reflects a revenue-weighted average of the ATCF trends of 

the individual firms, instead of an arithmetic average, which would overweight the presence of smaller 

firms in estimating the trend relationship. The estimated ATCF index coefficient from the regression for 

each industry indicates the trend in constant dollar ATCF over the analysis period: a negative coefficient 

indicates declining constant dollar ATCF over the analysis period; a positive coefficient indicates 

growing constant dollar ATCF over the analysis period.5 

f 

. 

Regress ATCF index values against year by industry group to calculate the time trend of constant dollar 

ATCF over the period 1992-2005

f . 

predicted

Calculate the predicted trend of ATCF index values for each industry group Used together, the estimated 

ATCF index coefficient and regression intercept yield a predicted trend line of ATCF index values for the 

14-year period, for each industry group analyzed. The actual ATCF index values for an industry group 

can then be compared with trend line to assess whether the ATCF values during the 1996-1998 

5

 In addition to testing a simple linear model of index ATCF against time, EPA also used a logarithm-adjusted series of 

the ATCF values to test for an exponential trend in ATCF. The log model provided no improvement in the estimated 

regression relationships. As a result, EPA used the coefficients estimated from the linear model for its analysis of the ATCF 

trend. 

C3A4-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

survey data collection period deviate from the trend. The predicted trend line also indicates where the 

ATCF index values would be at the end of the analysis period if the ATCF index values followed the 

predicted trend. 

f Calculate the average of actual ATCF index values by industry group for the 1996-1998 period. The 

average of actual ATCF values for the 1996-1998 period is compared with the predicted trend values to 

assess the extent to which the actual ATCF index values deviate from trend and to provide a basis for 

estimating the adjustment needed to bring the ATCF values to the trend, or to the predicted trend value at 

the end of the analysis period. These values were calculated by, first, averaging ATCF index values over 

the firms in an industry group using firm revenues as weights, and second, averaging the 1996, 1997, and 

1998 ATCF index values for each industry group. 

C3A4-3 SUMMARY OF FINDINGS 

Table C3A4-2, following page, summarizes key results from the analyses outlined above. Items reported in the 

table are as follows: 

f 

f actual 

Estimated Trend: the revenue-weighted average of annual change in ATCF index values for firms in the 

industry group over the analysis period, 1992-2005. This value is the estimated coefficient of ATCF 

index against time from the simple linear regression, as described above. Because the trend is estimated 

from an index series with an average value of one over the analysis period, the estimated trend may also 

be interpreted as equal approximately to the annual percent change in ATCF index. A negative estimated 

trend value indicates that ATCF index values decline, on average, over the analysis period; a positive 

estimated trend value indicates that ATCF index values increase, on average, over the analysis period. 

Average of ATCF Index Values at 1996-1998: the revenue-weighted average of ATCF index 

values for firms in the industry analysis set over the 1996-1998 period. The values in this column are 

compared with values in the next two columns, respectively, to assess (1) the extent to which financial 

performance during the 1996-1998 survey data period deviated from the analysis period trend at 1996-

1998 and (2) the overall change in financial performance from the 1996-1998 survey data period to the 

end of the analysis period resulting from the combination of deviation from analysis period trend and the 

trend, itself (see following paragraphs for further discussion). 

f Average of Predicted Trend Values at 1996-1998: the average of predicted ATCF index values over the 

1996-1998 survey data period as predicted from the estimated regression terms. If ATCF performance 

for an individual firm or industry matched the industry trend over time, the actual ATCF index values at 

1996-1998 would equal this value. Material deviation of the actual ATCF index values from this value 

suggests, for an industry, that ATCF performance during the 1996-1998 survey data period was: (1) 

abnormally favorable, if the actual ATCF index values exceed the average of predicted values, or (2) 

abnormally unfavorable, if the actual ATCF index values are less than the average of predicted values. 

f Predicted Trend Value at 2005: the ATCF index value at the end of the analysis period as predicted from 

the estimated regression terms. This value is the (statistically) expected value of ATCF index at 2005 for 

a firm or for the industry, based on the estimated trend relationship. Material deviation of this value from 

the Average of Predicted Trend Values at 1996-1998 indicates a general trend going forward from the 

1996-1998 survey data period, which, apart from cyclical deviation, which would further affect ATCF 

performance for firms in the industry group. For an industry, if this value is less than the Average of 

Predicted Trend Values at 1996-1998, then financial performance, as indicated by ATCF index, generally 

deteriorated from 1996-1998 forward to 2005, the end of the analysis period. In addition to the cyclical 

deviation effect, this “trend” effect might also be taken into account in adjusting ATCF data calculated 

from the 316(b) survey responses. In this case, comparison of the average of actual ATCF index values 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A4-11 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 


 

Group 

Estimated Average of ATCF 

Index Values at 1996-

1998 1998 Value at 2005 

Aluminum 

0.0003 0.995 1.031 1.033 

Industrial Chemicals 0.0282 1.042 0.977 1.203 

0.0302 1.012 0.968 1.209 

0.0328 1.005 0.996 1.259 

0.0428 0.922 1.032 1.374 

Steel 0.0112 1.237 1.035 1.125 

0.0431 0.988 0.947 1.292 

Food Processing 0.0433 0.930 0.940 1.286 

Source: 

over the 1996-1998 survey data period with the Predicted Trend Value at 2005, would indicate the total 

potential adjustment, accounting for both the cyclical deviation and trend effects. 

Table C3A4-2: Key Results from Analysis of After-Tax Cash Flow Trends by 316(b) Industry for 

1992-2005

316(b) Phase III Industry 

Trend 

Average of Predicted 

Trend Values at 1996- Predicted Trend 

Analysis not undertaken for the Aluminum industry 

Pulp and Paper Mills 

Plastics Material and Resins 

Pharmaceuticals 

Petroleum Refining 

Beverages 

U.S. EPA analysis, 2006. 

The following pages present charts, by industry group, of the yearly ATCF index values and the estimated 

predicted trend values over the analysis period. 

Figure C3A4-4: ATCF Index vs. Trend 

0.80 

1.00 

0.00 

0.20 

1.20 

1.40 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

x 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

0.60 

0.40 

Beverages 

Year 

ATCF Inde 

Time Trend Index ATCF 

Food Processing 

0.00 

0.20 

1.20 

1.40 

ATCF Index 

Time Trend Index ATCF 

1.00 

0.80 

0.60 

0.40 

Year 

C3A4-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
0.00 

0.50 

1.00 

1.50 

2.00 

2.50 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

x 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

Petroleum Refining 

Year 

ATCF Inde 

Time Trend Index ATCF 

Industrial Chemicals 

0.00 

0.20 

0.40 

0.60 

0.80 

1.00 

1.20 

1.40 

1.60 

Year 

ATCF Index 

Time Trend Index ATCF 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A4-13 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

0.00 

0.20 

0.40 

1.40 

1.60 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

x 

Plastics Material and Resins 

0.00 

0.20 

0.40 

1.20 

1.40 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

x 

Steel 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

Pulp & Paper Mills 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

1.20 1.00 

1.00 0.80 

0.80 

0.60 0.60 

0.60 

0.80 

1.00 

Pharmaceuticals 

Year 

ATCF Inde 

Time Trend Index ATCF 

Year 

ATCF Inde 

Time Trend Index ATCF 

0.00 

0.20 

0.40 

0.60 

1.40 

1.60 

1.80 

ATCF Index 

Time Trend Index ATCF 

0.00 

0.20 

0.40 

1.20 

1.40 

1.60 

ATCF Index 

Time Trend Index ATCF 

1.20 

1.00 

0.80 

Year 

Year 

C3A4-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

By industry, these results indicate the following: 

f Pulp and Paper Mills. The analysis indicates a very slight annual increase, approximately 0.03 percent, in 

constant dollar ATCF over the analysis period, meaning financial performance improved slightly over this 

period. The analysis also indicates that the survey data collection years of 1996-1998 showed weaker 

performance than the predicted trend performance in those years. Specifically, the average actual ATCF 

index value at 1996-98 is 3.5 percent below the predicted ACTF trend value for those years. With slight 

positive growth in ATCF over the analysis period, the predicted ATCF index value at the end of the 

analysis period, 2005, increases slightly from the 1996-1998 period. As a result, the average actual ATCF 

index value at 1996-98 is approximately 3.7 percent below the predicted ACTF trend value in 2005. 

f Industrial Chemicals. The analysis for the Industrial Chemicals segment of the Chemicals industry shows 

a moderate increase, approximately 2.8 percent, in constant dollar ATCF over the analysis period, 

meaning financial performance improved over this period. In contrast to the finding for the Pulp and 

Paper Mills industry, the analysis indicates that the Industry Chemicals segment achieved higher financial 

performance during the survey data collection years of 1996-1998 than the predicted trend performance in 

those years. Specifically, the average actual ATCF index value at 1996-98 is 6.6 percent above the 

predicted ACTF trend value for those years. However, with relatively strong positive growth in ATCF, 

the predicted ATCF index value at the end of the analysis period, 2005, increases sufficiently to reverse 

this relationship. As a result, the average actual ATCF index value at 1996-98 is approximately 13.4 

percent below the predicted ACTF trend value in 2005. 

f Plastics Material and Resins. This segment of the Chemicals industry also shows a moderate increase, 3.0 

percent annually, in constant dollar ATCF over the analysis period. Based on this analysis, the Plastic 

Material and Resins segment, like the Industrial Chemicals segment, also achieved higher financial 

performance during the survey data collection years of 1996-1998 than the predicted trend performance in 

those years. Specifically, the average actual ATCF index value at 1996-98 is 4.6 percent above the 

predicted ACTF trend value for those years. Like the Industrial Chemicals segment, the Plastic Material 

and Resins segment exhibits relatively strong positive growth in ATCF and the predicted ATCF index 

value at the end of the analysis period, 2005, increases sufficiently to reverse this relationship. As a 

result, by 2005, the average actual ATCF index value at 1996-98 is 16.3 percent below the predicted 

ACTF trend value in 2005. 

f Pharmaceuticals. This third segment of the Chemicals industry also shows a moderate increase, 3.3 

percent annually, in constant dollar ATCF over the analysis period. Financial performance during the 

survey data collection years very nearly equaled the predicted ATCF index value: the average ATCF 

index value at 1996-98 is 0.9 percent above the predicted ACTF trend value for those years. Like the 

other two segments of the Chemicals industry, the Pharmaceuticals segment exhibits relatively strong 

positive growth in ATCF over the analysis period. As a result, by 2005, the average actual ATCF index 

value at 1996-98 is substantially below (20.2 percent) the predicted ACTF trend value in 2005. 

f Petroleum Refining. The analysis indicates a strong increase, 4.3 percent annually, in constant dollar 

ATCF over the analysis period. The analysis also indicates that the Petroleum Refining industry 

achieved, on average, much weaker financial performance during the survey data collection years than the 

predicted trend performance in those years: the average ATCF index value for 1996-1998 is 10.7 percent 

below the predicted trend value during those years. However, the individual yearly values during 1996-

1998 show considerable volatility relative to the trend, suggesting weak confidence in this finding. Like 

Pharmaceuticals, with strong growth in ATCF over the analysis period, by 2005, the predicted ATCF 

value is substantially higher than the average ATCF index value at 1996-98: the average ATCF index 

value at 1996-1998 is 32.9 percent below the predicted trend value at 2005. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A4-15 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

f Steel. The analysis indicates a slight increase, 1.1 percent annually, in constant dollar ATCF over the 

analysis period. The analysis also indicates that financial performance during the survey data collection 

years substantially exceeded, by 19.5 percent, trend-based predicted performance during those years. 

With improving trend-based performance through the end of the analysis period, by 2005, the gap 

between the average ATCF value at 1996-1998 and the predicted trend value at 2005 lessens to 9.9 

percent. Steel is the only industry among the analyzed sectors that exhibits higher financial performance 

than the predicted ATCF index values during the survey data collection years as well as at the end of the 

analysis period, 2005. 

f Beverages. The analysis indicates a strong increase, 4.3 percent annually, in constant dollar ATCF over 

the analysis period, meaning financial performance improved significantly over this period. The analysis 

also indicates that the Beverages industry achieved higher financial performance during the survey data 

collection years of 1996-1998 than the predicted trend performance in those years. Specifically, the 

average actual ATCF index value at 1996-98 is 4.3 percent above the predicted ACTF trend value for 

those years. However, with strong positive growth in ATCF, the predicted ATCF index value at the end 

of the analysis period, 2005, increases sufficiently to reverse this relationship. As a result, the average 

actual ATCF index value at 1996-98 is approximately 23.5 percent below the predicted ACTF trend value 

in 2005. 

f Food Processing. Like the Beverages industry, the analysis of the Food Processing sector indicates a 

strong increase, 4.3 percent annually, in constant dollar ATCF over the analysis period, meaning financial 

performance improved significantly over this period. The analysis also indicates that the Food Processing 

industry achieved, on average, slightly weaker financial performance during the survey data collection 

years than the predicted trend performance in those years: the average ATCF index value for 1996-1998 

is 1.1 percent below the predicted trend value during those years. With strong growth in ATCF over the 

analysis period, by 2005, the predicted ATCF value is substantially higher than the average ATCF index 

value at 1996-98: the average ATCF index value at 1996-1998 is 27.7 percent below the predicted trend 

value at 2005. 

Table C3A4-3, below, summarizes these findings. 

Table C3A4-3: Estimated Relationship Between Actual ATCF at Survey Period and Trend 

Predicted Values at Survey Period and End of Analysis Period 

316(b) Phase III Industry Percentage Difference in Actual Percentage Difference in Actual 

and Predicted ATCF Index ATCF Index Values at 1996-1998 and Group Values at 1996-1998 Trend Predicted Value at 2005 

Aluminum Analysis not undertaken for the Aluminum industry 

Pulp and Paper Mills -3.5% -3.7% 

Industrial Chemicals 6.6% -13.4% 

Plastics Material and Resins 4.6% -16.3% 

Pharmaceuticals 0.9% -20.2% 

Petroleum Refining -10.7% -32.9% 

Steel 19.5% 9.9% 

Beverages 4.3% -23.5% 

Food Processing -1.1% -27.7% 

Positive percentage values indicate that the 1996-1998 Actual ATCF Index Value exceeds the comparison value – 

i.e., the Predicted ATCF Index Value or the Trend Predicted Value at 2005 – and thus suggests that 1996-1998 

survey data may overstate industry’s ability to withstand compliance burdens as indicated by the comparison data. 

Source: U.S. EPA analysis, 2006. 

C3A4-16 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

From these results, the industries and/or segments where financial performance during the 1996-1998 survey data 

collection period exceeds trend-predicted performance and thus for which survey data may overstate the 

industry’s ability to withstand compliance burdens in comparison to the predicted trend values at 1996-1998 are: 

f Industrial Chemicals segment of the Chemicals industry, 

f Plastics Material and Resins segment of the Chemicals industry, 

f Pharmaceuticals 

f Steel industry, and 

f Beverages. 

Looking to the end of the analysis period, 2005, the Steel Industry is the only industry and/or segment where 

financial performance during the 1996-1998 survey data collection period exceeds trend-predicted performance at 

2005, and thus for which survey data may overstate the industry’s ability to withstand compliance burdens at a 

time closer to the point of regulatory implementation. 

C3A4-3.1 Comparison of Findings for Proposed and Final Rule Analysis 

The two additional years of data included in the analysis for the final 316(b) rule affected both the estimated trend 

lines, and the difference in actual ATCF index values during 1996-1998 and predicted ATCF index values at the 

end of the analysis period. Table C3A4-4, following page, compares the estimated trend and percentage 

difference in actual ATCF index values during the 1996-1998 period and the predicted ATCF index values at the 

end of each analysis period: 2003 for the Proposed rule, and 2005 for the potential Final rule for existing Phase III 

facilities. The values presented in the table below can be found in Table C3A4-2 and Table C3A4-3 of this 

document and Appendix 4 for the Proposed 316(b) rule (U.S. EPA, November 2004). 

Overall, inclusion of the two additional years of data resulted in noticeable improvement of business conditions 

since 2003 across the analyzed industries. In the same way as indicated by the general measures of economic 

performance such as growth in real domestic product, capacity of utilization, and growth in industrial production, 

the individual manufacturing sectors also show generally improving trends during 2003-2005. Specifically, all 

industries but Pulp and Paper Mills show improvement in business performance during these later analysis years. 

As a result of the improved business performance, for all of the analyzed industry sectors, the estimated time 

trend remains, or becomes, upward sloping. For the two industries – Pulp and Paper Mills and Steel – that 

showed a negative trend in the analysis for the Proposed Regulation, the estimated analysis period trend reverses 

to become positive, albeit only slightly so for Pulp and Paper Mills. 

One of the largest changes occurred in the Industrial Chemicals sector, where a more distinct positive trend 

reversed the sign of the percentage difference in actual ATCF index values during the 1996-1998 period and 

predicted ATCF index values at the end of the analysis period. This trend is also clearly exhibited by the 

increased percentage difference between actual ATCF index values for 1996-1998 and predicted values at the end 

of the analysis period for the Plastics Material and Resins, Petroleum Refining, and Steel industries. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A4-17 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

Table C3A4-4: Comparison of Key Results from Analyses for the Proposed and Final 316(b) Rule 

Analysis Periods 

Group 

Proposed Rule Final Rule 

Aluminum 

-0.0004 0.0003 -3.8% -3.7% 

Industrial Chemicals 0.0012 0.0282 8.4% -13.4% 

0.0318 0.0302 -12.3% -16.3% 

0.0507 0.0328 -24.1% -20.2% 

0.0230 0.0428 -19.9% -32.9% 

-0.0042 0.0112 24.1% 9.9% 

N/A 0.0431 N/A -23.5% 

Food Processing N/A 0.0433 N/A -27.7% 

Estimated Trend 

Percentage Difference in Actual ATCF Index 

Values at 1996-1998 and Trend Predicted Value 

at the End of Analysis Period 316(b) Phase III Industry 

Analysis Analysis Proposed Rule Analysis Final Rule Analysis 

Analysis not undertaken for the Aluminum industry 

Pulp and Paper Mills 

Plastics Material and Resins 

Pharmaceuticals 

Petroleum Refining 

Steel 

Beverages 

Shaded cells indicate a switch in the sign of the observed relationship between the analysis for the Proposed Regulation and the 

Final Regulation. In each case, the switch in sign reflects improved business conditions as reported in the additional years of data 

Source:

since the time of the Proposed Regulation analysis. 

 U.S. EPA analysis, 2004, 2006. 

C3A4-4 DEVELOPING AN ADJUSTMENT CONCEPT 

On the basis of these findings, EPA considered whether and how to adjust after-tax cash flow, as derived from the 

facility survey responses for use in the facility impact analysis. Given that one industry, was found to have 

financial performance during the survey data collection period that exceeded the predicted trend financial 

performance for that period or that exceeded the predicted trend financial performance at the end of the analysis 

period, EPA concluded that development and application of an adjustment to baseline after-tax cash flow was 

warranted. 

In deciding how to adjust cash flow, EPA considered three primary adjustment concepts: 

1. 	 Adjust baseline cash flow to account for deviation from predicted trend at the time of the survey data 

collection. 

2. 	 Adjust baseline cash flow to account for deviation from predicted trend at the end of the analysis period. 

3. 	 Adjust baseline cash flow to a future estimated period of compliance based on the estimated trend of 

change in constant dollar after-tax cash flow over time. 

EPA decided to apply the ATCF adjustment according to the second of these three adjustment concepts: adjust 

baseline cash flow to account for deviation from predicted trend at the end of the analysis period. This adjustment 

concept addresses both concerns that (1) business performance during the survey data collection period diverged 

from the predicted trend performance during the survey data collection period, and (2) business performance from 

the time of survey data collection period followed a non-neutral trend to the present. EPA considered extending 

the trend projection to the estimated time of compliance (concept 3) but rejected this approach since it was 

deemed speculative in attempting to forecast business performance into the future. In addition, the greater the 

number of years over which ATCF results are projected based on historical trend, the less likely that the predicted 

changes in ATCF reflect the performance of a static set of facilities and instead reflect capital additions, new 

facilities, facility closures, etc. For these reasons, EPA decided to restrict the adjustment to the end of the ATCF 

analysis period. 

C3A4-18	 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

EPA also considered whether to apply the indicated adjustment factors asymmetrically – i.e., only to reduce the 

ATCF values as calculated from facility survey responses – or symmetrically – i.e., both to increase or to reduce 

the ATCF values as calculated from facility survey responses. In the case of asymmetric adjustment, the 

adjustment would correct for business performance during the survey data collection period that exceeded the 

predicted trend value – whether for the survey period or some future period – and would thus attempt to avoid 

overstating the facility’s ability to bear the costs of regulation compliance without material financial impact. In 

the case of a symmetric adjustment, the adjustment would additionally address the potential that business 

performance during the survey data collection period fell short of the predicted trend value and would thus 

attempt to avoid understating the ability of an industry or facility to bear the costs of regulatory compliance 

without material financial impact. 

On this question, EPA decided to apply the ATCF adjustment on a symmetric basis, potentially reducing or 

increasing facility cash flow on the basis of the estimated adjustment factor. EPA based its decision on the 

principle of avoiding both overstatement and understatement of the ability of facilities in an industry to bear the 

costs of regulatory compliance without material financial impact. 

Based on these decisions, EPA calculated the adjustment factors by dividing the Predicted Trend Value at 2005 

by the Average of ATCF Index Values at 1996-1998, as reported in Table C3A4-2, above. In the facility closure 

analysis, as described in Chapter C3: Economic Impact Analysis for Manufacturers, facility after-tax cash flow is 

simply multiplied by the appropriate adjustment factor based on the industry or industry segment to which a 

facility is assigned. The resulting adjusted ATCF is carried forward in the baseline and post-compliance closure 

analyses. Where the Predicted Trend Value at 2005 is less than Average of ATCF Index Values at 1996-1998, the 

resulting adjustment factor value is less than one and the effect of the ATCF adjustment is to reduce the calculated 

value of cash flow used in the facility impact analysis. Where the Predicted Trend Value at 2005 is greater than 

Average of ATCF Index Values at 1996-1998, the resulting adjustment factor value is greater than one and the 

effect of the ATCF adjustment is to increase the calculated value of cash flow used in the facility impact analysis. 

EPA also used the adjustment factors to adjust the numerator values of the measures used in the facility moderate 

impact analysis: pre-tax return on assets and interest coverage ratio. In both cases, the numerators of the measures 

are closely related to cash flow, but are calculated on a pre-tax basis. As a result, in this case, the ATCF-based 

adjustment factor does not match as closely in concept the financial measures to which it is applied as is the case 

for the ATCF measure used in the facility closure analysis. Nevertheless, use of the adjustment for these 

measures is appropriate because the pre-tax measures used in the facility moderate impact analysis will still move 

closely with the after-tax cash flow measure on which the adjustment factor is based. In addition, it is important 

that EPA recognize the potential effect of change in financial condition since the survey data collection period in 

the facility moderate impact analysis as well as in the facility closure analysis. 

Table C3A4-5, below, summarizes the adjustment factors implemented for each of the industries, and within the 

chemical industry, for the industry segments. The table also reports the number of baseline and post-compliance 

closures (under the 50 MGD DIF threshold option, which is the regulatory analysis options with the broadest 

applicability among the three options considered for Phase III existing facilities) estimated with and without 

application of the ATCF adjustment factor. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A4-19 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

Adjustment 

Factor Baseline Regulatory Baseline Regulatory 

Aluminum 1.000 5 0 0 0 0 

1.039 41 5 0 5 0 

1.154 43 4 0 4 0 

1.195 12 0 0 0 0 

1.253 2 0 0 0 0 

Table C3A4-5: Using After-Tax Cash Flow Adjustment Factors in the Facility Closure Analysis 

Summary Results from Closure Analysis 

Number of 

Facilities 

Analyzed 

Using Adjustment Factors Not Using Factors 

Closures Closures Closures Closures 

Pulp and Paper Mills 

Chemicals Industry 

Industrial Chemicals 

Plastics Material and Resins 

Pharmaceuticals 

1.491 17 3 0 4 1 

Steel 0.910 27 3 0 3 0 

1.308 3 0 0 0 0 

1.384 6 0 0 0 0 

1.000 4 1 0 1 0 

Total 159 16 0 17 1 


 


 


 


 

Source: 

Petroleum Refining 

Beverages 

Food Processing 

Other Industries 

Shaded cells indicate a change in analytic finding as a result of applying the ATCF Adjustment. 

Adjustment factors were not developed for the Aluminum industry or Other Industries, so the results with use of adjustment 

factors are necessarily the same as those without use of the factors. 

All results are sample weighted. The reported totals may differ from the apparent sums of individual data items due to rounding.

U.S. EPA analysis, 2006. 

As reported in Table C3A4-5, only for the Steel industry is the adjustment factor less than one, at 0.91. For this 

industry, the effect of the adjustment factor is to reduce the cash flow values calculated from facility survey 

responses. As described above, EPA did not calculate an adjustment factor for the Aluminum industry due to data 

limitations; accordingly, this industry’s “adjustment factor” is simply 1.000. The adjustment factors for the 

remaining industries are greater than one, ranging from a value of 1.039 for the Pulp and Paper Mills industry to 

1.491 for the Petroleum Refining industry. For these industries, the effect of the adjustment factor is to increase 

the cash flow values calculated from facility survey responses. 

In terms of effect on analytic results, the use of the ATCF adjustment factors caused the number of baseline 

closures to change in only one 316(b) industry group, the Petroleum Refining industry. For this industry, the 

increase in cash flow resulting from the adjustment causes 1 less facility to fail the baseline closure analysis. 

Under the 50 MGD DIF threshold for existing manufacturing facilities, the use of the ATCF adjustment factors 

eliminated one regulatory closure, in the Petroleum Refining industry. Because the calculated adjustment factor 

for this industry is quite large, 1.491, EPA reviewed closely the effect of the adjustment factor on the facility 

closure calculation. In particular, EPA was concerned that the regulatory closure was being eliminated by 

application of a large ATCF adjustment. From this review, EPA determined that the single Petroleum Refining 

industry closure, without the ATCF adjustment, is a very marginal closure. Specifically, an ATCF adjustment 

factor of 1.005 (compared to the calculated 1.491) provides a sufficient increase in baseline cash flow to eliminate 

the closure under the compliance requirements of the 50 MGD All Option. Another way of understanding the 

1.005 adjustment factor is to calculate the annual trend factor (year-to-year change in predicted trend ATCF 

index) that would yield the 1.005 value. In this case, the year-to-year change required to generate the 1.005 value 

is 0.006, or an annual change factor that is very close to zero (approximately 0.06 percent annual average change). 

Given these findings, EPA concludes that the extent of improvement in cash flow needed to eliminate the 

regulatory closure in the Petroleum Refining industry is very small and is thus quite plausible within the overall 

improving business performance trend exhibited by the Petroleum Refining industry. 

C3A4-20 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

REFERENCES 

Board of Governors of the Federal Reserve System. Release G.17, Industrial Production and Capacity 

Utilization: Capacity Utilization: Manufacturing (NAICS) and Industrial Production Index quarterly data series. 

2005. 

U.S. Department of Commerce. Bureau of Economic Analysis. Table 1.1.6. Real Gross Domestic Product, 

Chained Dollars. 2006. 

U.S. Environmental Protection Agency (U.S. EPA). 2004. Economic Analysis for the Proposed Section 316(b) 

Rule for Phase III Facilities. EPA-821-R-04-006. November 2004. 

U.S. Environmental Protection Agency (U.S. EPA). 2004. Information Collection Request for Cooling Water 

Intake Structures, Phase II Existing Facility Final Rule. ICR Number 2060.02. February 2004. 

Value Line Investment Survey. Value Line Publishing, Inc. 220 East 42nd Street, New York, N.Y. 10017-589. 

2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A4-21 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A4: Adjusting Cash Flow 

THIS PAGE INTENTIONALLY LEFT BLANK
 

C3A4-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

Appendix C3A5: Estimating Capital Outlays 
 

for Section 316(b) Phase III Manufacturing 
 

Sectors Discounted Cash Flow Analyses 
 

INTRODUCTION 

The analysis of economic impacts to Phase III 

manufacturing facilities associated with the proposed 

Section 316(b) Regulation involves calculation of the 

business value of sample facilities on the basis of a 

discounted cash flow (DCF) analysis of operating cash flow 

as reported in the detailed industry questionnaires.1 

Business value is calculated on a pre- and post-compliance 

basis and the change in this value serves as an important 

factor in estimating regulatory impacts in terms of potential 

facility closures. To be accurate in concept, the business 

value calculation should recognize cash outlays for capital 

acquisition as a component of cash flow. However, the 

Section 316(b) Detailed Industry Questionnaire did not 

request information from surveyed facilities on their cash 

outlays for capital acquisition. Absent this data, EPA developed an estimate of cash outlays for capital 

acquisition. This appendix describes the methodology EPA used to derive, for each sample facility, an estimate 

of cash outlays for capital acquisition. 

A CONTENTS 


 


 


 


 

PPENDIX 

C3A5-1Analytic Concepts Underlying Analysis of 

Capital Outlays......................................C3A5-2 

C3A5-2Specifying Variables for the Analysis...C3A5-4 

C3A5-3Selecting the Regression Analysis Dataset .......

 ......................................................C3A5-7 

C3A5-4Specification of Models to be Tested....C3A5-9 

C3A5-5Model Validation ................................C3A5-13

Attachment C3A5.A: Bibliography of Literature 

Reviewed for this Analysis .................C3A5-21

Attachment C3A5.B: Historical Variables Contained in 

the Value Line Investment Survey Dataset 

............................................................C3A5-22

EPA Office of Water (OW) previously identified that the omission of cash outlays for capital acquisition from 

DCF analyses may lead to overstatement of the business value of sample facilities and, as a consequence, 

understatement of regulatory impacts in terms of estimated facility closures (EPA, 2003). In response to this 

omission, the Office of Management and Budget suggested the adoption of depreciation expense as a surrogate 

for cash outlays for capital replacement and additions. However, for several reasons EPA believes depreciation is 

a poor surrogate. First, depreciation is meant to capture the consumption/use of previously acquired assets, not 

the cost of replacing, or adding to, the existing capital base. Therefore, depreciation is fundamentally the wrong 

concept to use as a surrogate for capital outlays for capital replacement and additions. Second, depreciation is 

estimated based on the historical asset cost, which may understate or overstate the real replacement cost of assets. 

Third, both book and tax depreciation schedules generally understate the assets’ useful life. Thus, reported 

depreciation will overstate real depreciation value for recently acquired assets that are still in the depreciable asset 

base, and conversely, understate the real depreciation value of assets that have expired from the depreciable asset 

base but still remain in valuable use. Finally, depreciation does not capture the important variations in capital 

outlays that result from differences in revenue growth and financial performance among firms. Businesses with 

real growth in revenue will need to expand both their fixed and working capital assets to support business growth, 

and all else being equal, growing businesses will have higher ongoing outlays for fixed and working capital 

assets. Similarly, the ability of businesses to renew and expand their asset base depends on the financial 

productivity of the deployed capital as indicated by measures such as return on assets or return on invested 

1

 This analysis is limited to potentially affected facilities in primary SIC codes 26, 28, 29, and 33. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

capital. As a result, businesses with “strong” asset productivity will attract capital for renewal and expansion of 

their asset base, while businesses with “weak” asset productivity will have difficulty attracting the capital for 

renewal and expansion of the business’ asset base. All else being equal, businesses with strong asset productivity 

will have higher ongoing outlays for capital assets; businesses with weak asset productivity will have lower 

ongoing outlays for capital assets. 

As an approach to addressing the absence of capital acquisition cash outlay data to support the Phase III DCF 

analysis, EPA estimated a regression model of capital outlays using reported capital expenditures and relevant 

explanatory financial and business environment information for public-reporting firms in the original, primary 

Phase III manufacturing sectors. The resulting estimated model is used to estimate capital outlays for facilities in 

the Phase III sample dataset. The estimated capital outlay values were then used in the DCF analyses to calculate 

business value of sample facilities and estimate regulatory impacts in terms of facility closures. 

The approach and regression model described above are based largely on the approach and regression model 

developed in support of the analysis of economic impacts for the Metal Products and Machinery Regulation 

(MP&M), which provides a recent example of the need to address the omission of capital acquisition cash outlay 

data from a DCF analysis. EPA notes that the facilities/industry sectors examined in the Section 316(b) Phase III 

analysis are similar to those analyzed in the MP&M analysis: both analyses estimate impacts to facilities in 

manufacturing industries only and facilities in SIC 33 are covered under both regulations. In addition, the Section 

316(b) Detailed Industry Questionnaire and the MP&M survey instruments are similar; therefore, similar data are 

available for Phase III and MP&M survey facilities. As such, EPA relied heavily on prior experience from the 

MP&M final regulation in estimating the regression model used to estimate of capital outlays for facilities in the 

Phase III sample dataset. 

This appendix reports the results of the effort to estimate capital outlays for Phase III manufacturing facilities, 

including: an overview of the analytic concepts underlying the analysis of capital outlays; specific variables 

included in the regression analysis; summary of data selection and preparation; general specification of regression 

models to be tested; and the findings from the regression analyses. The model estimation does not include sector 

information for the Food and Kindred Products industry, which was subsequently added as a primary industry in 

the Section 316(b) Phase III analysis.2 

C3A5-1 ANALYTIC CONCEPTS UNDERLYING ANALYSIS OF CAPITAL OUTLAYS 

On the basis of general economic and financial concepts of investment behavior, EPA began its analysis by 

outlining a framework relating the level of a firm’s capital outlays to explanatory factors that: 

f can be observed for public-reporting firms – either as firm-specific information or general business 

environment information – and thus be included in a regression analysis; and 

f for firm-specific information, are also available from the Phase III sample facility dataset. 

To aid in identifying the explanatory concepts and variables that might be used in the analysis and as well in 

specifying the models for analysis, EPA reviewed recent studies of the determinants of capital outlays. EPA’s 

2

 Since the estimated regression model for the Phase III facilities is based on an earlier model developed for the MP&M 

final regulation, much of the underlying research involved in the analytic development of the model had been previously 

completed and was not required to be redone. Nonetheless, in order to present a lucid discussion of the analytic concepts 

underlying the model and the rationale behind specifying variables for the analysis and specification of the regression model, 

a complete discussion of how the regression model was developed is presented. During the course of the discussion, 

instances where prior experience gained during estimating the regression model for the MP&M final regulation had a 

significant influence in the development of the current model are clearly highlighted. 

C3A5-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

review of this literature generally confirmed the overall approach in seeking to estimate capital outlays and helped 

to identify additional specific variables that other analysts found to contribute important information in the 

analysis of capital outlays (e.g., the decision to test capacity utilization as an explanatory variable, see below, 

resulted from the literature review). Articles reviewed are listed in Attachment C3A5.A to this Appendix C3A5. 

Table Appendix C3A5-1, beginning below and continuing on the subsequent page, summarizes the conceptual 

relationships between a firm’s capital outlays and explanatory factors that EPA sought to capture in this analysis. 

In the table, EPA outlines the concept of influence on capital outlays, the general explanatory variable(s) that EPA 

identified to capture the concept in a regression analysis, and the hypothesized mathematical relationship (sign of 

estimated coefficients) between the concept and capital outlays. Table Appendix C3A5-2identifies the specific 

variables included in the analysis, including any needed manipulations and the correspondence of the variables to 

Phase III survey information. 

Table Appendix C3A5-1: Summary of Factors Influencing Capital Outlays 

Explanatory Factor/Concept To Be Expected Translation of Concept to Explanatory Variable(s) Captured in Analysis Relationship

Availability of attractive opportunities for Historical Return On Assets of establishment as a indicator of investment Positive 

additional capital investment. A firm’s opportunities and management effectiveness, and, hence, of desirability to 

owners, or management acting on behalf of expand capital stock and ability to attract capital investment. Use of a 

owners, should expend cash for capital historical variable implicitly assumes past performance is indicative of 

outlays only to the extent that the expected future expectations. 

return on the capital outlays – whether for 

replacement of, or additions to, existing 

capital stock – are sufficient to compensate 

providers of capital for the expected return 

on alternative, competing investment 

opportunities, taking into account the risk of 

investment opportunities. 

opportunities. 

favorable. 

Positive 

historical

Positive 

Options EPA identified 

expansion. 

production.

The Positive 

Business growth and outlook as a 

determinant of need for capital expansion 

and attractiveness of investment 

All else equal, a firm is more 

likely to have attractive investment 

opportunities and need to expand its capital 

base if the business is growing and the 

outlook for business performance is 

Revenue Growth, from the prior time period(s) to the present, provides a 

 measure of business growth and is a potential indicator of need for 

capital expansion. Use of a historical variable implicitly assumes past 

performance is indicative of future expectations. 

Clearly, the theoretical preference is for a forward-looking indicator of 

business growth and need for capital expansion. 

include Index of Leading Indicators and current Capacity Utilization, by 

industry. Higher current Capacity Utilization may presage need for capital 

Importance of capital in business 

 All else equal, the more capital 

intensive the production activities of a 

business, the greater will be the need for 

capital outlay to replenish, and add to, the 

existing capital stock. More capital intensive 

businesses will spend more in capital outlays 

to sustain a given level of revenue over time. 

Capital Intensity of production as measured by the production capital 

required to produce a dollar of revenue provides an indicator of the level of 

capital outlay needed to sustain and grow production. 

As an alternative to a firm-specific concept such as Capital Intensity of 

production, differences in business characteristics might be captured by an 

Industry Classification variable. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

Table Appendix C3A5-1: Summary of Factors Influencing Capital Outlays 

Explanatory Factor/Concept To Be Expected Translation of Concept to Explanatory Variable(s) Captured in Analysis Relationship

Life of capital equipment in the business. 

All else equal, the shorter the useful life of 

the capital equipment in a business, the 

greater will be the need for capital outlay to 

replenish, and add to, the existing capital 

stock. 

The cost of financial capital. The cost at Preferably, measures of cost-of-capital would be developed separately for Negative 

which capital – both debt and equity – is debt and equity. 

made available to a firm will determine 

which investment opportunities can be The Cost of Debt Capital, as measured by an appropriate benchmark interest expected to generate sufficient return to rate, provides an indication of the terms of debt availability and how those warrant use of the financial capital for terms are changing over time. Preferably, the debt cost/terms would reflect equipment purchases. All else equal, the the credit condition of the firm, which could be based on a credit safety higher the cost of financial capital, the fewer rating (e.g., S&P Debt Rating). the investment/capital outlay opportunities 

that would be expected to be profitable and 

the lower the level of outlays for 

replacement of, or additions to, capital stock. 

No information is available on the actual useful life of capital equipment by Positive, 

business or industry classification. However, the Capital Turnover Rate, as generally, but 

calculated by the ratio of book depreciation to net capital assets, provides an with 

indicator of the rate at which capital is depleted, according to book recognition of 

accounting principles: the higher the turnover rate, the shorter the life of the the potential 

capital equipment. However, the measure is imperfect for reasons of both for counterthe inaccuracies of book reporting as a measure of useful life, and as well the trend effects 

confounding effects of growth in the asset base due to business expansion – 

which will tend to lower the indicated turnover rate, all else equal, without a 

real reduction in life of capital equipment. 

As above, an alternative to a firm-specific concept, differences in business 

characteristics might be captured by an Industry Classification variable. 

The cost of equity capital is more problematic than the cost of debt capital Negative 

since it is not directly observable for either public-reporting firms or, in 

particular, private firms in the Phase III dataset. However, a readily 

available surrogate such as Market-to-Book Ratio provides insight into the 

terms at which capital markets are providing equity capital to publicreporting firms: the higher the Market-to-Book Ratio, the more favorable the 

terms of equity availability. 

The price of capital equipment. The price Index provides an indicator of the change in capital equipment prices. 

of capital equipment – in particular, how 

capital equipment prices are changing over 

time – will influence the expected return 

from capital outlays. All else equal, when 

capital equipment prices are increasing, the 

expected return from incremental capital 

outlays will decline and vice versa. 

However, although the generally expected 

effect of higher capital equipment prices is to 

remove certain investment opportunities 

from consideration, the potential effect on 

total capital outlay may be mixed. If 

expected returns are such that the demand to 

invest in capital projects is relatively 

inelastic, the effect of higher prices for 

capital equipment may be to raise, instead of 

lower, the total capital outlay for a firm. 

Source: U.S. EPA analysis, 2004. 

C3A5-2 SPECIFYING VARIABLES FOR THE ANALYSIS 

Working from the general concepts of explanatory variables outlined above, EPA defined the specific explanatory 

variables to be included in the analysis. A key requirement of the regression analysis is that the firm-specific 

explanatory variables included in the regression analysis later be able to be used as the basis for estimating capital 

Negative, 

generally, but 

with 

recognition of 

the potential 

for countertrend effects 

C3A5-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

expenditures for facilities in the Phase III dataset. As a result, in defining the firm-specific variables, it was 

necessary to ensure that the definition of variables selected for the regression analysis using data on publicreporting firms be consistent with the data items available for facilities in the Phase III dataset. 

Also, EPA’s selection of firm-specific variables was further constrained by the decision to use the Value Line 

Investment Survey (VL) as the source of firm-specific information for the regression analysis. The decision to 

use VL as the source of firm-specific data for the analysis was driven by several considerations: 

f Reasonable breadth of public-reporting firm coverage. The VL dataset includes 8,500 firms. 

f Reasonable breadth of temporal coverage. VL provides data for the most recent 11 years – i.e., 1992-

2002. Although ideally EPA would have preferred a longer time series to include more years not in the 

“boom” business investment period of the mid- to late-1990s. 

f Reasonable coverage of concepts/data needed for analysis. The VL data includes a wide range of 

financial data that are applicable to the analysis (VL provides 37 data items over the 11 reporting years; 

see Attachment DB). However, because of the pre-packaged nature of the VL data, it was not possible to 

customize any data items to support more precise definition of variables in the analysis. In particular, 

EPA found that certain balance sheet items were not reported to the level of specificity preferred for the 

analysis. Overall, though, EPA expects the consequence of using more aggregate, less-refined concepts 

should be minor. 

The decision to use VL data for the analysis constrained, in some instances, EPA’s choice of variables for the 

analysis. 

Table Appendix C3A5-2Table Appendix C3A5-1 reports the specific definitions of variables included in the 

analysis (both the dependent variable and explanatory variables), including any needed manipulations, the data 

source, the Phase III estimation analysis equivalent (either the corresponding variable(s) in the Section 316(b) 

Phase III Detailed Industry Questionnaire or other source outside the questionnaire), and any issues in variable 

definition. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

Table Appendix C3A5-2: Variables For Capital Expenditure Modeling Analysis 

Variable Calculation Equivalent 

Variables for Regression Analysis 

Source 

Phase III Analysis 

Comment / Issue 

Dependent Variable 

Gross Value Line Obtained from VL as Capital None: to be estimated This value and all other dollar values in 

expenditures Spending per Share. CAPEX based on estimated the regression analysis were deflated to 

on fixed calculated by multiplying by coefficients. 2002 using 2-digit SIC PPI values. 

assets: Average Shares Outstanding. 

CAPEX, 

includes 

outlays to 

replace, and 

add to, 

existing 

capital stock 

Explanatory Variables 

Firm-Specific Variables 

Return On Value Line ROA = Operating Income / From Survey: Revenue Would have preferred an after-tax 

Assets: ROA Total Assets. Both Operating less Total Operating concept in numerator and a deployed 

Income, defined as Revenue Expenses (Material & production capital concept in 

less Operating Expenses Product Costs + denominator. However, VL provides 

(CoGS+SG&A), and Total Production Labor + Cost no tax value per se and would require 

Assets were obtained directly of Contract Work + calculation of tax using an estimated tax 

from VL. Fixed Overhead + rate, which could introduce error. Also 

R&D + Other Costs & neither VL nor Phase III survey data 

Expenses) provide sufficient information to get at 

deployed production capital. 

Revenue: Value Line REV = Revenues. Revenues From Survey: Revenue In the log-linear formulation this 

REV directly available from VL. variable captures percent change/growth 

in revenues. However, the use of the 

log-linear formulation, eliminates the 

potential to set the growth term to zero 

in estimating baseline capital outlays 

for Phase III facilities. 

During the specification of the 

regression model for the MP&M final 

regulation, Total Assets was also tested 

as a scale variable. Since it provided a 

good, but not as strong, an explanation, 

as REV it was not included in the final 

specification. Based on this previous 

finding, Total Assets was not 

considered while specifying the Phase 

III regression model. 

Capital Value Line CAPT = Depreciation / Total From Survey: Would have preferred denominator of 

Turnover Assets. Depreciation and Depreciation / Total net fixed assets instead of total assets. 

Rate: CAPT Total Assets directly available Assets However, VL provides detailed balance 

from VL. sheet information for only the four most 

recent years. Not possible to separate 

current assets and intangibles from total 

assets. 

Capital Value Line CAPI = Total Assets / From Survey: As above, would have preferred net 

Intensity: Revenue. Total Assets and Total Assets / Revenue fixed assets instead of total assets, but 

CAPI Revenue directly available needed data are not available from VL 

from VL for the full analysis period. 

C3A5-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
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Table Appendix C3A5-2: Variables For Capital Expenditure Modeling Analysis 

Variables for Regression Analysis Phase III Analysis 

Variable Source Calculation Equivalent 

Market-to- Value Line MV/B = average market price N/A (see 

Book Ratio: of common equity (Price) Comment/Issue) 

MV/B divided by book value of 

common equity (Book Value 

per Share). Price and Book 

Value per Share directly 

available from VL. 

General Business Environment Variables 

Interest on Moody’s 

10-year, A- Investor 

rated Services 

industrial 

debt: 

DEBTCST 

Index of Conference 

Leading Board 

Indicators: 

ILI 

Capacity Federal 

Utilization by Reserve 

Industry: Board 

CAPUTIL (Dallas 

Federal 

Reserve) 

Producer Bureau of 

Price Index Labor 

series for Statistics 

capital (BLS) 

equipment: 

CAPPRC 

DEBTCST = annual average Use average of 

of rates for each data year DEBTCST rates at time 

of Phase III survey. 

Monthly index series Use average of ILI 

available from Conference values at time of Phase 

Board. ILI = geometric mean III survey. 

of current year values. 

Monthly index series Use average of 

available from Federal CAPUTIL values at time 

Reserve. CAPUTIL = current of Phase III survey. 

year average value. 

Annual average values Use average of CAPPRC 

available from BLS. values at time of Phase 

CAPPRC = current year III survey. 

average value as reported by 

BLS. 

Comment / Issue 

During specification of the MP&M 

regression model, MV/B was found to 

highly correlated with other, more 

important explanatory variables, which 

makes sense, given that equity terms 

would be derived from more 

fundamental factors, such as ROA. 

Thus, MV/B was omitted from the 

MP&M regression model. As a result, 

MV/B was not considered during the 

specification of the Phase III regression 

model which eliminated the need to 

define an approach to use this variable 

with Phase III survey data. 

10-year maturity, industry debt selected 

as reasonable benchmark for industry 

debt costs. 10 years became 

“standard” maturity for industrial debt 

during 1990s. 

During specification of the MP&M 

regression model, EPA found that ILI 

and the CAPPRC (see below) are highly 

correlated. Thus, ILI was omitted from 

the MP&M regression model. As a 

result, ILI was not considered during 

the specification of the Phase III 

regression model. 

BLS reports PPI series for capital 

equipment based on “consumption 

bundles” defined for manufacturing and 

non-manufacturing industries. For this 

analysis, EPA used the PPI series based 

on the manufacturing industry bundle. 

C3A5-7 

Source: U.S. EPA analysis, 2004. 

C3A5-3 SELECTING THE REGRESSION ANALYSIS DATASET 

In addition to specifying the variables to be used in the regression analysis, EPA also needed to select the public 

firm dataset on which the analysis would be performed. 

As noted above, EPA used the Value Line Investment Survey as the source for public firm data. VL includes 

over 8,500 publicly traded firms and identifies firms’ principal business both by a broad industry classification 

(e.g., Paper/Forest) and by an SIC code assignment. Value Line’s SIC code definitions do not match the U.S. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

Census Bureau’s SIC code definitions; however, in most instances a Value Line SIC code can be reasonably 

matched to one or several U.S. Census Bureau defined SIC codes. To build the public firm dataset corresponding 

to the original Phase III sectors (SIC 26: Paper and allied products, SIC 28: Chemicals and allied products, SIC 

29: Petroleum and coal products, and SIC 33 Primary metal industries), EPA initially selected all firms included 

in the Value Line SIC code families: 

f 2600: Paper/forest products, 

f 2640: Packaging and container, 

f 2810: Chemical (basic), 

f 2813: Chemical (diversified), 

f 2820: Chemical (speciality), 

f 2830: Biotechnology, 

f 2834: Drug, 

f 2840: Household products, 

f 2844: Toiletries/cosmetics, 

f 2900: Petroleum (integrated), 

f 3311: Steel (general), and 

f 3312: Steel (integrated). 

This is the same set of data used for analysis of the Proposed rule. Although the Food and Kindred Products 

sector was ultimately included as a primary sector within the Section 316(b) Phase III analysis, it was not 

necessary to re-estimate the model with this additional industry data because the estimated model coefficients do 

not vary by industry in a statistically significant way. The current model’s applicability across industries is 

detailed further in the next section of this appendix. 

In order to derive a dataset of firms whose business activities closely match the activities of firms included in the 

Phase III sample survey EPA made or attempted to make the following revisions to the initial dataset: 

f EPA found that the VL SIC code definition does not include categories that match SIC 331 and SIC 335 

(combined together to form the aluminum sector in the Phase III analysis). Since U.S. aluminum 

companies are generally vertically integrated (S&P, 2001), most aluminum companies own large bauxite 

reserves and mine bauxite ore. As such, these firms are classified in VL under SIC 1000: Metals and 

mining. EPA reviewed the business activities of firms listed in SIC 1000: Metals and mining, and 

included only those firms described as aluminum companies in the regression analysis dataset. 

f EPA reviewed the business activities of firms listed in SIC 3400: Metal fabricating, however, no firms 

whose activities matched those described within the profiles of the Phase III Manufacturing Sectors were 

found.3 

f EPA reviewed the business activities of firms listed in SIC 2840: Household products and SIC 2844: 

Toiletries/cosmetics, and retained only those firms in the dataset whose activities matched those described 

within the profiles of the Phase III Manufacturing Sectors (see footnote 4). 

3

 The profiles only focus on 4-digit SIC categories represented in the sample of facilities which received the Section 

316(b) detailed industry questionnaire. 

C3A5-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

f EPA deleted firms within SIC 2600: Paper/forest products whose business activities are solely limited to 

timber/lumber production. These facilities are unlikely to use cooling water intake structures and 

therefore fall outside the Phase III Manufacturing Sectors. 

f EPA reviewed the business activities of firms listed in SIC 2830: Biotechnology and SIC 2834: Drug in 

order to exclude firms that are exclusively research and development (R&D) firms and are unlikely to use 

cooling water intake structures. However, based on the information provided by Value Line EPA was 

unable to segregate R&D firms from the rest of the firms listed in these SIC codes. 

f EPA only retained firms in the VL dataset if they are situated in the U.S. or Canada, and for whom 

financial information is available in U.S. dollars. 

On inspection, EPA found that a substantial number of firms did not have data for the full 11 years of the analysis 

period. The general reason for the omission of some years of data is that the firms did not become publicly listed 

in their current operating structure – whether through an initial public offering, spin-off, divestiture of business 

assets, or other significant corporate restructuring that renders earlier year data inconsistent with more recent 

data – until after the beginning of the 11-year data period.4

 As a result, the omission of observation years for a 

firm always starts at the beginning of the data analysis period. This systematic front-end truncation of firm 

observations in the dataset could be expected to bias the analysis in favor of the capital expenditure behavior 

nearer the end of the 1990s decade. To avoid this problem, EPA removed all firm observations that have fewer 

than 11 years of data. As a result, the dataset used in the analysis has a total of 2,244 yearly data observations and 

represents 204 firms. 

Table Appendix C3A5-3presents the number of firms by industry classifications. 

Table Appendix C3A5-3: Number of Firms by Industry 

Classifications 

SIC Industry Classification Number of Firms 

26: Paper and allied products 24 

28: Chemicals and allied products 136 

29: Petroleum and coal products 20 

33: Primary metal industries 24 

U.S. EPA Analysis, 2004 

C3A5-4 SPECIFICATION OF MODELS TO BE TESTED 

On the basis of the variables listed above and their hypothesized relationship to capital outlays, EPA specified a 

time-series, cross sectional model to be tested in the regression analysis. EPA’s dataset consisted of 204 cross 

sections observed at 11 years (1992 through 2002). The general structure of this model was as follows: 

CAPEXi,t = f(ROAi,t, REVi,t, CAPTi,t, CAPIi,t, DEBTCSTi,t, CAPPRCt, CAPUTILj,t) Appendix 

C3A5-1 

Where: 

CAPEXi,t = capital expenditures of firm i, in time period t;

5 

4 When VL adds a firm to its dataset, it fills in the public-reported data history for the firm for the lesser of 11 years or the 

length of time that the firm has been publicly listed and thus subject to SEC public reporting requirements. 

5

 All dollar values were deflated to 2002 using 2-digit PPI values. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-9 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

t = year (year = 1992, . . . , 2002); 

i = firm i (i = 1, . . . , 204); 

j = industry classification j 

ROAi,t = return on total assets for firm i in year t; 

REVi,t = revenue ($ millions) for firm i in year t; 

CAPTi,t = capital turnover rate for firm i in year t; 

CAPIi,t = capital intensity for firm i in year t; 

DEBTCSTt = financial cost of capital in year t; 

CAPPRCt = price of capital goods in year t; 

CAPUTILj,t = the Federal Reserve Board’s Index of Capacity utilization for a given industry j in year t. 

EPA only tested log-linear model specifications for this analysis.6

 The main advantage of the log-linear model is 

that it incorporates directly the concept of percent change in the explanatory variables. Specifying the key 

regression variables as logarithms permitted EPA to estimate directly as the coefficients of the model, the 

elasticities of capital expenditures with respect to firm financial characteristics and general business environment 

factors. The following paragraphs briefly discuss testing of the log-linear forms of the model. Parameter 

estimates are presented for the final log-linear model only. 

EPA specified a log-linear model, as follows: 

ln(CAPEXi,t) = α + Σ[βx ln(Xi,t)] + Σ[γy ln(Yt)] + ε Appendix 

C3A5-2 

Where: 

CAPEXi,t = capital expenditures of firm i, year t; 
 

βx = elasticity of capital expenditures with respect to firm characteristic X; 
 

Xi,t, = a vector of financial characteristics of firm i, year t; 
 

γy = elasticity of capital expenditures with respect to economic indicator Y; 
 

Yt = a vector of economic indicators, year t; for CAPUTIL, Y is also differentiated by industry
 

classification 

ε = an error term; and 

ln(x) = natural log of x 

Based on this model, the elasticity of capital expenditures with respect to an explanatory variable, for example, 

return on assets is calculated as follows: 

CAPEX E ) = d ln(CAPEX ) CAPEX d ) CAPEX Appendix = C3A5-3 ( ( d ln(ROA)

(

ROA d ) ROA 

6 While specifying the MP&M regression model, EPA tested both linear and log-linear model specifications. The pattern 

of coefficient significance was found to be better in the log-linear model. In addition, the log-linear model offered 

advantages in terms of retention of early time period observations (by eliminating the need to use percent change variables) 

and variable specifications, and helped to reduce outlier effects in the model. As a result, EPA selected a log-linear 

specification as the final regression model for the MP&M final regulation. Based on these reasons and the similarity of 

industry sectors analyzed for the two regulations, EPA decided to test only log-linear model specifications for the Phase III 

regression model. 

C3A5-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

Since logarithmic transformation is not feasible for negative and zero values, such values in the VL public firm 

dataset required linear transformation to be included in the analysis. The following variables in the sample 

required transformation: 

f CAPEX: Eighteen firms in the sample reported zero capital expenditures at least in one time period. EPA 

set these expenditures to $1. 

f REVENUE: Seven firms reported negative revenues in at least one time period. Because these are likely 

due to accounting adjustments from prior period reporting, EPA set negative revenues for these firms to 

$1. 

f ROA: the values for return on assets in the public firm sample range from -2.9 to 0.7. Approximately 34 

percent of the firms in the dataset reported negative ROAs in at least one year. To address this issue 

while reducing potential effects of data transformation on the modeling results, EPA used the following 

data transformation approach:7 

EPA excluded 27 firms with any annual ROA values below the 95th percentile of the ROA 

distribution (i.e., ROA # - 0.51). 

EPA used an additive data transformation to ensure that remaining negative ROA values were 

positive in the logarithm transformation. The additive transformation was performed by adding 0.51 

to all ROA values. 

As a result of the data transformation procedures outlined above, the VL public firm dataset on which the 

regression model is based was reduced to 177 firms (204 - 27 firms) and 1,947 yearly data observations. 

The analysis tested several specifications of a log-linear model, including models with the intercept and slope 

dummies for different industrial sectors and models with the intercept suppressed.8

 Slope dummies were used to 

test the influence of industry classification on the elasticity of capital expenditures with respect to an explanatory 

variable: e.g., using the product of an industry classification dummy variable and CAPPRC to test whether certain 

industries responded differently to change in price of capital equipment over time. Following review of the 

different models tested, EPA concluded that the estimated coefficients did not vary, significantly, by industry and 

thus selected the simple log-linear model, with the intercept and no slope dummies as the basis for the 316(b) 

Phase III capital expenditures analysis. The results for this model are summarized below. 

Cross-sectional, time-series datasets typically exhibit both autocorrelation and group-wise heteroscedasticity 

characteristics. Autocorrelation is frequently present in economic time series data as the data display a “memory” 

with the variation not being independent from one period to the next. Heteroscedasticity usually occurs in crosssectional data where the scale of the dependent variable and the explanatory power of the model vary across 

observations. Not surprisingly, the dataset used in this analysis had both characteristics. Therefore, EPA 

7 While specifying the MP&M regression model EPA conducted a sensitivity analysis to examine the degree to which the 

estimated model was affected by this data transformation. Results of this analysis showed that the data transformation 

produces results that are compatible with a model considering only positive ROA values and a model considering all ROA 

values. As a result, the Phase III regression model utilized the same data transformation procedure. 

8 While specifying the MP&M regression model, EPA also tested specifications that included the following structural 

modifications: (1) testing contemporary vs. lagged specification of certain explanatory variables: e.g., using prior, instead of 

current period revenue, REV, as an explanatory variable; (2) testing scale-normalized specification of the dependent variable: 

e.g., using CAPEX/REV as the dependent variable instead of simple CAPEX; (3) testing flexible functional forms that 

included quadratic terms; and (4) testing additional explanatory variables including the index of 10 leading economic 

indicators (ILI) and market-to-book ratio (MV/B). Because EPA found that these structural modifications either did not 

improve the fit of the MP&M regression model or resulted in the introduction of multicollinearity among variables, these 

structural modifications were not tested while specifying the Phase III regression model. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-11 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

estimated the specified model using the generalized least squares procedure. This procedure involves the 

following two steps: 

f First, EPA estimated the model using simple OLS, ignoring autocorrelation for the purpose of obtaining a 

consistent estimator of the autocorrelation coefficient (ρ); 

f Second, EPA used the generalized least squares procedure, where the analysis is applied to transformed 

data. The resulting autocorrelation adjustment is as follows: 

Zi,t = Zi,t - ρZi,t-1 Appendix 

C3A5-4 

where Zit is either dependent or independent variables. 

EPA was unable to correct the estimated model for group-wise heteroscedasticity due to computational 

difficulties. The statistical software used in the analysis (LIMDEP) failed to correct the covariance matrix due to 

the very large number of groups (i.e., 177 firms) included in the dataset. Application of other techniques to 

correct for group-wise heteroscedasticity was not feasible due to time constraints. The estimated coefficients 

remain unbiased; however, they are not minimum variance estimators. Regression results reveal strong 

systematic elements influencing capital expenditures: the analysis finds both statistically significant and intuitive 

patterns that influence firm's investment behavior. We find a strong systematic element of capital expenditures 

variation that allows forecasting of capital expenditures based on firm and business environment characteristics. 

Table Appendix C3A5-1 presents model results. The model has a fairly good fit, with adjusted R2

 of 0.81. All 

coefficients have the expected sign and all but one variable (cost of debt capital) are significantly different from 

zero at the 95th percentile. 

Table Appendix C3A5-4: Time Series, Cross-Sectional Model 

Results 

Variable Coefficient t-Statistics 

Constant 

Ln(ROA) 

Ln(REV) 

Ln(CAPT) 

Ln(CAPI) 

Ln(DEBTCST) 

Ln(CAPPRC) 

Ln(CAPUTIL) 

Autocorrelation Coefficient 

r 

21.880 2.618 

0.526 3.964 

1.129 58.450 

0.687 11.085 

1.078 18.491 

-0.789 -1.605 

-5.957 -4.369 

1.716 2.842 

0.385 18.402 

Source: U.S. EPA Analysis 

The empirical results show that among the firm-specific variables, the output variable (REV) is a dominant 

determinant of firms’ investment spending. A positive coefficient on this variable means that larger firms invest 

more, all else equal, which is clearly a simple expected result. In addition, as expected, firms with higher 

financial performance and better investment opportunities (ROA) invest more, all else equal: for each one percent 

increase in ROA, a firm is expected to increase its capital outlays by 0.53 percent. Other firm-specific 

characteristics were also found important and will aid in differentiating the expected capital outlay for Phase III 

facilities according to firm-specific characteristics. Firms that require more capital to produce a given level of 

business activity (i.e., firms that have high capital intensity, CAPI) tend to invest more: a one percent increase in 

C3A5-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

capital intensity leads to a 1.08 percent increase in capital spending. Higher capital turnover/shorter capital life 

(CAPT) also has a positive effect on investment decisions: a one percent increase in capital turnover rate 

translates to a 0.69 percent increase in capital outlays. 

The model also shows that current business environment conditions play an important role in firms’ decision to 

invest. Negative signs on the capital price (CAPPRC) and debt cost (DEBTCST) variables match expectations, 

indicating that falling (either relatively or absolutely) capital equipment prices and less costly credit are likely to 

have a positive effect on firms’ capital expenditures. The most influential factor is capital equipment prices for 

manufacturing facilities. A one percent increase in the capital price index (CAPPRC) leads to a 5.96 percent 

decrease in capital investment. Capacity utilization is also an influential factor: a one percent increase in the 

Federal Reserve Index of Capacity Utilization for the relevant industrial sector (CAPUTIL) leads to a 1.7 percent 

increase in capital investments. The fact that these systematic variables are significant in the regression analysis 

means that EPA will be able to control for economy- and industry-wide conditions in estimating capital outlays 

for Phase III facilities. 

C3A5-5 MODEL VALIDATION 

To validate the results of the regression analysis, EPA used the estimated regression equation to calculate capital 

expenditures and then compared the resulting estimate of capital expenditures with actual data. EPA used two 

methods to validate its results: 

f EPA used median values for explanatory variables from the Value Line data as inputs to estimate capital 

expenditures and then compared the estimated value to the median reported capital expenditures, and 

f EPA used Phase III survey data to estimate capital expenditures and then compared the estimated values 

to depreciation reported in the survey. 

First, EPA estimated capital expenditures for a hypothetical firm based on the median values of the four 

dependent variables from the Value Line data and the relevant values of the three economic indicators. The 

estimated capital expenditures for this hypothetical firm are $43 million. EPA then compared this estimate to the 

median value of capital expenditures from the Value Line data. The median capital expenditure value in the 

dataset is $36 million, which provides a close match to the estimated value. This is not surprising since the same 

dataset was used to estimate the regression model and to calculate the median values used in this analysis. 

EPA also used Phase III survey data to confirm that the estimated capital expenditures seem reasonable. Because 

the Phase III survey does not provide information on capital expenditures, EPA compared the capital expenditure 

estimates to the depreciation values reported in the survey. Depreciation had been proposed as a possible 

surrogate for cash outlays for capital replacements and additions. However, depreciation does not capture 

important variations in capital outlays that result from differences in firms’ financial performance. 

For this analysis, EPA chose a representative facility from each of the Phase III primary manufacturing sectors for 

model validation. The selected facility for each sector corresponds as closely as possible to the hypothetical 

median facility in the sector based on the distribution of facility revenues and facility return on assets. For each of 

the facilities, EPA estimated capital expenditures using the estimated regression equation and facility financial 

data. Table Appendix C3A5-5 shows the estimated regression coefficients, financial averages for the primary 

Phase III sectors, estimated facility capital expenditures, reported facility depreciation, and the comparison of 

capital expenditures and depreciation. 

As shown in Table Appendix C3A5-5, the estimated model provides reasonable estimates of capital expenditures. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-13 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

Table Appendix C3A5-5: Estimation of Capital Outlays for Phase III Sample Facilities: Median Facilities 

Selected by Revenue and ROA Percentiles 

Difference 

between 

Pre-Tax Estimated Depreciation 

Return Capital and Capital 

on Revenue Capital Cost Price of Expenditures Depreciation Expenditures 

Assets ($2004, Turnover Capital of Capital Capacity ($2004, ($2004, ($2004, 

Sectors (ROA) millions) Rate Intensity Debt Goods Utilization millions) millions) millions) 

Coefficient 0.53 1.13 0.69 1.08 -0.79 -5.96 1.72 

Intercept 

(21.88) 

Paper and 0.16 252.00 0.09 0.89 7.71 137.60 86.24 $19.54 $16.73 ($2.80) 

allied 

products 

Chemicals 0.27 244.59 0.06 1.14 7.71 137.60 79.36 $15.73 $14.69 ($1.04) 

and allied 

products 

Petroleum 0.22 1516.01 0.05 0.59 7.71 137.60 91.88 $47.03 $66.95 $19.93 

and coal 

products 

Primary 0.09 458.46 0.04 0.93 7.71 137.60 88.77 $16.07 $19.21 $3.14 

metals 

industries 

Food and 0.37 292.56 0.06 0.29 7.71 137.60 80.46 $4.82 $4.52 ($0.30) 

kindred 

products 

Source: U.S. EPA analysis, 2004. 

One of the possible implications of the hypothesized relationships and estimated coefficient values from the prior 

analysis is that a facility’s predicted capital expenditures might be expected to increase relative to the facility’s 

actual depreciation as the facility’s ROA increases. An extension of this hypothesis is that, at lower ROA values, 

predicted capital expenditures would be less than the depreciation but that at higher ROA values, predicted capital 

expenditures exceed depreciation. These hypotheses are consistent with the expectation that businesses with 

higher financial performance will have relatively more attractive investment opportunities and are more likely to 

attract the capital to undertake those investments. EPA examined whether these relationships occur in the 316(b) 

sample facilities. Specifically, EPA calculated the predicted capital expenditure for each facility and compared 

these values to the facilities’ reported depreciation values. To remove the scale effect of revenue, EPA normalized 

both the predicted capital expenditure and reported depreciation values by dividing by the three-year average of 

revenue for each facility. EPA then estimated the simple linear relationship of the resulting revenue-normalized 

capital expenditure and deprecation values against facility ROA. The five graphs on the following pages present, 

for each of the five primary two-digit SIC code sectors, the normalized capital expenditure and deprecation 

values, and the estimated trend lines for each sector’s depreciation and capital expenditures with respect to ROA.9 

The graphs indicate the following: 

f The Paper and Allied Products (SIC 26) graph shows depreciation exceeding predicted capital 

expenditure at low ROA values but this relationship reverses with predicted capital expenditure exceeding 

depreciation as ROA increases. Thus, the calculations for these facilities match the hypothesized 

relationship. 

9

 For presentation purposes, two outlier facilities were excluded from the graph for SIC 28: Chemicals and allied 

products, and one outlier facility was excluded from the graph for SIC 26: Paper and allied products. 

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f The Chemicals and Allied Products (SIC 28) graph also shows depreciation exceeding predicted capital 

expenditure at low ROA values, but again the relationship reverses with predicted capital expenditure 

exceeding depreciation as ROA increases. This predicted relationship is observed more strongly for 

facilities in the Chemicals and Allied Products industry than in the Paper and Allied Products industry. 

f The Petroleum and Coal Products (SIC 29) graph shows predicted capital expenditures exceeding 

depreciation over the ROA range analyzed. However, the extent of difference does not materially change 

as ROA increases. 

f The Primary Metal Industries (SIC 33) graph also shows predicted capital expenditures exceeding 

depreciation over the ROA range analyzed. However, unlike for the Petroleum and Coal Products 

facilities, the amount by which predicted capital expenditures exceeds depreciation increases as ROA 

increases, thus matching the hypothesized relationship. 

f The Food and Kindred Products (SIC 20) graph also shows that calculations for these facilities match the 

hypothesized relationship, where predicted capital expenditures exceed depreciation over the ROA range 

analyzed. The consistency of this result, as well as the CAPEX estimation in Table Appendix C3A5-5 

above, is notable to the extent that it demonstrates the model’s overall applicability across industries, as 

facility data from SIC 20 were not used for model specification. 

In summary, with the exception of facilities in the Petroleum and Coal Products industry, the estimated model 

produces capital expenditure values that increase relative to reported depreciation with increasing ROA, which 

matches the hypothesized relationship. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-15 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

0.00 

0.02 

0.04 

0.06 

0.08 

0.10 

0.12 

0.14 

0.16 

0.18 

-0.30 -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 

Return on Assets 

u 

DEPR CAPEX Linear (DEPR) Linear (CAPEX) 

Figure Appendix C3A5-1: Comparison of Estimated Capital Outlays to Reported Depreciation for Phase 

III Survey Facilities in the Paper and Allied Products Sector 

Capital O tlays & Depreciation Normalized by Facility Revenues 

Source: U.S. EPA analysis, 2004. 

C3A5-16 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
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0.00 

0.02 

0.04 

0.06 

0.08 

0.10 

0.12 

0.14 

-0.20 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 

Return on Assets 

DEPR CAPEX Linear (DEPR) Linear (CAPEX) 

Figure Appendix C3A5-2: Comparison of Estimated Capital Outlays to Reported Depreciation for 

Phase III Survey Facilities in the Chemicals and Allied Products Sector 

Capital O

utlays & 

Depreciation 

Normalized 

by Facility Reven

ues 

Source: U.S. EPA analysis, 2004. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-17 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

0.00 

0.02 

0.04 

0.06 

0.08 

0.10 

0.12 

0.14 

0.16 

-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60 

Return on Assets 

i 

DEPR CAPEX Linear (DEPR) Linear (CAPEX) 

Figure Appendix C3A5-3: Comparison of Estimated Capital Outlays to Reported Depreciation for 

Phase III Survey Facilities in the Petroleum and Coal Products Sector 

Cap tal O

utlays & 

Depreciation 

Normalized 

by Facility Reven

ues 

Source: U.S. EPA analysis, 2004. 

C3A5-18 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

0.00 

0.01 

0.02 

0.03 

0.04 

0.05 

0.06 

0.07 

0.08 

0.09 

0.10 

-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 

Return on Assets 

DEPR CAPEX Linear (DEPR) Linear (CAPEX) 

Figure Appendix C3A5-4: Comparison of Estimated Capital Outlays to Reported Depreciation for 

Phase III Survey Facilities in the Primary Metal Industries Sector 

Capital O

utlays & 

Depreciation 

Normalized 

by Facility Reven

ues 

Source: U.S. EPA analysis, 2004. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-19 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays Cap ys & Dep y y Revenues 

( ) ( ) 

Figure Appendix C3A5-5: Comparison of Estimated Capital Outlays to Reported Depreciation for 

Phase III Survey Facilities in the Food and Kindred Products Sector 

0.00 

0.02 

0.04 

0.06 

0.08 

0.10 

0.12 

-0.20 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 

Return onAssets 

ital Outla reciation Normalized b Facilit 

DEPR CAPEX Linear DEPR Linear CAPEX 

Source: U.S. EPA analysis, 2004. 

C3A5-20 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

ATTACHMENT C3A5.A: BIBLIOGRAPHY OF LITERATURE REVIEWED FOR THIS ANALYSIS 

As noted above, EPA relied on previous studies of investment behavior to select critical determinants of firms’ 

capital expenditures. Empirical results from these studies suggest that investment is most sensitive to quantity 

variables (output or sales), return-over-cost, and capital utilization (R. Chirinko). Empirical results from more 

recent studies further found that increasing depreciation rates and capital equipment prices were of first-order 

importance in the equipment investment behavior in the 1990 (T. Tevlin, K. Whelan). Specifically, declining 

prices of micro-processor based equipment played a crucial role in the investment boom in the 1990. 

Chirinko, Robert S. 1993. “Business Fixed Investment Spending: A Critical Survey of Modeling Strategies, 

Empirical Results and Policy Implications.” Journal of Economic Literature 31, no. 4: 1875-1911. 

Goolsbee, Austan. 1997. “The Business Cycle, Financial Performance, and the Retirement of Capital Goods.” 

University of Chicago, Graduate School of Business Working Paper. 

Greenspan, Alan. 2001. “Economic Developments.” Remarks before the Economic Club of New York, New 

York, May 24. 

Kiyotaki, Nobuhiro and Kenneth D. West. 1996. “Business Fixed Investment And The Recent Business Cycle 

In Japan.” National Bureau of Economic Research Working Paper 5546. 

McCarthy, Jonathan. 2001. “Equipment Expenditures since 1995: The Boom and the Bust.” Current Issues In 

Economics And Finance 7, no. 9: 1-6. 

Opler, Tim and Lee Pinkowitz, Rene Stulz and Rohan Williamson. 1997. “The Determinants and Implications of 

Corporate Cash Holdings.” Working paper, Ohio State University College of Business. 

Tevlin, Stacey and Karl Whelan. 2000. “Explaining the Investment Boom of the 1990s.” Board of Governors of 

the Federal Reserve System Finance and Economics Discussion Paper no. 2000-11 

Uchitelle, Louis. 2001. “Wary Spending by Companies Cools Economy.” New York Times, May 14, p. A1. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A5-21 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A5: Estimating Capital Outlays 

ATTACHMENT C3A5.B: HISTORICAL VARIABLES CONTAINED IN THE VALUE LINE 

INVESTMENT SURVEY DATASET 

All variables are provided for 10 years (except where a firm has been publicly listed for less than 10 years): 

f Price of Common Stock 
 

f Revenues 
 

f Operating Income 
 

f Operating Margin 
 

f Net Profit Margin 
 

f Depreciation 
 

f Working Capital 
 

f Cash Flow per share 
 

f Dividends Declared per share 
 

f Capital Spending per share 
 

f Revenues per share 
 

f Average Annual Price-Earnings Ratio 
 

f Relative Price-Earnings Ratio 
 

f Average Annual Dividend
 

f Return Total Capital 
 

f Return Shareholders Equity
 

f Retained To Common Equity
 

f All Dividends To Net Worth 
 

f Employees 
 

f Net Profit 
 

f Income Tax Rate 
 

f Earnings Before Extras 
 

f Earnings per share 
 

f Long Term Debt 
 

f Total Loans 
 

f Total Assets 
 

f Preferred Dividends 
 

f Common Dividends 
 

f Book Value 
 

f Book Value per share 
 

f Shareholder Equity
 

f Preferred Equity
 

f Common Shares Outstanding 
 

f Average Shares Outstanding 
 

f Beta 
 

f Alpha 
 

f Standard Deviation 
 

C3A5-22 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A6: Summary of Moderate Impacts 

Appendix C3A6: Summary of Moderate 
 

Impact Threshold Values by Industry 
 

INTRODUCTION 

Facilities subject to moderate impacts from the regulation 

under the regulatory analysis options are expected to 

experience financial stress short of closure. This analysis 

uses two financial indicators – (1) Pre-Tax Return on 

Assets (PTRA) and (2) Interest Coverage Ratio (ICR) – to 

test whether facilities might experience such stress. These 

threshold values were calculated at the industry-level and 

compared to pre- and post-compliance PTRA and ICR 

values for sample facilities to determine if facilities 

choosing to remain in business after promulgation of effluent guidelines would experience moderate impacts on 

their ability to attract and finance new capital. The six industries considered in this analysis are: Paper, 

Chemicals, Petroleum, Steel, Aluminum, Food (the “Primary Manufacturing Industries”), and Other Industries. 

The remainder of this appendix describes the sources and methodology used to derive industry-specific moderate 

impact threshold values. 

A CONTENTS 


 

PPENDIX 

Introduction........................................................C3A6-1

C3A6-1Developing Threshold Values for Pre-Tax 

Return on Assets (PTRA) .....................C3A6-2 

C3A6-2Developing Threshold Values for Interest 

Coverage Ratio (ICR) ...........................C3A6-2 

C3A6-3Summary of Results ..............................C3A6-3 

References..........................................................C3A6-5 

EPA calculated the thresholds using income and financial structure information by 4-digit SIC code from the Risk 

Management Association (RMA) Annual Statement Studies for eight years 1994-2001 (RMA, 2002; RMA, 2001; 

RMA, 1998)1

. This source provides quartile values derived from statements of commercial bank borrowers and 

loan applicants for firms having less than $250 million in total assets. These criteria may introduce bias, since 

firms with particularly poor financial statements might be less likely to apply to banks for loans, and some types 

of firms may be more likely to use bank financing than others. However, the RMA data offers the advantage of 

being available by 4-digit SIC codes and for quartile ranges. 

RMA did not provide data for all 4-digit SIC codes associated with an in-scope Section 316(b) facility. In 

particular, RMA had no years of data available for SIC codes associated with sample facilities in the Aluminum 

and Food industries. For the Aluminum industry, EPA applied a combined Steel/Aluminum industry value to 

facilities in those industries. For the Food industry, EPA applied values calculated using RMA data for SIC 20 

(Twenty-two 4-digit SIC codes). 

The 4-digit SIC code data were consolidated into weighted industry averages, weighted by 1997 value of 

shipments from the Economic Censuses (U.S. DOC, 1997). For each industry and impact measure, a separate 

threshold was calculated. The use of the RMA data for calculating the threshold values for pre-tax return on 

assets and interest coverage ratio is outlined below. 

1

 Thresholds for the Food industry were calculated using five years of data – 1997-2001 – because older data for this 

industry are unavailable from RMA. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A6-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A6: Summary of Moderate Impacts 

C3A6-1 DEVELOPING THRESHOLD VALUES FOR PRE-TAX RETURN ON ASSETS (PTRA) 

Pre-tax return on total assets measures management’s effectiveness in employing the capital resources of the 

business to produce income. A low ratio may indicate that a borrower would have difficulty financing treatment 

investments and continuing to attract investment. 

The following data from Risk Management Association Annual Statement Studies were used to calculate PTRA: 

f % Profit Before Taxes / Total Assets25th Ratio of profit before taxes divided by total assets and multiplied 

by 100 for the lowest quartile of values in each 4-digit SIC code. 

f Operating Profit Gross profit minus operating expenses. 

f Profit Before Taxes Operating profit minus all other expenses (net). 

RMA provides a measure of pre-tax return on assets that approximates the measure EPA defined for the moderate 

impact analysis. As defined by RMA, this measure is the ratio of pre-tax income to assets, designated ROARMA: 

ROARMA = Pre-Tax Income (EBT) / ASSETS25th 

However, as defined by EPA for its analysis, the numerator of the PTRA measure requires the use of earnings 

before interest and taxes (EBIT) instead of pre-tax income (EBT). Defined as EBIT, the PTRA numerator will 

capture all return from assets, whether going to debt or equity. To derive a pre-tax, total return value, EPA 

adjusted RMA’s measure of PTRA using the median percentage values of EBIT and EBT available from RMA. 

This adjustment yields the PTRA measure that EPA used in the moderate impact analysis, designated ROA316(b): 

ROA316(b) = ROARMA * EBIT / EBT 

Negative values are included in the weighted-industry PTRA averages but a different method is used to adjust the 

ROA values reported in RMA to the value used in the moderate impact analysis. Specifically, using only those 

observations (i.e., 4-digit SIC code and year combinations) with positive values for % Profit Before Taxes / Total 

Assets, Operating Profit, and Profit Before Taxes, EPA calculated an adjustment factor by subtracting the 

difference between ROA316(b) and ROARMA as follows: 

ROA316(b)-ROARMA = adjustment factor. 

Those values were consolidated into industry-specific adjustment factors, weighted by 1997 value of shipments 

from the Economic Censuses (U.S. DOC, 1997). Each negative PTRA observation from RMA was adjusted by 

its industry specific adjustment factor to approximate the measure used in the moderate impact analysis: 

ROARMA + industry specific adjustment factor = ROA316(b) 

The industry specific adjustment factors average 0.41 and range from 0.12 for Paper to 0.55 for the combined 

Steel/Aluminum industry. 

C3A6-2 DEVELOPING THRESHOLD VALUES FOR INTEREST COVERAGE RATIO (ICR) 

Interest coverage ratio measures a business’ ability to meet current interest payments and, on a pro-forma basis, 

to meet the additional interest payments for new debt. A high ratio may indicate that a borrower would have little 

difficulty in meeting the interest obligations of a loan. This ratio serves as an indicator of a firm's capacity to take 

on additional debt, as might be required to finance installation of compliance technology. 

The following data from Risk Management Association Annual Statement Studies were used to calculate ICR: 

C3A6-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A6: Summary of Moderate Impacts 

f EBIT/Interest25th Ratio of earnings (profit) before annual interest expense and 

taxes (EBIT) divided by annual interest expense for the lowest 

quartile of values in each 4-digit SIC code. 

f % Depr., Dep., Amort./Salesmed Median ratio of annual depreciation, amortization and depletion 

expenses divided by net sales and multiplied by 100. 

f Operating Profit Gross profit minus operating expenses. 

RMA provides a measure of interest coverage that approximates the measure that EPA defined for the moderate 

impact analysis. As defined by RMA, this measure is the ratio of earnings before interest and taxes to interest, 

designated ICRRMA: 

ICRRMA = EBIT / INTEREST25th 

However, as defined by EPA for its analysis, the numerator of the ICR measure requires the use of earnings 

before interest, taxes, depreciation, and amortization (EBITDA) instead of earnings before interest and taxes 

(EBIT). Defined this way, the ICR numerator will include all operating cash flow that could be used for interest 

payments. To derive the desired ICR value (designated ICR316(b)), EPA adjusted the RMA value as outlined 

below: 

ICR316(b) = EBITDA / INTEREST 

Therefore, ICR316(b) = ICRRMA * (EBIT + DA) / EBIT 

or ICR316(b) = ICRRMA * {1+ [(DA / SALES) / (EBIT / SALES)]} 

For consistency of calculation, EPA used the median values available from RMA for the adjusting both the 

numerator (DA / SALES) and denominator (EBIT / SALES) terms.2 

EPA used the same method as described above to adjust the negative ICR values reported in RMA to the value 

used in the moderate impact analysis. Including only those observations with positive values for EBIT/Interest, % 

Depr., Dep., Amort./Sales, and Operating Profit, an adjustment factor was calculated by subtracting the difference 

between ICR316(b) and ICRRMA as follows: 

ICR316(b)-ICRRMA = adjustment factor. 

An industry specific adjustment factor was calculated for ICR values similar to the PTRA. Each negative ICR 

observation from RMA was adjusted by its industry specific adjustment factor to approximate the measure used in 

the moderate impact analysis: 

ICRRMA + industry specific adjustment factor = ICR316(b) 

The industry specific adjustment factors average 0.66 and range from 0.55 for Petroleum to 0.70 for Paper and the 

combined Steel/Aluminum industry. 

C3A6-3 SUMMARY OF RESULTS 

Table C3A6-1 reports the resulting threshold values for PTRA and ICR by industry. The PTRA values range 

from 1.6 percent for Food industries to 2.9 percent for Chemicals. The ICR values range from 2.0 for Food 

industries to 2.4 for Chemicals. 

2

 Numerator (% Depr., Dep., Amort./Sales) is available for quartile values; denominator (Operating Profit) only for 

median values. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A6-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A6: Summary of Moderate Impacts 

th

Paper 

Petroleum 

Other Industries 

2.1% 2.2 

2.9% 2.4 

2.1% 2.2 

2.0% 2.1 

1.6% 2.0 

1.8% 2.0 

Source: 

Table C3A6-1: Summary of Moderate Impact Thresholds by Industry 

based on 25 percentile value of firms reporting data to RMA 

Industry 

Chemicals 

Steel/Aluminum 

Food & Beverage 

Pre-Tax Return on Assets (PTRA) Interest Coverage Ratio (ICR) 

RMA, 1998; RMA, 2001; RMA, 2002; U.S. Economics Census, 1997; U.S. EPA Analysis, 2006. 

C3A6-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A6: Summary of Moderate Impacts 

REFERENCES 

U.S. Department of Commerce. 1997. Bureau of the Census. Census of Manufacturers, Census of 

Transportation, Census of Wholesale Trade, Census of Retail Trade, Census of Service Industries. 

Risk Management Association (RMA). 2002. Annual Statement Studies 2001-2002. 

Risk Management Association (RMA). 2001. Annual Statement Studies 2000-2001. 

Risk Management Association (RMA). 1998. Annual Statement Studies 1997-1998. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A6-5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A6: Summary of Moderate Impacts 

THIS PAGE INTENTIONALLY LEFT BLANK
 

C3A6-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A7: Baseline Closure Rates 

Appendix C3A7: Analysis of Baseline 
 

Closure Rates 
 

I A CONTENTS


 


 


 

ANNUAL ESTABLISHMENT CLOSURES 

EPA used dynamic data

The SBA data report numbers of 

Nevertheless, EPA believes the SBA data can 

questionnaires. 

Manufacturing Industries (1990-2002) 

Range 

Closing 

Average 

11.1% 5.4% 

7.8% 6.6% 

18.7% 6.6% 

9.2% 6.8% 

Aluminum 0.0% 6.8% 

Food 0.0% 8.1% 

9.4% 6.7% 

Source: 

NTRODUCTION PPENDIX 

This appendix presents info Introduction........................................................C3A7-1 rmation on the closure of 

establishments in the Primary Manufacturing Industries. C3A7-1Annual Establishment Closures ............C3A7-1

References..........................................................C3A7-2

C3A7-1

 from the U.S. Small Business Administration (SBA) to estimate the rate at which 

facilities in the Primary Manufacturing Industries leave their industry each year. 

establishments starting up, closing, expanding employment and contracting employment each year from 1989 

through 2002 (the latest year currently available). 

EPA compared the percent of facilities predicted to close in the baseline closure analysis to typical closure rates in 

the six Primary Manufacturing Industries. The SBA data are organized by 3-digit SIC code for years 1990 

through 1998, and 4-digit NAICS code for years 1999 through 2002. As a result, it is not possible to compile a 

series of data consistently aligned with the industries profiled. 

provide a general measure of establishment closures for comparison for the broad industry segments. 

Table C3A7-1 shows the percentage of facilities potentially subject to the regulatory analysis options assessed as 

baseline closures, i.e. the facilities were found to be in severe financial distress absent any regulatory compliance 

costs and were likely to close. The table also presents the range and average of closure rates for each of the six 

Primary Manufacturing Industries. As reported in the table, between 1.4 percent and 14.4 percent of all facilities 

in these industries close annually. The estimated baseline closure rates for facilities in the Paper and Petroleum 

industries are higher than the observed closure rates in these industries, as reported in SBA data. However, EPA’s 

baseline closure rates are estimated from sample survey data and are thus subject to the statistical uncertainty of 

the sample survey. EPA judges that the individual sample facility analyses accurately represent the baseline 

financial condition of the facilities, based on the data provided by facilities in their detailed facility 

Table C3A7-1: Predicted Baseline Closures and Annual Percentage of Closures for Primary 

Sector 

Percent of 316(b) Facilities 

Assessed as Baseline Closures 

Percent of Establishments 

Paper 1.4% - 9.8% 

Chemicals 2.3% - 11.0% 

Petroleum 3.3% - 10.6% 

Steel 4.6% - 14.4% 

2.3% - 12.5% 

3.6% - 13.3% 

Total Primary Manufacturing 

Industries 

1.4% - 14.4% 

U.S. SBA, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A7-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A7: Baseline Closure Rates 

REFERENCES 

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. 1997 Economic Census Bridge 

Between NAICS and SIC. Available at: http://www.census.gov/epcd/ec97brdg/. 

U.S. Small Business Administration (SBA). 2006. Firm Size Data. Dynamic data, by births, deaths, growth, and 

decline (text files). Downloaded March 22, 2006. Available at: http://www.sba.gov/advo/research/data.html. 

C3A7-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A8: Analysis of Other Regulations 

Appendix C3A8: Analysis of Other 
 

Regulations 
 

INTRODUCTION 

Public comments on the proposed Phase III regulation 

argued that the manufacturers analysis should account for 

other environmental regulations that were recently or will 

soon be promulgated, potentially imposing additional costs 

beyond those reflected in the survey financial statements. 

The after-tax cash flow (ATCF) adjustment analysis, which 

EPA undertook to bring the estimates of cash flow forward from the time of the survey (1996-1998) to the time of 

the regulatory analysis (2005), accounts implicitly for additional regulatory costs incurred through 2005. 

However, it does not capture the impact of new regulations that came into effect during this period and for which 

costs had not yet been incurred, or fully incurred, by 2005. 

A CONTENTS 


 


 

PPENDIX 

Introduction........................................................C3A8-1

C3A8-1Methodology .........................................C3A8-3 

C3A8-2Results...................................................C3A8-5 

References..........................................................C3A8-6

To account for potential costs that had not been fully incurred by 2005, EPA researched additional regulatory 

requirements that might apply to facilities in the Primary Manufacturing Industries or the Food and Kindred 

Products industry (i.e., the “316(b) Manufacturing Industries”), whose costs were not likely to have been captured 

in the ATCF adjustment analysis. This research identified 13 regulations that apply to the 316(b) Manufacturing 

Industries and could result in additional costs to 316(b) manufacturing facilities.1 

Table C3A8-1 below summarizes these regulations (referred to hereafter as “other regulations”). The following 

discussion uses both the regulation number presented in the first column and the abbreviated regulation name, 

bolded in the second column. 

1

 The methodology used to identify the 13 other regulations is discussed in detail in a memorandum to the record, 

Identifying Additional EPA Regulations That May Affect 316(b) Facilities. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A8-1 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A8: Analysis of Other Regulations 

No. Regulation Date Summary Compliance 

Date 

1 11/04 

;

9/07 

2 11/03 

11/06 

3 04/02 

; 

Final Rule requirements 

4 

(Non-Gasoline); 

02/04 

HAPs for new and existing 02/07; 02/14 

for some roof 

Final Rule operations storage tanks 

5 04/03 

Coke 

Ovens

04/06 

6 05/03 

Integrated 

; Final 

05/06 

Rule 

7 07/02 

07/05 

Maximum Achievable Control 

Rule 

Production. 

8 

Point 

11/02 

10/05 

9 06/02 Sets emission limits for HAPs for 

operations 

10 10/03 

Site HAPs from site remediation ; 10/06 

Remediation

11 04/03 Sets emission limits for HAPs for 

04/06 

Rule 

12 12/03 

Emissions from 

Alkali Plants

12/06 

13 

From 

08/04 

nonroad diesel engines and 

2007-2014, 

reduction in 

sulfur content 

Table C3A8-1: Regulations Potentially Affecting 316(b) Manufacturers 

Effective 316(b) Industries Affected 

National Emission Standards for Sets emission limits for several Pulp and paper mills, Not later than 

Hazardous Air Pollutants for Industrial, 

Commercial, and Institutional Boilers 

and Process Heaters Final Rule 

hazardous air pollutants (HAPs) 

for boilers and process heaters 

petroleum refineries, 

chemical manufacturers, and 

steel works (blast furnaces); 

potentially others 

National Emission Standards for Sets emission limits for several Chemical manufacturers Not later than 

Hazardous Air Pollutants: HAPs for miscellaneous organic 

Miscellaneous Organic Chemical 

Manufacturing; Final Rule 

chemical manufacturers 

National Emission Standards for Sets emission limits for several Petroleum refineries Not later than 

Hazardous Air Pollutants for 

Petroleum Refineries: Catalytic 

HAPs for catalytic cracking units, 

catalytic reforming units, and 

4/07; 12/09 for 

some refineries 

Cracking Units, Catalytic Reforming sulfur recovery limits, as well as that meet 

Units, and Sulfur Recovery Units associated by-pass lines certain 

National Emission Standards for 

Hazardous Air Pollutants: Organic 

Liquids Distribution

Sets emission limits for several 

organic liquids distribution 

Chemical manufacturers, 

petroleum refineries; 

potentially others 

Not later than 

National Emission Standards for Sets emission limits for several Integrated steel mills Not later than 

Hazardous Air Pollutants for 

: Pushing, Quenching, and 

HAPs for coke ovens 

Battery Stacks; Final Rule 

National Emission Standards for Sets emission limits for several Integrated steel mills Not later than 

Hazardous Air Pollutants: 

Iron and Steel Manufacturing

HAPs for integrated iron and steel 

manufacturing facilities 

National Emission Standards for Sets emission limits for four Chemical manufacturers, Not later than 

Hazardous Air Pollutants: Generic source categories: Cyanide certain segments 

Technology; Final Rules and Proposed 

Chemicals Manufacturing, Carbon 

Black Production, Ethylene 

Production, and Spandex 

Effluent Limitations Guidelines, 

Pretreatment Standards, and New 

Source Performance Standards for the 

Iron and Steel Manufacturing

Source Category; Final Rule 

Revises CWA effluent limitations 

guidelines and standards for 

wastewater discharges from the 

iron and steel manufacturing 

industry 

Steel manufacturers Not later than 

National Emission Standards for Chemical manufacturers Not later than 

Hazardous Air Pollutants: Cellulose 

Products Manufacturing; Final Rule 

cellulose products manufacturing 06/05; except 

06/10 for rayon 

National Emission Standards for Sets emission limits for several Chemical manufacturers, Not later than 

Hazardous Air Pollutants: primary aluminum

; Final Rule potentially others 

National Emission Standards for Chemical manufacturers Not later than 

Hazardous Air Pollutants: 

Hydrochloric Acid Production; Final 

hydrochloric acid production 

facilities 

National Emission Standards for Sets emission limits for mercury Chemical manufacturers Not later than 

Hazardous Air Pollutants: Mercury 

Mercury Cell Chlor-

; Final Rule 

for mercury cell chlor-alkali plants 

Control of Emissions of Air Pollution 

Nonroad Diesel Engines and 

Fuel; Final Rule 

Sets new emission standards for 

reduces sulfur content of nonroad 

Petroleum refineries (for 

production of lower sulfur 

content diesel fuel) 

with staged 

diesel fuel. 

Source: Rule preambles and supporting materials. See reference section. 

C3A8-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A8: Analysis of Other Regulations 

To account for potential impacts of these other regulations on 316(b) manufacturing facilities, EPA determined to 

which 316(b) industry sectors, based on SIC code, each regulation applies and extracted the estimated per facility 

costs for facilities in the identified sectors. These costs were added to the free cash flow analysis for each 316(b) 

facility that is likely to be regulated by one of the 13 regulations (see also Chapter C3, Section 2.2). EPA then 

determined if the potential costs associated with these regulations would affect either the baseline or the postcompliance determination of impact for each facility. The remainder of this appendix discusses the methodology 

used for this analysis and the findings. 

C3A8-1 METHODOLOGY 

 Determination of applicability to 316(b) manufacturing facilities 

EPA first identified which of the in-scope manufacturing facilities would potentially incur costs as a result of each 

of the 13 other regulations. This determination was based on the SIC codes or NAICS codes specified in either 

the preamble or the supporting documents of each regulation. When a rule only specified NAICS codes, EPA 

identified all SIC codes associated with each NAICS code. All 316(b) manufacturing facilities in each 4-digit 

SIC sector subject to a given regulation are assumed to incur costs under that regulation. For three of the 13 other 

regulations (No. 5, 6, and 7), the supporting documents identified specific facilities that are regulated under the 

rule. For these three rules, EPA assumed that only those 316(b) manufacturing facility identified by the rule 

would incur compliance costs. 

EPA’s assumption about the applicability of the 10 regulations that did not identify specific facilities covered by 

the rule – i.e., that a 316(b) facility will incur costs under the regulation, if it belongs to an SIC code that is subject 

to that regulation – is likely to overstate the additional cost burden as a result of these regulations. Rules often 

only affect a specific part of an industry sector, depending, for example, on specific emission or discharge 

characteristics, or existing pollution control technology. It is therefore likely that not all 316(b) facilities in a 

given SIC code subject to a rule would actually incur costs under that rule. However, little information is 

available on those technical characteristics of 316(b) manufacturing facilities that would determine the 

applicability of the regulations to these facilities. EPA therefore made the conservative assumption that all 316(b) 

manufacturing facilities in the SIC codes covered by the other regulations would incur costs under those rules. 

 Extraction of facility-level costs 

EPA considered several analytic approaches of applying the costs of the 13 other regulations to 316(b) 

manufacturing facilities that might be affected by them. Considered approaches included application of costs 

based on (1) model facilities, (2) average per facility cost, and (3) maximum per facility cost, if a range was 

provided. These costs might be based on the overall cost of a regulation or might be broken out by SIC code or 

another definition of industry sector. In addition, different concepts of cost were considered, including industry 

compliance costs and changes in producer surplus. 

Ultimately, the cost application approach selected for each regulation depended on the level of detail that was 

available in the regulatory materials; however, EPA always used the method that would result in the most precise 

application of costs. In general, the model facility approach proved not feasible since insufficient information 

was available on how to map 316(b) facilities to specific models used in a regulation. EPA also decided not to 

apply a maximum per facility cost, if a range of per facility costs was provided. This approach would yield an 

upper-bound estimate but would, in most cases, significantly overstate the actual cost likely borne by each facility 

and would therefore not provide a good indication of the additional burden. EPA therefore calculated the average 

cost per facility for each regulation. This average cost was either calculated for each affected SIC code, if 

possible, or for the rule as a whole. Finally, EPA used the average loss in producer surplus, if available. Change 

in producer surplus is the best indicator of burden on complying facilities since it takes into account the ability of 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A8-3 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A8: Analysis of Other Regulations 

passing-through compliance costs to customers and any resulting changes in prices and quantities sold. If changes 

in producer surplus were not available, EPA used industry pre-tax, annualized compliance costs. 

Table C3A8-2 summarizes the cost application method that was used for each of the 13 other regulations and the 

resulting per facility costs that were applied to 316(b) manufacturing facilities in the relevant sectors. 

Table C3A8-2: Per Facility Cost of Regulations that Affect 316(b) Industriesa 

No. Regulation Cost Application Method 

1 

NESHAP 

3⁄4 

3⁄4 

3⁄4 

2 

NESHAP 

3⁄4 

3⁄4 

3⁄4 

$372,000 

3 2911 3⁄4 $0 

NESHAP 

4 

NESHAP 

3⁄4 

3⁄4 

3⁄4 

5 Coke Ovens NESHAP 3⁄4 $2,646,700 

3⁄4 

3⁄4 

6 3⁄4 $708,400 

3⁄4 

3⁄4 

7 3⁄4 

3⁄4 

3⁄4 

3⁄4 

8 3312 3⁄4 $50,300 

ELG 3⁄4 

3⁄4 

9 3⁄4 $521,400 

3⁄4 

3⁄4 

10 3⁄4 $569,000 

3⁄4 

3⁄4 

11 3⁄4 $101,100 

3⁄4 

3⁄4 

12 

Plants NESHAP 

2812 3⁄4 

3⁄4 

3⁄4 

$209,200 

13 2911 3⁄4 

3⁄4 

3⁄4 

$124,535 

Affected 316(b) SIC Codes Per Facility Cost 

(Pre-Tax; $2004) 

Boilers and Process Heaters 1011, 2046, 2085, 2611, 2621, 

2631, 2676, 2812, 2813, 2819, 

2821, 2823, 2833, 2865, 2869, 

2911, 3312, 3313, 3315, 3317, 

3334, 3353, 3421, 3724 

Average cost per facility 

By 2-digit SIC code 

Change in producer surplus 

SIC 10 – $364,600 

SIC 20 – $221,400 

SIC 26 – $210,300 

SIC 28 – $166,600 

SIC 29 – $32,600 

SIC 33 – $396,800 

SIC 34 – $161,900 

SIC 37 – $219,400 

Miscellaneous Organic 

Chemical Manufacturing 

2812, 2813, 2819, 2821, 2823, 

2833, 2865, 2869 

Average cost per facility 

Total rule 

Industry compliance costs 

Petroleum Refineries The analysis predicted a gain in 

producer surplus as a result of 

the rule. 

Organic Liquids Distribution 2821, 2865, 2869, 2911 Average cost per facility 

By 2-digit SIC code 

Industry compliance costs 

SIC 28 – $63,625 

SIC 29 – $21,036 

3312 (specific facilities are Average cost per facility 

identified) By 4-digit SIC code 

Change in producer surplus 

Integrated Iron and Steel 3312 (specific facilities are Average cost per facility 

Manufacturing NESHAP identified) By 4-digit SIC code 

Change in producer surplus 

Generic Maximum 

Achievable Control 

Technology NESHAP 

2819, 2869 (specific facilities 

are identified) 

2819: average cost per facility 

2869: maximum cost per facility 

By 2-digit SIC code 

Industry compliance costs 

SIC 2819 – $193,700 

SIC 2869 – $1,662,400 

Iron and Steel Manufacturing Average cost per facility 

Total rule 

Industry compliance costs 

Cellulose Products 2821, 2823, 2869 Average cost per facility 

Manufacturing NESHAP Total rule 

Industry compliance costs 

Site Remediation NESHAP 2819, 2821, 2865, 2869, 2911 Average cost per facility 

Total rule 

Industry compliance costs 

Hydrochloric Acid 2819, 2821, 2869 Average cost per facility 

Production NESHAP Total rule 

Industry compliance costs 

Mercury Cell Chlor-Alkali Average cost per facility 

By 4-digit SIC code 

Industry compliance costs 

Nonroad Diesel Engines and 

Fuel Emissions Standards 

Average cost per facility 

By 4-digit SIC code 

Change in producer surplus 

Source: EPA analysis of rule preambles and supporting materials. See reference section. 

C3A8-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A8: Analysis of Other Regulations 

The per facility costs identified in Table C3A8-2 were then aggregated for each 316(b) manufacturing facility 

(based on SIC code or individual facility identification), converted to a post-tax value, and subtracted from 

baseline adjusted after-tax cash flow (see discussion of the impact analysis method in Chapter C3: Economic 

Impact Analysis for Manufacturers). For all 316(b) facilities that were operational in the baseline under each 

primary analysis option, EPA determined if the addition of the cost of complying with the 13 other regulations 

would cause the facility to (1) fail the baseline test and become a “baseline closure” or (2) fail the postcompliance impact test and be considered a “severe impact” of the analysis option. 

C3A8-2 RESULTS 

 Baseline analysis 

Of the 70 sample manufacturing facilities2

 that are operational in the baseline and have a design intake flow of at 

least 50 MGD, the smallest DIF applicability threshold of all three regulatory analysis options, only one facility 

would experience financial difficulty in the baseline (i.e., before incurring Phase III compliance costs) if it 

incurred the additional costs of the other regulations. This facility is a petroleum refinery with very low baseline 

profitability. EPA estimates that this facility might be subject to regulations #1, 3, 4, 10, and 13 and incur a total 

cost of $447,000 (post-tax) as a result of these regulations. 

None of the other sample facilities would be affected in the baseline as a result of complying with the other 

regulations. 

 Post-compliance analysis 

The post-compliance analysis sets aside facilities considered baseline closures. Of the 69 remaining sample 

manufacturing facilities (i.e., those that are not considered a baseline closure after applying the costs of the other 

regulations), no facility would experience a severe impact as a result of incurring both Phase III compliance costs 

and the costs of the other regulations. 

This analysis shows that consideration of other regulations that might affect 316(b) manufacturing facilities would 

have a minimal effect on the results of EPA’s facility impact analysis conducted in support of the Phase III rule. 

2

 This analysis excludes one facility with zero revenues in the baseline. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute C3A8-5 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A8: Analysis of Other Regulations 

REFERENCES 

U.S. Environmental Protection Agency (U.S. EPA). 2006. Memorandum to the record: Identifying Additional 

EPA Regulations That May Affect 316(b) Facilities. June 1, 2006. 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants 

for Industrial, Commercial, and Institutional Boilers and Process Heaters; Final Rule. 69 FR 55218. September 

13, 2004. (Rule #1) 

U.S. Environmental Protection Agency (U.S. EPA). Economic Impact Analysis of the Industrial Boilers and 

Process Heaters NESHAP. EPA-452/R-04-011. February 2004. (Rule #1) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Miscellaneous Organic Chemical Manufacturing; Final Rule. 68 FR 63857. November 10, 2003. (Rule #2) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants 

for Petroleum Refineries: Catalytic Cracking, Catalytic Performing, and Sulfur Plant Units; Final Rule. 67 FR 

17762. April 11, 2002. (Rule #3) 

U.S. Environmental Protection Agency (U.S. EPA). Economic Impact Analysis for the Petroleum Refineries 

(Catalytic Cracking, Catalytic Performing, and Sulfur Plant Units) NESHAP. A-97-36. December 1997. (Rule 

#3) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Organic Liquids Distribution (Non-Gasoline); Final Rule. 69 FR 5038. February 3, 2004. (Rule #4) 

U.S. Environmental Protection Agency (U.S. EPA). Economic Impact Analysis of Air Pollution Regulations: 

NESHAP for Organic Liquids Distribution. EPA-452/R-02-017. August 2003. (Rule #4) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants 

for Coke Ovens: Pushing, Quenching, and Battery Stacks; Final Rule. 68 FR 18008. April 14, 2003. (Rule #5) 

U.S. Environmental Protection Agency (U.S. EPA). Economic Impact Analysis of Final Coke Ovens NESHAP. 

EPA 452/R-02-008. September 2002. (Rule #5) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Integrated Iron and Steel Manufacturing; Final Rule. 68 FR 27646. May 20, 2003. (Rule #6) 

U.S. Environmental Protection Agency (U.S. EPA). Economic Impact Analysis of Final Integrated Iron & Steel 

NESHAP. EPA 452/R-02-009. September 2002. (Rule #6) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Generic Maximum Achievable Control Technology; Final Rules and Proposed Rule. 67 FR 46259. July 12, 

2002. (Rule #7) 

U.S. Environmental Protection Agency (U.S. EPA). Economic Impact Analysis for the Proposed Cyanide 

Manufacturing NESHAP. EPA-452/D-00-004. May 2000. (Rule #7) 

U.S. Environmental Protection Agency (U.S. EPA). Effluent Limitations Guidelines, Pretreatment Standards, and 

New Source Performance Standards for the Iron and Steel Manufacturing Point Source Category; Final Rule. 67 

FR 64216. October 17, 2002. (Rule #8) 

C3A8-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part C: Economic Analysis for Existing Facilities Appendix C3A8: Analysis of Other Regulations 

U.S. Environmental Protection Agency (U.S. EPA). Economic Impact Analysis of the Final Effluent Guidelines 

and Standards for the Iron & Steel Manufacturing Point Source Category. EPA-821-R-02-006. April 2002. 

(Rule #8) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Cellulose Products Manufacturing; Final Rule. 67 FR 40044. June 11, 2002. (Rule #9) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Site Remediation; Final Rule. 68 FR 58172. October 8, 2003. (Rule #10) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Site Remediation. EPA-452/R-03-016. August 2003. (Rule #10) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Hydrochloric Acid Production; Final Rule. 68 FR 19076. April 17, 2003. (Rule #11) 

U.S. Environmental Protection Agency (U.S. EPA). Economic Impact Analysis of the Hydrochloric Acid (HCl) 

Production NESHAP – Final Report. EPA 453/R-03-001. February 2003. (Rule #11) 

U.S. Environmental Protection Agency (U.S. EPA). National Emission Standards for Hazardous Air Pollutants: 

Mercury Emissions from Mercury Cell Chlor-Alkali Plants; Final Rule. 68 FR 70904. December 19, 2003. 

(Rule #12) 

U.S. Environmental Protection Agency (U.S. EPA). Control of Emissions of Air Pollution From Nonroad Diesel 

Engines and Fuel; Final Rule. 69 FR 38958. June 29, 2004. (Rule #13) 

U.S. Environmental Protection Agency (U.S. EPA). Final Regulatory Analysis: Control of Emissions from 

Nonroad Diesel Engines. EPA 420-R-04-007. May 2004. (Rule #13) 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

Chapter D1: Regulatory Flexibility Analysis 
 

INTRODUCTION 

The Regulatory Flexibility Act (RFA) requires EPA to 

consider the economic impact a proposed rule would have 

on small entities. The RFA requires an agency to prepare a 

regulatory flexibility analysis for any notice-and-comment 

rule it promulgates, unless the Agency certifies that the rule 

“will not, if promulgated, have a significant economic 

impact on a substantial number of small entities” (The 

Regulatory Flexibility Act, 5 U.S.C. § 605(b)). 

Small entities include small businesses, small 

organizations, and small governmental jurisdictions. For 

assessing the impacts of the proposed regulation proposal 

on small entities, a small entity is defined as: (1) a small 

business as defined by the Small Business Administration’s 

(SBA) regulations at 13 CFR 121.201; (2) a small 

governmental jurisdiction that is a government of a city, 

county, town, school district or special district with a 

population of less than 50,000; and (3) a small organization 

that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. 

CHAPTER CONTENTS 


 

	 


 


 


 

Introduction............................................................ D1-1

D1-1 Analysis of New Offshore Oil and Gas 

Extraction Facilities .................................. D1-2 

D1-1.1 Small Entity Determination .............. D1-2 

D1-1.2 Percentage of Small Entities Regulated 

.......................................................... D1-4 

D1-1.3 Sales Test for Small Entities............. D1-4 

D1-2 Analysis of Manufacturers ........................ D1-5

D1-2.1 Small Entity Determination .............. D1-5

D1-2.2 Percentage of Small Entities Regulated 

........................................................ D1-10

D1-2.3 Sales Test for Small Entities........... D1-10 

D1-3 Summary of Regulatory Flexibility Analysis.... 

 ........................................................ D1-10 

References............................................................ D1-12 

To evaluate the potential impact of this rule on small entities, EPA identified the domestic parent entity of each 

facility potentially subject to Phase III regulation, and determined its size. EPA then used a “sales test” to assess 

the potential severity of economic impact on small entities. The test compares annualized compliance cost to total 

entity sales revenues. This analysis uses three cost-to-revenue ranges to report the estimated number and 

percentage of small entities incurring compliance costs: less than 1%; at least 1% but less than 3%; and at least 

3%. EPA assumed that small entities with costs of 3% of revenues or more might be significantly impacted as a 

result of the proposed rule. 

In this chapter, EPA presents findings for the regulatory analysis options considered for existing facilities: the “50 

MGD All Waterbodies option,” the “200 MGD All Waterbodies option,” and the “100 MGD for Certain 

Waterbodies option.” These options all require the same reduction in impingement and entrainment (I&E), and 

differ only by design intake flow (DIF) applicability threshold and waterbody type. As a result, the number of 

facilities that would be required to meet the national categorical requirements varies among the three options: the 

50 MGD All option has the broadest applicability, and would apply national categorical requirements to 144 

facilities. The 200 MGD All option would apply national categorical requirements to 30 facilities, while the 100 

MGD CWB option would apply national categorical requirements to 24 facilities. In addition to the analyses for 

these regulatory analysis options, EPA evaluated eight other supplementary options. Results for these 

supplementary analyses are presented in Appendix 1 to this chapter. 

Although EPA has decided to retain permitting authorities’ best professional judgment for Phase III existing 

facilities, EPA is promulgating section 316(b) requirements for Phase III new offshore oil and gas extraction 

facilities (also abbreviated as “new OOGE facilities”). These final requirements are based on a 2 MGD DIF 

applicability threshold and would apply to an estimated 124 new offshore oil and gas extraction facilities. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 	 D1-1 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

EPA’s analysis found that the final rule would not have a significant economic impact on a substantial number of 

small entities. This determination is based on the finding that this rule would apply national categorical 

requirements to only one small entity in the new offshore oil and gas extraction industry segment. EPA 

estimates that this entity would incur annualized after-tax compliance costs of less than 0.1% of annual sales 

revenues. The sections that follow detail this analysis for new offshore oil and gas facilities as well as the existing 

manufacturing facilities considered in development of the final Phase III Section 316(b) rule. 

D1-1 ANALYSIS OF NEW OFFSHORE OIL AND GAS EXTRACTION FACILITIES 

This section discusses EPA’s analysis of potential small entity impacts of the final regulation on the new offshore 

oil and gas extraction industry segment. The final Phase III regulation for new offshore oil and gas extraction 

facilities is based on a 2 MGD DIF applicability threshold and would regulate an estimated 124 new offshore oil 

and gas extraction facilities. 

D1-1.1 Small Entity Determination 

EPA used the information on existing small entities in the offshore oil and gas extraction industry to estimate the 

number of small entities associated with new facilities. EPA identified only 25 small entities currently operating 

mobile offshore drilling units or platforms in 2006 that could potentially be regulated by the final option for new 

facilities, should they construct new MODUs or platforms similar to those currently in operation. 

D1-1.1.1 Mobile Offshore Drilling Units (MODUs) 

EPA first identified the operating companies of existing MODUs operating in the Gulf of Mexico and the number 

of rigs owned by each company. EPA then linked these operating companies to their domestic parent companies. 

EPA identified 24 parent firms potentially affected by the final rule for new facilities (see Table B2-2 in Chapter 

B2: Profile of the Offshore Oil and Gas Extraction Industry). These affiliations were determined primarily on the 

basis of Security and Exchange Commission (SEC) data using the FreeEdgar database, on which all filings of 

publicly held firms are available (SEC, 2006). The 10-K reports were the primary sources used to collect this 

information. The 10-K annual reports generally list significant subsidiaries of the parent company and are the 

source of income statement and balance sheet information used for characterizing financial conditions at a firm. 

The subsidiary lists were used to confirm ownership relationships. 

EPA identified the NAICS code for each of the domestic parent companies currently operating a MODU in the 

Gulf of Mexico and the SBA size standard for each code. Table D1-1 shows that of the 24 parent entities 

operating MODUs in the Gulf of Mexico, none could be clearly identified as small. Only one of three firms 

presumed small currently operate MODUs of the type identified as likely to have DIFs of 2 MGD or more. EPA 

noted at proposal that only large firms are building new MODUs. Current data also indicate that only large firms 

are building new MODUs. EPA received no comments indicating that small businesses in this segment of the oil 

and gas industry will be affected by the final rule. 

D1-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
c 

§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

Table D1-1: NAICS Classification of MODU Parent Companies 

Total Number of 

SIC code NAICS code NAICS Description SBA Definition of Small Firmsa 

Small Large 

1311 211111 Crude Petroleum and Natural 

Gas Extraction 500 employees 0 1 

2911 324110 Petroleum Refineries 1,500 0 1 

2810 325110 Industrial Chemical Mfgs. 1,000b 0 1 

1381 213111 Drilling Oil and Gas Wells 500 employees 0 11 

1389 213112 Support Activities for Oil and 

Gas Operations $6.5 million in revenues 0 1 

6799 Several NAICS Various, related to misc. $6.5 million in revenuesc 0 1 investment firms 

a Does not include five foreign firms and three potentially small, unknown firm for which NAICS or SIC codes could not be located 

in publicly available data. 

b Specific NAICS not listed in SBA definitions; largest employment definition from NAICS 325 used here. 

All three NAICS matched to SIC 6799 are listed $6.5 million in revenues. 

Source: SEC, 2006; 13 CFR Part 121, Census, 2006 

EPA estimates that 80 jack-up MODUs, 20 semi-submersible MODU, and three drillships will be built during the 

entire 20-year period of analysis, for a total of 103 new sources (see Chapter B2: Profile of the Offshore Oil and 

Gas Extraction Industry for a detailed discussion of the estimated number of new MODUs). EPA estimates that 

no small entities will be building new MODUs potentially subject to Phase III regulation. 

D1-1.1.2 Platforms 

 Gulf of Mexico 

At proposal, EPA determined, based on data from the Bureau of Land Management’s Minerals Management 

Service (MMS), that, on average, one potentially regulated structure is built per year in the deepwater portion of 

the Gulf of Mexico. EPA therefore estimates that 20 structures will be constructed over the time frame of the 

analysis. With the exception of a few sub-sea completions, which do not operate potentially regulated CWIS; 

only large firms have built structures in the deepwater Gulf of Mexico. EPA reviewed the current status of 

deepwater structures (see Chapter B2: Profile of the Offshore Oil and Gas Extraction Industry). The structures 

built between 2003 and 2006 were all constructed by large firms. This trend is likely to continue, given the 

resources required to construct deep-sea structures, which sometimes exceed $1 billion dollars (EPA 821-B-00-

012). Therefore, all of these structures are assumed to be constructed by large firms. EPA determined that it was 

unlikely that any platforms with DIFs of 2 MGD or more would be constructed outside of the deepwater Gulf and 

has not changed the count of small businesses operating within the shallow water Gulf of Mexico from proposal. 

EPA received no comments indicating that small businesses in this segment of the oil and gas industry will be 

affected by the final rule. 

 California 

At proposal, EPA did not project any platforms off the California coast to be constructed during the time period of 

evaluation. Therefore, no small entities owning platforms in this area would be affected by this rule. EPA has not 

changed this assessment. EPA received no comments indicating small businesses in this segment of the oil and 

gas industry will be affected by the final rule. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

 Alaska 

In Cook Inlet, Alaska, only one new platform has been constructed in the last 16 years. Most new exploration and 

development in this region takes place from existing infrastructure or from onshore locations. No definitive plans 

appear to be in place for any new platforms in State waters. In Federal waters, lower Cook Inlet is a source of 

potential activity, since MMS completed a lease bid in April 2004. No activity in this region was noted since that 

time, however. Given the long lead times between lease bid to operation, it may be unlikely that this lease bid will 

result in new platforms during the time frame of the analysis. To be conservative, however, EPA assumes that 

one such platform might be constructed in either Federal or State waters and begin operation in 2014. In other 

Federal areas in the Alaska region, little new activity is underway. BP has dropped plans for its Liberty project in 

the Beaufort Sea area. The only other activity that has taken place in recent years in Federal waters is an 

exploratory well drilled in the Beaufort Sea in 2003. No further activity has been noted since that time. MMS has 

completed lease sales in the Beaufort Sea in 2003 and 2005; however, the time frame for development, if any is 

undertaken, is likely to be beyond the time frame of this analysis. Because the most recently installed platform in 

Cook Inlet was built by a small entity, EPA projects that one small entity in Alaska would potentially be affected 

by the rule. This platform is estimated to have a DIF of greater than 2 MGD. 

In summary, EPA projects that 20 new deepwater platforms in the Gulf of Mexico and one new platform in Cook 

Inlet would be potentially regulated under the final rule. All new platforms expected to be built in the Gulf of 

Mexico are assumed to be owned by large entities. The one new platform expected to be built in Cook Inlet is 

assumed to be owned by a small entity. For more information on oil and gas platforms, including profiles and 

projections for the number and type of new facilities estimated to begin operation, see Chapter B2: Profile of the 

Offshore Oil and Gas Extraction Industry. 

D1-1.2 Percentage of Small Entities Regulated 

Due to the capital requirements for constructing a new MODU or platform with a DIF of 2 MGD or more, very 

few small businesses are expected to be affected by the final rule. For existing offshore oil and gas extraction 

facilities, EPA identified three (presumed) small businesses operating MODUs, 21 small businesses operating 

platforms in the shallow Federal Gulf of Mexico waters, and one small business operating a platform in Cook 

Inlet, Alaska for a total of 25 small businesses. EPA estimates one small entity would potentially be subject to the 

final rule for new offshore oil and gas extraction facilities. Therefore, one of 25 identified small entities in the 

offshore oil and gas extraction industry (4%) is estimated to be subject to Phase III regulation. 

D1-1.3 Sales Test for Small Entities 

There are no small entities projected to build new MODUs or deepwater platforms in the Gulf of Mexico that are 

potentially subject to the final rule. In Alaska, Forest Oil is considered the likeliest type of firm to build an 

Alaska platform during the time frame of the analysis. Forest Oil, which has had employment hovering near 500 

employees, (458 at the end of 2003 and 506 at the end of 2004; currently the company reports fewer than 500 

employees) is considered, for the sake of modeling purposes, a small business that might be large enough to 

construct a platform in Alaska. The SBA definition of a small entity in the Crude Petroleum and Natural Gas 

Extraction industry is less than 500 employees. In 2004, Forest Oil reported revenues of $913 million. The 

annualized pre-tax costs of compliance applied to all known affected or potentially affected structures owned by 

Forest Oil are $0.3 million and the annualized after-tax costs are $0.2 million. The cost-to-revenue ratio for the 

one small entity projected to be in scope of the final rule is therefore approximately 0.032% pre-tax or 0.021% 

after-tax. 

D1-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

D1-2 ANALYSIS OF MANUFACTURERS 

EPA’s 2000 Section 316(b) Detailed Industry Questionnaire (U.S. EPA, 2000) identified sample facilities in the 

six Primary Manufacturing Industries – Paper, Chemicals, Petroleum, Aluminum, Steel, and Food – estimated to 

be subject to regulation for Phase III existing facilities under the three regulatory analysis options. This section 

considers the effect of these options on facilities in the six Primary Manufacturing Industries, as well as facilities 

in Other Industries that are potentially subject to regulation under the analysis options. EPA excluded baseline 

closure facilities from this analysis (see Chapter C3: Economic Impact Analysis for Manufacturers for more 

information). 

Although EPA’s sample-based data for the Primary Manufacturing Industries support specific estimates of the 

number of small entity-owned facilities, these data do not support a specific estimate of the number of small 

entities that own these facilities. As a result, EPA estimated the number of small entities owning facilities in the 

Primary Manufacturing Industries as a range, based on alternative assumptions about the ownership of regulated 

manufacturing facilities by small entities. 

D1-2.1 Small Entity Determination 

The small entity determination for Manufacturers facilities was conducted in two steps: 

1. 	 For each analysis option, identify the domestic parent entity of the sample facilities in the Primary 

Manufacturing Industries and the additional known facilities in Other Industries. 

2. 	 For each analysis option, determine the size of the entities owning the sample facilities in the Primary 

Manufacturing Industries and the additional known facilities in Other Industries. 

D1-2.1.1 Identification of Domestic Parent Entities 

The RFA analysis is conducted at the highest level of domestic ownership, referred to as the “domestic parent 

entity” or “domestic parent firm.” EPA gathered information on the domestic parent firm in the Detailed Industry 

Questionnaire. In instances where a response was not provided, EPA used several other data sources to determine 

the domestic parent firm including the Screener Questionnaire, corporate websites, and Dun & Bradstreet data 

(D&B, 2003). 

D1-2.1.2 Size Determination of Domestic Parent Entities 

EPA identified the size of each entity owning a potentially regulated Manufacturers facility using Small Business 

Administration (SBA) size threshold guidelines.1

 These thresholds define the minimum firm-level employment or 

revenue size, by industry (by 6-digit NAICS code), below which a business qualifies as a small business under 

SBA guidelines. To determine the entity size, EPA used data from the Detailed Industry Questionnaire, as well 

as the Screener Questionnaire, corporate websites, the U.S. Securities and Exchange Commission’s (SEC) 

FreeEdgar database, corporate websites, and Dun & Bradstreet data (SEC, 2004; D&B, 2003). 

EPA started with the unique firm-level, 4-digit SIC codes for firms that own existing facilities potentially subject 

to Phase III regulation under the regulatory analysis options (see Table D1-2). EPA used information from the 

Economic Census, 1997 Economic Census: Bridge Between NAICS and SIC, to determine 1997 NAICS Codes 

classifications for these firms. EPA also used an additional Economic Census publication/dataset, 1997 NAICS 

Matched to 2002 NAICS, to bring the data forward to NAICS 2002 so that the most current small business 

thresholds could be used (Census, 2003). 

1

 The SBA website provides the most recent size thresholds at http://www.sba.gov/size/sizetable2002.html. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

The SBA small business size standards changed from a SIC code-based system to a NAICS code-based system on 

October 1, 2000. However, because EPA structured its data collection effort for existing facilities before these 

changes, its survey data collection was based on the SIC code framework. In addition, as part of the data 

collection, EPA confirmed the SIC code assignment of the survey facilities but did not request the NAICS 

classification of the facilities. In its analysis for the proposed Phase III regulation, EPA therefore used the SICbased size criteria for determining whether a firm owning a 316(b) facility would be classified as small or large. 

For this small entity analysis, however, EPA revised its approach to use the NAICS code-based size criteria for 

determining whether a firm owning a 316(b) facility would be classified as small or large. In many instances, 

substituting the NAICS-based criterion was straightforward: the SIC either mapped to a single NAICS code or the 

SIC code mapped to more than one NAICS code and the multiple NAICS codes all have the same size criterion. 

Some of the 316(b) facility SIC codes, though, map to more than one NAICS code and the size criteria for these 

multiple NAICS code varies. In these instances, the determination of an appropriate NAICS code and the 

associated small entity size criterion is ambiguous. To be conservative in its analysis, in these ambiguous 

instances – i.e., a single SIC code maps to more than one NAICS code and the size criteria for the NAICS codes 

vary – EPA used the higher/highest of the NAICS-based size thresholds for the small entity size determination. 

Using the higher/highest of the NAICS-based size thresholds for the comparison provides a more conservative 

test of the chance that a firm would be classified as small. As a result, the analysis may overstate the presence of 

small entity-owned facilities among the set of facilities potentially subject to the Phase III regulation under each 

analysis option. 

Table D1-2, following page, presents the unique firm-level 4-digit SIC codes and corresponding SBA size 

standards used to determine the size of entities that own Manufacturers facilities determined to be potentially 

subject to Phase III regulation. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

SIC Code SIC Description SBA Size Standard 

Table D1-2: Unique 4-Digit Firm-Level SIC Codes and SBA Size Standards for Manufacturers a 

1011 Iron Ores 500 Employees 

1311 Crude Petroleum and Natural Gas 500 Employees 

2011 Meat Packing Plants 500 Employees 

2046 Wet Corn Milling 750 Employees 

2061 Cane Sugar, Except Refining 500 Employees 

2062 Cane Sugar Refining 750 Employees 

2063 Beet Sugar 750 Employees 

2075 Soybean Oil Mills 1,000 Employees 

2211 Broadwoven Fabric Mills, Cotton 1,000 Employees 

2421 Sawmills and Planing Mills, General 500 Employees 

2611 Pulp Mills 750 Employees 

2621 Paper Mills 750 Employees 

2631 Paperboard Mills 750 Employees 

2653 Corrugated and Solid Fiber Boxes 500 Employees 

2673 Plastics, Foil, and Coated Paper Bags 500 Employees 

2679 Converted Paper and Paperboard Products, NEC 500 Employees 

2711 Newspapers: Publishing, or Publishing and Printing 500 Employees 

2812 Alkalies and Chlorine 1,000 Employees 

2813 Industrial Gases 1,000 Employees 

2819 Industrial Inorganic Chemicals, NEC 1,000 Employees 

2821 Plastics Material and Synthetic Resins, and Nonvulcanizable Elastomers 750 Employees 

2824 Manmade Organic Fibers, Except Cellulosic 1,000 Employees 

2833 Medicinal Chemicals and Botanical Products 750 Employees 

2834 Pharmaceutical Preparations 750 Employees 

2851 Paints, Varnishes, Lacquers, Enamels, and Allied Products 500 Employees 

2869 Industrial Organic Chemicals, NEC 1,000 Employees 

2873 Nitrogenous Fertilizers 1,000 Employees 

2874 Phosphatic Fertilizers 500 Employees 

2891 Adhesives and Sealants 500 Employees 

2899 Chemicals and Chemical Preparations, NEC 1000 Employees 

2911 Petroleum Refining 1,500 Employees 

3312 Steel Works, Blast Furnaces (Including Coke Ovens), and Rolling Mills 1,000 Employees 

3313 Electrometallurgical Products, Except Steel 750 Employees 

3315 Steel Wiredrawing and Steel Nails and Spikes 1,000 Employees 

3316 Cold-Rolled Steel Sheet, Strip, and Bars 1,000 Employees 

3317 Steel Pipe and Tubes 1,000 Employees 

3334 Primary Production of Aluminum 1,000 Employees 

3353 Aluminum Sheet, Plate, and Foil 750 Employees 

3421 Cutlery 500 Employees 

3714 Motor Vehicle Parts and Accessories 1,000 Employees 

3728 Aircraft Parts and Auxiliary Equipment, NEC 1,000 Employees 

3999 Manufacturing Industries, NEC 500 Employees 

5153 Grain and Field Beans 500 Employees 

5171 Petroleum Bulk Stations and Terminals $11.5 Million 

6141 Personal Credit Institutions $165.0 Million (Assets) 

6719 Offices of Holding Companies, NEC $6.5 Million 

Source: 

NAICS-based size criteria were assigned to SIC codes as described in accompanying text. 

U.S. EPA Analysis, 2006; U.S. SBA, 2006. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

As discussed in Chapter C3, EPA estimated the number of small entities owning facilities in the manufacturing 

industries as a range, based on alternative assumptions about the possible ownership of potentially regulated 

manufacturing facilities by small entities. EPA considered two cases based on the sample weights developed 

from the facility survey. These cases provide a range of estimates for (1) the number of firms incurring 

compliance costs and (2) the costs incurred by any firm owning a regulated facility. Chapter C3: Economic 

Impact Analysis for Manufacturers provides a more detailed description of these cases. 

Case 1: Upper bound estimate of number of firms owning facilities that face requirements under each primary 

analysis option; lower bound estimate of total compliance costs that a firm may incur. 

For this case, EPA assumed (1) that a firm owns only the regulated sample facility(ies) that it is known to own 

from the sample analysis and (2) that this pattern of ownership, observed for sampled facilities and their owning 

firms, extends over the facility population represented by the sample facilities. This case minimizes the 

possibility of multi-facility ownership by a single firm and thus maximizes the count of affected firms, but also 

minimizes the potential cost burden to any single firm. 

Case 2: Lower bound estimate of number of firms owning facilities that face requirements under each primary 

analysis option; upper bound estimate of total compliance costs that a firm may incur. 

For this case, EPA inverted the prior assumption and assumed that any firm owning a regulated sample 

facility(ies) owns the known sample facility(ies) and all of the sample weight associated with the sample 

facility(ies). This case minimizes the count of affected firms, while tending to maximize the potential cost burden 

to any single firm. 

Data in the rest of this section are presented by the industry sector of the firm. EPA determined firm sector based 

on the sample facilities owned by the firm. If all of the sampled facilities owned by the firm are in the same 

industry sector, then that industry sector was assigned to the firm. If sample facilities owned by the firm are in 

more than one industry sector, then the firm was assigned to the “multiple industries” firm sector. One known 

facility in the Other Industries group was found to be owned by a firm that owns facilities in the Primary 

Manufacturing Industries. This firm is included in the data reported for multiple industries. The remaining 

entities that were found to own facilities in Other Industries are presented separately. 

The number of entities in Primary Manufacturing Industries that would be required to meet the national 

categorical requirements set by the regulatory analysis options varies by option based on the DIF applicability 

threshold and waterbody type specified in the option. Under the 50 MGD All option, between 50 (Case 2 

estimate) and 116 (Case 1 estimate) Primary Manufacturing Industries firms would potentially be subject to Phase 

III regulation. Under the 200 MGD All option, the number of firms potentially regulated is between 17 (Case 2) 

and 29 (Case 1). Finally, the 100 MGD CWB option would potentially regulate between 14 (Case 2) and 25 

(Case 1) entities. EPA determined that no firms owning potentially regulated 316(b) manufacturing facilities 

would be small. 

Table D1-3 on the following page presents the total number of firms with facilities potentially subject to the 

national categorical requirements, as well as the number and percentage of those firms determined to be small. 

The data are shown for the three regulatory analysis options under the two ownership cases described above. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

Total 

Small 

Percentage 

of Firms that 

Total 

Small 

Percentage 

of Firms that 

Firms Firms are Small Firms Firms are Small 

Paper 26 0 0% 13 0 0% 

42 0 0% 12 0 0% 

Petroleum 12 0 0% 10 0 0% 

19 0 0% 8 0 0% 

Aluminum 3 0 0% 1 0 0% 

Food 6 0 0% 2 0 0% 

8 0 0% 4 0 0% 

a,b 

116 0 0% 50 0 0% 

Additional firms that own known a 

2 0 0% 2 0 0% 

Paper 3 0 0% 2 0 0% 

4 0 0% 3 0 0% 

Petroleum 4 0 0% 4 0 0% 

10 0 0% 3 0 0% 

Aluminum 0 0 0% 0 0 0% 

Food 3 0 0% 1 0 0% 

5 0 0% 4 0 0% 

a,b 

29 0 0% 17 0 0% 

Additional firms that own known a 

0 0 0% 0 0 0% 

Paper 2 0 0% 1 0 0% 

9 0 0% 4 0 0% 

Petroleum 5 0 0% 4 0 0% 

7 0 0% 2 0 0% 

Aluminum 0 0 0% 0 0 0% 

Food 0 0 0% 0 0 0% 

4 0 0% 3 0 0% 

a,b 

25 0 0% 14 0 0% 

Additional firms that own known a 

1 0 0% 1 0 0% 

a 

b 

Source: 

Table D1-3: Number of Firms by Firm Sector and Size (assuming two different ownership cases) 

Firm Sector 

Case 1: Upper bound estimate of number 

of firms owning facilities that face 

requirements under the regulatory 

analysis 

Case 2: Lower bound estimate of number 

of firms owning facilities that face 

requirements under the regulatory 

analysis 

Number of 

Number of 

Number of 

Number of 

50 MGD All option 

Chemicals 

Steel 

Multiple Industries 

Firms that own facilities in Primary 

Manufacturing Industries

facilities in Other Industries

200 MGD All option 

Chemicals 

Steel 

Multiple Industries 

Firms that own facilities in Primary 

Manufacturing Industries

facilities in Other Industries

100 MGD CWB option 

Chemicals 

Steel 

Multiple Industries 

Firms that own facilities in Primary 

Manufacturing Industries

facilities in Other Industries

Excludes firms whose only sample facilities close in the baseline. 

Individual numbers may not add up to totals due to independent rounding. 

U.S. EPA Analysis, 2006. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

D1-2.2 Percentage of Small Entities Under the Regulatory Analysis Options 

As part of its assessment of the small entity impact of the regulatory analysis options on Manufacturers, EPA 

estimated the percentage of all small entities in the Primary Manufacturing Industries that would be expected to 

be subject to the national requirements for the three regulatory analysis options. Because the analysis of facilities 

in Other Industries is not based on a statistically valid sample, EPA could not estimate the number of entities in 

Other Industries that would be subject to the regulatory requirements of the regulatory analysis options, nor the 

percentage that are small entities. From its prior analysis of the use of cooling water in industries other than the 

electric power industry, EPA judges the overall effect and coverage of Phase III regulation in the Other Industries 

to be minor in relation to the effect and coverage in the six Primary Manufacturing Industries. 

EPA used the Statistics of U.S. Businesses (SUSB) published by the Small Business Administration to estimate 

the total number of manufacturing establishments owned by small firms in each of the six Primary Manufacturing 

Industries. EPA included all of the SIC industry groups with a sample facility in the six Primary Manufacturing 

Industries. Based on the SUSB reporting framework, EPA considered all establishments owned by a firm with 

500 or fewer employees to be a small entity-owned establishment. This assumption will tend to underestimate the 

number of small entity-owned establishments in these industry groups because the SBA small entity size criterion 

is greater than 500 employees for some SIC codes. Underestimating the total number of small entities would 

result in an overestimate of the percentage of small entities in these industries that are potentially subject to Phase 

III regulation under each option. 

EPA estimated that 31,963 entities within the six Primary Manufacturing Industries are small. However, since no 

small entity is expected to be subject to national requirements under the three regulatory analysis options, the 

percentage of all small entities subject to Phase III regulation is zero. 

D1-2.3 Sales Test for Small Entities 

In addition to considering the fraction of small entities in each of the affected Manufacturers industries that would 

be potentially subject to Phase III regulation, EPA also assessed the extent of economic/financial impact on small 

entities by comparing estimated compliance costs to estimated entity revenue (also referred to as the “sales test”). 

The analysis is based on the ratio of estimated annualized after-tax compliance costs to annual revenue of the 

entity. For this analysis, EPA judges that entities for which annualized compliance costs equal or exceed 3% of 

revenue, might experience a significant economic/financial impact as a result of the regulatory requirements under 

the three regulatory analysis options. 

EPA included the following compliance cost categories in this analysis: pilot study capital costs; one-time 

technology costs of complying with the regulatory requirements; one-time costs of installation downtime; annual 

operating and maintenance costs; and permitting costs (initial permit costs, annual monitoring costs, and permit 

re-issuance costs). A detailed summary of how these costs were developed is presented in Chapter C1: Summary 

of Cost Categories and Key Analysis Elements for Existing Facilities and Chapter C3: Economic Impact Analysis 

for Manufacturers. EPA collected revenue data for the small entities in EPA’s Detailed Industry Questionnaire. 

In the Manufacturers segment, EPA determined that no small entities would face regulatory requirements under 

any of the three regulatory analysis options; therefore, no small entities would incur compliance costs or 

significant economic impact under these options. 

D1-3 SUMMARY OF REGULATORY FLEXIBILITY ANALYSIS 

The RFA analysis, conducted in examining regulatory options for existing facilities, is summarized in Table 

D1-4. Only one small entity would be subject to the national categorical requirements for new offshore oil and 

gas extraction facilities under the final rule. This small entity is estimated to incur compliance costs of less than 

D1-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

0.1% of annual revenues. Although EPA is not promulgating a rule for Phase III existing facilities, this analysis 

shows that no small entity would have been impacted by any of the three regulatory analysis options considered 

for existing facilities. As a result of this analysis, EPA concluded that the final rule for new offshore oil and gas 

extraction facilities will not have a significant economic impact on a substantial number of small entities 

Small Entities 

to Regulation 

Percentage of 

Small Entities 

Regulation 0-1% 1-3% >3% 

New OOGE Facilities 25 1 4.2% 1 - -

31,963 - 0.0% - - -

Source: 

Table D1-4: Summary of Small Entity Impact Ratio Ranges by Sector 

Industry Total Number of 

Number of Small 

Entities Owning 

Facilities 

Potentially Subject Subject to 

Compliance Cost/Annual 

Revenues 

Manufacturers 

U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute D1-11 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1: Regulatory Flexibility Analysis 

REFERENCES 

Dun and Bradstreet (D&B). 2003. Data extracted from D&B Webspectrum over 2002 and 2003. 

Regulatory Flexibility Act. Pub. L. 96-354, Sept. 19, 1980, 94 Stat. 1164 (Title 5, Sec. 601 et seq.). 

U.S. Census Bureau (Census). 2003. 1997 NAICS Matched to 2002 NAICS. May 2003. Available at: 

http://www.census.gov/epcd/naics02/NAICS97toNAICS02.xls. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling 

Water Intake Structures. 

U.S. Environmental Protection Agency (U.S. EPA). 1999a. Information Collection Request (ICR), Detailed 

Industry Questionnaires: Phase II Cooling Water Intake Structures & Watershed Case Study Short 

Questionnaire. August 1999. 

U.S. Environmental Protection Agency (U.S. EPA). 1999b. Revised Interim Guidance for EPA Rulewriters: 

Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act. March 29, 

1999. 

U.S. Securities and Exchange Commission (SEC). 2004. FreeEdgar Database. Accessed between 1999 and 

2004. Available at: www.freeedgar.com. 

U.S. Small Business Administration (U.S. SBA). 2006. Small Business Size Standards matched to North 

American Industry Classification System. Available at: http://www.sba.gov/size/sizetable2002.html 

D1-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Appendix D1A: Summary Results for Supplemental Options 

Appendix D1A: Summary of Results for 
 

Supplemental Options 
 

INTRODUCTION 

This appendix presents the results of the RFA analysis for 

the supplemental options evaluated in development of the 

final rule. For all options, facility counts and other results 

only include those Phase III existing facilities that are (1) 

non-baseline closures and (2) estimated to be within the regulatory scope of the evaluated option. See Chapter 

C3: Economic Impact Analysis for Manufacturers for more information on baseline closures and counts of 

facilities subject to national categorical requirements under each option. See the main body of this chapter for a 

description of data sources and methodologies used in these analyses. 

A CONTENTS 


 

PPENDIX 

Introduction......................................................... D1A-1

D1A-1 Summary of Results ............................... D1A-1 

D1A-1 SUMMARY OF RESULTS 

In Table D1A-1, following page, the evaluated supplemental options for existing facilities are presented in order 

of increasing stringency (e.g., the most stringent supplemental option evaluated being I&E requirements on all 

waterbodies). As discussed in the main chapter, the estimates of the total number of regulated small entities and 

the percentage of all small entities subject to Phase III regulation exclude consideration of entities in Other 

Industries within the Manufacturers segment (see section D1-1.2). However, the estimated number of small 

entities incurring costs in the three cost-to-revenue ranges includes the known number of small entities owning 

known facilities in Other Industries. As this analysis is conducted at the firm level, not the facility level, and a 

single firm may own multiple facilities with varying DIFs, results for manufacturers are not broken out by the 2-

50 MGD and 50+ flow ranges. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute D1A-1 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D1A: Summary Results for Supplemental Options 

c 

Percentage of 

Small Entities 

Small Entities 

to Regulation Regulation 0-1% 1-3% >3%

a,b 31,963 13 13 0 0 

13 9 4 0 

Totalc 26 <0.001% 22 4 0 

a,b 31,963 13 13 0 0 

13 7 5 1 

Totalc 26 <0.001% 20 5 1 

a,b 31,963 13 13 0 0 

13 6 4 3 

Totalc 26 <0.001% 19 4 3 

a 

b 

; include

Industries. 

Source: 

Table D1A-1: Summary of Small Entity Impact Ratio Ranges for Existing Facilities by Regulatory 

Segment (Facilities with DIF of at least 2 MGD) 

Number of Small Compliance Cost/Annual 

Total Number of Entities Owning Revenues Industry Facilities Subject Subject to 

I-only Everywhere Option 

Manufacturers < 0.001% 

Electric Generators 543 - 1,295 1.0% - 2.4% 

32,506 – 33,258 

I&E Like Phase II Option 

Manufacturers < 0.001% 

Electric Generators 543 - 1,295 1.0% - 2.4% 

32,506 – 33,258 

I&E Everywhere Options 

Manufacturers < 0.001% 

Electric Generators 543 - 1,295 1.0% - 2.4% 

32,506 – 33,258 

For Manufacturers, the more conservative cost analysis (Case 2 estimate) is presented, which is likely to overstate the compliance 

costs that would be incurred by any single small entity but may understate the number of small entities incurring compliance costs. 

For Manufacturers, the “Total Number of Small Entities” and the “Number of Small Entities Owning Facilities Potentially Subject 

to Regulation” exclude entities in Other Industries the numbers presented in the cost-to-revenue ranges known entities in Other 

Individual numbers may not sum to reported totals due to independent rounding. 

U.S. EPA Analysis, 2006. 

D1A-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

Chapter D2: UMRA Analysis 
 

INTRODUCTION 

Title II of the Unfunded Mandates Reform Act of 1995, 

Pub. L. 104-4, establishes requirements for Federal 

agencies to assess the effects of their regulatory actions on 

State, local, and Tribal governments and the private sector. 

Under UMRA section 202, EPA generally must prepare a 

written statement, including a cost-benefit analysis, for 

proposed and final rules with “Federal mandates” that 

might result in expenditures by State, local, and Tribal 

governments, in the aggregate, or by the private sector, of 

$100 million or more in any one year. 

Before promulgating a regulation for which a written 

statement is needed, UMRA section 205 generally requires 

EPA to identify and consider a reasonable number of 

regulatory alternatives and adopt the least costly, most costeffective, or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 

do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an 

alternative other than the least costly, most cost-effective, or least burdensome alternative if the Administrator 

publishes with the rule an explanation why that alternative was not adopted. Before EPA establishes any 

regulatory requirements that might significantly or uniquely affect small governments, including Tribal 

governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan 

must provide for notifying potentially affected small governments, enabling officials of affected small 

governments to have meaningful and timely input in the development of EPA regulatory proposals with 

significant intergovernmental mandates, and informing, educating, and advising small governments on 

compliance with regulatory requirements. 

CHAPTER CONTENTS 


 


 


 

Introduction............................................................ D2-1

D2-1 Analysis of Impacts on Government Entities ....

 .......................................................... D2-2 

D2-1.1 Compliance Costs for GovernmentOwned Facilities ............................... D2-3 

D2-1.2 Administrative Costs for New Offshore 

Oil and Gas Extraction Facilities ...... D2-3 

D2-1.3 Administrative Costs for Existing 

Facilities ........................................... D2-5 

D2-1.4 Impacts on Small Governments...... D2-10 

D2-2 Compliance Costs for the Private Sector. D2-10 

D2-3 Summary of UMRA Analysis ................. D2-10

References............................................................ D2-12

Today’s final rule applies Section 316(b) requirements to new offshore oil and gas extraction facilities (also 

abbreviated as “new OOGE facilities”) in Phase III. These requirements are based on a 2 MGD DIF applicability 

threshold and will apply to an estimated 124 new offshore oil and gas extraction facilities. Under today’s 

regulation, none of the potential Phase III existing facilities will be subject to national categorical requirements. 

EPA has decided that Phase III existing facilities should continue to be permitted on a case-by-case best 

professional judgment basis. 

In addition to presenting findings for the Final Regulation described above, this chapter also presents findings for 

the three regulatory analysis options for existing facilities that were co-proposed with the Final Regulation: the 

“50 MGD for All Waterbodies” option (the “50 MGD All” option), the “200 MGD for All Waterbodies” option 

(the “200 MGD All” option), and the “100 MGD for Certain Waterbodies” option (the “100 MGD CWB” option). 

These regulatory analysis options all require the same reduction in impingement and entrainment (I&E), and 

differ only by applicability criteria defined on the basis of design intake flow (DIF) and waterbody type. All of 

these options would also apply 316(b) requirements to new offshore oil and gas extraction facilities based on a 2 

MGD applicability threshold. Throughout this UMRA analysis, EPA presents cost estimates for the final rule 

promulgated today, as well as for the three regulatory options considered in preparation for this rule. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

f Final Regulation: EPA estimates the total annualized after-tax costs of compliance for the Final 

Regulation to be $1.9 million ($2004) for the estimated 124 new offshore oil and gas extraction facilities. 

All of these direct facility costs are incurred by the private sector. No facility owned by State and local 

governments is subject to the national requirements under the final rule. Additionally, State and local 

permitting authorities will not incur costs to administer the rule for new offshore oil and gas extraction 

facilities because these facilities are under Federal jurisdiction not under State jurisdiction. EPA 

estimates that the highest undiscounted after-tax cost incurred by the private sector in any one year is 

approximately $1.5 million in 2013. 

f 50 MGD for All Waterbodies option for existing facilities and final rule for new offshore oil and gas 

extraction facilities: EPA estimates the total annualized after-tax costs of compliance for the final rule to 

be $32.8 million ($2004). All of these direct facility costs are incurred by the private sector (including 

146 Manufacturing facilities and 124 new offshore oil and gas extraction facilities). No facility owned by 

State and local governments is expected to be subject to the national requirements under the final rule. 

Additionally, State and local permitting authorities are estimated to incur $0.6 million annually to 

administer the rule, including labor costs to write permits and to conduct compliance monitoring and 

enforcement activities. EPA estimates that the highest undiscounted after-tax cost incurred by the private 

sector in any one year is approximately $132.1 million in 2011. 

f 200 MGD for All Waterbodies option for existing facilities and final rule for new offshore oil and gas 

extraction facilities: EPA estimates the total annualized after-tax costs of compliance for this option to be 

$17.9 million ($2004). All of these direct facility costs are incurred by the private sector (including 31 

manufacturing facilities and 124 new offshore oil and gas extraction facilities). No facility owned by 

State and local governments is expected to be subject to the national requirements under this evaluated 

option. Additionally, State and local permitting authorities are estimated to incur $0.2 million annually to 

administer this option, including labor costs to write permits and to conduct compliance monitoring and 

enforcement activities. EPA estimates that the highest undiscounted after-tax cost incurred by the private 

sector in any one year is approximately $78 million in 2010. 

f 100 MGD for Certain Waterbodies option for existing facilities and final rule for new offshore oil and 

gas extraction facilities: EPA estimates the total annualized after-tax costs of compliance for this option 

to be $13.0 million ($2004). All of these direct facility costs are incurred by the private sector (including 

23 manufacturing facilities and 124 new offshore oil and gas extraction facilities). No facility owned by 

State and local governments is expected to be subject to the national requirements under this evaluated 

option. Additionally, State and local permitting authorities are estimated to incur $0.2 million annually to 

administer this option, including labor costs to write permits and to conduct compliance monitoring and 

enforcement activities. EPA estimates that the highest undiscounted after-tax cost incurred by the private 

sector in any one year is approximately $79 million in 2011. 

Given these findings, EPA has determined that this rule does not contain a Federal mandate that may result in 

expenditures of $100 million or more in any one year, for State, local, and Tribal governments, in the aggregate, 

or the private sector. This chapter contains information on compliance and administrative costs, and on impacts 

on small governments. In addition, the appendix to this chapter presents summary results for the supplemental 

regulatory options considered during the development of the proposed regulation and the final Phase III 

regulation. 

D2-1 ANALYSIS OF IMPACTS ON GOVERNMENT ENTITIES 

Governments may incur two types of costs as a result of this final rule: 

1. Direct costs to comply with the rule for facilities owned by government entities, and 

D2-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

2. Administrative costs to implement the rule. 

Both types of costs are discussed on the following pages. 

D2-1.1 Compliance Costs for Government-Owned Facilities 

The Electric Generating Industry is the only industry segment potentially subject to Phase III regulation with 

government-owned facilities. None of the facilities in the manufacturers or new offshore oil and gas extraction 

facility segment are owned by a government. Therefore, no government-owned facility would incur compliance 

costs under the Final Regulation or the regulatory analysis options. 

D2-1.2 Administrative Costs for New Offshore Oil and Gas Extraction Facilities 

For new facilities in the offshore oil and gas extraction industry, NPDES permitting is consolidated under General 

Permits, which are administered by EPA Regional offices. No States are involved in these permitting activities. 

Thus, States would incur no costs for new facility permitting. Three EPA Regions (Region 6, Region 4, and 

Region 10) are expected to be the only entities responsible for permitting. Because States are not involved in the 

section 316(b) permitting for new offshore oil and gas extraction facilities, the Federal government would incur 

no costs for State oversight. The affected EPA Regions would incur three types of costs for implementing the 

final rule: (1) start-up activities, (2) activities associated with the initial General Permit containing the new section 

316(b) requirements and subsequent permit renewals, and (3) annual activities. These activities and their timing 

assumptions are discussed below. The timing of these costs and how they are discounted and annualized are 

documented in the Oil and Gas 316(b) Compliance Cost Model (see DCN 7-4018). For more information on the 

methods used for discounting and cost annualization, see Chapter B1: Summary of Cost Categories and Key 

Analysis Elements for New Offshore Oil and Gas Extraction Facilities. 

It should be noted that costs incurred by the Federal government are not part of the UMRA analysis, but are part 

of the social cost analysis presented in Chapter E1: Summary of Social Costs and Chapter B3: Economic Impact 

Analysis for the Offshore Oil and Gas Extraction Industry of this EA. 

D2-1.2.1 Start-Up Activities 

Start-up activities are not considered incremental to existing Regional permitting activities (U.S. EPA, 2004). 

D2-1.2.2 Initial Post-Promulgation Permitting and Repermitting Activities 

Initial permitting and repermitting activities relate to the review of data collected for the regional studies and the 

individual data submitted by facilities that plan to be permitted (or re-permitted) under the General Permits in the 

three EPA Regions. Table D2-1and Table D2-2present the individual activities and their costs for Regions 4, 6, 

and 10. These costs are on a per facility basis, i.e., the regions incur these costs for each facility that is permitted 

under their general permits (see DCN 7-4018, which illustrates how these costs are aggregated and assigned to the 

regions). 

Table D2-1 presents the permit issuance activities and their related costs. The per facility initial permitting cost of 

approximately $12,600 would be incurred in 2012 for facilities brought on-line or launched between 2007 and 

2012 (Region 6) and in 2014 for facilities brought on-line or launched between 2007 and 2014 (Region 4 and 10). 

In later years, these costs are assumed to be incurred in the year of compliance of each new facility. The burden 

of repermitting is expected to be smaller than the burden of initial permitting, approximately $3,300 per facility, 

because the permitting authority is already familiar with the facility’s case and the type of information the facility 

would provide. Repermitting costs are incurred in 5-year intervals after the initial post-promulgation permit. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

Table D2-1: Federal Government Costs for Permit Issuance Activities (Per Facility Permitted under 

General Permits; $2004) 

Activity First PostPromulgation Permit Repermitting 

Review Source Water Physical Data $297 $116 

Review CWIS Data $893 $266 

Review Source Water Body Flow Information $297 $116 

Review CWIS Velocity Information $1,335 $417 

Review Design and Construction Technology Plan $1,480 $420 

Review Regional Monitoring Study Design and Sampling Plans $1,480 -

Review Regional Monitoring Study $2,848 -

Review Source Water Baseline Biological Characterization Study $1,335 $870 

Determine Monitoring Frequency $297 $116 

Determine Record Keeping and Reporting Frequency $297 $116 

Consider Public Comments $1,335 $417 

Issue Permit $272 $66 

Permit Record Keeping $133 $25 

ODCs Lump Sum $318 $318 

Totala $12,620 $3,264 

a Individual numbers may not add up to total due to independent rounding. 

Source: U.S. EPA, 2006. 

D2-1.2.3 Annual Activities 

Annual costs are associated with the activities that must be undertaken by the regions each year for each active 

facility operating under the applicable General Permit. These activities also include a one-time cost for 

determining monitoring frequency reduction. This cost is assigned only to facilities operating at the time the 

decision about monitoring frequency reduction is made (assumed to occur at the end of the initial two years of 

monitoring, which is 2013 for the Region 6 permit and 2015 for the Region 4 and Region 10 permits). Table 

D2-2 outlines these activities and their associated costs. 

Table D2-2: Federal Government Costs for Annual Activities (Per Facility 

Permitted under General Permits; $2004) 

Activity Annual Costs 

Review of Yearly Status Report $697 

Compliance Tracking $596 

Determination on Monitoring Frequency Reductiona $0a 

Record Keeping $141 

ODCs Lump Sum $31 

Totalb $1,464 

a One-time cost of $464 incurred only by those facilities operating in 2013 (Region 6) or 2014 

(Regions 4 and 10). 

b Individual numbers may not sum to total due to independent rounding. 

Source: U.S. EPA, 2006. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

D2-1.3 Administrative Costs for Existing Facilities 

The requirements of section 316(b) are implemented through the National Pollutant Discharge Elimination 

System (NPDES) permit program. Forty-five States and one Territory currently have NPDES permitting 

authority under section 402(c) of the Clean Water Act (CWA). EPA estimates that States and Territories would 

have incured three types of costs associated with implementing the requirements of the three regulatory analysis 

options for existing facilities: (1) start-up activities, (2) permitting activities associated with the initial NPDES 

permit containing the new section 316(b) requirements and subsequent permit renewals, and (3) annual activities.1 

EPA estimates that the total costs for these activities under the three regulatory analysis options would be between 

$0.16 million and $0.64 million, annualized over 30 years at a 7% discount rate. Table D2-3presents the 

estimated annualized costs of the three major administrative activities under the “50 MGD All”, the “200 MGD 

All,” and the “100 MGD All” options. 

Table D2-3: - Annualized Government Administrative Costs (millions, $2004) 

Activity 50 MGD All Option 200 MGD All Option 100 MGD CWB Option 

Start-Up Activities $0.01 $0.01 $0.01 

Permitting Activities $0.45 $0.11 $0.14 

Annual Activities $0.18 $0.04 $0.04 

Total $0.64 $0.16 $0.19 

Source: U.S. EPA Analysis, 2006. 

Based on the specific permitting requirements of each facility (see Chapter C1: Summary of Cost Categories and 

Key Analysis Elements for Existing Facilities), EPA calculated total government costs of implementing the 

regulatory analysis options by adding the cost of start-up activities to the aggregate costs for each facility’s first 

post-promulgation permit, repermitting activities, and annual activities. The maximum one-year undiscounted 

implementation cost incurred by governments under the three regulatory analysis options is approximately $2.3 

million in 2011 (“50 MGD All” option). EPA notes that the annualized cost of administrative activities depends 

on when they are incurred. If facilities reach compliance later than assumed in this analysis, permitting 

authorities’ administrative activities would also occur in later years. As a result, the annualized costs of the 

options to permitting authorities would be lower because administrative costs incurred in later years have lower 

present values. 

D2-1.3.1 Start-Up Activities 

Forty-five States and one Territory with NPDES permitting authority would be expected to undertake start-up 

activities to prepare for administering these regulatory analysis options. Start-up activities include reading and 

understanding the rule, mobilization and planning of the resources required to address the rule’s requirements, and 

training technical staff on how to review materials submitted by facilities and make determinations on the Phase 

III requirements for each facility’s NPDES permit. In addition, permitting authorities would be expected to incur 

other direct costs, e.g., for purchasing supplies and copying. Table D2-4shows the total start-up costs EPA 

estimated permitting authorities to incur. Each permitting authority would incur start-up costs of $4,000 under 

each analysis option. EPA assumes that all permitting authorities would incur the initial start-up activities at the 

beginning of 2007, the year the Phase III requirements would take effect. 

1

 The costs associated with implementing Phase III requirements are documented in EPA’s Information Collection 

Request (U.S. EPA, 2003). 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

Table D2-4: Government Costs of Start-Up Activities (per Permitting 

Authority; $2004) 

Start-Up Activity Start-Up Costs 

Read and Understand Rule $1,007 

Mobilization/Planning $1,750 

Training $1,257 

Other Direct Costs $50 

Total $4,064 

Source: U.S. EPA, 2006. 

D2-1.3.2 Initial Post-Promulgation Permitting and Repermitting Activities 

Permitting authorities would be required to implement the Phase III requirements by adding compliance 

requirements to each facility’s NPDES permit. Permitting activities include incorporating section 316(b) 

requirements into the first post-promulgation permit and making modifications, if necessary, to each subsequent 

permit. For this analysis, EPA assumed that each complying facility’s first permit containing the new section 

316(b) requirements would be issued between 2010 and 2014.2

 Repermitting activities would take place every 

five years after initial permitting. 

The regulatory analysis options require facilities to submit the same type of information for their initial postpromulgation permit and for each permit renewal application. Therefore, the type of administrative activities 

required by the initial post-promulgation and each subsequent permit are similar. EPA identified the following 

major activities associated with State permitting activities: reviewing submitted documents and supporting 

materials, verifying data sources, consulting with facilities and the interested public, determining specific permit 

requirements, and issuing the permit. Table D2-5 presents the State permitting activities and associated costs, on 

a per permit basis. The permitting costs do not vary by type of facility to be permitted (however, the costs 

associated with permitting facilities with (a) a recirculating system or a wedgewire screen in the baseline or (b) a 

facility installing a new wedgewire screen are less). The burden of repermitting is expected to be smaller than the 

burden of initial permitting because the permitting authority is already familiar with the facility’s case and the 

type of information the facility would provide. 

Two of the permitting activities presented within Table D2-5 pertain only to facilities opting for a site-specific 

determination of best technology available (BTA). An authorized State is able to permit a facility to opt for a sitespecific determination if it can demonstrate that the proposed technology would result in environmental 

performance within a watershed that is comparable to the reductions in impingement and entrainment mortality 

that would otherwise be achieved under the regulatory analysis options. 

2

 For an explanation of how the compliance years were assigned to facilities subject to Phase III regulation, see Chapter 

C1. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

Table D2-5: Government Permitting Costs (per Permit; $2004) 

First Post-Promulgation Activity Permit Repermitting 

Review Source Water Physical Data $299 $117 

Review CWIS Data $898 $267 

Review CWS Operation Narrative $898 $267 

Review Proposal for Collection of Information for Comprehensive 

Demonstration Study $1,342 $420 

Review Source Water Body Flow Information $299 $117 

Review Design and Construction Technology Plan $1,487 $423 

Review Impingement Mortality Monitoring Results $4,409 $1,323 

Review Entrainment Characterization Monitoring Results $4,409 $1,323 

Review Baseline Characterization Monitoring Results and Study Findings $13,063 $3,935 

Review Pilot Study for New Impingement & Entrainment Technology $1,342 -

Review Restoration Measuresa $2,369 $711 

Review Technology Installation and Operation Plan & Verification 

Monitoring Plan $1,079 $321 

Determine Monitoring Frequency $299 $117 

Determine Record Keeping and Reporting Frequency $299 $117 

Considering Public Comments $1,342 $420 

Issuing Permit $273 $66 

Permit Record Keeping $134 $25 

Other Direct Costs $310 $310 

Total Cost (without site specific determination)b $34,551 $10,279 

Review Information to Support Site-Specific Determination of BTA $47,380 $14,214 

Establish Requirements for Site-Specific Technology $1,198 $332 

Site-Specific Costsc $48,578 $14,546 

Total Cost (with site specific determination)b $83,129 $24,825 

a Assumed to apply to only 10% of facilities. Only 10% of the per permit costs of $23,690 and $7,107 is accounted for in this 

framework. 

b Individual numbers may not add up to total due to independent rounding. 
 

Cost incurred only for permits of facilities conducting site-specific demonstrations.
 

Source: U.S. EPA, 2006. 

As shown in Table D2-5, initial post-promulgation permits that do not require a site-specific determination of 

BTA are expected to impose an average per permit cost of $34,600 on the issuing permitting authority. For initial 

post-promulgation permits that include a site-specific determination, the State administrative costs associated with 

the site-specific determination are estimated to increase by $48,600, resulting in total per permit costs of 

approximately $83,000. 

The State administrative cost for a permit renewal that does not include a site-specific determination is $10,000. 

For facilities that conduct a site-specific determination, the cost per permit imposed on the permitting authority 

increases by $14,500, resulting in an average repermitting cost of almost $25,000. 

Permitting authorities also incur costs associated with review of verification studies conducted at facilities. In 

addition to reviewing the studies, permitting authorities must modify permits in case of unfavorable study results. 

In total, verification study review is expected to cost permitting authorities $800 per permit. Table D2-6 lists the 

components of verification study review. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

Table D2-6: Government Costs of Verification Study Review (per 

Permit; $2004) 

Activity Post-Promulgation Permit Costs 

Review of Verification Studies $234 

Permit Modification Due to Unfavorable Results $533 

Recordkeeping $25 

Other Direct Costs $10 

Total $802 

Source: U.S. EPA, 2006. 

Finally, State governments may incur costs associated with alternative regulatory requirements. States may adopt 

in their NPDES programs, alternative regulatory requirements to reduce impingement mortality and entrainment 

within a watershed. If these States demonstrate to the Administrator that the reductions are comparable to what 

would otherwise be achieved under rule, the Administrator would approve these alternative regulatory 

requirements. For the final Phase II rule, EPA estimated that 10 regulatory permitting authorities would incur 

costs associated with alternative regulatory requirements. For this analysis, EPA assumed that those States 

interested in adopting alternative regulatory requirements would have done so under the Phase II rule. As a result, 

EPA assumes that these States would incur no additional costs for establishing alternative regulatory requirements 

under the regulatory analysis options. Table D2-7 reports the cost of each component of establishing alternative 

regulatory requirements. 

Table D2-7: Government Costs of Alternative Regulatory Requirements (per 

Permitting Authority; $2004) 

Activity Post-Promulgation Permit Costs 

Document Alternative Regulatory Requirements $1,402 

Document Environmental Conditions within Watershed $1,869 

Include Supporting Historical Studies, Calculations, and Analyses $3,652 

Submit Documentation $100 

Recordkeeping $142 

Other Direct Costs $100 

Totala $7,264 

a Individual numbers may not add up to total due to independent rounding. 

Source: U.S. EPA, 2006. 

D2-1.3.3 Annual activities 

In addition to the start-up and permitting activities discussed above, permitting authorities would have to perform 

certain annual activities to ensure the continued implementation of the requirements of the regulatory analysis 

options. These annual activities include reviewing biannual status reports, tracking compliance, making 

determinations on monitoring frequency reduction, and record keeping. 

Table D2-8 outlines the annual activities necessary for each permit, along with their estimated costs. These costs 

begin with the issuance of the first permit following promulgation of the rule. A total cost of approximately 

$1,600 is estimated for each permit per year. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

Table D2-8: Government Costs for Annual Activities (per Permit; $2004) 

Annual Activity Annual Costs 

Review of Biannual Status Reporta $350 

Compliance Tracking $599 

Determination of Monitoring Frequency Reduction $467 

Record Keeping $142 

Other Direct Costs $30 

Totalb $1,588 

a This is a cost that is incurred once every two years. Therefore, only half of the total review cost of $701 is 

accounted for in this annual framework. 

b Individual numbers may not sum to total due to independent rounding. 

Source: U.S. EPA, 2006. 

The Federal government would likely incur costs for reviewing and validating proper implementation of the 

section 316(b) elements of States’ NPDES permits that are issued after promulgation of one of the analysis 

opitons. Table D2-9 outlines the annual activities associated with reviewing a permit issued after promulgation of 

a rule, along with the estimated cost of each activity. EPA estimates a cost of approximately $2,600 per permit 

for post-promulgation review. Costs incurred by the Federal government are not part of the UMRA analysis but 

are part of the social cost analysis presented in Chapter E1 of this EA. 

Table D2-9: Federal Government Permit Program Oversight Activities (per Permit; $2004) 

a 

Other Direct Costs 

)

b 

$150 

$117 

$117 

$117 

$117 

$150 

$350 

$117 

$35 

$150 

$117 

$134 

$50 

$1,721 

$701 

$150 

$851 

$2,572 

a 

b 
 


 

Source:

Annual Activity 

Review Source Water Physical Data 

Review CWIS Data 

Review CWS Operation Narrative 

Review Proposal for Collection of Information for Comprehensive Demonstration Study 

Review Source Water Body Flow Information 

Review Design and Construction Technology Plan 

Review Impingement Mortality Study and/or Entrainment Characterization Study 

Review Pilot Study for New Impingement & Entrainment Technology 

Review Restoration Measures

Review Technology Installation and Operation Plan & Verification Monitoring Plan 

Review the Monitoring Frequency 

Permit Record Keeping 

Total Cost (without site specific determination

Review Information to Support Site-Specific Determination of BTA 

Review the Established Requirements for Site-Specific Technology 

Site-Specific Costsc 

Total Cost (with site specific determination)b 

Post-Promulgation Permit Costs 

Assumed to apply to only 10% of facilities. Only 10% of the per permit cost of $350 is accounted for in this framework. 

Applies only to certain facilities, according to site specific determination of BTA Compliance Schedule. 

Individual numbers may not add up to total due to independent rounding.

 U.S. EPA, 2006. 

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c 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

D2-1.4 Impacts on Small Governments 

EPA’s analysis also considered whether the final rule may significantly or uniquely affect small governments 

(i.e., governments with a population of less than 50,000). As described earlier, the Electric Generating Industry is 

the only industry segment with government-owned facilities; governments own no facilities in either the 

Manufacturers or new offshore oil and gas extraction facility segments. No government-owned facility exceeds 

the 50 MGD DIF applicability threshold (the smallest DIF applicability threshold of the three regulatory analysis 

options). Therefore, no government-owned facility would incur compliance costs under the Final Regulation or 

the three regulatory analysis options. As no facilities owned by small governments are subject to national 

requirements under the regulatory analysis options, EPA has determined that the Final Regulation and the 

regulatory analysis options contain no regulatory requirements that might significantly or uniquely affect small 

governments. 

D2-2 COMPLIANCE COSTS FOR THE PRIVATE SECTOR 

The only compliance costs incurred by the private sector result from facilities complying with the Final 

Regulation or the regulatory analysis options. These options all require the same reduction in impingement and 

entrainment (I&E), and differ only by applicability threshold, which is based on the facilities’ design intake flow 

and waterbody type. These direct facility costs already include the cost to facilities of obtaining their NPDES 

permits. The methodology for determining compliance costs for Phase III new offshore oil and gas extraction 

facilities is presented in Chapter B1: Summary of Cost Categories and Key Analysis Elements for New Offshore 

Oil and Gas Extraction Facilities; the methodology for Phase III existing facilities is presented in Chapter C1: 

Summary of Cost Categories and Key Analysis Elements for Existing Facilities of this EA. EPA determined that 

all facilities subject to national categorical requirements under the three regulatory analysis options to be owned 

by private entities. 

Private sector costs for the Final Regulation for Phase III new facilities and for the regulatory analysis options for 

Phase III existing facilities (discounted at a 7% rate) are as follows: 

f Under the Final Regulation for new offshore oil and gas extraction facilities, 124 facilities are 

estimated to incur annualized compliance costs of $1.9 million and a maximum one-year cost of $1.5 

million in 2013. 

f Under the 50 MGD for All Waterbodies option for existing facilities and the Final Regulation for new 

offshore oil and gas extraction facilities, 270 facilities are estimated to incur annualized compliance 

costs of $32.8 million and a maximum one-year cost of $132.1 million in 2011. 

f Under the 200 MGD for All Waterbodies option for existing facilities and the Final Regulation for new 

offshore oil and gas extraction facilities, 155 privately-owned facilities are estimated to incur annualized 

compliance costs of $17.9 million and a maximum one year cost, in 2010, of $78 million. 

f Under the 100 MGD for Certain Waterbodies option for existing facilities and the Final Regulation for 

new offshore oil and gas extraction facilities, 147 privately-owned facilities are estimated to incur 

annualized compliance costs of $13.0 million and a maximum one year cost, in 2011, of $79 million. 

D2-3 SUMMARY OF UMRA ANALYSIS 

EPA estimates that the final rule will not result in aggregate expenditures of at least $100 million for State and 

local governments as well as the private sector in any one year. Table D2-9, following page, summarizes the 

after-tax compliance costs for facilities, and the costs to implement the rule for permitting authorities, under the 

final rule and the regulatory analysis options. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

Table D2-10: Summary of UMRA Costs (millions, $2004) 

Compliance Total Compliance Total 

Costs Costs Costs Costs 

Government Sector n/a n/a n/a n/a n/a n/a 

Private Sector $1.9 n/a $1.9 $1.5 n/a $1.5 

Government Sector $0.0 $0.6 $0.6 $0.0 $2.3 $2.3 

Private Sector $32.8 n/a $32.8 $132.1 n/a $132.1 

Government Sector $0.0 $0.2 $0.2 $0.0 $0.8 $0.8 

$17.9 n/a $17.9 $77.9 n/a $77.9 

Government Sector $0.0 $0.2 $0.2 $0.0 $1.2 $1.2 

$13.0 n/a $13.0 $79.5 n/a $79.5 

Source: 

Total Annualized Cost Maximum One-Year Cost 

Facility Government Facility Government Sector 

Implementation Implementation 

Final Rule for New Offshore Oil and Gas Extraction Facilities 

(excl. Federal) 

50 MGD for All Waterbodies Option for Existing Facilities / Final Rule for New OOGE Facilities 

(excl. Federal) 

200 MGD for All Waterbodies Option for Existing Facilities / Final Rule for New OOGE Facilities 

(excl. Federal) 

Private Sector 

100 MGD for Certain Waterbodies Option for Existing Facilities / Final Rule for New OOGE Facilities 

(excl. Federal) 

Private Sector 

U.S. EPA Analysis, 2006. 

Costs for new offshore oil and gas extraction facilities and the three regulatory analysis options for Phase III 

existing facilities are as follows: 

f The Final Regulation would impose no annual costs on State and local governments, and $1.9 million on 

the private sector. Maximum one-year costs are estimated to be approximately $1.5 million for the 

private sector. This maximum annual cost value is estimated to occur in 2013. 

f The 500 MGD for All Waterbodies option for existing facilities and the Final Regulation for new 

offshore oil and gas extraction facilities Final Regulation would impose annual costs of $0.6 million on 

State and local governments (in implementation costs only), and $32.8 million on the private sector. 

Maximum one-year costs under this option would be approximately $2.3 million for government entities, 

and $132.1 million for the private sector. Both of these maximum annual cost values would occur in 

2011. 

f The 200 MGD for All Waterbodies option for existing facilities and the Final Regulation for new 

offshore oil and gas extraction facilities would impose annual costs of $0.2 million on State and local 

governments (in implementation costs only), and $17.9 million on the private sector. Maximum one-year 

costs under this option are approximately $0.8 million for government entities in 2011, and $78 million 

for the private sector in 2010. 

f The 100 MGD for Certain Waterbodies option for existing facilities and the Final Regulation for new 

offshore oil and gas extraction facilities would impose annual costs of $0.2 million on State and local 

governments (in implementation costs only), and $13.0 million on the private sector. Maximum one-year 

costs under this option are approximately $1.2 million for government entities and $79 million for the 

private sector, both of which are estimated to occur in 2011. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D2: UMRA Analysis 

REFERENCES 

U.S. Environmental Protection Agency (U.S. EPA). 2006. Information Collection Request for Cooling Water 

Intake Structures at Phase III Facilities (Final Rule). ICR Number 2169.01. June 2006. 

D2-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Appendix D2A: Summary of Costs 

Appendix D2A: Summary Results for 
 

Supplemental Options 
 

I A CONTENTS


 

D2A-1 SUMMARY OF R

supplemental options). 

Compliance Total Compliance Total 

Costs Costs Costs Costs 

Government Sector $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 

$1.8 n/a $1.8 $712.2 n/a $712.2 

Government Sector $1.4 $0.1 $1.5 $2.3 $0.1 $2.4 

$1.0 n/a $1.0 $1.2 n/a $1.2 

Government Sector n/a $0.5 $0.5 n/a $1.7 $1.7 

$19.2 n/a $19.2 $471.5 n/a $471.5 

Government Sector n/a $0.4 $0.4 n/a $1.2 $1.2 

$20.6 n/a $20.6 $123.3 n/a $123.3 

Source: 

NTRODUCTION PPENDIX 

This appendix presents the results of the UMRA analysis Introduction......................................................... D2A-1

for the supplemental options considered for Phase III D2A-1 Summary of Results ............................... D2A-1 

existing facilities, combined with the final rule for new 

offshore oil and gas extraction facilities. For all options, 

results only include those Phase III existing facilities that are (1) non-baseline closures and (2) subject to national 

categorical requirements under the option. See the main body of this chapter for a description of data sources and 

methodologies used in these analyses. 

ESULTS 

Table D2A-1 below, presents results for the I-only Everywhere supplemental option. Table D2A-2 and Table 

D2A-3, following page, present results under the I&E Like Phase II option and I&E Everywhere option, 

respectively. The other supplemental options for Phase III existing facilities, combined with the final rule for new 

offshore oil and gas extraction facilities, are presented in order of increasing stringency (e.g., the most stringent 

option in terms of regulatory requirements is the I&E Everywhere option, compared to the other evaluated 

Table D2A-1: Summary of UMRA Costs for the I-only Everywhere option (millions, $2004) 

Total Annualized Cost Maximum One-Year Cost 

Facility Government Facility Government Sector 

Implementation Implementation 

Final rule for New OOGE Facilities 

(excl. Federal) 

Private Sector 

For Electric Generators with a DIF of 2 – 50 MGD 

(excl. Federal) 

Private Sector 

For Manufacturers with a DIF of 2 – 50 MGD 

(excl. Federal) 

Private Sector 

For Manufacturers with a DIF of 50 MGD or greater 

(excl. Federal) 

Private Sector 

U.S. EPA Analysis, 2006. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Appendix D2A: Summary of Costs 

Compliance Total Compliance Total 

Costs Costs Costs Costs 

Government Sector $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 

$1.8 n/a $1.8 $712.2 n/a $712.2 

Government Sector $2.0 $0.1 $2.2 $3.0 $0.2 $3.2 

$1.3 n/a $1.3 $1.6 n/a $1.6 

Government Sector n/a $0.8 $0.8 n/a $2.6 $2.6 

$30.7 n/a $30.7 $491.3 n/a $491.3 

Government Sector n/a $0.6 $0.6 n/a $2.4 $2.4 

$31.0 n/a $31.0 $138.6 n/a $138.6 

Source: 

Compliance Total Compliance Total 

Costs Costs Costs Costs 

Government Sector $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 

$1.8 n/a $1.8 $712.2 n/a $712.2 

Government Sector $2.5 $0.2 $2.7 $3.6 $0.2 $3.8 

$5.5 n/a $5.5 $25.2 n/a $25.2 

Government Sector n/a $1.2 $1.2 n/a $4.0 $4.0 

$50.7 n/a $50.7 $596.4 n/a $596.4 

Government Sector n/a $0.8 $0.8 n/a $3.1 $3.1 

$37.3 n/a $37.3 $190.3 n/a $190.3 

Source: 

Table D2A-2: Summary of UMRA Costs for the I&E Like Phase II option (millions, $2004) 

Total Annualized Cost Maximum One-Year Cost 

Facility Government Facility Government Sector 

Implementation Implementation 

Final rule for New OOGE Facilities 

(excl. Federal) 

Private Sector 

For Electric Generators with a DIF of 2 – 50 MGD 

(excl. Federal) 

Private Sector 

For Manufacturers with a DIF of 2 – 50 MGD 

(excl. Federal) 

Private Sector 

For Manufacturers with a DIF of 50 MGD or greater 

(excl. Federal) 

Private Sector 

U.S. EPA Analysis, 2006. 

Table D2A-3: Summary of UMRA Costs for the I&E Everywhere option (millions, $2004) 

Total Annualized Cost Maximum One-Year Cost 

Facility Government Facility Government Sector 

Implementation Implementation 

Final rule for New OOGE Facilities 

(excl. Federal) 

Private Sector 

For Electric Generators with a DIF of 2 – 50 MGD 

(excl. Federal) 

Private Sector 

For Manufacturers with a DIF of 2 – 50 MGD 

(excl. Federal) 

Private Sector 

For Manufacturers with a DIF of 50 MGD or greater 

(excl. Federal) 

Private Sector 

U.S. EPA Analysis, 2006. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D3: Other Administrative Requirements 

Chapter D3: Other Administrative 
 

Requirements 
 

INTRODUCTION 

This chapter presents several other analyses conducted in 

developing this final rule. These analyses address the 

requirements of Executive Orders and other legislation and 

regulations applicable to the Phase III regulation. 

D3-1 EXECUTIVE ORDER 12866: 

REGULATORY PLANNING AND 

REVIEW 

Under Executive Order 12866 (58 FR 51735, October 4, 

1993), the Agency must determine whether the regulatory 

action is “significant” and therefore subject to OMB review 

and the requirements of the Executive Order. The order 

defines a “significant regulatory action” as one that is likely 

to result in a rule that may: 

f have an annual effect on the economy of $100 

million or more or adversely affect in a material 

way the economy, a sector of the economy, 

productivity, competition, jobs, the environment, 

public health or safety, or State, local, or Tribal 

governments or communities; or 

f create a serious inconsistency or otherwise interfere 

with an action taken or planned by another agency; 

or 

f materially alter the budgetary impact of 

entitlements, grants, user fees, or loan programs or 

the rights and obligations of recipients thereof; or 

CHAPTER CONTENTS: 


 

	 


 


 

	 


 

	 

	 


 

	 


 

	 

	 


 

Introduction............................................................ D3-1

D3-1 Executive Order 12866: Regulatory Planning 

and Review................................................ D3-1 

D3-2 Paperwork Reduction Act of 1995 ............ D3-1

D3-3 Executive Order 13132: Federalism.......... D3-2

D3-4 Executive Order 13175: Consultation and 

Coordination With Indian Tribal Governments 

 .......................................................... D3-3

D3-5 Executive Order 13045: Protection of Children 

from Environmental Health Risks and Safety 

Risks.......................................................... D3-4 

D3-6 Executive Order 13211: Actions Concerning 

Regulations That Significantly Affect Energy 

Supply, Distribution, or Use ..................... D3-4 

D3-6.1 Existing Manufacturing Facilities .... D3-5 

D3-6.2 New Offshore Oil and Gas Extraction 

Facilities ........................................... D3-5

D3-7 National Technology Transfer and 

Advancement Act of 1995 ........................ D3-6

D3-8 Executive Order 12898: Federal Actions to 

Address Environmental Justice in Minority 

Populations and Low-Income Populations D3-6 

D3-9 Executive Order 13158: Marine Protected 

Areas ......................................................... D3-6

References.............................................................. D3-8 

f raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles 

set forth in the Executive Order. 

Pursuant to the terms of Executive Order 12866, EPA determined that this final rule is a “significant regulatory 

action.” As such, this action was submitted to OMB for review. Changes made in response to OMB suggestions 

or recommendations are documented in the public record. 

D3-2 PAPERWORK REDUCTION ACT OF 1995 

The Paperwork Reduction Act of 1995 (PRA) (superseding the PRA of 1980) is implemented by the Office of 

Management and Budget (OMB) and requires that agencies submit a supporting statement to OMB for any 

information collection that solicits the same data from more than nine parties. The PRA seeks to ensure that 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D3: Other Administrative Requirements 

Federal agencies balance their need to collect information with the paperwork burden imposed on the public by 

the collection. 

The definition of “information collection” includes activities required by regulations, such as permit development, 

monitoring, record keeping, and reporting. The term “burden” refers to the “time, effort, or financial resources” 

the public expends to provide information to or for a Federal agency, or to otherwise fulfill statutory or regulatory 

requirements. PRA paperwork burden is measured in terms of annual time and financial resources the public 

devotes to meet one-time and recurring information requests (44 U.S.C. 3502(2); 5 C.F.R. 1320.3(b)). 

Information collection activities may include: 

f reviewing instructions; 

f using technology to collect, process, and disclose information; 

f adjusting existing practices to comply with requirements; 

f searching data sources; 

f completing and reviewing the response; and 

f transmitting or disclosing information. 

Agencies must provide information to OMB on the parties affected, the annual reporting burden, the annualized 

cost of responding to the information collection, and whether the request significantly impacts a substantial 

number of small entities. An agency may not conduct or sponsor, and a person is not required to respond to, an 

information collection unless it displays a currently valid OMB control number. 

EPA’s estimate of the information collection requirements imposed by the final Phase III regulation are 

documented in the Information Collection Request (ICR), which accompanies this regulation (U.S. EPA, 2006). 

D3-3 EXECUTIVE ORDER 13132: FEDERALISM 

Executive Order 13132 (64 FR 43255, August 10, 1999) requires EPA to develop an accountable process to 

ensure “meaningful and timely input by State and local officials in the development of regulatory policies that 

have federalism implications.” Policies that have federalism implications are defined in the Executive Order to 

include regulations that have “substantial direct effects on the States, on the relationship between the national 

government and the States, or on the distribution of power and responsibilities among the various levels of 

government.” 

Under section 6 of Executive Order 13132, EPA may not issue a regulation that has federalism implications, that 

imposes substantial direct compliance costs, and that is not required by statute unless the Federal government 

provides the funds necessary to pay the direct compliance costs incurred by State and local governments or unless 

EPA consults with State and local officials early in the process of developing the regulation. EPA also may not 

issue a regulation that has federalism implications and that preempts State law, unless the Agency consults with 

State and local officials early in the process of developing the regulation. 

This final rule does not have federalism implications. It would not have substantial direct effects on the States, on 

the relationship between the national government and the States, or on the distribution of power and 

responsibilities among the various levels of government, as specified in Executive Order 13132. Rather, this final 

rule would result in no additional administrative costs on States that have an authorized NPDES program since 

EPA is not promulgating a rule for Phase III existing facilities. For the three regulatory analysis options 

considered in developing a regulation for Phase III existing facilities, EPA estimated that States would have been 

subject to the following annual burden if EPA were promulgating a rule for Phase III existing facilities: 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D3: Other Administrative Requirements 

f 50 MGD for All Waterbodies option: 20,263 hours with a cost of $920,995 ($912,975 in labor costs and 

$8,020 in non-labor costs); 

f 200 MGD for All Waterbodies option: 7,396 hours with a cost of $333,825 ($330,995 in labor costs and 

$2,830 in non-labor costs); 

f 100 MGD for Certain Waterbodies option: 8,362 hours with a cost of $380,960 ($378,647 in labor costs 

and $2,313 in non-labor costs). 

It is noted that States do not incur any burden hours and costs to administer the final rule for the new offshore oil 

and gas extraction facilities because the EPA Regions administer their permits; as these facilities are outside the 

jurisdictional waters of the States. 

The final national cooling water intake structure requirements would be implemented through permits issued 

under the NPDES program. Forty-five States and one territory are currently authorized pursuant to section 402(b) 

of the CWA to implement the NPDES program. In States not authorized to implement the NPDES program, EPA 

issues NPDES permits. Under the CWA, States are not required to become authorized to administer the NPDES 

program. Rather, such authorization is available to States if they operate their programs in a manner consistent 

with section 402(b) and applicable regulations. Generally, these provisions require that State NPDES programs 

include requirements that are as stringent as Federal program requirements. States retain the ability to implement 

requirements that are broader in scope or more stringent than Federal requirements. (See section 510 of the 

CWA.) 

EPA does not expect this final rule to have substantial direct effects on either authorized or nonauthorized States 

or on local governments because it would not change how EPA and the States and local governments interact or 

their respective authority or responsibilities for implementing the NPDES program. For purposes of this rule, the 

relationship and distribution of power and responsibilities between the Federal government and the State and local 

governments are established under the CWA (e.g., sections 402(b) and 510); nothing in this rule alters that. Thus, 

the requirements of section 6 of the Executive Order do not apply to this rule. 

Although section 6 of Executive Order 13132 does not apply to this rule, EPA did consult extensively with State 

governments and representatives of local governments in developing definitions and concepts relevant to the 

section 316(b) rulemaking and this final rule. These consultations – which included meetings with, and 

presentations to, State and local officials in a range of venues – aided in developing the proposed and final 

Phase III regulation. These consultations are documented in the EA for the proposed Phase III regulation 

(Economic Analysis for the Proposed Section 316(b) Rule for Phase III Facilities, November 2004, EPA-821-R04-006) and in the public record. 

D3-4 EXECUTIVE ORDER 13175: CONSULTATION AND COORDINATION WITH INDIAN 

TRIBAL GOVERNMENTS 

Executive Order 13175 (65 FR 67249, November 6, 2000) requires EPA to develop an accountable process to 

ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal 

implications.” “Policies that have tribal implications” is defined in the Executive Order to include regulations that 

have “substantial direct effects on one or more Indian Tribes, on the relationship between the Federal government 

and the Indian Tribes, or on the distribution of power and responsibilities between the Federal government and 

Indian Tribes.” The Phase III final regulation does not have tribal implications. It would not have substantial 

direct effects on tribal governments, on the relationship between the Federal government and Indian Tribes, or on 

the distribution of power and responsibilities between the Federal government and Indian Tribes, as specified in 

Executive Order 13175. EPA’s analyses show that no facility subject to Phase III regulation is owned by tribal 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D3: Other Administrative Requirements 

governments. The Phase III final regulation does not affect Tribes in any way in the foreseeable future. 

Accordingly, the requirements of Executive Order 13175 do not apply to this rule. 

D3-5 EXECUTIVE ORDER 13045: PROTECTION OF CHILDREN FROM ENVIRONMENTAL 

HEALTH RISKS AND SAFETY RISKS 

Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any rule that (1) is determined to be 

“economically significant” as defined under Executive Order 12866 and (2) concerns an environmental health or 

safety risk that EPA has reason to believe might have a disproportionate effect on children. If the regulatory 

action meets both criteria, the Agency must evaluate the environmental health and safety effects of the planned 

rule on children and explain why the planned regulation is preferable to other potentially effective and reasonably 

feasible alternatives considered by the Agency. EPA considers the Phase III final regulation to be a significant 

rule under Executive Order 12866. However, it does not concern an environmental health or safety risk that 

would have a disproportionate effect on children. Therefore, it is not subject to Executive Order 13045. 

D3-6 EXECUTIVE ORDER 13211: ACTIONS CONCERNING REGULATIONS THAT 

SIGNIFICANTLY AFFECT ENERGY SUPPLY, DISTRIBUTION, OR USE 

Executive Order 13211, (“Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, 

or Use” (66 FR 28355, May 22, 2001)) requires EPA to prepare a Statement of Energy Effects when undertaking 

regulatory actions identified as “significant energy actions.” For the purposes of Executive Order 13211, 

“significant energy action” means: 

“any action by an agency (normally published in the Federal Register) that promulgates or is expected to 

lead to the promulgation of a proposed rule or regulation, including notices of inquiry, advance notices of 

proposed rulemaking, and notices of proposed rulemaking: 

(1) (i) that is a significant regulatory action under Executive Order 12866 or any successor order, 

and 

(ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy; 

or 

(2) that is designated by the Administrator of the Office of Information and Regulatory Affairs 

(OIRA) as a significant energy action.” 

For those regulatory actions identified as “significant energy actions,” a Statement of Energy Effects must include 

a detailed statement relating to (1) any adverse effects on energy supply, distribution, or use (including a shortfall 

in supply, price increases, and increased use of foreign supplies) and (2) reasonable alternatives to the action with 

adverse energy effects and the expected effects of such alternatives on energy supply, distribution, and use. 

Today’s final rule does not constitute a “significant energy action” as defined in Executive Order 13211 because it 

is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The final rule 

contains no compliance requirements that would: 

f reduce crude oil supply in excess of 10,000 barrels per day;
 

f reduce fuel production in excess of 4,000 barrels per day;
 

f reduce coal production in excess of 5 million tons per day;
 

f reduce electricity production in excess of 1 billion kilowatt hours per day or in excess of 500 megawatts 
 

of installed capacity; 

D3-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D3: Other Administrative Requirements 

f increase energy prices in excess of 10 percent; 

f increase the cost of energy distribution in excess of 10 percent; 

f significantly increase dependence on foreign supplies of energy; or 

f have other similar adverse outcomes, particularly unintended ones. 

Of the potential significant adverse effects on the supply, distribution, or use of energy (listed above) only a few 

potentially apply to this final rule. Regulation of new offshore oil and gas facilities might affect (1) the 

production of oil and gas, (2) energy prices, and (3) the dependence on foreign supplies of energy. If EPA were 

promulgating a rule for Phase III existing facilities, regulation of existing manufacturing facilities could lead to 

(1) reduced electricity production and, (2) because the rule will apply to facilities in the petroleum refinery sector, 

could lead to reduced refining capacity and therefore reduced domestic fuel production. Potential energy effects 

associated with the regulation of new offshore oil and gas extraction facilities and existing manufacturing 

facilities are described in the following two subsections. 

D3-6.1 New Offshore Oil and Gas Extraction Facilities 

This rule applies only to new offshore oil and gas extraction facilities and not existing ones. Hence the rule would 

have no impact on existing production of oil and gas, energy prices, installed capacity, nor would it significantly 

increase dependence on foreign supplies of energy. EPA’s analysis identified no barriers to entry or energy 

effects. EPA therefore concludes that the final rule would not significantly affect new offshore oil and gas 

production, energy prices, or dependence on foreign supplies of energy. 

Based on these analyses for regulated existing and new facilities, EPA concludes that this final rule will not cause 

a Significant Adverse Effect and does not constitute a Significant Energy Action within the meaning of Executive 

Order 13211. As a result, EPA did not prepare a Statement of Energy Effects. 

D3-6.2 Existing Manufacturing Facilities 

As documented at Proposal, EPA considered the potential impact of the Phase III regulation on power production 

in manufacturing facilities. While facilities in the manufacturing industry segments generate electricity, their 

contribution to the overall supply of electricity is insignificant (less than 0.02%); therefore, compliance with the 

regulatory analysis options considered for Phase III existing facilities regulation by this industry segment would 

not perceptibly affect the supply, distribution, or use of energy. 

Based on comments received at Proposal, in its analysis for the final regulation, EPA examined the potential for 

the regulation to cause a “significant adverse effect” on the Nation’s energy economy through its potential impact 

on petroleum refining operations. EPA performed this analysis in accordance with guidance for implementing 

Executive Order 13211 (“Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, 

or Use”). Specifically, EPA examined whether the shut-down of refinery operations for installing compliance 

equipment could cause a substantial share of total U.S refinery capacity to be out of service during technology 

installation. Among the three primary options considered for Phase III existing facilities, the 50 MGD for All 

Waterbodies option is the broadest in scope. From it’s analysis of this option, EPA concluded that the annualized 

loss in refining capacity from the due to installation would amount to approximately 1,800 barrels per day or 

approximately a 0.01% loss in total U.S. refining capacity. Relative to total U.S. refinery capacity, this impact is 

minimal and less than the OMB defined threshold of 4,000 barrels per day of fuel production for a Significant 

Adverse Effect under Executive Order 13211.1 

1

 This analysis is documented in the public record for the Phase III final regulation. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D3: Other Administrative Requirements 

D3-7 NATIONAL TECHNOLOGY TRANSFER AND ADVANCEMENT ACT OF 1995 

Section 12(d) of the National Technology Transfer and Advancement Act (NTTAA) of 1995, Pub L. No. 104-

113, Sec. 12(d) directs EPA to use voluntary consensus standards in its regulatory activities unless doing so would 

be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical 

standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are 

developed or adopted by voluntary consensus standard bodies. The NTTAA directs EPA to provide Congress, 

through the Office of Management and Budget (OMB), explanations when the Agency decides not to use 

available and applicable voluntary consensus standards. 

This final rule does not involve such technical standards. Therefore, EPA is not considering the use of any 

voluntary consensus standards. 

D3-8 EXECUTIVE ORDER 12898: FEDERAL ACTIONS TO ADDRESS ENVIRONMENTAL 

JUSTICE IN MINORITY POPULATIONS AND LOW-INCOME POPULATIONS 

Executive Order 12898 (59 FR 7629, February 11, 1994) requires that, to the greatest extent practicable and 

permitted by law, each Federal agency must make achieving environmental justice part of its mission. E.O. 

12898 provides that each Federal agency must conduct its programs, policies, and activities that substantially 

affect human health or the environment in a manner that ensures such programs, policies, and activities do not 

have the effect of (1) excluding persons (including populations) from participation in, or (2) denying persons 

(including populations) the benefits of, or (3) subjecting persons (including populations) to discrimination under 

such programs, policies, and activities because of their race, color, or national origin. 

Today’s final rule requires that the location, design, construction, and capacity of cooling water intake structures 

(CWIS) at Phase III facilities reflect the best technology available for minimizing adverse environmental impact. 

For several reasons, EPA does not expect that this final rule would have an exclusionary effect, deny persons the 

benefits of the participation in a program, or subject persons to discrimination because of their race, color, or 

national origin. In fact, because EPA expects that this final rule would help to preserve the health of aquatic 

ecosystems located in reasonable proximity to Phase III facilities, it believes that all populations, including 

minority and low-income populations, would benefit from improved environmental conditions as a result of this 

rule. 

D3-9 EXECUTIVE ORDER 13158: MARINE PROTECTED AREAS 

Executive Order 13158 (65 FR 34909, May 31, 2000) requires EPA to “expeditiously propose new science-based 

regulations, as necessary, to ensure appropriate levels of protection for the marine environment.” EPA may take 

action to enhance or expand protection of existing marine protected areas and to establish or recommend, as 

appropriate, new marine protected areas. The purpose of the Executive Order is to protect the significant natural 

and cultural resources within the marine environment, which means “those areas of coastal and ocean waters, the 

Great Lakes and their connecting waters, and submerged lands thereunder, over which the United States exercises 

jurisdiction, consistent with international law.” EPA expects that the Final Section 316(b) Rule for Phase III 

Facilities would advance the objective of Executive Order 13158. 

Marine protected areas (MPAs) include designated areas with varying levels of protection, from fishery closure 

areas, to aquatic National Parks, Marine Sanctuaries, and Wildlife Refuges (NOAA, 2002). The Departments of 

Commerce and the Interior are developing an inventory of MPAs in the U.S. that are protected and managed 

under Federal, State, Territorial, Tribal, or local laws. This list has not been completed, but it currently includes 

32 Federal sites in the New England region, 31 in the Middle Atlantic region, 43 in the South Atlantic region, 45 

in the Gulf of Mexico region, 12 in the Caribbean region, 15 in the Great Lakes region, and 46 in the U.S. West 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D3: Other Administrative Requirements 

Coast region. Examples of marine protected areas include the Great Bay National Wildlife Refuge in New 

Hampshire, the Cape Cod Bay Northern Right Whale Critical Habitat in Massachusetts, the Narragansett Bay 

National Estuarine Research Reserve in Rhode Island, Everglades National Park and the Tortugas Shrimp 

Sanctuary in Florida, and the Point Reyes National Seashore in California. 

Marine protected areas can help address problems related to the depletion of marine resources by prohibiting, or 

severely curtailing, activities that are permitted or regulated by law outside of marine protected areas. Such 

activities include oil exploration, dredging, dumping, fishing, certain types of vessel traffic, and the focus of 

section 316(b) rulemaking, the impingement and entrainment of aquatic organisms by cooling water intake 

structures. 

Impingement and entrainment affects many kinds of aquatic organisms, including fish, shrimp, crabs, birds, sea 

turtles, and marine mammals. Aquatic environments are harmed both directly and indirectly by impingement and 

entrainment of these organisms. In addition to the harm that results from the direct removal of organisms by 

impingement and entrainment, there are the indirect effects on aquatic food webs that result from the 

impingement and entrainment of organisms that serve as prey for predator species. There are also cumulative 

impacts that result from multiple intake structures operating in the same local area, or when multiple intakes affect 

individuals within the same population over a broad geographic range. 

Decreased numbers of aquatic organisms resulting from the direct and indirect effects of impingement and 

entrainment can have a number of consequences for marine resources, including impairment of food webs, 

disruption of nutrient cycling and energy transfer within aquatic ecosystems, loss of native species, and reduction 

of biodiversity. By reducing the impingement and entrainment of aquatic organisms, this final rule would not 

only help protect individual species but also the overall marine environment, thereby advancing the objective of 

Executive Order 13158 to protect marine areas. 

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§ 316(b) Final Rule: Phase III – EA, Part D: Additional Economic Analyses Chapter D3: Other Administrative Requirements 

REFERENCES 

Executive Office of the President. 2001. Executive Order 13211. “Actions Concerning Regulations That 

Significantly Affect Energy Supply, Distribution, or Use.” 66 FR 28355. May 22, 2001. 

Executive Office of the President. 2000a. Executive Order 13175. “Consultation and Coordination with Indian 

Tribal Governments.” 65 FR 67249, November 6, 2000. 

Executive Office of the President. 2000b. Executive Order 13158. “Marine Protected Areas.” 65 FR 34909, 

May 31, 2000. 

Executive Office of the President. 1999. Executive Order 13132. “Federalism.” 64 FR 43255. August 10, 

1999. 

Executive Office of the President. 1997. Executive Order 13045. “Protection of Children from Environmental 

Health Risks and Safety Risks.” 62 FR 19885, April 23, 1997. 

Executive Office of the President. 1994. Executive Order 12898. “Federal Actions to Address Environmental 

Justice in Minority Populations and Low-Income Populations.” 59 FR 7629, February 11, 1994. 

Executive Office of the President. 1993. Executive Order 12866. “Regulatory Planning and Review.” 58 FR 

51735. October 4, 1993. 

National Oceanic and Atmospheric (NOAA) and U.S. Department of Commerce. 2002. Marine Protected Areas 

of the United States. http://mpa.gov/welcome.html. Accessed 2/22/02. 

National Technology Transfer and Advancement Act of 1995. 1995. Public Law 104-113. Available at: 

http://standards.gov/standards_gov/index.cfm?do=documents.NTTAA 

Paperwork Reduction Act (PRA). 44 U.S.C. 3501 et seq. 

U.S. Department of Commerce (U.S. DOC), Bureau of the Census. 2000. 2000 Census of Population and 

Housing. 

U.S. Department of Commerce (U.S. DOC), Bureau of the Census. 1998. 1998 Small Area Income and Poverty 

Estimates. 

U.S. Department of the Interior (U.S. DOI), Fish and Wildlife Service, and U.S. Department of Commerce, 

Bureau of the Census. 1997. 1996 National Survey of Fishing, Hunting, and Wildlife-Associated Recreation. 

U.S. Environmental Protection Agency (U.S. EPA). 2006. Information Collection Request for Cooling Water 

Intake Structures at Phase III Facilities (Final Rule). ICR Number 2169.01. June 2006. 

D3-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

Chapter E1: Summary of Social Costs 
 

INTRODUCTION 

This chapter presents EPA’s estimates of the costs to 

society associated with the options evaluated for the Final 

Regulation for Phase III facilities. The social costs of 

regulatory actions are the opportunity costs to society 

of employing scarce resources to reduce environmental 

damages. The social costs of regulation include both 

monetary and non-monetary outlays made by society. 

Monetary outlays include the resource costs of compliance, 

government administrative costs, and other adjustment 

costs, such as the cost of relocating displaced workers. 

Non-monetary outlays, some of which can be assigned monetary values, include losses in consumers’ and 

producers’ surplus in affected product markets, the adverse effects of involuntary unemployment, possible loss of 

time (e.g., delays in investment decisions), and possible adverse impacts on the rate of innovation. 

CHAPTER CONTENTS 


 

E1-1	 

E1-2 

E1-3 

E1-4	 
 


 


 

Introduction.............................................................E1-1

Costs of Compliance by Regulated Industry 

Segment .....................................................E1-2 

State and Federal Administrative Costs .....E1-4 

Total Social Cost........................................E1-5 

Limitations and Uncertainties ..................E1-10

Glossary ................................................................E1-11

References.............................................................E1-12

EPA’s estimates of social costs for the evaluated section 316(b) Phase III options include three components: 

1. Direct costs of complying with the regulation within each regulated industry segment, 

2. Cost to State governments in administering the regulation, and 

3. Cost to the Federal government in administering the regulation. 

This chapter presents the social cost analysis for the Phase III final regulation, which applies national performance 

standards to new offshore oil and gas extraction facilities (also abbreviated as “new OOGE facilities”). The final 

requirements for this industry segment are based on a 2 MGD DIF applicability threshold and apply to an 

estimated 124 new offshore oil and gas extraction facilities. This chapter also presents costs for Phase III existing 

facilities under three regulatory analysis options: facilities with a design intake flow of 50 MGD or more that are 

located on any source waterbody type (“50 MGD All Watebodies” option), facilities with a design intake flow of 

200 MGD or more that are located on any source waterbody type (“200 MGD for All Waterbodies” option), and 

facilities with a design intake flow of 100 MGD or more that are located on certain waterbody types (“100 MGD 

for Certain Waterbodies” option). These options differ with regard to: (1) their design intake flow (DIF) 

applicability thresholds: 50, 100 and 200 MGD, respectively; and (2) the type of waterbodies to which they would 

apply: the options with the 50 and 200 MGD applicability thresholds would apply to all waterbody types while 

the option with the 100 MGD applicability threshold would apply only to facilities withdrawing cooling water 

from certain waterbody types (i.e., an ocean, estuary, tidal river/stream or one of the Great Lakes). For the 

purposes of analysis, facilities meeting these applicability criteria would be required to meet similar performance 

standards, including a 80-95% reduction in impingement mortality and a 60-90% reduction in entrainment. For 

the purposes of analysis, facilities not meeting the applicability criteria set forth under each option would continue 

to be subject to permit requirements based on Best Professional Judgment (BPJ). The number of facilities 

required to meet the national requirements would vary depending on the applicability threshold considered. 

Among the three options considered, the 50 MGD for All Waterbodies option applies the national categorical 

requirements to the largest number of facilities, with the 200 MGD for All Waterbodies and the 100 MGD for All 

Waterbodies applying to successively smaller numbers of facilities. 

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§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

E1-1 COSTS OF COMPLIANCE BY REGULATED INDUSTRY SEGMENT 

The compliance costs used to estimate total social costs differ in their consideration of taxes from those in Part B: 

Economic Analysis for Phase III Existing Facilities, and Part C: Economic Analysis for Phase III New Offshore 

Oil and Gas Extraction Facilities, which were calculated for the purpose of estimating the private costs and 

impacts of the evaluated options. For the impact analyses, compliance costs are measured according to their 

effect on the financial performance of the regulated facilities and firms. The analyses therefore explicitly consider 

the tax deductibility of compliance outlays.1

 In the analysis of costs to society, however, these compliance costs 

are considered on a pre-tax basis. The costs to society are the full value of the resources used, whether they are 

paid for by the regulated facilities or by all taxpayers in the form of lost tax revenues. 

EPA included no costs for facilities that were assessed as baseline closures or that are subject to permit 

specifications based on best professional judgment (BPJ), instead of the national categorical requirements of the 

Final rule or the regulatory analysis options for existing facilities. However, EPA’s estimates do include 

compliance costs for facilities estimated to close because of the rule.2

 This approach may overstate the social 

costs of compliance, to the extent that the net economic loss to society in facility closures is less than the 

estimated cost to society of compliance.3 

To assess the cost to society of complying with Phase III regulation, EPA estimated the costs to facilities for the 

labor, equipment, materials, and other economic resources needed to comply with each evaluated option. In this 

analysis, EPA assumed that the market prices for labor, equipment, materials, and other compliance resources 

represent the opportunity costs to society for use of those resources in regulatory compliance. 

EPA estimates that the offshore oil and gas extraction industry segment would not incur cost from installation 

downtime because only new offshore oil and gas extraction facilities would be regulated under this final rule. The 

potential disruption in ongoing business operation estimated for existing Manufacturers is not relevant for new 

facilities. 

For the analysis of installation downtime in the Manufacturer’s segment, EPA assumed that the cost of society is 

equal to the increase in production cost for providing the electricity or other replacement goods and services not 

provided by the facilities that incur downtime in reaching compliance with the 316(b) Phase III regulation. For 

Manufacturers, this cost is approximated as the lost revenue from installation downtime less the variable cost of 

producing goods and services not produced due to the installation downtime. Implicit in this assumption is that 

the variable production cost of replacing the lost goods and services are essentially the same as the price received 

for the sale of the electricity or other goods and services not produced by the facilities incurring the installation 

downtime. For the goods and services not produced by affected Manufacturers facilities, this assumption is 

consistent with a competitive market model of increasing marginal production cost, such that the production cost 

of the “last” or highest cost goods and services produced and sold in any period is approximately equal to the 

price received for those goods and services in the market. For Manufacturers – which do not necessarily produce 

and sell goods in orderly markets and where, as a result, the cost of producing replacement goods and services 

may be less than selling price – this assumption may overstate the cost to society of installation downtime (see 

1

 Because government facilities and cooperatives are not subject to income taxes, their costs are not adjusted for taxes. 

2

 To the extent such impacts occur under any of the options analyzed. 

3

 Including costs for regulatory closures yields an estimate of social costs assuming that all facilities, except those 

assessed as baseline closures, would incur the costs of regulatory compliance and continue to operate post-regulation. 

Calculating costs as if all facilities continue operating will overstate social costs if the social cost of compliance is greater 

than the net economic loss to society from facility closure. Whether this result will hold depends, in part, on the difference 

between social and private discount rates, and the marginal cost to society to replace the lost production of goods and 

services in closing facilities. 

E1-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

discussion in Appendix B3A2: Calculation of Installation Downtime Cost). Absent specific knowledge of the 

overall production cost structure of the affected industries, EPA adopted this assumption for its analysis of the 

social cost of the regulatory analysis options considered for Phase III regulation. 

Finally, EPA assumes in its social cost analysis that none of the evaluated options would affect the aggregate 

quantity of goods and services sold to consumers by producers in the affected industry segments. The resource 

costs of compliance therefore manifest only as a reduction in the total of producers’ surplus and consumers’ 

surplus, with no change in the quantity of goods and services produced and consumed. In the impact analyses, 

specific assumptions are made about the distribution of this effect between producers and consumers (i.e., the 

impact analyses of all analyzed section 316(b) Phase III industry segments – new offshore oil and gas extraction 

facilities and manufacturers – assume that all compliance costs are absorbed by complying businesses with no 

increase in prices to consumers). However, for the social cost analysis, the distribution of this effect between 

producers and consumers is irrelevant. Given the very small impact of the options on total costs within the 

industry segments, EPA believes the assumption of no effect on total quantity of goods and services produced and 

consumed is reasonable. 

Table E1-1, following page, summarizes total direct facility costs for the Final Regulation for new offshore oil 

and gas extraction facilities as well as the costs of the regulatory analysis options considered for existing facilities, 

which are defined as the Final Regulation for the new offshore oil and gas extraction facilities combined with the 

primary analysis alternatives for existing facilities. As described in Chapter C1: Summary of Cost Categories and 

Key Analysis Elements for Existing Facilities and Chapter B1: Summary of Cost Categories and Key Analysis 

Elements for New Offshore Oil and Gas Extraction Facilities, costs were first tallied on an as-incurred, year-byyear basis over the total time period of analysis, considering the latest year in which any affected facility is 

assumed to reach compliance (2026 for new offshore oil and gas extraction facilities, 2014 for existing facilities) 

and for a period of 30 years in which facilities are assumed to continue compliance, for the purposes of the social 

cost analysis. Thus, for the social cost analysis, the analysis period extends to 2055 for new facilities and to 2043 

for existing facilities.4

 These profiles of costs by year were then discounted to the assumed year when this final 

rule would take effect, beginning of year 2007, at two values of the discount rate, 3% and 7%. These discount 

rate values reflect guidance from the Office of Management and Budget (OMB) regulatory analysis guidance 

document, Circular A-4 (OMB, 2003). After calculating the present value of these cost streams, EPA calculated 

their constant annual equivalent value (annualized value) using the annualization formula presented in Chapter 

C1, again using the two values of the discount rate, 3% and 7%. 

At a 3% discount rate, EPA estimates annualized direct costs of compliance of $3.5 million under the Phase III 

final regulation. The three regulatory analysis options considered resulted in annualized direct costs of 

compliance of $41.1 million (50 MGD All option), $22.8 million (200 MGD All Option) and $17.9 million (100 

MGD CWB Option). At a 7% discount rate, these costs amount to $2.9 million (final rule), $41.2 million (50 

MGD All Option), $22.9 million (200 MGD All Option), and $16.8 million (100 MGD CWB Option). 

4

 Tables E1-6 through E1-8 below present the time profiles of regulatory costs for the three regulatory analysis options for 

existing facilities, combined with the final rule for new offshore oil and gas extraction facilities. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1-3 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

Table E1-1: Summary of Annualized Direct Costs by Industry Segments (millions, $2004) 

50 MGD All for Existing 200 MGD All for Existing 100 MGD CWB for Existing 

Facilities and for New Facilities and Final Facilities and Final 

OOGE Facilities (2 MGD Regulation for New OOGE Regulation for New OOGE 

All) Facilities (2 MGD All) Facilities (2 MGD All) 

3% 7% 3% 7% 3% 7% 

New Oil & Gas Facilities $3.5 $2.9 $3.5 $2.9 $3.5 $2.9 

Existing Manufacturing Facilities 

Primary Manufacturing 

Industries $36.3 $37.1 $18.8 $19.5 $13.7 $13.3 

Other Industries $1.3 $1.2 $0.5 $0.4 $0.7 $0.7 

Total Existing Facilitiesa $37.6 $38.3 $19.3 $20.0 $14.4 $13.9 

Total Direct Facility Costsa $41.1 $41.2 $22.8 $22.9 $17.9 $16.8 

a Individual numbers may not add up to totals due to independent rounding. 

Source: U.S. EPA Analysis, 2006. 

E1-2 STATE AND FEDERAL ADMINISTRATIVE COSTS 

Social costs also include costs to State and Federal governments of administering the permitting and compliance 

monitoring activities under the final regulation. State and Federal permitting authorities incur costs to administer 

the rule, including labor costs to write permits and to conduct compliance monitoring and enforcement activities. 

Chapter D2: UMRA Analysis presents more information on State and Federal implementation costs. 

EPA’s estimate of State and Federal government cost for administering the final rule is $0.44 million at a 3% 

discount rate and $0.34 million at a 7% discount rate. When the regulatory analysis options for existing facilities 

are included, EPA estimates administrative costs of $1.09 million at a 3% discount rate under the 50 MGD All 

option. The 200 MGD and 100 MGD options resulted in administrative costs of $0.61 million and $0.64 million 

at a 3% discount rate, respectively. At a 7% discount rate, these costs amount to $0.99 million (50 MGD All 

Option), $0.50 million (200 MGD All Option), and $0.54 million (100 MGD CWB Option). 

Table E1-2: Summary of Annualized Government Costs (millions, $2004) 

Final Regulation for New OOGE Facilities (2 MGD All) 

3% 7% 

New OOGE Facilities: 

State Admin. Costs n/a n/a 

Federal Admin. Costs $0.44 $0.34 

Total New OOGE Facilities Administrative Cost $0.44 $0.34 

a Individual numbers may not add up to totals due to independent rounding. 

E1-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

Table E1-3: Summary of Annualized Government Costs (millions, $2004) 

50 MGD All for Existing 200 MGD All for Existing 100 MGD CWB for Existing 

Facilities and Final Facilities and Final Facilities and Final 

Regulation for New OOGE Regulation for New OOGE Regulation for New OOGE 

Facilities (2 MGD All) Facilities (2 MGD All) Facilities (2 MGD All) 

3% 7% 3% 7% 3% 7% 

Existing Facilities: 

State Admin. Costs $0.63 $0.64 $0.16 $0.16 $0.19 $0.19 

Federal Admin. Costs $0.01 $0.01 <$0.01 < $0.01 < $0.01 < $0.01 

Total Existing Facilities 

Administrative Costa $0.64 $0.65 $0.17 $0.16 $0.19 $0.19 

New OOGE Facilities: 

State Admin. Costs n/a n/a N/a n/a n/a n/a 

Federal Admin. Costs $0.44 $0.34 $0.44 $0.34 $0.44 $0.34 

Total New OOGE Facilities 

Administrative Cost $0.44 $0.34 $0.44 $0.34 $0.44 $0.34 

Total Gov. Administrative Costsa $1.09 $0.99 $0.61 $0.50 $0.64 $0.54 

a Individual numbers may not add up to totals due to independent rounding. 

Source: U.S. EPA Analysis, 2006. 

E1-3 TOTAL SOCIAL COST 

Table E1-4 and Table E1-5 combine the information presented above by industry segment and major cost 

category – direct facility costs and administrative costs – and reports the total social costs of the final rule and the 

three alternative options considered discounted at a 3% and 7% rate. At 3% and 7% discount rates, the estimated 

total annualized social costs of the final rule are $3.9 and $3.2 million, respectively. When the regulatory analysis 

options for existing facilities are included, the estimated total annualized social costs at a 3% discount rate are 

$42.0 million for the 50 MGD All option, $23.2 million for the 200 MGD All Option, and $18.3 million for the 

100 MGD CWB Option. At a 7% discount rate the estimated total annualized social costs are $42.1 million for 

the 50 MGD All Option, $23.2 million for the 200 MGD All Option, and $17.2 million for the 100 MGD CWB 

Option (all values in 2003$). 

As shown in Table E1-5, following page, existing facilities (Manufacturers) account for the substantial majority 

of total social cost under the three regulatory analysis options. At a 3% discount rate, annualized pre-tax costs per 

facility in the Manufacturers segment amount to $262,000 for the 50 MGD All option, $628,000 for the 200 MGD 

All option, and $633,000 for the 100 MGD CWB option. At a 7% discount rate, annualized pre-tax costs in the 

manufacturers segment amount to $267,000 for the 50 MGD All option, $650,000 for the 200 MGD All option, 

and $ 614,000 for the 100 MGD CWB option. Because the 200 MGD option and the 100 MGD option apply 

national categorical requirements to a smaller number of facilities than the 50 MGD All option, they result in a 

lower total national cost but a higher cost per regulated facility. Facilities that are subject to the national 

requirements of the 200 MGD option and the 100 MGD option incur the same compliance costs as under the 50 

MGD All option; however, the average costs per regulated facility are higher under the 200 MGD and 100 MGD 

options because only the higher flow, and therefore higher cost, facilities incur costs under these options. For 

facilities in the new offshore oil and gas extraction industry segment, per facility costs under the final rule are 

approximately $32,000 at a 3% discount rate and $26,000 at a 7% discount rate. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1-5 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

Table E1-4: Summary of Annualized Social Costs (millions, $2004) 

New OOGE Facilities: 

$3.5 $2.9 

$0.4 $0.3 

$3.9 $3.2 

3% 7% 

a 

Source: 

Table E1-5: Summary of Annualized Social Costs (millions, $2004) 

MGD All) and for New 

All) 

3% 7% 3% 7% 3% 7% 

$37.6 $38.3 $19.3 $20.0 $14.4 $13.9 

Costs $0.6 $0.6 $0.2 $0.2 $0.2 $0.2 

$38.2 $39.0 $19.5 $20.2 $14.6 $14.1 

New OOGE Facilities: 

$3.5 $2.9 $3.5 $2.9 $3.5 $2.9 

Costs $0.4 $0.3 $0.4 $0.3 $0.4 $0.3 

Cost $3.9 $3.2 $3.9 $3.2 $3.9 $3.2 

$42.1 $42.2 $23.4 $23.4 $18.5 $17.4 

a 

Source: 

Total Direct Facility Costs 

Total Government Administrative Costs 

Total New OOGE Facilities Social Cost 

Final Regulation for New OOGE 

Facilities (2 MGD All) 

Individual numbers may not add up to totals due to independent rounding. 

U.S. EPA Analysis, 2006. 

Final Regulation for 

Existing Facilities (50 200 MGD All for Existing 100 MGD CWB for Existing 

Facilities and Final Facilities and Final 

OOGE Facilities (2 MGD Regulation for New OOGE Regulation for New OOGE 

Facilities (2 MGD All) Facilities (2 MGD All) 

Existing Facilities: 

Total Direct Facility Costs 

Total Government Administrative 

Total Existing Facilities Social Cost 

Total Direct Facility Costs 

Total Government Administrative 

Total New OOGE Facilities Social 

Total Social Cost 

Individual numbers may not add up to totals due to independent rounding. 

U.S. EPA Analysis, 2006. 

Table E1-6 through Table E1-8, beginning at page E1-7, provide additional detail on the compliance cost 

calculations. The tables compile, for the three regulatory analysis options for existing facilities, and for the final 

rule for new offshore oil and gas extraction facilities, the time profiles of costs incurred by the regulated industry 

segments, administrative costs, and total costs. The tables also report the calculated present and annualized values 

of costs at 3% and 7% discount rates. Time profiles for the supplemental options analyzed for existing facilities 

are presented in the appendix to this chapter. 

E1-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

Year Total 

Administrative 

Costs 

Total Facilities Administrative 

Costs 

Total 

2007 $3.0 $0.2 $3.2 $2.0 $0.0 $2.0 $5.2 

2008 $12.1 $0.0 $12.1 $1.9 $0.0 $1.9 $13.9 

2009 $17.5 $0.0 $17.5 $1.9 $0.0 $1.9 $19.4 

2010 $136.7 $1.3 $138.0 $1.2 $0.0 $1.2 $139.2 

2011 $92.7 $2.4 $95.2 $1.8 $0.0 $1.8 $96.9 

2012 $57.7 $1.1 $58.8 $2.0 $0.5 $2.5 $61.3 

2013 $57.9 $1.1 $59.0 $2.4 $0.2 $2.5 $61.5 

2014 $18.6 $0.4 $19.0 $2.2 $0.7 $2.9 $21.9 

2015 $21.3 $0.5 $21.8 $1.9 $0.3 $2.2 $24.0 

2016 $16.0 $0.9 $16.8 $1.8 $0.3 $2.1 $18.9 

2017 $16.9 $0.5 $17.3 $4.4 $0.5 $4.9 $22.2 

2018 $13.2 $0.4 $13.7 $2.9 $0.3 $3.2 $16.9 

2019 $17.7 $0.2 $17.9 $4.0 $0.6 $4.6 $22.5 

2020 $38.1 $0.5 $38.6 $3.1 $0.4 $3.5 $42.1 

2021 $91.1 $0.9 $92.0 $3.1 $0.4 $3.5 $95.5 

2022 $21.3 $0.5 $21.7 $5.1 $0.7 $5.9 $27.6 

2023 $57.8 $0.4 $58.2 $3.2 $0.4 $3.6 $61.8 

2024 $18.5 $0.2 $18.8 $4.8 $0.7 $5.5 $24.3 

2025 $21.3 $0.5 $21.8 $3.2 $0.5 $3.7 $25.5 

2026 $16.0 $0.9 $16.8 $3.2 $0.5 $3.6 $20.5 

2027 $16.9 $0.5 $17.3 $5.2 $0.8 $6.0 $23.3 

2028 $13.2 $0.4 $13.7 $3.1 $0.3 $3.4 $17.1 

2029 $17.7 $0.2 $17.9 $4.4 $0.7 $5.1 $23.0 

2030 $38.1 $0.5 $38.6 $3.1 $0.3 $3.4 $42.0 

2031 $91.1 $0.9 $92.0 $3.1 $0.3 $3.4 $95.4 

2032 $21.3 $0.5 $21.7 $5.5 $0.8 $6.2 $27.9 

2033 $57.8 $0.4 $58.2 $3.1 $0.3 $3.4 $61.6 

2034 $18.5 $0.2 $18.8 $4.9 $0.7 $5.6 $24.4 

2035 $21.3 $0.5 $21.8 $3.1 $0.3 $3.4 $25.2 

2036 $16.0 $0.9 $16.8 $3.1 $0.3 $3.4 $20.2 

2037 $16.9 $0.5 $17.3 $4.2 $0.7 $4.9 $22.2 

2038 $13.2 $0.4 $13.7 $2.0 $0.3 $2.3 $16.0 

2039 $12.2 $0.2 $12.5 $3.2 $0.6 $3.8 $16.3 

2040 $10.1 $0.1 $10.2 $1.9 $0.3 $2.2 $12.4 

2041 $4.8 $0.1 $4.9 $1.9 $0.3 $2.1 $7.0 

2042 $3.5 $0.0 $3.5 $3.9 $0.5 $4.4 $7.9 

2043 $0.3 $0.0 $0.3 $1.8 $0.2 $2.0 $2.3 

2044 $2.6 $0.4 $3.0 $3.0 

2045 $1.7 $0.2 $1.8 $1.8 

2046 $1.6 $0.2 $1.8 $1.8 

2047 $2.2 $0.3 $2.5 $2.5 

2048 $0.6 $0.1 $0.7 $0.7 

2049 $1.1 $0.2 $1.3 $1.3 

2050 $0.3 $0.1 $0.4 $0.4 

2051 $0.2 $0.1 $0.3 $0.3 

2052 $1.5 $0.1 $1.7 $1.7 

2053 $0.1 $0.0 $0.2 $0.2 

2054 $0.6 $0.1 $0.7 $0.7 

2055 $0.0 $0.0 $0.1 $0.1 

PV 3% $759.6 $13.0 $772.6 $70.6 $9.0 $79.5 $852.1 

Annualized 3% $37.6 $0.64 $3.5 $0.44 $3.9 $42.2 

PV 7% $509.1 $8.62 $517.8 $38.8 $4.5 $43.3 $561.1 

Annualized 7% $38.3 $0.65 $2.9 $0.34 $3.3 $42.3 

Source: 

Table E1-6: Time Profile of Compliance Costs for the 50 MGD All Waterbodies Option for Existing 

Facilities and the Final Rule for New OOGE Facilities (millions; $2004) 

Existing Facilities (Manufacturers) New OOGE Facilities 

Facilities 

$38.3 

$39.0 

U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1-7 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

Year Administrative Total

Costs Total Facilities Administrative 

Costs Total 

2007 $0.0 $0.2 $0.2 $2.0 $0.0 $2.0 $2.2 

2008 $2.6 $0.0 $2.6 $1.9 $0.0 $1.9 $4.5 

2009 $3.1 $0.0 $3.1 $1.9 $0.0 $1.9 $5.0 

2010 $108.9 $0.0 $108.9 $1.2 $0.0 $1.2 $110.1 

2011 $43.9 $0.8 $44.7 $1.8 $0.0 $1.8 $46.4 

2012 $6.7 $0.1 $6.8 $2.0 $0.5 $2.5 $9.4 

2013 $47.7 $0.5 $48.1 $2.4 $0.2 $2.5 $50.6 

2014 $5.5 $0.1 $5.7 $2.2 $0.7 $2.9 $8.6 

2015 $8.3 $0.1 $8.4 $1.9 $0.3 $2.2 $10.6 

2016 $5.9 $0.3 $6.1 $1.8 $0.3 $2.1 $8.2 

2017 $7.9 $0.1 $8.0 $4.4 $0.5 $4.9 $12.9 

2018 $5.9 $0.2 $6.0 $2.9 $0.3 $3.2 $9.2 

2019 $5.5 $0.1 $5.6 $4.0 $0.6 $4.6 $10.1 

2020 $14.1 $0.0 $14.2 $3.1 $0.4 $3.5 $17.6 

2021 $43.9 $0.3 $44.2 $3.1 $0.4 $3.5 $47.7 

2022 $8.3 $0.1 $8.4 $5.1 $0.7 $5.9 $14.3 

2023 $47.6 $0.2 $47.8 $3.2 $0.4 $3.6 $51.4 

2024 $5.5 $0.1 $5.6 $4.8 $0.7 $5.5 $11.1 

2025 $8.3 $0.0 $8.4 $3.2 $0.5 $3.7 $12.1 

2026 $5.9 $0.3 $6.1 $3.2 $0.5 $3.6 $9.7 

2027 $7.9 $0.1 $8.0 $5.2 $0.8 $6.0 $13.9 

2028 $5.9 $0.2 $6.0 $3.1 $0.3 $3.4 $9.4 

2029 $5.5 $0.1 $5.6 $4.4 $0.7 $5.1 $10.6 

2030 $14.1 $0.0 $14.2 $3.1 $0.3 $3.4 $17.6 

2031 $43.9 $0.3 $44.2 $3.1 $0.3 $3.4 $47.6 

2032 $8.3 $0.1 $8.4 $5.5 $0.8 $6.2 $14.6 

2033 $47.6 $0.2 $47.8 $3.1 $0.3 $3.4 $51.2 

2034 $5.5 $0.1 $5.6 $4.9 $0.7 $5.6 $11.2 

2035 $8.3 $0.0 $8.4 $3.1 $0.3 $3.4 $11.8 

2036 $5.9 $0.3 $6.1 $3.1 $0.3 $3.4 $9.5 

2037 $7.9 $0.1 $8.0 $4.2 $0.7 $4.9 $12.9 

2038 $5.9 $0.2 $6.0 $2.0 $0.3 $2.3 $8.3 

2039 $5.5 $0.1 $5.5 $3.2 $0.6 $3.8 $9.3 

2040 $5.2 $0.0 $5.3 $1.9 $0.3 $2.2 $7.4 

2041 $2.6 $0.0 $2.6 $1.9 $0.3 $2.1 $4.7 

2042 $2.4 $0.0 $2.4 $3.9 $0.5 $4.4 $6.8 

2043 $0.1 $0.0 $0.1 $1.8 $0.2 $2.0 $2.1 

2044 $2.6 $0.4 $3.0 $3.0 

2045 $1.7 $0.2 $1.8 $1.8 

2046 $1.6 $0.2 $1.8 $1.8 

2047 $2.2 $0.3 $2.5 $2.5 

2048 $0.6 $0.1 $0.7 $0.7 

2049 $1.1 $0.2 $1.3 $1.3 

2050 $0.3 $0.1 $0.4 $0.4 

2051 $0.2 $0.1 $0.3 $0.3 

2052 $1.5 $0.1 $1.7 $1.7 

2053 $0.1 $0.0 $0.2 $0.2 

2054 $0.6 $0.1 $0.7 $0.7 

2055 $0.0 $0.0 $0.1 $0.1 

PV 3% $390.0 $3.2 $393.2 $70.6 $9.0 $79.5 $472.8 

Annualized 3% $19.3 $0.16 $3.5 $0.44 $3.9 $23.4 

PV 7% $265.2 $2.2 $267.4 $38.8 $4.5 $43.3 $310.7 

Annualized 7% $20.0 $0.16 $2.9 $0.34 $3.3 $23.4 

Source: 

Table E1-7: Time Profile of Compliance Costs for the 200 MGD for All Waterbodies Option for Existing 

Facilities and the Final Rule for New OOGE Facilities (millions; $2004) 

Existing Facilities (Manufacturers) New OOGE Facilities 

Facilities 

$19.5 

$20.1 

U.S. EPA Analysis, 2006. 

E1-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

Table E1-8: Time Profile of Compliance Costs for the 100 MGD for Certain Waterbodies Option for 

Existing Facilities and the Final Rule for New OOGE Facilities (millions; $2004) 

Existing Facilities (Manufacturers) New OOGE Facilities 

Year 

Facilities Administrative 

Costs Total Facilities Administrative 

Costs Total 

Total 

2007 $0.4 $0.2 $0.6 $2.0 $0.0 $2.0 $2.6 

2008 $5.2 $0.0 $5.2 $1.9 $0.0 $1.9 $7.1 

2009 $5.1 $0.0 $5.1 $1.9 $0.0 $1.9 $7.1 

2010 $14.7 $0.1 $14.8 $1.2 $0.0 $1.2 $15.9 

2011 $55.6 $1.2 $56.8 $1.8 $0.0 $1.8 $58.6 

2012 $5.7 $0.1 $5.9 $2.0 $0.5 $2.5 $8.4 

2013 $36.3 $0.3 $36.6 $2.4 $0.2 $2.5 $39.1 

2014 $4.3 $0.1 $4.5 $2.2 $0.7 $2.9 $7.4 

2015 $8.8 $0.1 $8.8 $1.9 $0.3 $2.2 $11.0 

2016 $4.3 $0.4 $4.7 $1.8 $0.3 $2.1 $6.8 

2017 $5.6 $0.1 $5.7 $4.4 $0.5 $4.9 $10.6 

2018 $4.3 $0.1 $4.4 $2.9 $0.3 $3.2 $7.6 

2019 $4.3 $0.0 $4.4 $4.0 $0.6 $4.6 $8.9 

2020 $12.8 $0.1 $12.9 $3.1 $0.4 $3.5 $16.3 

2021 $54.7 $0.4 $55.1 $3.1 $0.4 $3.5 $58.6 

2022 $6.0 $0.1 $6.1 $5.1 $0.7 $5.9 $12.0 

2023 $36.3 $0.1 $36.4 $3.2 $0.4 $3.6 $40.0 

2024 $4.3 $0.0 $4.4 $4.8 $0.7 $5.5 $9.9 

2025 $8.8 $0.1 $8.8 $3.2 $0.5 $3.7 $12.5 

2026 $4.3 $0.4 $4.7 $3.2 $0.5 $3.6 $8.3 

2027 $5.6 $0.1 $5.7 $5.2 $0.8 $6.0 $11.7 

2028 $4.3 $0.1 $4.4 $3.1 $0.3 $3.4 $7.8 

2029 $4.3 $0.0 $4.4 $4.4 $0.7 $5.1 $9.4 

2030 $12.8 $0.1 $12.9 $3.1 $0.3 $3.4 $16.3 

2031 $54.7 $0.4 $55.1 $3.1 $0.3 $3.4 $58.5 

2032 $6.0 $0.1 $6.1 $5.5 $0.8 $6.2 $12.3 

2033 $36.3 $0.1 $36.4 $3.1 $0.3 $3.4 $39.8 

2034 $4.3 $0.0 $4.4 $4.9 $0.7 $5.6 $10.0 

2035 $8.8 $0.1 $8.8 $3.1 $0.3 $3.4 $12.2 

2036 $4.3 $0.4 $4.7 $3.1 $0.3 $3.4 $8.1 

2037 $5.6 $0.1 $5.7 $4.2 $0.7 $4.9 $10.6 

2038 $4.3 $0.1 $4.4 $2.0 $0.3 $2.3 $6.7 

2039 $3.9 $0.0 $4.0 $3.2 $0.6 $3.8 $7.8 

2040 $3.8 $0.0 $3.9 $1.9 $0.3 $2.2 $6.0 

2041 $1.0 $0.0 $1.0 $1.9 $0.3 $2.1 $3.1 

2042 $0.8 $0.0 $0.9 $3.9 $0.5 $4.4 $5.2 

2043 $0.1 $0.0 $0.1 $1.8 $0.2 $2.0 $2.1 

2044 $2.6 $0.4 $3.0 $3.0 

2045 $1.7 $0.2 $1.8 $1.8 

2046 $1.6 $0.2 $1.8 $1.8 

2047 $2.2 $0.3 $2.5 $2.5 

2048 $0.6 $0.1 $0.7 $0.7 

2049 $1.1 $0.2 $1.3 $1.3 

2050 $0.3 $0.1 $0.4 $0.4 

2051 $0.2 $0.1 $0.3 $0.3 

2052 $1.5 $0.1 $1.7 $1.7 

2053 $0.1 $0.0 $0.2 $0.2 

2054 $0.6 $0.1 $0.7 $0.7 

2055 $0.0 $0.0 $0.1 $0.1 

PV 3% $290.3 $3.8 $294.1 $70.6 $9.0 $79.5 $373.6 

Annualized 3% $14.4 $0.19 $3.5 $0.44 $3.9 $18.5 

PV 7% $184.8 $2.6 $187.4 $38.8 $4.5 $43.3 $230.7 

Annualized 7% $13.9 $0.20 $2.9 $0.34 $3.3 $17.4 

Source: 

$14.6 

$14.1 

U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1-9 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

E1-4 LIMITATIONS AND UNCERTAINTIES 

EPA did not include in its estimate of social costs the cost associated with unemployment that may result from 

facility closures. Potential unemployment-related costs would include the cost of administering unemployment 

programs for workers who are projected to lose employment (but not the cost of unemployment benefits, which 

are a transfer payment within society); and an estimate of the amount that workers would be willing to pay to 

avoid involuntary unemployment. However, from its facility impact analysis, EPA estimates that no facilities 

would close as a result of the final rule. EPA also did not recognize any possible savings in unemploymentrelated costs from jobs created by the rule as a negative cost (benefit) of the regulation. Accordingly, EPA 

estimates a zero cost of unemployment for the final rule. 

Another key uncertainty factor in the analysis of costs to society is EPA’s estimate of the cost of installation 

downtime in Manufacturers facilities. As described above, EPA adopted the assumption that the production cost 

for replacing the goods and services not provided by complying facilities due to installation downtime would be 

approximately equal to the price received for those goods and services in the market. To the extent that these 

replacement goods and services are produced at a cost less than selling price, this assumption would overstate the 

cost to society of installation downtime. The amount of potential overstatement is not known. 

E1-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

GLOSSARY 

consumer surplus: The value that consumers derive from goods and services above the price they have to pay 

to obtain the goods and services. 

opportunity cost: The lost value of alternative uses of resources (capital, labor, and raw materials) used in 

regulatory compliance. 

producer surplus: The difference between what producers’ earn on their output and the economic costs of 

producing that output, including a normal return on capital. 

social cost: The costs incurred by society as a whole as a result of the final rule. Social costs do not include 

costs that are transfers among parties that do not represent a new cost overall. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1-11 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E1: Summary of Social Costs 

REFERENCES 

Office of Management and Budget (OMB). 2003. Circular A-4, Regulatory Analysis. September 17, 2003. 

Available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf. 

E1-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Appendix E1A: Summary of Results for 
 

Supplemental Options 
 

INTRODUCTION 

This appendix presents the social cost results for additional 

options that EPA analyzed for potential Phase III existing 

facilities in developing the Phase III regulation (the 

“Supplemental Options”). These options include: 

f For Electric Generator facilities with a DIF of 2 

MGD or greater, but less than 50 MGD: 

CHAPTER CONTENTS 

Introduction..........................................................E1A-1

E1A-1 Costs of Compliance by Regulated Industry 

Segment ..................................................E1A-1 

E1A-2 State and Federal Administrative Costs ..E1A-2 

E1A-3 Total Social Cost.....................................E1A-3 

Impingement-only requirements for all facilities on all waterbodies; 

Phase II-like requirements for all facilities on all waterbodies; and 

Impingement and Entrainment requirements for all facilities on all waterbodies. 

f For Manufacturing facilities with a DIF of 2 MGD or greater, but less than 50 MGD: 
 

Impingement-only requirements for all facilities on all waterbodies; 
 

Phase II-like requirements for all facilities on all waterbodies; and 
 

Impingement and Entrainment requirements for all facilities on all waterbodies. 
 

f For Manufacturing facilities with a DIF of 50 MGD or greater: 
 

Impingement-only requirements for all facilities on all waterbodies; 
 

Phase II-like requirements for all facilities on all waterbodies (the Final Regulation); and 
 

Impingement and Entrainment requirements for all facilities on all waterbodies. 
 

The “Impingement-only requirements for all facilities on all waterbodies” and “Impingement and Entrainment 

requirements for all facilities on all waterbodies” options are bounding cases applying lower and upper bound 

uniform requirements – Impingement-only requirements and Impingement and Entrainment requirements – 

regardless of specific facility circumstances. 

Because the Supplemental Options include options with an applicability threshold of less than 50 MGD, the 

analysis and reported costs for these options include costs for Electric Generators in addition to Manufacturers. 

For all options, facility counts and other results only include those potential Phase III existing facilities that are (1) 

non-baseline closures and (2) subject to national categorical requirements under the option. See Chapter C3: 

Economic Impact Analysis for Manufacturers for more information on baseline closures and counts of facilities 

subject to national categorical requirements under each option. See the main body of this chapter for a description 

of data sources and methodologies used in these analyses. 

E1A-1 COSTS OF COMPLIANCE BY REGULATED INDUSTRY SEGMENT 

Table E1A-1, following page, summarizes total direct facility costs for the five other options evaluated for 

existing facilities, at a 3% and a 7% discount rate. For a description of this analysis, see Section E1-1 above. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1A-1 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-1: Summary of Annualized Direct Costs by Regulated Industry Segments 

Existing Facilities (millions, $2004)

$2.1 $3.0 $7.9 

$20.9 $34.0 $55.3 

$24.6 $37.6 $45.3 

a

 $47.6 $74.6 $108.5 

$2.0 $2.9 $8.6 

$22.0 $36.3 $59.1 

$25.6 $38.3 $45.4 

a

 $49.6 $77.5 $113.1 

a 

Source: 

E1A-2 STATE AND FEDERAL A COSTS 

2 above. 

(millions, $2004)

$0.10 $0.15 $0.20 

$0.00 $0.00 $0.00 

Total Government Admin. Costsa,b $0.10 $0.15 $0.20 

$0.56 $0.80 $1.24 

$0.01 $0.02 $0.02 

Total Government Admin. Costsa,b $0.58 $0.82 $1.26 

Manufacturers 50+ MGD 

$0.40 $0.57 $0.77 

$0.01 $0.01 $0.01 

Total Government Admin. Costsa,b $0.41 $0.58 $0.78 

a 

b 

Source: 

 I-only Everywhere I&E Like Phase II I&E Everywhere 

3 % Discount Rate 

Electric Generators 

Manufacturers 2-50 MGD 

Manufacturers 50+ MGD 

Total Direct Facility Costs

Electric Generators 

Manufacturers 2-50 MGD 

Manufacturers 50+ MGD 

Total Direct Facility Costs

7% Discount Rate 

Individual numbers may not add up to totals due to independent rounding. 

U.S. EPA Analysis, 2006. 

DMINISTRATIVE 

Table E1A-2 and Table E1A-3, following page, present annualized costs to State and Federal governments of 

administering the permitting and compliance monitoring activities for the supplemental options evaluated for 

existing facilities at the 3% and 7% discount rates, respectively. For a description of this analysis, see section E1-

Table E1A-2: Summary of Annualized Government Costs for Existing Facilities at 3% Discount Rate 

 I-only Everywhere I&E Like Phase II I&E Everywhere 

Electric Generators 2 – 50 MGD 

State Admin. Costs 

Federal Admin. Costs 

Manufacturers 2 – 50 MGD 

State Admin. Costs 

Federal Admin. Costs 

State Admin. Costs 

Federal Admin. Costs 

Individual numbers may not add up to totals due to independent rounding. 

Excludes State start-up costs of $8,987 not attributable to industry segments. 

U.S. EPA Analysis, 2006. 

E1A-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

(millions, $2004)

$0.10 $0.14 $0.20 

$0.00 $0.01 $0.01 

Total Government Admin. Costsa,b $0.10 $0.15 $0.20 

$0.54 $0.80 $1.22 

$0.02 $0.02 $0.03 

Total Government Admin. Costsa,b $0.56 $0.82 $1.24 

Manufacturers 50+ MGD 

$0.39 $0.58 $0.79 

$0.01 $0.01 $0.01 

Total Government Admin. Costsa,b $0.40 $0.59 $0.80 

a 

b 

Source: 

E1A-3 TOTAL S COST 

For a 

(millions, $2004)

$2.1 $3.0 $7.9 

$0.1 $0.2 $0.2 

a $2.2 $3.2 $8.1 

$20.9 $34.0 $55.3 

$0.6 $0.8 $1.3 

a $21.5 $34.8 $56.6 

Manufacturers 50+ MGD 

$24.6 $37.6 $45.3 

$0.4 $0.6 $0.8 

a $25.0 $38.2 $46.1 

a 

Source: 

Table E1A-3: Summary of Annualized Government Costs for Existing Facilities at 7% Discount Rate 

 I-only Everywhere I&E Like Phase II I&E Everywhere 

Electric Generators 2 – 50 MGD 

State Admin. Costs 

Federal Admin. Costs 

Manufacturers 2 – 50 MGD 

State Admin. Costs 

Federal Admin. Costs 

State Admin. Costs 

Federal Admin. Costs 

Individual numbers may not add up to totals due to independent rounding. 

Excludes State start-up costs of $13,664 not attributable to industry segments. 

U.S. EPA Analysis, 2006. 

OCIAL 

Table E1A-4 and Table E1A-5 present the total social costs of the supplemental options evaluated for existing 

facilities, including direct facility costs and government administrative costs, at a 3% and a 7% discount rate, 

respectively. Table E1A-6 through Table E1A-13 present the time profiles for the five other options. 

description of these analyses, see section E1-3 above. 

Table E1A-4: Summary of Annualized Social Costs for Existing Facilities at 3% Discount Rate 

 I-only Everywhere I&E Like Phase II I&E Everywhere 

Electric Generators 2 – 50 MGD 

Total Direct Facility Costs 

Total Government Administrative Costs 

Total Social Cost

Manufacturers 2 – 50 MGD 

Total Direct Facility Costs 

Total Government Administrative Costs 

Total Social Cost

Total Direct Facility Costs 

Total Government Administrative Costs 

Total Social Cost

Individual numbers may not add up to totals due to independent rounding. 

U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1A-3 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-5: Summary of Annualized Social Costs for Existing Facilities at 7% Discount Rate 

(millions, $2004)

 I-only Everywhere I&E Like Phase II I&E Everywhere 

Electric Generators 2 – 50 MGD 

Total Direct Facility Costs $2.0 $2.9 $8.6 

Total Government Administrative Costs $0.1 $0.1 $0.2 

Total Social Costa $2.1 $3.0 $8.8 

Manufacturers 2 – 50 MGD 

Total Direct Facility Costs $22.0 $36.3 $59.1 

Total Government Administrative Costs $0.6 $0.8 $1.2 

Total Social Costa $22.5 $37.1 $60.3 

Manufacturers 50+ MGD 

Total Direct Facility Costs $25.6 $38.3 $45.4 

Total Government Administrative Costs $0.4 $0.6 $0.8 

Total Social Costa $26.0 $39.0 $46.2 

a Individual numbers may not add up to totals due to independent rounding. 

Source: U.S. EPA Analysis, 2006. 

E1A-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-6: Time Profile of Compliance Costs for Existing Electric Generators with DIF of 2 to 50 

MGD Under the I-only Everywhere Option (millions, $2004) 

Year Cost of Compliance for Existing 

Generators Administrative Costs Total Cost 

2007 $0.2 $0.0 $0.2 

2008 $0.9 $0.0 $0.9 

2009 $1.6 $0.0 $1.6 

2010 $2.4 $0.3 $2.7 

2011 $3.9 $0.1 $4.0 

2012 $3.3 $0.2 $3.6 

2013 $1.9 $0.2 $2.1 

2014 $3.3 $0.2 $3.5 

2015 $1.2 $0.1 $1.3 

2016 $1.6 $0.1 $1.7 

2017 $1.5 $0.1 $1.5 

2018 $1.8 $0.1 $1.8 

2019 $1.7 $0.1 $1.8 

2020 $1.9 $0.1 $2.0 

2021 $3.1 $0.1 $3.2 

2022 $2.8 $0.1 $2.9 

2023 $2.0 $0.1 $2.1 

2024 $3.0 $0.1 $3.1 

2025 $1.2 $0.1 $1.3 

2026 $1.6 $0.1 $1.7 

2027 $1.5 $0.1 $1.5 

2028 $1.8 $0.1 $1.8 

2029 $1.7 $0.1 $1.8 

2030 $1.9 $0.1 $2.0 

2031 $3.1 $0.1 $3.2 

2032 $2.8 $0.1 $2.9 

2033 $2.0 $0.1 $2.1 

2034 $3.0 $0.1 $3.1 

2035 $1.2 $0.1 $1.3 

2036 $1.6 $0.1 $1.7 

2037 $1.5 $0.1 $1.5 

2038 $1.8 $0.1 $1.8 

2039 $0.8 $0.1 $0.9 

2040 $0.6 $0.0 $0.6 

2041 $0.5 $0.0 $0.5 

2042 $0.3 $0.0 $0.3 

2043 $0.2 $0.0 $0.2 

PV 3% $43.1 $2.1 $45.2 

Annualized 3% $2.1 $0.1 $2.2 

PV 7% $27.0 $1.36 $28.4 

Annualized 7% $2.0 $0.1 $2.1 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1A-5 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-7: Time Profile of Compliance Costs for Existing Electric Generators with DIF of 2 to 50 

MGD Under the I&E Like Phase II Option (millions, $2004) 

Year Cost of Compliance for Existing 

Generators Administrative Costs Total Cost 

2007 $0.2 $0.0 $0.2 

2008 $1.4 $0.0 $1.4 

2009 $2.1 $0.0 $2.1 

2010 $3.9 $0.4 $4.3 

2011 $4.9 $0.2 $5.1 

2012 $4.1 $0.3 $4.4 

2013 $2.6 $0.3 $2.9 

2014 $5.2 $0.4 $5.6 

2015 $2.2 $0.2 $2.3 

2016 $2.3 $0.1 $2.3 

2017 $2.2 $0.1 $2.3 

2018 $2.5 $0.1 $2.7 

2019 $2.4 $0.1 $2.5 

2020 $3.3 $0.1 $3.4 

2021 $3.2 $0.1 $3.3 

2022 $3.5 $0.1 $3.6 

2023 $2.8 $0.1 $2.9 

2024 $4.5 $0.1 $4.6 

2025 $2.2 $0.1 $2.3 

2026 $2.3 $0.1 $2.3 

2027 $2.2 $0.1 $2.3 

2028 $2.5 $0.1 $2.7 

2029 $2.4 $0.1 $2.5 

2030 $3.3 $0.1 $3.4 

2031 $3.2 $0.1 $3.3 

2032 $3.5 $0.1 $3.6 

2033 $2.8 $0.1 $2.9 

2034 $4.5 $0.1 $4.6 

2035 $2.2 $0.1 $2.3 

2036 $2.3 $0.1 $2.3 

2037 $2.2 $0.1 $2.3 

2038 $2.5 $0.1 $2.7 

2039 $1.4 $0.1 $1.6 

2040 $1.1 $0.0 $1.1 

2041 $0.9 $0.0 $0.9 

2042 $0.6 $0.0 $0.6 

2043 $0.4 $0.0 $0.4 

PV 3% $61.1 $3.0 $64.1 

Annualized 3% $3.0 $0.2 $3.2 

PV 7% $38.1 $1.98 $40.1 

Annualized 7% $2.9 $0.1 $3.0 

Source: U.S. EPA Analysis, 2006. 

E1A-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-8: Time Profile of Compliance Costs for Existing Electric Generators with DIF of 2 to 50 

MGD Under the I&E Everywhere Option (millions, $2004) 

Year Cost of Compliance for Existing 

Generators Administrative Costs Total Cost 

2007 $0.3 $0.0 $0.3 

2008 $1.8 $0.0 $1.8 

2009 $3.4 $0.0 $3.4 

2010 $40.4 $0.6 $40.9 

2011 $41.7 $0.2 $41.9 

2012 $5.3 $0.5 $5.8 

2013 $5.0 $0.3 $5.4 

2014 $6.3 $0.5 $6.8 

2015 $3.3 $0.2 $3.5 

2016 $4.2 $0.1 $4.3 

2017 $3.3 $0.2 $3.5 

2018 $4.0 $0.1 $4.1 

2019 $3.7 $0.2 $3.9 

2020 $7.6 $0.2 $7.8 

2021 $5.8 $0.1 $5.9 

2022 $4.7 $0.2 $4.9 

2023 $5.4 $0.1 $5.5 

2024 $5.6 $0.2 $5.7 

2025 $3.3 $0.2 $3.5 

2026 $4.2 $0.1 $4.3 

2027 $3.3 $0.2 $3.5 

2028 $4.0 $0.1 $4.1 

2029 $3.7 $0.2 $3.9 

2030 $7.6 $0.2 $7.8 

2031 $5.8 $0.1 $5.9 

2032 $4.7 $0.2 $4.9 

2033 $5.4 $0.1 $5.5 

2034 $5.6 $0.2 $5.7 

2035 $3.3 $0.2 $3.5 

2036 $4.2 $0.1 $4.3 

2037 $3.3 $0.2 $3.5 

2038 $4.0 $0.1 $4.1 

2039 $2.5 $0.2 $2.7 

2040 $1.9 $0.0 $1.9 

2041 $1.5 $0.0 $1.6 

2042 $0.9 $0.0 $0.9 

2043 $0.5 $0.0 $0.5 

PV 3% $158.7 $4.1 $162.8 

Annualized 3% $7.9 $0.2 $8.1 

PV 7% $113.8 $2.69 $116.5 

Annualized 7% $8.6 $0.2 $8.8 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1A-7 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-9: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 2 to 50 MGD 

Under the I-only Everywhere Option (millions, $2004) 

Year Cost of Compliance for Existing 

Manufacturers Administrative Costs Total Cost 

2007 $0.4 $0.0 $0.4 

2008 $5.0 $0.0 $5.0 

2009 $9.6 $0.0 $9.6 

2010 $21.3 $0.5 $21.8 

2011 $27.8 $1.1 $28.9 

2012 $177.5 $1.8 $179.3 

2013 $14.0 $1.3 $15.3 

2014 $10.7 $0.8 $11.5 

2015 $12.3 $0.4 $12.6 

2016 $13.7 $0.5 $14.2 

2017 $11.9 $0.7 $12.6 

2018 $8.1 $0.5 $8.6 

2019 $7.4 $0.4 $7.8 

2020 $15.9 $0.3 $16.3 

2021 $23.8 $0.5 $24.3 

2022 $19.5 $0.7 $20.2 

2023 $13.8 $0.5 $14.3 

2024 $10.7 $0.4 $11.0 

2025 $12.3 $0.3 $12.6 

2026 $13.7 $0.5 $14.2 

2027 $11.9 $0.7 $12.6 

2028 $8.1 $0.5 $8.6 

2029 $7.4 $0.4 $7.8 

2030 $15.9 $0.3 $16.3 

2031 $23.8 $0.5 $24.3 

2032 $19.5 $0.7 $20.2 

2033 $13.8 $0.5 $14.3 

2034 $10.7 $0.4 $11.0 

2035 $12.3 $0.3 $12.6 

2036 $13.7 $0.5 $14.2 

2037 $11.9 $0.7 $12.6 

2038 $8.1 $0.5 $8.6 

2039 $6.0 $0.4 $6.3 

2040 $5.5 $0.2 $5.7 

2041 $4.0 $0.1 $4.2 

2042 $2.1 $0.1 $2.2 

2043 $0.7 $0.0 $0.7 

PV 3% $422.6 $11.7 $434.3 

Annualized 3% $20.9 $0.6 $21.5 

PV 7% $291.5 $7.43 $298.9 

Annualized 7% $22.0 $0.6 $22.5 

Source: U.S. EPA Analysis, 2006. 

E1A-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-10: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 2 to 50 MGD 

Under the I&E Like Phase II Option (millions, $2004) 

Year Cost of Compliance for Existing 

Manufacturers Administrative Costs Total Cost 

2007 $1.7 $0.0 $1.7 

2008 $8.4 $0.0 $8.4 

2009 $14.8 $0.0 $14.8 

2010 $63.9 $0.9 $64.8 

2011 $127.8 $2.4 $130.2 

2012 $187.5 $2.7 $190.3 

2013 $21.3 $2.0 $23.3 

2014 $18.1 $1.0 $19.0 

2015 $18.6 $0.5 $19.1 

2016 $19.9 $0.6 $20.5 

2017 $17.7 $0.9 $18.6 

2018 $14.5 $0.6 $15.1 

2019 $14.7 $0.4 $15.1 

2020 $25.9 $0.5 $26.4 

2021 $32.6 $0.6 $33.2 

2022 $29.1 $0.9 $29.9 

2023 $21.6 $0.6 $22.2 

2024 $17.9 $0.4 $18.4 

2025 $18.6 $0.5 $19.0 

2026 $19.9 $0.6 $20.5 

2027 $17.7 $0.9 $18.6 

2028 $14.5 $0.6 $15.1 

2029 $14.7 $0.4 $15.1 

2030 $25.9 $0.5 $26.4 

2031 $32.6 $0.6 $33.2 

2032 $29.1 $0.9 $29.9 

2033 $21.6 $0.6 $22.2 

2034 $17.9 $0.4 $18.4 

2035 $18.6 $0.5 $19.0 

2036 $19.9 $0.6 $20.5 

2037 $17.7 $0.9 $18.6 

2038 $14.5 $0.6 $15.1 

2039 $11.1 $0.4 $11.5 

2040 $9.5 $0.2 $9.7 

2041 $6.2 $0.1 $6.4 

2042 $3.1 $0.1 $3.1 

2043 $0.9 $0.0 $1.0 

PV 3% $686.0 $16.5 $702.5 

Annualized 3% $34.0 $0.8 $34.8 

PV 7% $481.5 $10.85 $492.3 

Annualized 7% $36.3 $0.8 $37.1 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1A-9 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-11: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 2 to 50 MGD 

Under the I&E Everywhere Option (millions, $2004) 

Year Cost of Compliance for Existing 

Manufacturers Administrative Costs Total Cost 

2007 $2.0 $0.0 $2.0 

2008 $10.4 $0.0 $10.4 

2009 $18.3 $0.0 $18.3 

2010 $73.7 $1.5 $75.2 

2011 $136.9 $2.6 $139.6 

2012 $196.5 $4.1 $200.6 

2013 $317.4 $3.3 $320.7 

2014 $28.2 $1.7 $29.9 

2015 $26.8 $0.8 $27.6 

2016 $30.3 $0.9 $31.1 

2017 $28.2 $1.4 $29.6 

2018 $23.0 $1.0 $24.0 

2019 $24.6 $0.8 $25.4 

2020 $38.3 $0.8 $39.1 

2021 $43.0 $0.8 $43.8 

2022 $39.5 $1.4 $40.9 

2023 $29.7 $1.0 $30.7 

2024 $27.9 $0.8 $28.7 

2025 $26.8 $0.8 $27.6 

2026 $30.3 $0.8 $31.1 

2027 $28.2 $1.4 $29.6 

2028 $23.0 $1.0 $24.0 

2029 $24.6 $0.8 $25.4 

2030 $38.3 $0.8 $39.1 

2031 $43.0 $0.8 $43.8 

2032 $39.5 $1.4 $40.9 

2033 $29.7 $1.0 $30.7 

2034 $27.9 $0.8 $28.7 

2035 $26.8 $0.8 $27.6 

2036 $30.3 $0.8 $31.1 

2037 $28.2 $1.4 $29.6 

2038 $23.0 $1.0 $24.0 

2039 $19.2 $0.8 $20.0 

2040 $15.9 $0.4 $16.2 

2041 $12.0 $0.3 $12.2 

2042 $6.6 $0.2 $6.8 

2043 $2.4 $0.1 $2.5 

PV 3% $1,117.1 $25.4 $1,142.5 

Annualized 3% $55.3 $1.3 $56.6 

PV 7% $784.5 $16.50 $801.0 

Annualized 7% $59.1 $1.2 $60.3 

Source: U.S. EPA Analysis, 2006. 

E1A-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-12: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 50 MGD or 

Greater Under the I-Only Everywhere Option (millions, $2004) 

Year Cost of Compliance for Existing 

Manufacturers Administrative Costs Total Cost 

2007 $1.6 $0.0 $1.6 

2008 $8.2 $0.0 $8.2 

2009 $12.2 $0.0 $12.2 

2010 $119.7 $0.7 $120.5 

2011 $40.3 $1.3 $41.6 

2012 $53.6 $0.7 $54.3 

2013 $29.2 $0.8 $30.0 

2014 $12.9 $0.4 $13.2 

2015 $16.2 $0.4 $16.6 

2016 $11.8 $0.5 $12.3 

2017 $11.6 $0.3 $12.0 

2018 $9.5 $0.3 $9.8 

2019 $12.0 $0.2 $12.2 

2020 $26.8 $0.3 $27.2 

2021 $38.8 $0.5 $39.3 

2022 $16.4 $0.3 $16.7 

2023 $29.1 $0.3 $29.4 

2024 $12.8 $0.2 $13.0 

2025 $16.2 $0.3 $16.5 

2026 $11.8 $0.5 $12.3 

2027 $11.6 $0.3 $12.0 

2028 $9.5 $0.3 $9.8 

2029 $12.0 $0.2 $12.2 

2030 $26.8 $0.3 $27.2 

2031 $38.8 $0.5 $39.3 

2032 $16.4 $0.3 $16.7 

2033 $29.1 $0.3 $29.4 

2034 $12.8 $0.2 $13.0 

2035 $16.2 $0.3 $16.5 

2036 $11.8 $0.5 $12.3 

2037 $11.6 $0.3 $12.0 

2038 $9.5 $0.3 $9.8 

2039 $8.5 $0.2 $8.7 

2040 $7.1 $0.1 $7.2 

2041 $3.2 $0.1 $3.3 

2042 $2.3 $0.0 $2.3 

2043 $0.2 $0.0 $0.2 

PV 3% $496.3 $8.3 $504.6 

Annualized 3% $24.6 $0.4 $25.0 

PV 7% $340.3 $5.35 $345.7 

Annualized 7% $25.6 $0.4 $26.0 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E1A-11 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E1A: Supplemental Options 

Table E1A-13: Time Profile of Compliance Costs for Existing Manufacturers with DIF of 50 MGD or 

Greater Under the I&E Everywhere Option (millions, $2004) 

Year Cost of Compliance for Existing 

Manufacturers Administrative Costs Total Cost 

2007 $3.3 $0.0 $3.3 

2008 $14.2 $0.0 $14.2 

2009 $21.5 $0.0 $21.5 

2010 $58.0 $2.1 $60.0 

2011 $166.6 $3.2 $169.8 

2012 $64.7 $1.3 $66.0 

2013 $116.3 $1.7 $118.1 

2014 $28.1 $0.7 $28.9 

2015 $26.3 $0.6 $26.9 

2016 $20.0 $0.8 $20.9 

2017 $21.8 $0.4 $22.2 

2018 $18.6 $0.6 $19.1 

2019 $23.8 $0.3 $24.1 

2020 $45.6 $0.6 $46.2 

2021 $101.4 $0.8 $102.3 

2022 $28.0 $0.4 $28.4 

2023 $66.1 $0.6 $66.7 

2024 $28.0 $0.3 $28.4 

2025 $26.3 $0.6 $26.9 

2026 $20.0 $0.8 $20.8 

2027 $21.8 $0.4 $22.2 

2028 $18.6 $0.6 $19.1 

2029 $23.8 $0.3 $24.1 

2030 $45.6 $0.6 $46.2 

2031 $101.4 $0.8 $102.3 

2032 $28.0 $0.4 $28.4 

2033 $66.1 $0.6 $66.7 

2034 $28.0 $0.3 $28.4 

2035 $26.3 $0.6 $26.9 

2036 $20.0 $0.8 $20.8 

2037 $21.8 $0.4 $22.2 

2038 $18.6 $0.6 $19.1 

2039 $16.7 $0.3 $17.0 

2040 $13.2 $0.2 $13.4 

2041 $6.8 $0.1 $6.9 

2042 $5.0 $0.1 $5.1 

2043 $0.8 $0.0 $0.8 

PV 3% $914.7 $15.9 $930.6 

Annualized 3% $45.3 $0.8 $46.1 

PV 7% $603.3 $10.76 $614.0 

Annualized 7% $45.4 $0.8 $46.2 

Source: U.S. EPA Analysis, 2006. 

E1A-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

Chapter E2: Summary of Benefits 
 

INTRODUCTION 

This chapter summarizes EPA’s analysis of the benefits of 

the three regulatory analysis options for Phase III existing 

facilities, the “50 MGD for All Waterbodies” option (“50 

MGD All”), the “200 MGD for All Waterbodies” option 

(“200 MGD All”), and the “100 MGD for Certain 

Waterbodies” option (“100 MGD CWB”). The chapter 

presents the total monetary value of regional and national 

baseline losses and benefits for the regulatory analysis 

options. Benefits results for the supplemental options 

analyzed by EPA in developing the proposed and final 

Phase III regulation are presented in the appendix to this chapter. 

CHAPTER CONTENTS 


 

E2-1 

E2-2 

E2-3 

E2-4 


 

Introduction.............................................................E2-1

Calculating Losses and Benefits ................E2-1 

Summary of Baseline Losses and Expected 

Reductions in I&E......................................E2-1 

Time Profile of Benefits.............................E2-3 

Total Annualized Monetary Value of Losses 

and Benefits ...............................................E2-9 

References.............................................................E2-14

The Regional Benefits Assessment for the Final Section 316(b) Rule for Phase III Facilities (RBA) provides 

greater detail on the methods and data used in the regional analyses (U.S. EPA, 2006). See Chapter A1 for a 

discussion of the methods used to estimate impingement and entrainment (I&E), and see Chapters A2 through A9 

for discussion of the methods used to estimate the value of I&E losses and the benefits of the options evaluated 

for the final rule. The results of the regional analyses are presented in Parts B through H of the RBA. 

EPA does not project benefits for facilities that have not yet been built because to do so would require projecting 

where these facilities would be built and/or operate. Therefore, the benefits estimates presented in this section are 

underestimates because they do not reflect benefits associated with reducing I&E at new offshore oil and gas 

extraction facilities. 

E2-1 CALCULATING LOSSES AND BENEFITS 

EPA’s analysis of national baseline losses and benefits under the evaluated options includes 629 sample-weighted 

facilities in seven case study regions, excluding facilities that are expected to close in the baseline. The Agency 

calculated baseline losses by summing losses from all 629 facilities. EPA’s estimates of benefits are based on 

only those facilities that have requirements under each option. 

Quantifying and monetizing reductions in I&E due to the evaluated options considered for the final rule is 

challenging. As described in Chapters A3 and A6 of the RBA, EPA estimated non-use values qualitatively and, 

as a result, the estimated total benefits of the evaluated options reflect use values only. The RBA discusses 

specific limitations and uncertainties associated with estimation of commercial and recreational benefits at the 

regional level. National benefit estimates, which are based on the regional estimates, are subject to the same 

uncertainties. The overall effect of these uncertainties is of unknown magnitude and direction (i.e., the estimates 

may over- or understate the anticipated national-level of use benefits); however, EPA has no data to indicate that 

the results for any of the benefit categories are atypical or unreasonable. 

E2-2 SUMMARY OF BASELINE LOSSES AND EXPECTED REDUCTIONS IN I&E 

Based on the results of the regional analyses, EPA calculated total baseline I&E losses and the amount by which 

these losses would be reduced under each of the evaluated options. Losses are presented using two measures of 

I&E: 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2-1 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

1. 	 Age-one equivalent losses – the number of individual fish of different ages impinged and entrained by 

facility intakes, expressed as age-one equivalents; and 

2. 	 Foregone fishery yield – pounds of commercial harvest and numbers of recreational fish and shellfish that 

are not harvested due to I&E, including indirect losses of harvested species due to losses of forage 

species. 

Table E2-1 presents baseline I&E losses for both measures. As reported in Table E2-1, EPA estimates total 

national losses of age-one equivalents for all 629 facilities of 265 million fish. Nationwide, EPA estimates that 

9.6 million pounds of fishery yield per year is foregone under current rates of I&E. Approximately 33% of all 

age-one equivalent losses, or 86.4 million fish, occur in the Mid-Atlantic region. The Gulf of Mexico region has 

the highest foregone fishery yields with approximately 7.5 million pounds, followed by the Mid-Atlantic region 

with approximately 0.7 million pounds. More detailed discussions of the I&E losses in each region are provided 

in Parts B through H of the RBA. 

Table E2-1: Total Annual Baseline I&E Losses for Potential Phase III Existing Facilities by Region 

(thousands) 

Region Age-One Equivalents Foregone Fishery Yield (lbs) 

California 1,710 121 

North Atlantic 2,310 11 

Mid-Atlantic 86,400 682 

South Atlantic 42,100 391 

Gulf of Mexico 35,800 7,450 

Great Lakes 31,500 374 

Inland 65,100 609 

National Total 265,000 9,640 

Reflects all existing facilities potentially subject to the Phase III regulation as defined during the regulation’s development, and thus 

includes all manufacturing and electric power generating with design intake flow as low as 2 MGD. 

Source: U.S. EPA Analysis, 2006. 

To gauge the expected benefits of the regulatory analysis options, EPA estimated the extent to which these 

options would reduce the estimated baseline losses. These avoided losses are based on the expected reductions in 

I&E at each facility from implementation of the required compliance technologies. Table E2-2 reports, by region 

and option, the expected percentage reductions in I&E, and the estimated quantities of reduction in (1) losses in 

age-one equivalents and (2) foregone fishery yield. At the national level, EPA estimates that the 50 MGD All 

option would reduce age-one equivalent losses by 98.2 million fish and fishery yield loss by 4.8 million pounds. 

In comparison, the 200 MGD All option and the 100 MGD CWB option apply to smaller numbers of facilities 

and would result in slightly smaller reductions in I&E. The 200 MGD All option would reduce age-one 

equivalent losses by 74.5 million fish and fishery yield losses by 3.3 million pounds. The 100 MGD All option 

would reduce age-one equivalent losses by 71.1 million fish and fishery yield losses by 4.5 million pounds. 

The study regions show substantial variation in the estimated reductions in I&E losses and avoided losses in ageone equivalents and foregone fishery yield. As reported in Table E2-2, the largest percentage reductions in I&E 

occur in the Gulf of Mexico for the 50 MGD option, the 100 MGD CWB, and 200 MGD options, with 51% and 

58% in the 50 MGD and the 100 MGD option, and 30% and 42% in the 200 MGD option. 

In terms of avoided age-one equivalent losses, the Mid-Atlantic region accounts for the largest reductions for the 

50 MGD All, the 200 MGD All, and 100 MGD CWB options, with 45%, 53%, and 55%, respectively. 

E2-2	 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

On the basis of avoided losses in fishery yield, the Gulf of Mexico generates the greatest benefits under each of 

the three options. This region account for 88%, 88%, and 93% of the avoided fishery yield losses achieved by the 

50 MGD All, the 200 MGD All, and 100 MGD CWB options, respectively.

 More detailed discussions of regional benefits are provided in Parts B through H of the RBA. 

Table E2-2: Expected Reduction in I&E for Phase III Existing Facilities by Option and Region 

Number of 

Region Facilities 

Installing 

Technology 

Impingement Entrainment 

Age-One 

Equivalents 

(thousands) 

Foregone Fishery 

Yield (thousands; 

lbs) 

50 MGD All Option 

California 1 37% 28% 474 33 

North Atlantic 4 0% 40% 910 4 

Mid-Atlantic 3 23% 53% 44,500 212 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 7 51% 58% 19,400 4,200 

Great Lakes 18 42% 45% 13,300 160 

Inland 78 39% 15% 19,700 155 

National Total 111 98,200 4,770 

200 MGD All Option 

Californiab 0 0% 0% 0 0 

North Atlantic 1 0% 8% 193 1 

Mid-Atlantic 2 16% 47% 39,400 163 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 3 30% 42% 12,500 2,900 

Great Lakes 7 30% 36% 9,650 119 

Inland 13 23% 13% 12,700 107 

National Total 27 74,500 3,290 

100 MGD CWB Option 

Californiab 0 0% 0% 0 0 

North Atlantic 3 0% 32% 736 4 

Mid-Atlantic 2 16% 47% 39,400 163 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 7 51% 58% 19,400 4,200 

Great Lakes 10 36% 40% 11,600 141 

Inlandc 0 0% 0% 0 0 

National Total 22 71,100 4,510 

a No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less 

than 50 MGD and therefore would not be required to install technologies to comply with the regulatory analysis options. b No I&E reductions are expected in the California region because all potentially regulated facilities in this region withdraw less than 

100 MGD and therefore would not be required to install technologies to comply with the 200 MGD All and the 100 MGD CWB 

options. 

The 100 MGD CWB option would not apply national categorical requirements to facilities located on freshwater rivers and 

lakes/reservoirs. Thus, no I&E reductions are expected at the potentially regulated facilities in the Inland region. 

Source: U.S. EPA Analysis, 2006. 

E2-3 TIME PROFILE OF BENEFITS 

To account for the difference in timing of benefits and costs, EPA developed a time profile of total benefits from 

all Phase III facilities that reflects when benefits from each facility would be realized. For each study region, 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2-3 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

EPA first calculated the undiscounted commercial and recreational fishing benefits from the expected annual I&E 

reductions under the regulatory analysis options, based on the assumptions that all facilities in each region have 

achieved compliance with the rule and that benefits are realized immediately following compliance. Then, since 

there are regulatory and biological time lags between promulgation of the rule and the realization of benefits, EPA 

created a time profile of benefits that takes into account the fact that benefits do not begin immediately. The 

development of the time profile of benefits is discussed in detail in Chapter A8: Discounting Benefits. 

Table E2-3, following page, provides the time profile of the monetary value of baseline I&E losses for existing 

Phase III facilities, by region. EPA developed similar time profiles for monetary benefits for the regulatory 

analysis options (see Table E2-4 through Table E2-6, beginning page E2-6). 

E2-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

Table E2-3: Time Profile of Mean Monetary Value of Total Baseline I&E Losses (thousands; $2004)a 

Year California North 

Atlantic 

MidAtlantic South 

Atlantic 

Gulf of 

Mexico Great Lakes Inland National 

Total 

2007 $0 $0 $0 $0 $345 $128 $125 $598 
 

2008 
 $14 $5 $39 $142 $690 $256 $249 $1,396 
 

2009 
 $29 $11 $77 $285 $2,759 $1,025 $997 $5,182 
 

2010 
 $115 $43 $308 $1,138 $3,104 $1,153 $1,121 $6,982 
 

2011 
 $129 $49 $347 $1,280 $3,277 $1,217 $1,184 $7,482 
 

2012 
 $136 $51 $366 $1,352 $3,449 $1,281 $1,246 $7,881 
 

2013 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2014 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2015 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2016 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2017 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2018 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2019 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2020 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2021 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2022 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2023 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2024 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2025 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2026 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2027 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2028 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2029 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2030 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2031 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2032 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2033 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2034 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2035 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2036 
 $143 $54 $385 $1,423 $3,449 $1,281 $1,246 $7,981 
 

2037 
 $143 $54 $385 $1,423 $3,104 $1,153 $1,121 $7,384 
 

2038 
 $129 $49 $347 $1,280 $2,759 $1,025 $997 $6,585 
 

2039 
 $115 $43 $308 $1,138 $690 $256 $249 $2,799 
 

2040 
 $29 $11 $77 $285 $345 $128 $125 $999 
 

2041 
 $14 $5 $39 $142 $172 $64 $62 $499 
 

2042
 $7 $3 $19 $71 $0 $0 $0 $100 
 

2043
 $0 $0 $0 $0 $0 $0 $0 $0 
 

2044
 $0 $0 $0 $0 $0 $0 $0 $0 
 

2045
 $0 $0 $0 $0 $0 $0 $0 $0 
 

2046
 $0 $0 $0 $0 $0 $0 $0 $0 
 

2047
 $0 $0 $0 $0 $0 $0 $0 $0 
 

2048
 $0 $0 $0 $0 $0 $0 $0 $0 
 

PV 3%b
 $2,646 $999 $7,109 $26,260 $65,575 $24,350 $23,685 $150,625 
 

Annualized 3%c
 $135 $51 $363 $1,340 $3,346 $1,242 $1,208 $7,685 
 

PV 7%b
 $1,553 $586 $4,172 $15,411 $39,979 $14,845 $14,440 $90,986 
 

Annualized 7%c
 $125 $47 $336 $1,242 $3,222 $1,196 $1,164 $7,332 

a Because EPA estimated non-use benefits qualitatively, the total monetary value of I&E losses includes only losses in use values. b The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2-5 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

Table E2-4: Time Profile of Mean Total Use Benefits - 50 MGD All Option (thousands; $2004)a 

North South Gulf of National Year Inland Total California Atlantic Atlantic Atlanticb 

2007 $0 $0 $0 $0 $0 $0 $0 $0 

2008 $0 $0 $0 $0 $0 $0 $0 $0 

2009 $0 $0 $0 $0 $0 $0 $0 $0 

2010 $0 $0 $0 $0 $0 $3 $6 $9 

2011 $3 $0 $2 $0 $0 $30 $29 $64 

2012 $7 $1 $3 $0 $165 $75 $84 $335 

2013 $27 $3 $22 $0 $330 $249 $195 $825 

2014 $30 $11 $36 $0 $1,320 $315 $235 $1,946 

2015 $32 $13 $96 $0 $1,484 $460 $291 $2,377 

2016 $33 $19 $125 $0 $1,567 $495 $313 $2,552 

2017 $33 $20 $133 $0 $1,649 $507 $318 $2,662 

2018 $33 $21 $139 $0 $1,649 $518 $322 $2,683 

2019 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2020 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2021 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2022 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2023 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2024 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2025 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2026 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2027 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2028 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2029 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2030 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2031 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2032 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2033 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2034 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2035 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2036 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2037 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2038 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2039 $33 $21 $141 $0 $1,649 $518 $323 $2,685 

2040 $33 $21 $141 $0 $1,649 $515 $316 $2,676 

2041 $30 $21 $139 $0 $1,649 $488 $294 $2,622 

2042 $27 $20 $138 $0 $1,484 $444 $238 $2,351 

2043 $7 $18 $119 $0 $1,320 $269 $127 $1,860 

2044 $3 $10 $105 $0 $330 $203 $87 $739 

2045 $2 $8 $45 $0 $165 $58 $31 $309 

2046 $0 $2 $16 $0 $82 $23 $10 $133 

2047 $0 $1 $8 $0 $0 $11 $4 $24 

$0e $0e 2048 $0 $2 $0 $0 $0 $2 

PV 3%c

 $565 $336 $2,244 $0 $27,050 $8,543 $5,389 $44,128 

Annualized 3%d $29 $17 $115 $0 $1,380 $436 $275 $2,251 

PV 7%c

 $296 $165 $1,090 $0 $13,631 $4,341 $2,786 $22,308 

Annualized 7%d

 $24 $13 $88 $0 $1,098 $350 $224 $1,798 

a 

b 

d 

e 

Source: 

c 

MidMexico Great Lakes 

Because EPA estimated non-use benefits qualitatively, the monetary value of benefits includes use values only. 

No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less than 

50 MGD and therefore would not be required to install technologies to comply with this option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

Positive non-zero value less than $500. 

U.S. EPA Analysis, 2006. 

E2-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

Table E2-5: Time Profile of Mean Total Use Benefits - 200 MGD All Option (thousands; $2004)a 

North South Gulf of Year Atlanticb Inland National Californiab 

Atlantic Atlantic Total 

2007 $0 $0 $0 $0 $0 $0 $0 $0 

2008 $0 $0 $0 $0 $0 $0 $0 $0 

2009 $0 $0 $0 $0 $0 $0 $0 $0 

2010 $0 $0 $0 $0 $0 $0 $3 $3 

2011 $0 $0 $0 $0 $0 $19 $20 $39 

2012 $0 $0 $0 $0 $106 $38 $52 $197 

2013 $0 $0 $9 $0 $213 $172 $142 $536 

2014 $0 $0e $20 $0 $851 $210 $163 $1,245 

2015 $0 $1 $76 $0 $958 $337 $203 $1,575 

2016 $0 $4 $102 $0 $1,011 $366 $215 $1,698 

2017 $0 $4 $110 $0 $1,064 $376 $218 $1,772 

2018 $0 $4 $116 $0 $1,064 $386 $221 $1,790 

2019 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2020 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2021 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2022 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2023 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2024 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2025 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2026 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2027 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2028 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2029 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2030 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2031 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2032 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2033 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2034 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2035 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2036 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2037 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2038 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2039 $0 $4 $117 $0 $1,064 $386 $221 $1,792 

2040 $0 $4 $117 $0 $1,064 $386 $218 $1,789 

2041 $0 $4 $117 $0 $1,064 $367 $201 $1,753 

2042 $0 $4 $117 $0 $958 $348 $169 $1,595 

2043 $0 $4 $108 $0 $851 $214 $78 $1,256 

2044 $0 $4 $97 $0 $213 $176 $58 $547 

2045 $0 $4 $41 $0 $106 $49 $17 $217 

2046 $0 $1 $15 $0 $53 $20 $5 $94 

$0e 2047 $0 $7 $0 $0 $10 $3 $20 

$0e 2048 $0 $1 $0 $0 $0 $0 $2 

PV 3%c

 $0 $69 $1,849 $0 $17,451 $6,324 $3,693 $29,386 

Annualized 3%d $0 $4 $94 $0 $890 $323 $188 $1,499 

PV 7%c

 $0 $32 $889 $0 $8,794 $3,191 $1,912 $14,817 

Annualized 7%d $0 $3 $72 $0 $709 $257 $154 $1,194 

a 

b 

d 

e 

Source: 

c 

MidMexico Great Lakes 

Because EPA estimated non-use benefits qualitatively, the monetary value of benefits includes use values only. 

No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less than 

200 MGD and therefore would not be required to install technologies to comply with this option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

Positive non-zero value less than $500. 

U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2-7 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

Table E2-6: Time Profile of Mean Total Use Benefits - 100 MGD CWB Option (thousands; $2004)a 

North Mid- South Gulf of Great National 

Lakes Inlandc Year Californiab 

Atlantic Atlantic Atlanticb Mexico Total 

2007 $0 $0 $0 $0 $0 $0 $0 $0 

2008 $0 $0 $0 $0 $0 $0 $0 $0 

2009 $0 $0 $0 $0 $0 $0 $0 $0 

2010 $0 $0 $0 $0 $0 $3 $0 $3 

2011 $0 $0 $0 $0 $0 $28 $0 $28 

2012 $0 $1 $0 $0 $165 $66 $0 $232 

2013 $0 $3 $9 $0 $330 $223 $0 $564 

2014 $0 $10 $20 $0 $1,320 $267 $0 $1,618 

2015 $0 $12 $76 $0 $1,484 $403 $0 $1,976 

2016 $0 $15 $102 $0 $1,567 $435 $0 $2,120 

2017 $0 $17 $110 $0 $1,649 $445 $0 $2,221 

2018 $0 $17 $116 $0 $1,649 $456 $0 $2,238 

2019 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2020 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2021 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2022 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2023 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2024 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2025 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2026 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2027 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2028 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2029 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2030 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2031 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2032 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2033 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2034 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2035 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2036 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2037 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2038 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2039 $0 $17 $117 $0 $1,649 $456 $0 $2,239 

2040 $0 $17 $117 $0 $1,649 $453 $0 $2,237 

2041 $0 $17 $117 $0 $1,649 $428 $0 $2,212 

2042 $0 $16 $117 $0 $1,484 $390 $0 $2,007 

2043 $0 $14 $108 $0 $1,320 $233 $0 $1,675 

2044 $0 $7 $97 $0 $330 $189 $0 $622 

2045 $0 $5 $41 $0 $165 $52 $0 $263 

2046 $0 $2 $15 $0 $82 $21 $0 $119 

2047 $0 $0f $7 $0 $0 $10 $0 $18 

2048 $0 $0f $1 $0 $0 $0 $0 $2 

PV 3%d $0 $274 $1,849 $0 $27,050 $7,513 $0 $36,687 

Annualized 3%e $0 $14 $94 $0 $1,380 $383 $0 $1,872 

PV 7%d $0 $136 $889 $0 $13,631 $3,816 $0 $18,472 

Annualized 7%e $0 $11 $72 $0 $1,098 $308 $0 $1,489 

a Because EPA estimated non-use benefits qualitatively, the monetary value of benefits includes use values only. 

b No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less 

than 100 MGD and therefore would not be required to install technologies to comply with this option. 

c The 100 MGD CWB option would not apply national categorical requirements to facilities located on freshwater rivers and 

lakes/reservoirs. Thus, no I&E reductions are expected at the potentially regulated facilities in the Inland region. 

d The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

e Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

f Positive non-zero value less than $500. 

 Source: U.S. EPA Analysis, 2006. 

E2-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

E2-4 TOTAL ANNUALIZED MONETARY VALUE OF LOSSES AND BENEFITS 

EPA used the profiles of benefits, by region, to calculate a total present value of benefits and then to calculate a 

constant annual equivalent value (annualized value) of the present value. EPA performed the calculations of 

present value and annualized value using two discount rate values: a real rate of 3% and a real rate of 7%. 

Although the total period for analysis of benefits extends from 2007 through 2048, a 42-year period, EPA 

annualized the value of benefits over 30 years, which is the assumed length of each facility’s compliance period 

for the social cost analysis, as described in Chapter E1: Summary of Social Costs. Using the same annualization 

period as in the cost analysis is necessary to provide a conceptually and mathematically consistent comparison of 

annualized benefit and cost values. 

EPA estimated mean values, as well as lower and upper bound values reflecting uncertainty in the recreational 

benefits estimates. Table E2-7 presents the value of baseline I&E losses for each region and for the nation as a 

whole. Table E2-8 and Table E2-9 present I&E losses for each region and the nation under the Phase III Final 

Regulation, 200 MGD All, and 100 MGD CWB options, discounted at 3% and 7%, respectively. Because EPA 

did not estimate non-use benefits quantitatively, the monetary value of national losses and benefits presented in 

these tables reflects only use values.1

 As described in Chapter A3 of the RBA, the Agency was not able to 

monetize any benefits for 97.4% of the age-one equivalent losses of all commercial, recreational, and forage 

species analyzed for the evaluated options for existing facilities. This means that the estimates of losses and 

benefits presented in this section represent the losses and benefits associated with 2.6% of the total age-one 

equivalents lost due to I&E by cooling water intake structures. 

Table E2-7 reports the monetized value of baseline losses as outlined above. EPA estimates the national value of 

these losses at $1.3 million in commercial fishing losses and $6.4 million in recreational fishing losses (2004$, 

discounted to 2007 at 3%). The total use value of fishery resources lost is $7.7 million per year, with lower and 

upper bounds of $5.0 million and $12.6 million, respectively (2004$, discounted at 3%). At a 7% discount rate, 

EPA estimates total annual national value of losses at $1.3 million in commercial fishing losses and $6.1 million 

in recreational fishing losses (2004$). The total use value of fishery resources lost, discounted at 7%, is $7.3 

million per year, with lower and upper bounds of $4.8 million and $12.0 million, respectively (2004$). Total 

monetized losses are greatest in the Gulf of Mexico region. More detailed discussions of the valuation of 

recreational and commercial fishing losses under the baseline conditions in each region are provided in Parts B 

through H of the RBA. 

1

 See Chapter A6 of the RBA for a detailed description of the qualitative non-use benefits from reduced I&E. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2-9 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

c 

a 

Region b 

Low High Low High 

California $0 - $54 $42 $81 $155 $97 $135 $209 

$0 - $1 $26 $50 $95 $27 $51 $97 

Mid-Atlantic $0 - $84 $142 $279 $569 $226 $363 $653 

$0 - $168 $769 $1,246 $2,042 

$0 - $990 $1,255 $2,356 $4,544 $2,245 $3,346 $5,533 

$0 - $97 $786 $1,145 $1,679 $883 $1,242 $1,776 

Inlandc

 n/a $670 $1,208 $2,194 $670 $1,208 $2,194 

National Total $0 -$1,320 $3,689 $6,365 $11,278 

California $0 - $50 $39 $75 $143 $89 $125 $194 

$0 - $1 $24 $46 $88 $25 $47 $90 

Mid-Atlantic $0 - $78 $131 $258 $527 $209 $336 $605 

$0 - $156 $712 $1,155 $1,893 

Gulf of Mexico $0 - $953 $1,209 $2,269 $4,376 $2,162 $3,222 $5,328 

$0 - $94 $757 $1,103 $1,617 $850 $1,196 $1,710 

Inlandc $0 $645 $1,164 $2,113 $645 $1,164 $2,113 

National Total $0 -$1,263 $3,517 $6,070 $10,757 

a 

b 

th th

Source: 

Table E2-7: Summary of Monetary Values of Baseline I&E Losses (thousands; $2004)

Annualized Use Value of Baseline I&E Losses 

Commercial 

Fishing 

Recreational Fishing Total Use Value

 Mean Mean 

3% discount rate 

North Atlantic 

South Atlantic $936 $1,414 $2,210 

Gulf of Mexico 

Great Lakes 

$5,009 $7,658 $12,597 

7% discount rate 

North Atlantic 

South Atlantic $868 $1,311 $2,049 

Great Lakes 

$4,780 $7,332 $12,020 

All losses presented in this table are annualized. These estimated annualized losses represent the value of all losses generated over 

the time frame of the analysis, discounted to 2007, and then annualized over a 30-year period. 

The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits qualitatively. A range of 

recreational fishing benefits is provided, based on the Krinsky and Robb technique to estimated the 95 and 5 percentile limits on the 

marginal value per fish predicted by EPA’s meta-analysis (see chapter A5 of the RBA). Commercial fishing benefits are computed based 

on a region- and species-specific range of gross revenue (see Chapter A4 of the RBA). To calculate the total use value columns (low, 

mean, and high), the high-end value for commercial fishing benefits is added to the low, mean, and high values for recreational fishing 

benefits, respectively. 

No significant commercial fishing takes place in the Inland region. Thus, this region is excluded from the commercial fishing 

analysis. 

U.S. EPA Analysis, 2006. 

Tables E2-8 and E2-9 present EPA’s estimates of the national and regional values of avoided I&E losses (all 

values are in 2004$, discounted at 3% and 7% to beginning of year 2007, and annualized over a 30-year period). 

National values of avoided I&E losses at a 3% discount rate are as follows: 

f For the 50 MGD All option, a mean value of $2.3 million per year, with lower and upper bounds of $1.4 

million and $3.8 million (see Table E2-8); 

f For the 200 MGD All option, a mean value of $1.5 million per year, with lower and upper bounds of $1.0 

million and $2.5 million (see Table E2-8); and 

f For the 100 MGD CWB option, a mean value of $1.9 million per year, with lower and upper bounds of 

$1.2 million and $3.1 million (see Table E2-8). 

The 7% discount rate calculations yield smaller values as follows: 

f For the 50 MGD All option, a mean value of $1.8 million per year, with lower and upper bounds of $1.1 

million and $3.0 million (see Table E2-9); 

E2-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

f For the 200 MGD All option, a mean value of $1.2 million per year, with lower and upper bounds of $0.8 

million and $2.0 million (see Table E2-9); and 

f For the 100 MGD CWB option, a mean value of $1.5 million per year, with lower and upper bounds of 

$1.0 million and $2.5 million (see Table E2-9). 

The majority of the use benefit value is attributable to benefits to recreational anglers from improved catch rates. 

As shown in Tables E2-8 and E2-9, use benefits are largest in the Gulf of Mexico for the 50 MGD All option, 100 

MGD CWB option, and the 200 MGD All option. More detailed discussions of regional benefits under each 

option are provided in Parts B through H of the RBA. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2-11 
c 

§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

Table E2-8: Summary of Monetized Benefits by Option (thousands; $2004; discounted at 3%)a 

Annualized Annualized Recreational Fishing Total Annualized Value of Monetized 

Benefits Impingement and Entrainment Reductionsb

Region Commercial 

Fishing Benefits Low Mean High Low Mean High 

50 MGD All Option 

California $0 - $8 $11 $21 $40 $19 $29 $48 

North Atlantic $0 - $0g $9 $17 $33 $9 $17 $33 

Mid-Atlantic $0 - $18 $48 $96 $198 $67 $115 $216 

South Atlanticc $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 - $283 $589 $1,097 $2,101 $872 $1,380 $2,384 

Great Lakes $0 - $11 $292 $425 $624 $302 $436 $634 

Inlandd n/a $152 $275 $501 $152 $275 $501 

National Total $0 -$321 $1,101 $1,931 $3,496 $1,421 $2,251 $3,816 

200 MGD All Option 

Californiae $0 $0 $0 $0 $0 $0 $0 

North Atlantic $0 - $0g $2 $3 $7 $2 $4 $7 

Mid-Atlantic $0 - $15 $40 $80 $164 $55 $94 $179 

South Atlanticc $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 - $188 $382 $702 $1,328 $570 $890 $1,516 

Great Lakes $0 - $8 $216 $315 $462 $224 $323 $470 

Inlandd n/a $104 $188 $343 $104 $188 $343 

National Total $0 -$211 $744 $1,288 $2,303 $955 $1,499 $2,514 

100 MGD CWB Option 

Californiae $0 $0 $0 $0 $0 $0 $0 

North Atlantic $0 - $0g $7 $14 $27 $7 $14 $27 

Mid-Atlantic $0 - $15 $40 $80 $164 $55 $94 $179 

South Atlanticc $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 - $283 $589 $1,097 $2,101 $872 $1,380 $2,384 

Great Lakes $0 - $9 $257 $374 $548 $266 $383 $558 

Inlandd,f n/a $0 $0 $0 $0 $0 $0 

National Total $0 -$308 $892 $1,564 $2,840 $1,200 $1,872 $3,148 

a All benefits presented in this table are annualized. These annualized benefits represent the value of all losses generated over the 

time frame of the analysis, discounted to 2007, and then annualized over a 30-year period. 

b The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits qualitatively. A range of 

recreational fishing benefits is provided, based on the Krinsky and Robb technique to estimated the 95th and 5th percentile limits on the 

marginal value per fish predicted by EPA’s meta-analysis (see chapter A5 of the RBA). Commercial fishing benefits are computed 

based on a region- and species-specific range of gross revenue (see Chapter A4 of the RBA). To calculate the total use value columns 

(low, mean, and high), the high-end value for commercial fishing benefits is added to the low, mean, and high values for recreational 

fishing benefits, respectively. 

No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less 

than 50 MGD and therefore would not be required to install technologies to comply with the regulatory analysis options. 

d No significant commercial fishing takes place in the Inland region. Thus, this region is excluded from the commercial fishing 

analysis. 

e No I&E reductions are expected in the California region because all potentially regulated facilities in this region withdraw less than 

100 MGD and therefore would not be required to install technologies to comply with the 200 MGD All and the 100 MGD CWB 

options. 

f The 100 MGD CWB option would not apply national categorical requirements to facilities located on freshwater rivers and 

lakes/reservoirs. Thus, no I&E reductions are expected at the potentially regulated facilities in the Inland region. 

g Denotes a positive value less than $500. 

Source: U.S. EPA Analysis, 2006. 

E2-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

c 

a 

Region Benefits b 

Low High Low High 

California $0 - $7 $9 $17 $33 $16 $24 $39 

$0 - $0g $7 $13 $25 $7 $13 $25 

Mid-Atlantic $0 - $14 $37 $74 $152 $51 $88 $166 

$0 $0 $0 $0 $0 $0 $0 

$0 - $225 $468 $873 $1,672 $694 $1,098 $1,898 

$0 - $9 $234 $341 $500 $243 $350 $509 

Inlandd n/a $124 $224 $409 $124 $224 $409 

National Total $880 $1,543 $2,792 $1,135 $1,798 $3,047 

Californiae $0 $0 $0 $0 $0 $0 $0 

$0 - $0g $1 $3 $5 $1 $3 $5 

Mid-Atlantic $0 - $11 $30 $60 $125 $42 $72 $136 

c $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 - $150 $304 $559 $1,057 $454 $709 $1,207 

$0 - $6 $172 $251 $368 $178 $257 $374 

Inlandd n/a $85 $154 $280 $85 $154 $280 

National Total $0 -

Californiae $0 $0 $0 $0 $0 $0 $0 

$0 - $0g $6 $11 $21 $6 $11 $21 

Mid-Atlantic $0 - $11 $30 $60 $125 $42 $72 $136 

c $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 - $225 $468 $873 $1,672 $694 $1,098 $1,898 

$0 - $7 $206 $300 $440 $213 $308 $447 

Inlandd,f n/a $0 $0 $0 $0 $0 $0 

National Total $710 $1,244 $2,258 $955 $1,489 $2,502 

a 

b 

d 

e 

options. 

f 

g

Source: 

Table E2-9: Summary of Monetized Benefits by Option (thousands; $2004; discounted at 7%)

Annualized 

Commercial 

Fishing Benefits 

Annualized Recreational Fishing Total Annualized Value of Monetized 

Impingement and Entrainment Reductions

 Mean Mean 

50 MGD All Option 

North Atlantic 

South Atlanticc 

Gulf of Mexico 

Great Lakes 

$0 -$255 

200 MGD All Option 

North Atlantic 

South Atlantic

Great Lakes 

$167 $593 $1,027 $1,835 $760 $1,194 $2,002 

100 MGD CWB Option 

North Atlantic 

South Atlantic

Great Lakes 

$0 -$244 

All benefits presented in this table are annualized. These annualized benefits represent the value of all losses generated over the 

time frame of the analysis, discounted to 2007, and then annualized over a 30-year period. 

The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits qualitatively. A range of 

recreational fishing benefits is provided, based on the Krinsky and Robb technique to estimated the 95th and 5th percentile limits on the 

marginal value per fish predicted by EPA’s meta-analysis (see chapter A5 of the RBA). Commercial fishing benefits are computed 

based on a region- and species-specific range of gross revenue (see Chapter A4 of the RBA). To calculate the total use value columns 

(low, mean, and high), the high-end value for commercial fishing benefits is added to the low, mean, and high values for recreational 

fishing benefits, respectively. 

No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less 

than 50 MGD and therefore would not be required to install technologies to comply with the regulatory analysis options. 

No significant commercial fishing takes place in the Inland region, and thus this region is excluded from the commercial fishing 

benefits analysis. 

No I&E reductions are expected in the California region because all potentially regulated facilities in this region withdraw less than 

100 MGD and therefore would not be required to install technologies to comply with the 200 MGD All and the 100 MGD CWB 

The 100 MGD CWB option would not apply national categorical requirements to facilities located on freshwater rivers and 

lakes/reservoirs. Thus, no I&E reductions are expected at the potentially regulated facilities in the Inland region. 

 Denotes a positive value less than $500. 

U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2-13 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E2: Summary of Benefits 

REFERENCES 

U.S. Environmental Protection Agency (U.S. EPA). 2006. Regional Analysis for the Final Section 316(b) Phase 

III Existing Facilities Rule. EPA-821-R-06-002. June 2006. 

E2-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Appendix E2A: Summary of Results for 
 

Supplemental Options 
 

INTRODUCTION APPENDIX CONTENTS 

This appendix supplements Chapter E2 by presenting the Introduction..........................................................E2A-1 
 

results of the benefits analysis for eight supplemental E2A-1 Summary of Expected Reductions in I&E ........

options evaluated for potential Phase III existing facilities. ........................................................E2A-1 

For all options, facility counts and other results only E2A-2 Time Profile of Benefits..........................E2A-3 

include those potential Phase III existing facilities that are E2A-3 Total Annualized Monetary Value of Benefits .

(1) non-baseline closures and (2) subject to national ......................................................E2A-12
 

categorical requirements under the option. See the main 

body of this chapter for a description of methodologies 

used in this analysis. 

E2A-1 SUMMARY OF EXPECTED REDUCTIONS IN I&E 

Table E2A-1 presents the number of facilities with technology requirements under the supplemental options, by 

region, and EPA’s estimates of the percentage by which I&E would be reduced under each option. The table also 

presents estimates of regional and national reductions in I&E losses under each option, expressed as age-one 

equivalents lost and foregone fishery yields. 

Table E2A-2: Expected Reductions in I&E for Existing Phase III Facilities by Option 

Number of Age-One Foregone 

Region 

Facilities Installing 

Technology Impingement Entrainment 

Equivalents 

(thousands) 

Fishery Yield 

(thousands; lbs) 

“Electric Generators 2-50 MGD I-only Everywhere” Option 

California 0 0% 0% 0 0 

North Atlantic 0 0% 0% 0 0 

Mid-Atlantic 1 1% 0% 27 3 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 0 0% 0% 0 0 

Great Lakes 3 1% 0% 303 3 

Inland 14 1% 0% 473 3 

National Total 19 802 9 

“Electric Generators 2-50 MGD I&E like Phase II” Option 

California 0 0% 0% 0 0 

North Atlantic 0 0% 0% 0 0 

Mid-Atlantic 1 1% 0% 27 3 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 0 0% 0% 0 0 

Great Lakes 3 1% 1% 327 4 

Inland 15 1% 0% 509 4 

National Total 20 863 10 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2A-1 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-2: Expected Reductions in I&E for Existing Phase III Facilities by Option 

Number of Age-One Foregone 

Facilities Installing Equivalents Fishery Yield 

Region Technology Impingement Entrainment (thousands) (thousands; lbs) 

“Electric Generators 2-50 MGD I&E Everywhere” Option 

California 0 0% 0% 0 0 

North Atlantic 0 0% 0% 0 0 

Mid-Atlantic 2 1% 2% 1,480 6 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 0 0% 0% 0 0 

Great Lakes 3 1% 1% 331 4 

Inland 16 1% 1% 802 8 

National Total 22 2,610 18 

“Manufacturers 2-50 MGD I-only Everywhere” Option 

California 3 37% 0% 10 0 

North Atlantic 0 0% 0% 0 0 

Mid-Atlantic 3 4% 0% 150 18 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 4 3% 0% 543 48 

Great Lakes 16 2% 0% 698 7 

Inland 126 8% 0% 3,320 21 

National Total 152 4,720 94 

“Manufacturers 2-50 MGD I&E like Phase II” Option 

California 3 37% 28% 481 34 

North Atlantic 0 0% 0% 0 0 

Mid-Atlantic 3 4% 3% 2,310 22 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 4 3% 2% 855 162 

Great Lakes 16 2% 1% 732 8 

Inland 140 8% 2% 3,660 27 

National Total 166 8,040 252 

“Manufacturers 2-50 MGD I&E Everywhere” Option 

California 3 37% 31% 534 38 

North Atlantic 0 0% 0% 0 0 

Mid-Atlantic 3 4% 3% 2,310 22 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 4 3% 2% 855 162 

Great Lakes 16 2% 2% 764 9 

Inland 142 8% 7% 4,880 44 

National Total 168 9,340 275 

“Manufacturers 50+ MGD I-only Everywhere” Option 

California 1 37% 0% 10 0 

North Atlantic 0 0% 0% 0 0 

Mid-Atlantic 2 23% 0% 1,000 118 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 5 51% 0% 10,400 917 

Great Lakes 15 42% 0% 11,700 109 

Inland 74 38% 0% 16,200 105 

National Total 97 39,400 1,250 

E2A-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-2: Expected Reductions in I&E for Existing Phase III Facilities by Option 

Number of Age-One Foregone 

Facilities Installing Equivalents Fishery Yield 

Region Technology Impingement Entrainment (thousands) (thousands; lbs) 

“Manufacturers 50+ MGD I&E Everywhere” Option 

California 1 37% 28% 474 33 

North Atlantic 4 0% 40% 910 4 

Mid-Atlantic 3 23% 53% 44,500 212 

South Atlantica 0 0% 0% 0 0 

Gulf of Mexico 7 51% 58% 19,400 4,200 

Great Lakes 18 42% 46% 13,400 161 

Inland 94 38% 37% 24,600 228 

National Total 127 103,000 4,840 

a

 No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet the 

national categorical requirements in the baseline and therefore would not be required to install technologies to comply with these 

options. 

Source: U.S. EPA Analysis, 2006. 

E2A-2 TIME PROFILE OF BENEFITS 

Table E2A-3 through Table E2A-4 below provide the time profiles of regional benefits for the eight supplemental 

options. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2A-3 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-5: Time Profile of Mean Total Use Benefits - “Electric Generators 2-50 MGD I-only 

Everywhere” Option (thousands; 2004$)a 

North Mid- South Gulf of Great National Year California Atlantic Atlantic Atlanticb Mexico Lakes Inland Total 

2007 $0 $0 $0 

2008 $0 $0 $0 

2009 $0 $0 $0 

2010 $0 $0 $0 

2011 $0 $0 $0 

2012 $0 $0 $0 

2013 $0 $0 $0 

2014 $0 $0 $0 

2015 $0 $0 $0e

2016 $0 $0 $0e

2017 $0 $0 $1 

2018 $0 $0 $1 

2019 $0 $0 $1 

2020 $0 $0 $1 

2021 $0 $0 $1 

2022 $0 $0 $1 

2023 $0 $0 $1 

2024 $0 $0 $1 

2025 $0 $0 $1 

2026 $0 $0 $1 

2027 $0 $0 $1 

2028 $0 $0 $1 

2029 $0 $0 $1 

2030 $0 $0 $1 

2031 $0 $0 $1 

2032 $0 $0 $1 

2033 $0 $0 $1 

2034 $0 $0 $1 

2035 $0 $0 $1 

2036 $0 $0 $1 

2037 $0 $0 $1 

2038 $0 $0 $1 

2039 $0 $0 $1 

2040 $0 $0 $1 

2041 $0 $0 $1 

2042 $0 $0 $1 

2043 $0 $0 $1 

2044 $0 $0 $1 

2045 $0 $0 $1 

2046 $0 $0 $1 

2047 $0 $0 $0e

2048 $0 $0 $0e

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0e

 $0e 

$0 $0 $0e $1 $1 

$0 $0 $1 $2 $3 

$0 $0 $4 $4 $7 

$0 $0 $4 $5 $10 

$0 $0 $6 $6 $12 

$0 $0 $8 $6 $14 

$0 $0 $8 $6 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $7 $16 

$0 $0 $9 $6 $16 

$0 $0 $8 $6 $15 

$0 $0 $8 $4 $13 

$0 $0 $5 $3 $9 

$0 $0 $4 $1 $7 

$0 $0 $3 $1 $5 

$0 $0 $1 $0e

 $2 

$0 $0 $0e

 $0e $1 

$0 $0 $0e $0e $0e 

PV 3%c $0 $0 $15 

Annualized 3% d $0 $0 $1 

PV 7% c $0 $0 $7 

Annualized 7% d $0 $0 $1 

$0 $0 $142 $109 $267 

$0 $0 $7 $6 $14 

$0 $0 $71 $57 $135 

$0 $0 $6 $5 $11 a Because EPA estimated non-use benefits only qualitatively, the monetary value of benefits includes use values only. b No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. d Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. e Positive non-zero value less than $500. 

Source: U.S. EPA Analysis, 2006. 

E2A-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-6: Time Profile of Mean Total Use Benefits - “Electric Generators 2-50 MGD I&E like Phase 

II” Option (thousands; 2004$)a 

North Mid- South Gulf of Great National Year California Atlantic Atlantic Atlanticb Mexico Lakes Inland Total 

2007 $0 $0 $0 

2008 $0 $0 $0 

2009 $0 $0 $0 

2010 $0 $0 $0 

2011 $0 $0 $0 

2012 $0 $0 $0 

2013 $0 $0 $0 

2014 $0 $0 $0 

2015 $0 $0 $0e

2016 $0 $0 $0e

2017 $0 $0 $1 

2018 $0 $0 $1 

2019 $0 $0 $1 

2020 $0 $0 $1 

2021 $0 $0 $1 

2022 $0 $0 $1 

2023 $0 $0 $1 

2024 $0 $0 $1 

2025 $0 $0 $1 

2026 $0 $0 $1 

2027 $0 $0 $1 

2028 $0 $0 $1 

2029 $0 $0 $1 

2030 $0 $0 $1 

2031 $0 $0 $1 

2032 $0 $0 $1 

2033 $0 $0 $1 

2034 $0 $0 $1 

2035 $0 $0 $1 

2036 $0 $0 $1 

2037 $0 $0 $1 

2038 $0 $0 $1 

2039 $0 $0 $1 

2040 $0 $0 $1 

2041 $0 $0 $1 

2042 $0 $0 $1 

2043 $0 $0 $1 

2044 $0 $0 $1 

2045 $0 $0 $1 

2046 $0 $0 $1 

2047 $0 $0 $0e

2048 $0 $0 $0e

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0e

 $0e 

$0 $0 $1 $1 $1 

$0 $0 $1 $3 $4 

$0 $0 $5 $4 $9 

$0 $0 $6 $6 $12 

$0 $0 $7 $7 $15 

$0 $0 $11 $7 $18 

$0 $0 $11 $8 $19 

$0 $0 $11 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $8 $20 

$0 $0 $12 $7 $20 

$0 $0 $11 $7 $19 

$0 $0 $10 $4 $16 

$0 $0 $7 $3 $11 

$0 $0 $6 $1 $8 

$0 $0 $4 $1 $6 

$0 $0 $1 $0e

 $2 

$0 $0 $1 $0e

 $1 

$0 $0 $0e $0e $0e 

PV 3%c $0 $0 $15 

Annualized 3% d $0 $0 $1 

PV 7% c $0 $0 $7 

Annualized 7% d $0 $0 $1 

$0 $0 $187 $128 $330 

$0 $0 $10 $7 $17 

$0 $0 $93 $67 $167 

$0 $0 $8 $5 $13 a Because EPA estimated non-use benefits only qualitatively, the monetary value of benefits includes use values only. b No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. d Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. e Positive non-zero value less than $500. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2A-5 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-7: Time Profile of Mean Total Use Benefits - “Electric Generators 2-50 MGD I&E 

Everywhere” Option (thousands; 2004$)a 

North Mid- South Gulf of Great National Year California Inland Atlantic Atlantic Atlanticb Mexico Lakes 	 Total 

2007 $0 $0 $0 

2008 $0 $0 $0 

2009 $0 $0 $0 

2010 $0 $0 $0 

2011 $0 $0 $0 

$0e 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $1 $1 

$0 $0 $1 $2 $2 

2012 $0 $0 

2013 $0 $0 $1 

2014 $0 $0 $2 

2015 $0 $0 $3 

2016 $0 $0 $3 

2017 $0 $0 $4 

2018 $0 $0 $4 

2019 $0 $0 $4 

2020 $0 $0 $4 

2021 $0 $0 $4 

2022 $0 $0 $4 

2023 $0 $0 $4 

2024 $0 $0 $4 

2025 $0 $0 $4 

2026 $0 $0 $4 

2027 $0 $0 $4 

2028 $0 $0 $4 

2029 $0 $0 $4 

2030 $0 $0 $4 

2031 $0 $0 $4 

2032 $0 $0 $4 

2033 $0 $0 $4 

2034 $0 $0 $4 

2035 $0 $0 $4 

2036 $0 $0 $4 

2037 $0 $0 $4 

2038 $0 $0 $4 

2039 $0 $0 $4 

2040 $0 $0 $4 

2041 $0 $0 $4 

2042 $0 $0 $4 

2043 $0 $0 $4 

2044 $0 $0 $2 

2045 $0 $0 $2 

2046 $0 $0 $2 

2047 $0 $0 $0e

2048 $0 $0 $0e

$0 $0 $1 $6 $8 

$0 $0 $5 $9 $14 

$0 $0 $6 $13 $21 

$0 $0 $8 $15 $25 

$0 $0 $11 $16 $29 

$0 $0 $11 $16 $31 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $16 $32 

$0 $0 $12 $15 $32 

$0 $0 $11 $15 $30 

$0 $0 $11 $10 $25 

$0 $0 $7 $7 $18 

$0 $0 $6 $3 $11 

$0 $0 $4 $1 $8 

$0 $0 $1 $1 $3 

$0 $0 $1 $0e

 $1 

$0 $0 $0e $0e $0e 

PV 3%c $0 $0 $70 

Annualized 3% d $0 $0 $4 

PV 7% c $0 $0 $34 

Annualized 7% d $0 $0 $3 

$0 $0 $195 $270 $534 

$0 $0 $10 $14 $27 

$0 $0 $97 $140 $271 

$0 $0 $8 $11 $22 

a 	 Because EPA estimated non-use benefits only qualitatively, the monetary value of benefits includes use values only. 

b 	 No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

d 	 Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

e 	 Positive non-zero value less than $500. 

Source: U.S. EPA Analysis, 2006. 

E2A-6 	 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-8: Time Profile of Mean Total Use Benefits - “Manufacturers 2-50 MGD I-only Everywhere” 

Option (thousands; 2004$)a 

North Mid- South Gulf of Great National Year California Inland Atlantic Atlantic Atlanticb Mexico Lakes	 Total 

2007 $0 $0 $0 

2008 $0 $0 $0 

2009 $0 $0 $0 

2010 $0 $0 $0 

2011 $0 $0 $0 

2012 $0 $0 $1 

2013 $0 $0 $1 

2014 $0 $5 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $1 $0e

 $1 

$0 $0 $2 $2 $3 

$0 $5 $7 $7 $19 

$0 $9 $12 $14 $36 

$0 $0 $37 $18 $26 $85 e 

2015 $0e

 $0 $5 

2016 $1 $0 $5 

2017 $1 $0 $6 

2018 $1 $0 $6 

2019 $1 $0 $6 

2020 $1 $0 $6 

2021 $1 $0 $6 

2022 $1 $0 $6 

2023 $1 $0 $6 

2024 $1 $0 $6 

2025 $1 $0 $6 

2026 $1 $0 $6 

2027 $1 $0 $6 

2028 $1 $0 $6 

2029 $1 $0 $6 

2030 $1 $0 $6 

2031 $1 $0 $6 

2032 $1 $0 $6 

2033 $1 $0 $6 

2034 $1 $0 $6 

2035 $1 $0 $6 

2036 $1 $0 $6 

2037 $1 $0 $6 

2038 $1 $0 $6 

2039 $1 $0 $6 

2040 $1 $0 $6 

2041 $1 $0 $6 

2042 $1 $0 $5 

2043 $1 $0 $5 

2044 $1 $0 $1 

2045 $1 $0 $1 

2046 $0e

 $0 $0e

2047 $0e

 $0 $0 

2048 $0e

 $0 $0 

$0 $42 $19 $35 $102 

$0 $44 $20 $42 $113 

$0 $47 $20 $44 $118 

$0 $47 $20 $45 $119 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $46 $120 

$0 $47 $20 $45 $119 

$0 $47 $18 $44 $117 

$0 $42 $13 $39 $101 

$0 $37 $9 $32 $84 

$0 $9 $3 $20 $35 

$0 $5 $1 $10 $18 

$0 $2 $0e

 $3 $7 

$0 $0 $0 $1 $2 

$0 $0 $0 $0e

 $0e 

PV 3%c $23 $0 $94 

Annualized 3%d $1 $0 $5 

PV 7%c $11 $0 $47 

Annualized 7%d $1 $0 $4 

$0 $768 $340 $745 $1,969 

$0 $39 $17 $38 $100 

$0 $387 $177 $373 $995 

$0 $31 $14 $30 $80 

a 	 Because EPA estimated non-use benefits only qualitatively, the monetary value of benefits includes use values only. 

b 	 No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

d 	 Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

e 	 Positive non-zero value less than $500. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 	 E2A-7 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-9: Time Profile of Mean Total Use Benefits - “Manufacturers 2-50 MGD I&E like Phase II” 

Option (thousands; 2004$)a 

North Mid- South Gulf of Great National Year California Inland Atlantic Atlantic Atlanticb Mexico Lakes	 Total 

2007 $0 $0 $0 

2008 $0 $0 $0 

2009 $0 $0 $0 

2010 $0 $0 $0 

2011 $0 $0 $0 

2012 $0 $0 $1 

2013 $0 $0 $2 

2014 $3 $0 $9 

2015 $7 $0 $10 

2016 $27 $0 $10 

2017 $31 $0 $11 

2018 $32 $0 $11 

2019 $34 $0 $11 

2020 $34 $0 $11 

2021 $34 $0 $11 

2022 $34 $0 $11 

2023 $34 $0 $11 

2024 $34 $0 $11 

2025 $34 $0 $11 

2026 $34 $0 $11 

2027 $34 $0 $11 

2028 $34 $0 $11 

2029 $34 $0 $11 

2030 $34 $0 $11 

2031 $34 $0 $11 

2032 $34 $0 $11 

2033 $34 $0 $11 

2034 $34 $0 $11 

2035 $34 $0 $11 

2036 $34 $0 $11 

2037 $34 $0 $11 

2038 $34 $0 $11 

2039 $34 $0 $11 

2040 $34 $0 $11 

2041 $34 $0 $11 

2042 $34 $0 $10 

2043 $34 $0 $9 

2044 $31 $0 $2 

2045 $27 $0 $1 

2046 $7 $0 $1 

2047 $3 $0 $0 

2048 $2 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $1 $1 $1 

$0 $0 $2 $2 $4 

$0 $7 $8 $8 $25 

$0 $15 $14 $18 $48 

$0 $58 $21 $32 $124 

$0 $66 $23 $44 $148 

$0 $69 $23 $52 $182 

$0 $73 $24 $54 $192 

$0 $73 $24 $55 $195 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $24 $56 $197 

$0 $73 $23 $55 $196 

$0 $73 $22 $54 $193 

$0 $66 $16 $47 $173 

$0 $58 $10 $38 $149 

$0 $15 $3 $23 $74 

$0 $7 $1 $12 $49 

$0 $4 $1 $4 $15 

$0 $0 $0 $2 $5 

$0 $0 $0 $0e

 $2 

PV 3%c $525 $0 

Annualized 3%d $27 $0 

PV 7%c $245 $0 

Annualized 7%d $20 $0 

$178 $0 $1,195 $404 $910 $3,211 

$9 $0 $61 $21 $46 $164 

$89 $0 $602 $210 $457 $1,604 

$7 $0 $49 $17 $37 $129 

a 	 Because EPA estimated non-use benefits only qualitatively, the monetary value of benefits includes use values only. 

b 	 No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

d 	 Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

e 	 Positive non-zero value less than $500. 

Source: U.S. EPA Analysis, 2006. 

E2A-8 	 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-10: Time Profile of Mean Total Use Benefits - “Manufacturers 2-50 MGD I&E Everywhere” 

Option (thousands; 2004$)a 

North Mid- South Gulf of Great National Year California Inland Atlantic Atlantic Atlanticb Mexico Lakes	 Total 

2007 $0 $0 $0 

2008 $0 $0 $0 

2009 $0 $0 $0 

2010 $0 $0 $0 

2011 $0 $0 $0 

2012 $0 $0 $1 

2013 $0 $0 $2 

2014 $4 $0 $9 

2015 $8 $0 $10 

2016 $30 $0 $10 

2017 $34 $0 $11 

2018 $36 $0 $11 

2019 $38 $0 $11 

2020 $38 $0 $11 

2021 $38 $0 $11 

2022 $38 $0 $11 

2023 $38 $0 $11 

2024 $38 $0 $11 

2025 $38 $0 $11 

2026 $38 $0 $11 

2027 $38 $0 $11 

2028 $38 $0 $11 

2029 $38 $0 $11 

2030 $38 $0 $11 

2031 $38 $0 $11 

2032 $38 $0 $11 

2033 $38 $0 $11 

2034 $38 $0 $11 

2035 $38 $0 $11 

2036 $38 $0 $11 

2037 $38 $0 $11 

2038 $38 $0 $11 

2039 $38 $0 $11 

2040 $38 $0 $11 

2041 $38 $0 $11 

2042 $38 $0 $10 

2043 $38 $0 $9 

2044 $34 $0 $2 

2045 $30 $0 $1 

2046 $8 $0 $1 

2047 $4 $0 $0 

2048 $2 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $1 $1 $2 

$0 $0 $2 $4 $6 

$0 $7 $9 $14 $32 

$0 $15 $16 $30 $62 

$0 $58 $24 $53 $148 

$0 $66 $26 $72 $181 

$0 $69 $27 $85 $221 

$0 $73 $28 $89 $234 

$0 $73 $28 $90 $237 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $28 $91 $240 

$0 $73 $27 $90 $238 

$0 $73 $25 $87 $234 

$0 $66 $18 $77 $208 

$0 $58 $12 $61 $178 

$0 $15 $4 $38 $92 

$0 $7 $2 $19 $59 

$0 $4 $1 $6 $19 

$0 $0 $0 $2 $6 

$0 $0 $0 $1 $3 

PV 3%c $581 $0 

Annualized 3% d $30 $0 

PV 7% c $271 $0 

Annualized 7% d $22 $0 

$178 $0 $1,195 $465 $1,487 $3,906 

$9 $0 $61 $24 $76 $199 

$89 $0 $602 $243 $747 $1,953 

$7 $0 $49 $20 $60 $157 

a 	 Because EPA estimated non-use benefits only qualitatively, the monetary value of benefits includes use values only. 

b 	 No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

d 	 Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 	 E2A-9 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-11: Time Profile of Mean Total Use Benefits - “Manufacturers 50+ MGD I-only Everywhere” 

Option (thousands; 2004$)a 

North Mid- South Gulf of Great National Year California Inland Atlantic Atlantic Atlanticb Mexico Lakes	 Total 

2007 $0 $0 $0 

2008 $0 $0 $0 

2009 $0 $0 $0 

2010 $0 $0 $0 

2011 $0 $1 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $3 $4 $7 

$0 $0 $0 $14 $20 $35 e 

2012 $0e

 $0 $3 

2013 $1 $0 $10 

2014 $1 $0 $14 

2015 $1 $0 $17 

2016 $1 $0 $33 

2017 $1 $0 $36 

2018 $1 $0 $37 

2019 $1 $0 $38 

2020 $1 $0 $38 

2021 $1 $0 $38 

2022 $1 $0 $38 

2023 $1 $0 $38 

2024 $1 $0 $38 

2025 $1 $0 $38 

2026 $1 $0 $38 

2027 $1 $0 $38 

2028 $1 $0 $38 

2029 $1 $0 $38 

2030 $1 $0 $38 

2031 $1 $0 $38 

2032 $1 $0 $38 

2033 $1 $0 $38 

2034 $1 $0 $38 

2035 $1 $0 $38 

2036 $1 $0 $38 

2037 $1 $0 $38 

2038 $1 $0 $38 

2039 $1 $0 $38 

2040 $1 $0 $38 

2041 $1 $0 $37 

2042 $1 $0 $36 

2043 $0e $0 $28 

$0e 

$0 $90 $41 $58 $191 

$0 $180 $117 $134 $442 

$0 $718 $164 $162 $1,059 

$0 $808 $292 $201 $1,320 

$0 $853 $318 $216 $1,422 

$0 $898 $329 $220 $1,485 

$0 $898 $339 $223 $1,499 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $339 $223 $1,501 

$0 $898 $337 $219 $1,494 

$0 $898 $326 $204 $1,466 

$0 $808 $299 $165 $1,309 

$0 $718 $223 $89 $1,059 

2044 $0 $24 $0 $180 $176 $61 $441 

$0e 2045 $0 $21 

2046 $0 $0 $5 

2047 $0 $0 $3 

2048 $0 $0 $1 

$0 $90 $47 $22 $180 

$0 $45 $21 $7 $78 

$0 $0 $10 $3 $16 

$0 $0 $0 $0e

 $2 

PV 3%c $25 $0 

Annualized 3% d $1 $0 

PV 7% c $13 $0 

Annualized 7% d $1 $0 

$608 $0 $14,728 $5,538 $3,731 $24,630 

$31 $0 $751 $283 $190 $1,257 

$296 $0 $7,422 $2,777 $1,928 $12,435 

$24 $0 $598 $224 $155 $1,002 

a 	 Because EPA estimated non-use benefits only qualitatively, the monetary value of benefits includes use values only. 

b 	 No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

d 	 Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

e 	 Positive non-zero value less than $500. 

Source: U.S. EPA Analysis, 2006. 

E2A-10 	 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-12: Time Profile of Mean Total Use Benefits - “Manufacturers 50+ MGD I&E Everywhere” 

Option (thousands; 2004$)a 

North Mid- South Gulf of Great National Year California Inland Atlantic Atlantic Atlanticb Mexico Lakes	 Total 

2007 $0 $0 $0 

2008 $0 $0 $0 

2009 $0 $0 $0 

2010 $0 $0 $0 

2011 $3 $0 $2 

2012 $7 $1 $3 

2013 $27 $3 $22 

2014 $30 $11 $36 

2015 $32 $13 $96 

2016 $33 $19 $125 

2017 $33 $20 $133 

2018 $33 $21 $139 

2019 $33 $21 $141 

2020 $33 $21 $141 

2021 $33 $21 $141 

2022 $33 $21 $141 

2023 $33 $21 $141 

2024 $33 $21 $141 

2025 $33 $21 $141 

2026 $33 $21 $141 

2027 $33 $21 $141 

2028 $33 $21 $141 

2029 $33 $21 $141 

2030 $33 $21 $141 

2031 $33 $21 $141 

2032 $33 $21 $141 

2033 $33 $21 $141 

2034 $33 $21 $141 

2035 $33 $21 $141 

2036 $33 $21 $141 

2037 $33 $21 $141 

2038 $33 $21 $141 

2039 $33 $21 $141 

2040 $33 $21 $141 

2041 $30 $21 $139 

2042 $27 $20 $138 

2043 $7 $18 $119 

2044 $3 $10 $105 

2045 $2 $8 $45 

2046 $0 $2 $16 

2047 $0 $1 $8 

2048 $0 $0e

 $2 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 

$0 $0 $3 $10 $13 

$0 $0 $30 $43 $78 

$0 $165 $75 $130 $381 

$0 $330 $251 $288 $920 

$0 $1,320 $318 $343 $2,057 

$0 $1,484 $464 $423 $2,513 

$0 $1,567 $500 $454 $2,698 

$0 $1,649 $512 $461 $2,809 

$0 $1,649 $523 $467 $2,833 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $523 $468 $2,835 

$0 $1,649 $520 $457 $2,822 

$0 $1,649 $492 $425 $2,757 

$0 $1,484 $448 $338 $2,454 

$0 $1,320 $272 $179 $1,915 

$0 $330 $205 $125 $779 

$0 $165 $59 $44 $322 

$0 $82 $23 $14 $138 

$0 $0 $11 $6 $26 

$0 $0 $0 $1 $3 

PV 3%c $565 $336 

Annualized 3% d $29 $17 

PV 7% c $296 $165 

Annualized 7% d $24 $13 

$2,244 $0 $27,050 $8,622 $7,822 $46,640 

$115 $0 $1,380 $440 $399 $2,380 

$1,090 $0 $13,631 $4,381 $4,050 $23,613 

$88 $0 $1,098 $353 $326 $1,903 

a 	 Because EPA estimated non-use benefits only qualitatively, the monetary value of benefits includes use values only. 

b 	 No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

The present value (PV) is estimated by discounting individual annual values to 2007, using the stated discount rate. 

d 	 Annualized benefits represent the value of all benefits generated over the time frame of the analysis, discounted to 2007, and then 

annualized over a 30-year period. 

e 	 Positive non-zero value less than $500. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 	 E2A-11 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

E2A-3 TOTAL ANNUALIZED MONETARY VALUE OF BENEFITS 

Table E2A-13 and Table E2A-14 present EPA’s estimates of the value of national and regional reductions in I&E 

under the supplemental options analyzed in developing the proposed and final regulation, using 3% and 7% 

discount rates. The tables show that benefits to recreational anglers account for the majority of use benefits for all 

supplemental options. National use benefits are largest in the Gulf of Mexico region under all eight options. 

More detailed discussions of regional benefits under each option are provided in Sections B through H of the 

RBA. 

Table E2A-15: Summary of Monetized Benefits for Existing Phase III Facilitiesa 

(thousands; 2004$; discounted at 3%) 

Annualized Use Benefits of I&E Reductions 

Annualized Recreational Fishing Total Use Valueb 

Commercial 

Region 

Low Mean High Low Mean High Fishing 

“Electric Generators 2-50 MGD I-only Everywhere” Option 

California $0 $0 $0 $0 $0 $0 $0 

North Atlantic $0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $0e $0e $1 $1 $0e $1 $1 

South Atlanticc $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 $0 $0 $0 $0 $0 $0 

Great Lakes $0 $5 $7 $10 $5 $7 $11 

Inlandd n/a $3 $6 $10 $3 $6 $10 

National Total $0 - $0e $8 $13 $22 $9 $14 $22 

“Electric Generators 2-50 MGD I&E like Phase II” Option 

California $0 $0 $0 $0 $0 $0 $0 

North Atlantic $0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $0e

 $0e $1 $1 $0 $1 $1 

South Atlanticc $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 $0 $0 $0 $0 $0 $0 

Great Lakes $0 - $0e $6 $9 $14 $7 $10 $14 

Inlandd n/a $4 $7 $12 $4 $7 $12 

National Total $0 - $0e $10 $16 $27 $11 $17 $27 

“Electric Generators 2-50 MGD I&E Everywhere” Option 

California $0 $0 $0 $0 $0 $0 $0 

North Atlantic $0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $1 $2 $3 $6 $2 $4 $7 

South Atlanticc $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 $0 $0 $0 $0 $0 $0 

Great Lakes $0 - $0e $7 $10 $14 $7 $10 $14 

Inlandd n/a $8 $14 $25 $8 $14 $25 

National Total $0 - $1 $16 $26 $45 $17 $27 $46 

E2A-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-15: Summary of Monetized Benefits for Existing Phase III Facilitiesa 

(thousands; 2004$; discounted at 3%) 

b Region 

Mean High Mean High 

California $0 $1 $1 $2 $1 $1 $2 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $1 $2 $4 $8 $3 $5 $9 

c

 $0 $0 $0 $0 $0 $0 $0 

$0 - $6 $16 $33 $70 $22 $39 $76 

$0 - $0e $12 $17 $25 $12 $17 $25 

Inlandd

 n/a $21 $38 $70 $21 $38 $70 

National Total $0 - $7 $51 $93 $174 $59 $100 $181 

California $0 - $8 $10 $19 $37 $18 $27 $44 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $2 $4 $7 $15 $5 $9 $17 

c

 $0 $0 $0 $0 $0 $0 $0 

$0 - $12 $26 $49 $96 $38 $61 $108 

$0 - $0e $14 $20 $29 $14 $21 $30 

Inlandd

 $0 $26 $46 $85 $26 $46 $85 

National Total $0 - $22 $79 $142 $262 $101 $164 $284 

California $0 - $8 $11 $21 $41 $20 $30 $49 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $2 $4 $7 $15 $5 $9 $17 

c

 $0 $0 $0 $0 $0 $0 $0 

$0 - $12 $26 $49 $96 $38 $61 $108 

$0 - $1 $16 $23 $34 $16 $24 $35 

Inlandd n/a $42 $76 $138 $42 $76 $138 

National Total $0 - $22 $99 $177 $324 $121 $199 $346 

California $0 $1 $1 $2 $1 $1 $2 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $6 $13 $25 $49 $19 $31 $55 

c

 $0 $0 $0 $0 $0 $0 $0 

$0 - $115 $307 $636 $1,339 $422 $751 $1,454 

$0 - $7 $190 $276 $403 $197 $283 $410 

Inlandd n/a $105 $190 $348 $105 $190 $348 

National Total $0 - $128 $616 $1,129 $2,142 $744 $1,257 $2,270 

Annualized Use Benefits of I&E Reductions 

Annualized Recreational Fishing Total Use Value

Commercial 

Low Low Fishing 

“Manufacturers 2-50 MGD I-only Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

“Manufacturers 2-50 MGD I&E like Phase II” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

“Manufacturers 2-50 MGD I&E Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

“Manufacturers 50+ MGD I-only Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2A-13 
c 

§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-15: Summary of Monetized Benefits for Existing Phase III Facilitiesa 

(thousands; 2004$; discounted at 3%) 

Annualized Use Benefits of I&E Reductions 

Annualized Recreational Fishing Total Use Valueb 

Commercial 

Region 

Low Mean High Low Mean High Fishing 

“Manufacturers 50+ MGD I&E Everywhere” Option 

California $0 - $8 $11 $21 $40 $19 $29 $48 

North Atlantic $0 -$0e $9 $17 $33 $9 $17 $33 

Mid-Atlantic $0 - $18 $48 $96 $198 $67 $115 $216 

South Atlanticc

 $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 - $283 $589 $1,097 $2,101 $872 $1,380 $2,384 

Great Lakes $0 - $11 $295 $429 $629 $305 $440 $640 

Inlandd n/a $221 $399 $725 $221 $399 $725 

National Total $0 - $321 $1,172 $2,059 $3,726 $1,493 $2,380 $4,046 

a 	 All benefits presented in this table are annualized. These annualized benefits represent the value of all benefits generated over the 

time frame of the analysis, discounted to 2007, and then annualized over a 30-year period. 

b 	 The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits only qualitatively. A 

range of recreational fishing benefits is provided, based on the Krinsky and Robb technique to estimated the 95th and 5th 

percentile limits on the marginal value per fish predicted by EPA’s meta-analysis (see chapter A5 of the RBA). Commercial 

fishing benefits are computed based on a region- and species-specific range of gross revenue (see Chapter A4 of the RBA). To 

calculate the total use value columns (low, mean, and high), the high-end value for commercial fishing benefits is added to the 

low, mean, and high values for recreational fishing benefits, respectively. 

No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with 

these options. 

d No significant commercial fishing takes place in the Inland region, and thus this region is excluded from the commercial fishing 

benefits analysis. 

e Denotes a positive value less than $500. 

Source: U.S. EPA Analysis, 2006. 

Table E2A-16: Summary of Monetized Benefits for Existing Phase III Facilitiesa 

(thousands; 2004$, discounted at 7%) 

Annualized Use Benefits of I&E Reductions 

Total Use Valueb 

Commercial 

Region Annualized Recreational Fishing 

Low Mean High Low Mean High Fishing 

“Electric Generators 2-50 MGD I-only Everywhere” Option 

California $0 $0 $0 $0 $0 $0 $0 

North Atlantic $0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0e $0 - $0e

 $0e $0e $1 $1 $1 

South Atlanticc $0 $0 $0 $0 $0 $0 $0 

Gulf of Mexico $0 $0 $0 $0 $0 $0 $0 

Great Lakes $0 - $0e $4 $6 $8 $4 $6 $8 

Inlandd n/a $3 $5 $8 $3 $5 $8 

National Total $0 - $0e $7 $11 $17 $7 $11 $18 

E2A-14 	 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

Table E2A-16: Summary of Monetized Benefits for Existing Phase III Facilitiesa 

(thousands; 2004$, discounted at 7%) 

Region b 

Mean High Mean High 

California $0 $0 $0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $0e

 $0e $0e $1 $0e $1 $1 

c $0 $0 $0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 $0 $0 

$0 - $0e $5 $7 $11 $5 $8 $11 

Inlandd n/a $3 $5 $10 $3 $5 $10 

National Total $0 - $0e $8 $13 $21 $9 $13 $22 

California $0 $0 $0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $0e $1 $2 $5 $2 $3 $5 

c $0 $0 $0 $0 $0 $0 $0 

$0 $0 $0 $0 $0 $0 $0 

$0 - $0e $5 $8 $11 $5 $8 $11 

Inlandd n/a $6 $11 $21 $6 $11 $21 

National Total $0 - $1 $13 $21 $36 $13 $22 $37 

California $0 $0e $1 $2 $0 $1 $2 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $1 $2 $3 $6 $2 $4 $7 

c $0 $0 $0 $0 $0 $0 $0 

$0 - $5 $13 $26 $56 $18 $31 $60 

$0 - $0e $10 $14 $20 $10 $14 $21 

Inlandd n/a $17 $30 $55 $17 $30 $55 

National Total $0 - $6 $41 $74 $139 $47 $80 $144 

California $0 - $6 $7 $14 $27 $13 $20 $33 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $1 $3 $6 $12 $4 $7 $13 

c $0 $0 $0 $0 $0 $0 $0 

$0 - $9 $21 $39 $77 $30 $49 $86 

$0 - $0e $11 $17 $24 $12 $17 $25 

Inlandd n/a $20 $37 $67 $20 $37 $67 

National Total $0 - $17 $63 $113 $207 $79 $129 $224 

California $0 - $6 $8 $16 $30 $14 $22 $36 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $1 $3 $6 $12 $4 $7 $13 

c $0 $0 $0 $0 $0 $0 $0 

Annualized Use Benefits of I&E Reductions 

Annualized 

Commercial 

Fishing 

Recreational Fishing Total Use Value

Low Low 

“Electric Generators 2-50 MGD I&E like Phase II” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

“Electric Generators 2-50 MGD I&E Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

“Manufacturers 2-50 MGD I-only Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

“Manufacturers 2-50 MGD I&E like Phase II” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

“Manufacturers 2-50 MGD I&E Everywhere” Option 

North Atlantic 

South Atlantic

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E2A-15 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E2A: Supplemental Options 

c 

a 

Region b 

Mean High Mean High 

Inlandd 

$0 - $9 

$0 - $0e 

n/a 

$21 

$13 

$33 

$39 $77 

$19 $28 

$60 $109 

$30 $49 

$14 $20 

$33 $60 

$86 

$28 

$109 

National Total $0 - $17 $78 $140 $256 $96 $157 $273 

California $0 $1 $1 $2 $1 $1 $2 

$0 $0 $0 $0 $0 $0 $0 

Mid-Atlantic $0 - $5 $10 $19 $38 $15 $24 $43 

c $0 $0 $0 $0 $0 $0 $0 

$0 - $92 $244 $506 $1,066 $336 $598 $1,157 

$0 - $5 $151 $219 $319 $156 $224 $324 

Inlandd n/a $86 $155 $284 $86 $155 $284 

National Total $0 - $102 $491 $900 $1,709 $593 $1,002 $1,811 

California $0 - $7 $9 $17 $33 $16 $24 $39 

$0 - $0e $7 $13 $25 $7 $13 $25 

Mid-Atlantic $0 - $14 $37 $74 $152 $51 $88 $166 

c $0 $0 $0 $0 $0 $0 $0 

$0 - $225 $468 $873 $1,672 $694 $1,098 $1,898 

$0 - $8 $236 $345 $505 $245 $353 $514 

Inlandd n/a $181 $326 $593 $181 $326 $593 

National Total $0 - $255 $939 $1,648 $2,980 $1,194 $1,903 $3,235 

a 	 

b 	 

To 

d 

e 

Table E2A-16: Summary of Monetized Benefits for Existing Phase III Facilities

(thousands; 2004$, discounted at 7%) 

Annualized Use Benefits of I&E Reductions 

Annualized Recreational Fishing Total Use Value

Commercial 

Fishing Low Low 

Gulf of Mexico 

Great Lakes 

“Manufacturers 50+ MGD I-only Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

“Manufacturers 50+ MGD I&E Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes 

All benefits presented in this table are annualized. These annualized benefits represent the value of all benefits generated over the 

time frame of the analysis, discounted to 2007, and then annualized over a 30-year period. 

The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits only qualitatively. A 

range of recreational fishing benefits is provided, based on the Krinsky and Robb technique to estimated the 95th and 5th 

percentile limits on the marginal value per fish predicted by EPA’s meta-analysis (see chapter A5 of the RBA). Commercial 

fishing benefits are computed based on a region- and species-specific range of gross revenue (see Chapter A4 of the RBA). 

calculate the total use value columns (low, mean, and high), the high-end value for commercial fishing benefits is added to the 

low, mean, and high values for recreational fishing benefits, respectively. 

No I&E reductions are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with 

these options. 

No significant commercial fishing takes place in the Inland region, and thus this region is excluded from the commercial fishing 

benefits analysis. 

 Denotes a positive value less than $500. 

Source: U.S. EPA Analysis, 2006. 

E2A-16 	 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

Chapter E3: Comparison of Benefits and 
 

Social Costs 
 

INTRODUCTION CHAPTER CONTENTS 

This chapter compares total monetized benefits and social Introduction.............................................................E3-1
 

costs for the regulatory analysis options considered in E3-1	 Comparison of Benefits and Social Costs by 

developing in the final regulation, the “50 MGD for All Option ........................................................E3-1 

Waterbodies” option (“50 MGD All”), the “200 MGD for E3-2 Incremental Analysis of Benefits and Social 

All Waterbodies” option (“200 MGD All”), and the “100 Costs...........................................................E3-6 

MGD for Certain Waterbodies” option (“100 MGD E3-3 Break-Even Analysis of Potential Non-Use 

CWB”). Benefits and costs are compared on two bases: (1) Benefits ......................................................E3-7 

for each of the options analyzed and (2) incrementally Glossary ................................................................E3-11 

across options. For more information on the analysis of References.............................................................E3-12
 

social costs and benefits, see Chapter E1: Summary of 

Social Costs and Chapter E2: Summary of Benefits. 

Results for the eight supplemental options are presented in Appendix E3A to this chapter. This comparison of 

benefits and costs is presented only for Phase III existing facilities. New offshore oil and gas extraction facilities 

were excluded from the comparison of benefits and costs because EPA was unable to estimate benefits for this 

industry segment. 

Table E3-1, below, summarizes compliance action assumptions for the regulatory analysis options based on the 

performance standard each facility would need to meet (depending on each facility’s waterbody type, design 

intake flow, capacity utilization, and annual intake flow as a percent of source waterbody mean annual flow) and 

its baseline technologies in-place. 

Table E3-1: Number of Existing Phase III Facilities by Compliance Actiona 

Facility Compliance Action 50 MGD All 200 MGD All 100 MGD CWB 

Total Facilities Potentially Subject to Regulation (excluding 515 515 515 

baseline closures) 

Facilities Subject to Best Professional Judgment 368 484 491 

Facilities Subject to National Categorical Requirements 146 31 23 

No compliance actionb 35 5 1 

Impingement controls only 60 5 0 

Impingement and entrainment controls 51 21 22 

a Alternative less stringent requirements based on site-specific assessments of costs, or costs and benefits are allowed. Estimation of 

compliance responses is uncertain because the number of facilities requesting alternative less stringent requirements based on these sitespecific assessments is unknown. 

b These facilities meet compliance requirements in the baseline and thus would require no action to comply with the regulation. 

Source: U.S. EPA Analysis, 2006. 

E3-1 COMPARISON OF BENEFITS AND SOCIAL COSTS BY OPTION 

The preceding chapters, Chapter E1: Summary of Social Costs and Chapter E2: Summary of Benefits, present 

estimates of total social cost and benefit for the three regulatory analysis options and eight supplemental options 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute 	 E3-1 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

evaluated in developing the 316(b) Phase III regulation. Based on these values of estimated benefits and social 

costs, EPA calculated the cost-benefit ratio to society of each option. 

As documented in Chapter E2: Summary of Benefits, the monetized benefit values developed by EPA for the 

316(b) Phase III regulation, and included in the cost-benefit ratios presented in this chapter, include only use 

benefit values for commercial and recreational fishing. EPA was unable, at this time, to estimate a monetized 

value of non-use benefits from reduced impingement and entrainment (I&E). EPA has estimated (subject to the 

limitations and uncertainties noted in Sections A4-12 and A5-5 of the Regional Analysis Document) the use 

benefits associated with the two main categories of use benefits (commercial and recreational) shown in Figure 

A3-1 of the Regional Analysis Document. As Table A3-1 of the Regional Analysis Document shows, the 

complete assessment of these two use benefit categories values the 2.6% of baseline I&E losses that would have 

been eventually harvested by commercial and recreational fishers. Use values other than commercial and 

recreational fishing, such as subsistence fishing and other near-water recreation, have not been monetized; the 

former would only be positive for harvested species, while the latter could be positive for forage species as well. 

Nonetheless, EPA expects that the largest use-value categories have been captured. 

EPA was unable to estimate non-use benefits associated with losses to any categories of species; Table A3-1 

shows that 19.4 percent of national baseline I&E losses are in commercial and recreational species, while 80.6 

percent are in forage species, and shows regional variation in the breakdown of species type. Non-use values are 

not necessarily the same for forage species and commercial and recreational species. 

Given the absence of any empirical evidence to support an assumption that use values and non-use values are 

similar on a per-fish basis, it would not be correct to use the values estimated for 2 to 3 percent of baseline fish 

losses and extrapolate to all fish losses prevented by the regulatory analysis options. As a result, the monetized 

benefit values that are compared with the estimated values of total social cost in this cost-benefit comparison 

represent a partial estimate of the true benefits of the given option. 

Table E3-2, below, presents EPA’s estimates of use benefits and social costs for the regulatory analysis options 

for existing facilities, at 3% and 7% discount rates. At a 3% discount rate, EPA estimates that social costs exceed 

monetized use benefits by $36.0 million under the 50 MGD All option, $18.0 million under the 200 MGD All 

option, and $12.7 million under the 100 MGD CWB option. This results in mean cost-benefit ratios for the 50 

MGD, 200 MGD, 100 MGD options of 17.0, 13.0, and 7.8, respectively. At a 7% discount rate, social costs 

exceed use benefits by $37.2 million under the 50 MGD All option, $19.0 million under the 200 MGD All option, 

and $12.6 million under the 100 MGD CWB option. At 7% discount, this results in mean cost-benefit ratios for 

the 50 MGD, 200 MGD, 100 MGD options of 21.7, 16.9, and 9.5, respectively. These values are all in dollars as 

of 2004 and are based on the discounting of costs and benefits to the beginning of the year 2007, the assumed date 

when the rule would take effect. 

E3-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

Option 

a Cost-Benefit Ratios Based on Use 

Benefits Onlyb 

Low High Low High 

50 MGD All $1.4 $2.3 $3.8 $38.3 

200 MGD All $1.0 $1.5 $2.5 $19.5 

100 MGD CWB $1.2 $1.9 $3.1 $14.6 

50 MGD All $1.1 $1.8 $3.0 $39.0 

200 MGD All $0.8 $1.2 $2.0 $20.1 

100 MGD CWB $1.0 $1.5 $2.5 $14.1 

a 

b 

Source: 

Table E3-2: Total Benefits, Social Costs, and Cost-Benefit Ratios for Existing Phase III Facilities 

by Option (millions; $2004) 

Total Monetized Use Benefits

Total Social Costs 

 Mean Mean 

3% discount rate 

26.9 17.0 10.0 

20.4 13.0 7.7 

12.1 7.8 4.6 

7% discount rate 

34.4 21.7 12.8 

26.5 16.9 10.1 

14.8 9.5 5.6 

The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits qualitatively. The range 

(low, mean, and high) of annualized use values is computed by adding the high end value for commercial fishing benefits (based on 

assumed producer surplus of 40% of gross revenue) to the low, mean, and high values from recreational fishing benefits, respectively 

(see Chapter A4 of the RBA). 

Cost-benefit ratios are computed by dividing total annualized costs by total annual use benefits. 

U.S. EPA Analysis, 2006. 

The regulatory analysis options are expected to provide benefits that were not accounted for in the benefits 

analysis. These benefits include reduced I&E losses of fish, shellfish, and other aquatic organisms, which, in turn, 

increase the numbers of individuals present, increase local and regional fishery populations (a subset of which 

was accounted for in the benefits analysis), and ultimately contribute to the enhanced environmental functioning 

of affected waterbodies (rivers, lakes, estuaries, and oceans) and associated ecosystems. See Chapter A6 of the 

Regional Benefits Assessment for the Final Section 316(b) Rule for Phase III Facilities (RBA) for a detailed 

description of the qualitative non-use benefits from reduced I&E (U.S. EPA, 2006). 

Table E3-3, below, and Table E3-4, following page, present cost-benefit ratios for existing Phase III facilities by 

option and region, discounted at 3% and 7%, respectively. As reported in Table E3-3 and Table E3-4, EPA 

estimates that costs are largest relative to benefits in the North Atlantic region for each of the three regulatory 

analysis options. Conversely, costs outweigh benefits by the least amount in the Gulf of Mexico region for all 

three regulatory analysis options. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3-3 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

a 

Option North South Gulf of Great National California Atlanticb Lakes Inland Atlantic Total 

Low 

50 MGD All 21.2 225.8 18.3 na 7.7 32.2 113.4 26.9 

200 MGD All n/a 261.1 14.6 na 6.2 19.7 96.9 20.4 

100 MGD CWB n/a 212.4 14.6 na 7.7 19.8 n/a 12.1 

Mean 

50 MGD All 14.0 118.6 10.7 na 4.9 22.3 62.8 17.0 

200 MGD All n/a 137.2 8.5 na 4.0 13.7 53.7 13.0 

100 MGD CWB n/a 111.6 8.5 na 4.9 13.8 n/a 7.8 

High 

50 MGD All 8.4 62.0 5.7 na 2.8 15.4 34.4 10.0 

200 MGD All n/a 71.7 4.5 na 2.3 9.4 29.5 7.7 

100 MGD CWB n/a 58.3 4.5 na 2.8 9.5 n/a 4.6 

a 

b 

Source: 

a 

Option 

California North 

Atlantic 

South 

Atlanticb 

Gulf of National 

Total 

Low 

50 MGD All 26.6 282.8 22.9 n/a 9.6 40.5 145.3 34.4 

200 MGD All n/a 324.1 17.7 n/a 7.6 23.0 131.9 26.5 

100 MGD CWB n/a 265.6 17.7 n/a 9.6 23.4 n/a 14.8 

Mean 

50 MGD All 17.5 148.6 13.4 n/a 6.1 28.1 80.4 21.7 

200 MGD All n/a 170.3 10.3 n/a 4.9 16.0 73.0 16.9 

100 MGD CWB n/a 139.6 10.3 n/a 6.1 16.2 n/a 9.5 

High 

50 MGD All 10.6 77.6 7.1 n/a 3.5 19.3 44.1 12.8 

200 MGD All n/a 89.0 5.4 n/a 2.9 11.0 40.1 10.1 

100 MGD CWB n/a 72.9 5.4 n/a 3.5 11.1 n/a 5.6 

a 

b 

Source: 

Table E3-3: Cost-Benefit Ratios for Existing Phase III Facilities 

by Option and Region (discounted at 3%) 

Cost-Benefit Ratios Based on Use Benefits Only

Mid-Atlantic Mexico 

Cost-benefit ratios are calculated by dividing total annualized costs by total annual use benefits. 

No benefits or costs are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less 

than 50 MGD and therefore would not be required to install technologies to comply with the regulatory analysis options. 

U.S. EPA Analysis, 2006. 

Table E3-4: Cost-Benefit Ratios for Existing Phase III Facilities 

by Option and Region (discounted at 7%) 

Cost-Benefit Ratios Based on Use Benefits Only

Mid-Atlantic Mexico Great Lakes Inland 

Cost-benefit ratios are calculated by dividing total annualized costs by total annual use benefits. 

No benefits or costs are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less 

than 50 MGD and therefore would not be required to install technologies to comply with the regulatory analysis options. 

U.S. EPA Analysis, 2006. 

Table E3-5, following page, provides additional detail on net benefits. Table E3-5 compiles for the three 

regulatory analysis options the time profiles of benefits and costs as presented in the preceding chapters. The 

table also reports the calculated present and annualized values of benefits and costs at 3% and 7% discount rates. 

E3-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

Table E3-5: Time Profile of Benefits and Social Costs for Existing Phase III Facilities 

(millions; $2004) 

Year 

Benefits O&G) Benefits O&G) Benefits O&G) 

2007 $0.00 $3.2 $0.00 $0.2 $0.00 $0.6 

2008 $0.00 $12.1 $0.00 $2.6 $0.00 $5.2 

2009 $0.00 $17.5 $0.00 $3.1 $0.00 $5.1 

2010 $0.01 $138.0 $0.00 $108.9 $0.00 $14.8 

2011 $0.06 $95.2 $0.04 $44.7 $0.03 $56.8 

2012 $0.33 $58.8 $0.20 $6.8 $0.23 $5.9 

2013 $0.83 $59.0 $0.54 $48.1 $0.56 $36.6 

2014 $1.95 $19.0 $1.25 $5.7 $1.62 $4.5 

2015 $2.38 $21.8 $1.57 $8.4 $1.98 $8.8 

2016 $2.55 $16.8 $1.70 $6.1 $2.12 $4.7 

2017 $2.66 $17.3 $1.77 $8.0 $2.22 $5.7 

2018 $2.68 $13.7 $1.79 $6.0 $2.24 $4.4 

2019 $2.69 $17.9 $1.79 $5.6 $2.24 $4.4 

2020 $2.69 $38.6 $1.79 $14.2 $2.24 $12.9 

2021 $2.69 $92.0 $1.79 $44.2 $2.24 $55.1 

2022 $2.69 $21.7 $1.79 $8.4 $2.24 $6.1 

2023 $2.69 $58.2 $1.79 $47.8 $2.24 $36.4 

2024 $2.69 $18.8 $1.79 $5.6 $2.24 $4.4 

2025 $2.69 $21.8 $1.79 $8.4 $2.24 $8.8 

2026 $2.69 $16.8 $1.79 $6.1 $2.24 $4.7 

2027 $2.69 $17.3 $1.79 $8.0 $2.24 $5.7 

2028 $2.69 $13.7 $1.79 $6.0 $2.24 $4.4 

2029 $2.69 $17.9 $1.79 $5.6 $2.24 $4.4 

2030 $2.69 $38.6 $1.79 $14.2 $2.24 $12.9 

2031 $2.69 $92.0 $1.79 $44.2 $2.24 $55.1 

2032 $2.69 $21.7 $1.79 $8.4 $2.24 $6.1 

2033 $2.69 $58.2 $1.79 $47.8 $2.24 $36.4 

2034 $2.69 $18.8 $1.79 $5.6 $2.24 $4.4 

2035 $2.69 $21.8 $1.79 $8.4 $2.24 $8.8 

2036 $2.69 $16.8 $1.79 $6.1 $2.24 $4.7 

2037 $2.69 $17.3 $1.79 $8.0 $2.24 $5.7 

2038 $2.69 $13.7 $1.79 $6.0 $2.24 $4.4 

2039 $2.69 $12.5 $1.79 $5.5 $2.24 $4.0 

2040 $2.68 $10.2 $1.79 $5.3 $2.24 $3.9 

2041 $2.62 $4.9 $1.75 $2.6 $2.21 $1.0 

2042 $2.35 $3.5 $1.60 $2.4 $2.01 $0.9 

2043 $1.86 $0.3 $1.26 $0.1 $1.68 $0.1 

2044 $0.74 $0.55 $0.62 

2045 $0.31 $0.22 $0.26 

2046 $0.13 $0.09 $0.12 

2047 $0.02 $0.02 $0.02 

2048 $0.00 $0.00 $0.00 

PV 3% $44.13 $772.6 $29.39 $393.2 $36.69 $294.1 

Annualized 3% $2.25 $38.3 $1.50 $19.5 $1.87 $14.6 

PV 7% $22.31 $517.8 $14.82 $267.4 $18.47 $187.4 

Annualized 7% $1.80 $39.0 $1.19 $20.1 $1.49 $14.1 

50 MGD All 200 MGD All 100 MGD CWB 

Monetized Total Cost (excl. Monetized Total Cost (excl. Monetized Total Cost (excl. 

Source: U.S. EPA Analysis, 2006. 

To facilitate consistent comparison of costs and benefits for Phase II and Phase III, 50 MGD All Waterbodies 

option, these values are reported in Table E3-7, all in 2004$. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3-5 
c 

§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

Table E-6: Comparison of Break-Even Analysis by Regions for 316(b) Phase II and Phase III Regulations 

(2004$, discounted at 3%)a,b 

Total Social Costs Option Total Value of Use Benefits (millions) (millions) 

Phase II Final Rule Phase III 50 MGD All Phase II Final Rule Phase III 50 MGD Alld 

California $34.73 $0.40 $3.12 $0.03 

North Atlantic $15.70 $2.03 $1.51 $0.02 

Mid-Atlantic $72.52 $1.22 $47.29 $0.11 

South Atlanticc $10.62 $0.0 $7.42 $0.0 

Gulf of Mexico $26.72 $6.74 $7.27 $1.38 

Great Lakes $69.36 $9.74 $14.85 $0.44 

Inland $192.91 $17.26 $3.13 $0.27 

National Total $447.25 $38.27 

a Phase II regional benefit and cost estimates are unweighted; Phase II total national estimates are sample-weighted. Phase III regional 

benefit and cost estimates are sample-weighted. 

b Phase II regional benefit and cost estimates have been inflated from 2002$ to 2004$. 

No benefits or costs are expected in the South Atlantic region under Phase III because all potentially regulated facilities in this region 

withdraw less than 50 MGD and therefore would not be required to install technologies to comply with the regulatory analysis options. 

d Mean value of total use benefits from the estimated range, as described in Chapter E2 of the EA and Chapter I1 of the RBA). 

Source: U.S. EPA Analysis (2004, 2006). 

$87.02 $2.25 

E3-2 INCREMENTAL ANALYSIS OF BENEFITS AND SOCIAL COSTS 

In addition to comparing benefits and costs for each primary analysis option, as presented in the preceding 

section, EPA also analyzed the benefits and costs of the options on an incremental basis. The comparison in the 

preceding section addresses the simple quantitative relationship between estimated benefits and costs for each 

option by itself: for a given option, which is greater – costs or benefits – and by how much in relative terms? In 

contrast, incremental analysis looks at the differential relationship of benefits and costs across options and poses a 

different question: as increasingly more costly options are considered, by what amount do benefits, costs, and net 

benefits change from option to option? It is important to emphasize that this incremental analysis does not look at 

the change in cost-benefit ratios across options, but rather, the actual costs and benefits. Analyzing cost-benefit 

ratios incrementally is not particularly valuable because it would only present the change in the relative 

relationship between costs and benefits across the different options. The most valuable interpretation of an 

incremental analysis of cost-benefit ratios would be to look for instances where the ratio changes from below 1 to 

above 1 in order to determine which option is optimal at the margin of stringency. Since all of the regulatory 

options considered here have a cost-benefit ratio greater than 1, an incremental analysis based on actual net 

benefits is more applicable. Incremental benefit-cost analysis provides insight into the net gain to society from 

imposing increasingly more costly requirements and may aid regulatory decision-makers in choosing among a set 

of regulatory proposals that otherwise have a similar quantitative relationship between benefits and costs based on 

a one-option-at-a-time comparison. 

The Agency conducted the incremental benefit-cost analysis by calculating, for each option, the change in net 

benefits, from option to option, in moving from the least stringent option to successively more stringent options. 

As described previously, the regulatory analysis options – the 50 MGD All, the 200 MGD All, and 100 MGD 

CWB options – differ in terms of design intake flow (DIF) applicability threshold and affected waterbodies. 

Thus, the difference in benefits and costs across the options derives from the number of facilities each option is 

expected to cover and what types of waterbodies are affected. As reported in Table E3-8, at a 3% discount rate, 

E3-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

the incremental change in net benefits in moving from the 100 MGD CWB option to the 200 MGD All option is 

-$5.3 million, and from the 200 MGD All option to the 50 MGD All option, is -$18.0 million. Thus, for both 

incremental steps, calculated net benefits become increasingly more negative but the step from the 200 MGD All 

option to the 50 MGD All option is more costly to society, on a net benefit basis, than the step from the 100 MGD 

CWB option to the 200 MGD All option. The same pattern of change occurs for the analysis under a 7% discount 

rate: the incremental change in net benefits in moving from the 100 MGD CWB option to the 200 MGD All 

option is -$6.3 million, and from the 200 MGD All option to the 50 MGD All option, is -$18.3 million. 

c 

b c 

Optiona 

Mean High Mean High 

100 MGD CWB -$13.4 -$12.7 -$11.5 n/a n/a n/a 

200 MGD All -$18.5 -$18.0 -$17.0 -$5.2 -$5.3 -$5.5 

50 MGD All -$36.8 -$36.0 -$34.5 -$18.3 -$18.0 -$17.5 

100 MGD CWB -$13.2 -$12.6 -$11.6 n/a n/a n/a 

200 MGD All -$19.4 -$18.9 -$18.1 -$6.2 -$6.3 -$6.5 

50 MGD All -$37.9 -$37.2 -$35.9 -$18.5 -$18.3 -$17.8 

a 

b 

Table E3-7: Incremental Benefit-Cost Analysis for Existing Phase III Facilities (millions; $2004) 

Net Benefits Based on Use Benefits Only Incremental Net Benefits

Low Low 

3% discount rate 

7% discount rate 

Options are presented in order of increasing applicability of national categorical standards, based on the number of facilities. 

Net benefits are computed by subtracting total annualized costs from total annual use benefits. The net benefits presented here are 

based on the comparison of a substantially complete measure of social costs with an incomplete measure of benefits. 

Incremental net benefits are equal to the difference between net benefits of an option and net benefits of the previous option. 

Source: U.S. EPA Analysis, 2006. 

E3-3 BREAK-EVEN ANALYSIS OF POTENTIAL NON-USE BENEFITS 

As described in Section E3-1, above, EPA’s monetized estimates of benefits for the 316(b) Phase III regulation 

consider only the use benefit values for commercial and recreational fishing, and exclude non-use benefits. For 

the final rule, the Agency assessed non-use benefits only qualitatively (see Chapter A6 of RBA for a qualitative 

assessment of non-use benefits). As a result, the comparison of costs and benefits presented in Sections E3-1 and 

E3-2 does not reflect potential non-use values that may result from the regulatory analysis options. 

Although EPA did not monetarily estimate the non-use benefits of the 316(b) Phase III regulation, it is possible to 

calculate the amount of non-use benefits that would be needed for the regulation’s benefits to equal the estimated 

total costs (the “break-even” non-use benefits value). This provides another prism through which regulatory 

decision makers can view the regulatory analysis options’ costs and benefits. It is not necessarily a conclusive 

analysis. Regulatory decision-makers may then judge the reasonableness of these required values in assessing 

what regulatory option, if any, is warranted. 

To perform this break-even analysis, EPA subtracted the estimated commercial and recreational use benefits from 

the estimated annual costs. EPA then used this required residual to calculate the non-use benefit value, in terms 

of annual willingness-to-pay (WTP), needed for total benefits to equal total costs. This calculation was done in 

two different ways: (1) on a per household basis and (2) on a per age-1 equivalent basis. EPA performed this 

analysis using the regional studies framework as described in the RBA. This approach assumes that all of the 

facilities in the sample weight of a given sample facility are in the same benefits analysis region as the sample 

facility. 

For the WTP per household analysis, this approach also assumes that the size and other characteristics of potential 

use and non-use benefit populations, which are assessed for the sample facility, may be extended to the weight of 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3-7 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

the sample facility. This assumption embeds considerable uncertainty, but it permits the estimation of a non-use 

benefit population for each facility, which may then be used to calculate the WTP value by household that equates 

total benefits and total costs, on a sample-weighted basis, for each option. For this analysis, EPA assumed that 

only anglers fishing and households residing within a 25-mile radius of the facility hold non-use values for the 

affected resources (Census, 2000).1

 If the 25-mile radius excludes anglers and households holding positive nonuse values, the break-even is overestimated; if anglers and households with zero non-use values are included in 

the 25-mile radius, the break-even would be underestimated unless it can be applied to only those holding positive 

non-use values. 

At the national level, EPA estimated the following (see Table E3-8): 

f WTP per household. Under the 50 MGD All option, non-use benefit values per household would need 

to equal $1.09 (3% discount rate) and $1.13 (7% discount rate) for total annual benefits to equal total 

annualized costs. Under the 200 MGD All option, which applies to the next smaller set of facilities, these 

values change to $1.32 (3% discount rate) and $1.39 (7% discount rate). Under the 100 MGD CWB 

option, which applies to the smallest set of facilities of the regulatory analysis options, these values 

decrease to $0.83 (3% and 7% discount rate). 

f WTP per age-1 equivalent. Under the 50 MGD All option, non-use benefit values per age-1 equivalent 

would need to equal $0.37 (3% discount rate) and $0.38 (7% discount rate) for total annual benefits to 

equal total annualized costs. Under the 200 MGD All option, which applies to the next smaller set of 

facilities, these values decrease to $0.24 (3% discount rate) and $0.25 (7% discount rate). Under the 100 

MGD CWB option these values decrease, to $0.18 (3% and 7% discount rate). 

Table E3-8: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Costs for Existing Phase III Facilities - Break-Even Analysis ($2004) 

Option 

Total 

Social 

Costs 

(millions) 

Mean Value 

of Use 

Benefits 

(millions) 

Non-Use 

Benefits 

Necessary to 

Break Evena 

(millions) 

Number of 

Households 

Break-Even 

WTP per 

Household 

($) 

Reduction of 

I&E Losses 

(Age-1 

Equivalents) 

Break-Even 

Value per 

Age-1 

Equivalentb 

($) 

3% Discount Rate 

50 MGD All $38.3 $2.25 $36.0 33,016,327 $1.09 98,200,000 $0.37 

200 MGD All $19.5 $1.50 $18.0 13,639,187 $1.32 74,500,000 $0.24 

100 MGD CWB $14.6 $1.87 $12.7 15,242,880 $0.83 71,100,000 $0.18 

7% Discount Rate 

50 MGD All $39.0 $1.80 $37.2 33,016,327 $1.13 98,200,000 $0.38 

200 MGD All $20.1 $1.19 $18.9 13,639,187 $1.39 74,500,000 $0.25 

100 MGD CWB $14.1 $1.49 $12.6 15,242,880 $0.83 71,100,000 $0.18 

a The non-use benefits category in this table may include some categories of use values that were not taken into account by the 

recreation and commercial fishing analyses. 

b The non-use value per age-1 equivalent reported in the table includes the value placed on the fish’s contribution to non-use 

ecological services (e.g., population, health, sustainability, and overall ecosystem health). 

Source: U.S. EPA Analysis, 2006. 

EPA also calculated the annual WTP needed on a per household basis and a per age-1 equivalent basis at the 

regional level (see Table E3-10 and Table E-6 below). EPA calculated the following: 

f WTP per household. The Gulf of Mexico region has the highest estimated annual break-even WTP 

values per household under all three options. The Mid-Atlantic region has the lowest estimated annual 

1 See chapter E2 for details on the estimation of age-1 equivalents. 

E3-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

break-even WTP values per household with $0.19, $0.13, and $0.13 (3% discount rate) under the 50 

MGD All, the 200 MGD All, and 100 MGD CWB options, respectively. 

f WTP per age-1 equivalent. The North Atlantic region has the highest estimated annual break-even 

WTP value per age-1 equivalent with $1.94, $2.17, and $1.85 (3% discount rate) under the 50 MGD All, 

the 200 MGD All, and 100 MGD CWB options, respectively. The Mid-Atlantic region has the lowest 

estimated annual break-even WTP values per age-1 equivalent with $0.02 (3% discount rate) under the 50 

MGD All, the 200 MGD All, and 100 MGD CWB options. 

Table E3-9: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Costs for Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 3%) 

Option 

Total Social 

Costs 

(millions) 

Mean Value of 

Use Benefits 

(millions) 

Non-Use 

Benefits 

Necessary to 

Break Evena 

(millions) 

Number of 

Households 

Break-Even 

WTP per 

Household 

($) 

Reduction of 

I&E Losses 

(Age-1 

Equivalents) 

Break-Even 

Value per 

Age-1 

Equivalentb 

($) 

50 MGD All 

California $0.4 $0.0 $0.4 1,221,712 $0.31 474,000 $0.79 

North Atlantic $2.0 $0.0 $2.0 3,171,400 $0.64 1,040,000 $1.94 

Mid-Atlantic $1.2 $0.1 $1.1 5,899,941 $0.19 44,500,000 $0.02 

South Atlanticc $0.0 $0.0 $0.0 0 n/a 0 n/a 

Gulf of Mexico $6.7 $1.4 $5.4 1,570,063 $3.4 19,400,000 $0.3 

Great Lakes $9.7 $0.4 $9.3 7,300,769 $1.27 13,500,000 $0.69 

Inland $17.3 $0.3 $17.0 13,852,441 $1.2 19,700,000 $0.9 

National Total $38.3 $2.3 $36.0 33,016,327 $1.1 98,200,000 $0.4 

200 MGD All 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

North Atlantic $0.5 $0.0 $0.5 1,396,669 $0.34 220,000 $2.17 

Mid-Atlantic $0.8 $0.1 $0.7 5,469,251 $0.13 39,400,000 $0.02 

South Atlanticc $0.0 $0.0 $0.0 0 n/a 0 n/a 

Gulf of Mexico $3.5 $0.9 $2.6 404,072 $6.50 12,500,000 $0.21 

Great Lakes $4.4 $0.3 $4.1 4,619,103 $0.88 9,650,000 $0.42 

Inland $10.1 $0.2 $9.9 1,750,092 $5.67 12,700,000 $0.78 

National Total $19.5 $1.5 $18.0 13,639,187 $1.32 74,500,000 $0.24 

100 MGD CWB 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

North Atlantic $1.6 $0.0 $1.5 1,724,169 $0.90 837,000 $1.85 

Mid-Atlantic $0.8 $0.1 $0.7 5,469,251 $0.13 39,400,000 $0.02 

South Atlanticc $0.0 $0.0 $0.0 0 n/a 0 n/a 

Gulf of Mexico $6.7 $1.4 $5.4 1,570,063 $3.41 19,400,000 $0.28 

Great Lakes $5.3 $0.4 $4.9 6,479,397 $0.76 11,600,000 $0.42 

Inland $0.0 $0.0 $0.0 0 n/a 0 n/a 

National Total $14.6 $1.9 $12.7 15,242,880 $0.83 71,100,000 $0.18 

a The non-use benefits category in this table may include some categories of use values that were not taken into account by the 

recreation and commercial fishing analyses. 

b The non-use value per age-1 equivalent reported in the table includes the value placed on the fish’s contribution to non-use 

ecological services (e.g., population, health, sustainability, and overall ecosystem health). 

No benefits or costs are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less 

than 50 MGD and therefore would not be required to install technologies to comply with the regulatory analysis options. 

d Positive non-zero value less than $50,000. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3-9 

c 
c 

§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

Table E3-10: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Costs for Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 7%) 

Non-Use Break-Even Total Mean Value Break-Even Reduction of Benefits Social of Use Number of WTP per I&E Losses Value per 

Option Necessary to Age-1 Costs Benefits Households Household (Age-1 Equivalentb Break Evena 

(millions) (millions) (millions) ($) Equivalents) ($) 

50 MGD All 

California $0.4 $0.0 $0.4 1,221,712 $0.32 474,000 $0.83 

North Atlantic $2.0 $0.0 $2.0 3,171,400 $0.62 1,040,000 $1.88 

Mid-Atlantic $1.2 $0.1 $1.1 5,899,941 $0.18 44,500,000 $0.02 

South Atlanticc

 $0.0 $0.0 $0.0 0 n/a 0 n/a 

Gulf of Mexico $6.7 $1.1 $5.6 1,570,063 $3.55 19,400,000 $0.29 

Great Lakes $9.8 $0.3 $9.5 7,300,769 $1.30 13,500,000 $0.70 

Inland $18.1 $0.2 $17.8 13,852,441 $1.29 19,700,000 $0.90 

National Total $39.0 $1.8 $37.2 33,016,327 $1.13 98,200,000 $0.38 

200 MGD All 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

North Atlantic $0.4 $0.0 $0.4 1,396,669 $0.31 220,000 $1.99 

Mid-Atlantic $0.7 $0.1 $0.7 5,469,251 $0.12 39,400,000 $0.02 

South Atlanticc

 $0.0 $0.0 $0.0 0 n/a 0 n/a 

Gulf of Mexico $3.4 $0.7 $2.7 404,072 $6.76 12,500,000 $0.22 

Great Lakes $4.1 $0.3 $3.8 4,619,103 $0.83 9,650,000 $0.40 

Inland $11.3 $0.2 $11.1 1,750,092 $6.34 12,700,000 $0.87 

National Total $20.1 $1.2 $18.9 13,639,187 $1.39 74,500,000 $0.25 

100 MGD CWB 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

North Atlantic $1.5 $0.0 $1.5 1,724,169 $0.88 837,000 $1.81 

Mid-Atlantic $0.7 $0.1 $0.7 5,469,251 $0.12 39,400,000 $0.02 

South Atlanticc

 $0.0 $0.0 $0.0 0 n/a 0 n/a 

Gulf of Mexico $6.7 $1.1 $5.6 1,570,063 $3.55 19,400,000 $0.29 

Great Lakes $5.0 $0.3 $4.7 6,479,397 $0.72 11,600,000 $0.40 

Inland $0.0 $0.0 $0.0 0 n/a 0 n/a 

National Total $14.1 $1.5 $12.6 15,242,880 $0.83 71,100,000 $0.18 

a The non-use benefits category in this table may include some categories of use values that were not taken into account by the 

recreation and commercial fishing analyses. 

b The non-use value per age-1 equivalent reported in the table includes the value placed on the fish’s contribution to non-use 

ecological services (e.g., population, health, sustainability, and overall ecosystem health). 

No benefits or costs are expected in the South Atlantic region because all potentially regulated facilities in this region withdraw less 

than 50 MGD and therefore would not be required to install technologies to comply with the regulatory analysis options. 

d Positive non-zero value less than $50,000. 

Source: U.S. EPA Analysis, 2006. 

E3-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

GLOSSARY 

opportunity cost: The lost value of alternative uses of resources (capital, labor, and raw materials) used in 

regulatory compliance. 

social cost: The costs incurred by society as a whole as a result of the final rule. Social costs do not include 

costs that are transfers among parties that do not represent a new cost overall. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3-11 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Chapter E3: Benefits and Social Costs 

REFERENCES 

U.S. Department of Commerce, Bureau of the Census, (Census). 2000. “Summary File 1.” Available at: 

http://www.census.gov/Press-Release/www/2001/sumfile1.html. 

U.S. Environmental Protection Agency (U.S. EPA). 2006. Regional Analysis for the Final Section 316(b) Phase 

III Existing Facilities Rule. EPA-821-R-06-002. June 2006. 

E3-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Appendix E3A: Summary of Results for 
 

Supplemental Options 
 

I A CONTENTS

Chapter E3

supplemental options evaluated for potential Phase III 

Chapter E3

a 

Option 

I-only I&E I-only I&E I-only I&E 

Action I&E I&E 

114 114 114 368 368 368 146 

closures) 

0 0 0 0 0 0 0 

Judgment 

114 114 114 368 368 368 146 146 

Requirements 

95 94 82 213 199 186 47 16 

actionb 

Impingement 19 9 n/a 155 103 n/a 99 n/a 

controls only 

n/a 10 32 n/a 67 183 n/a 130 

entrainment 

controls 

a 

b 

Source: 

146 

0 

NTRODUCTION PPENDIX 

This appendix supplements Introduction..........................................................E3A-1 by presenting 

EPA’s analysis of the benefits and costs for eight E3A-1 Comparison of Benefits and Social Costs by 

Option .....................................................E3A-2 

existing facilities. Results are presented for the comparison E3A-2 Incremental Analysis of Benefits and Social 

of benefits and costs and the breakeven assessment of non- Costs........................................................E3A-8 

use benefits. As discussed previously in , the E3A-3 Break-Even Analysis of Potential Non-Use 

benefit and cost values presented in this appendix pertain Benefits ...................................................E3A-8 

only to the Manufacturers and Electric Generators References..........................................................E3A-14 

segments of the industries subject to Phase III regulation. 

EPA estimated the compliance response for each facility under each of the other options (see Table E3A-1, 

below). In this table and the following tables, the options are listed in order of increasing cost, which reflects the 

breadth of regulatory coverage based on design intake flow applicability threshold and the stringency of 

compliance requirements. For a description of this analysis, see section E3-1 of Chapter E3. 

Table E3A-1: Number of Existing Phase III Facilities by Compliance Action

 Electric Generators 2-50 MGD Manufacturers 2-50 MGD Manufacturers 50+ MGD 

Facility Compliance Phase II Phase II 

Everywhere Everywhere Everywhere Everywhere Everywhere Everywhere 

Facilities Potentially 

Subject to Regulation 

(excluding baseline 

Facilities Subject to 

Best Professional 

Facilities Subject to 

National Categorical 

No compliance 

Impingement and 

Alternative less stringent requirements based on a site-specific assessment of costs, or costs and benefits, are allowed. The estimate of 

number of facilities meeting specific requirements is uncertain because the number of facilities requesting alternative less stringent 

requirements based on site-specific assessments is unknown. 

These facilities already meet compliance requirements. 

U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3A-1 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

E3A-1 COMPARISON OF BENEFITS AND SOCIAL COSTS BY OPTION 

Table E3A-2, below, reports benefits, costs, and net benefits for all eight supplemental options. For further 

information on this analysis, see Section E3-1 of Chapter E3. 

Table E3A-2: Total Benefits, Social Costs, and Net Benefits for Existing Phase III Facilities 

by Option (millions; 2004$) 

Option 

Total Monetized Use Benefitsa 

Low Mean High 

Total Social 

Costs 

Net Benefits Based on Use Benefits Onlyb 

Low Mean High 

3% Discount Rate 

Electric Generators 2-50 MGD 

I-only Everywhere $0.0 $0.0 $0.0 $2.2 -$2.2 -$2.2 -$2.2 

I&E like Phase II $0.0 $0.0 $0.0 $3.2 -$3.2 -$3.2 -$3.1 

I&E Everywhere $0.0 $0.0 $0.0 $8.1 -$8.0 -$8.0 -$8.0 

Manufacturers 2-50 MGD 

I-only Everywhere $0.1 $0.1 $0.2 $21.5 -$21.5 -$21.4 -$21.3 

I&E like Phase II $0.1 $0.2 $0.3 $34.8 -$34.7 -$34.6 -$34.5 

I&E Everywhere $0.1 $0.2 $0.3 $56.6 -$56.5 -$56.4 -$56.2 

Manufacturers 50+ MGD 

I-only Everywhere $0.7 $1.3 $2.3 $25.0 -$24.2 -$23.7 -$22.7 

I&E Everywhere $1.5 $2.4 $4.0 $46.1 -$44.6 -$43.7 -$42.0 

7% Discount Rate 

Electric Generators 2-50 MGD 

I-only Everywhere $0.0 $0.0 $0.0 $2.1 -$2.1 -$2.1 -$2.1 

I&E like Phase II $0.0 $0.0 $0.0 $3.0 -$3.0 -$3.0 -$3.0 

I&E Everywhere $0.0 $0.0 $0.0 $8.8 -$8.8 -$8.8 -$8.7 

Manufacturers 2-50 MGD 

I-only Everywhere $0.0 $0.1 $0.1 $22.5 -$22.5 -$22.4 -$22.4 

I&E like Phase II $0.1 $0.1 $0.2 $37.1 -$37.0 -$36.9 -$36.9 

I&E Everywhere $0.1 $0.2 $0.3 $60.3 -$60.2 -$60.2 -$60.1 

Manufacturers 50+ MGD 

I-only Everywhere $0.6 $1.0 $1.8 $26.0 -$25.4 -$25.0 -$24.2 

I&E Everywhere $1.2 $1.9 $3.2 $46.2 -$45.0 -$44.3 -$43.0 

a The total monetizable value of I&E reductions includes use benefits only. EPA evaluated non-use benefits only qualitatively. The 

range (low, mean, and high) of annualized use values is computed by adding the high-end value for commercial fishing benefits (based on 

assumed producer surplus of 40% of gross revenue) to the low, mean, and high values from recreational fishing benefits, respectively (see 

Chapter A4 of the RBA). 

b Net benefits are calculated by subtracting total annualized costs from total annual use benefits. The net benefits presented here are 

based on the comparison of a substantially complete measure of social costs with an incomplete measure of benefits. 

Source: U.S. EPA Analysis, 2006. 

Table E3A-3 and Table E3A-4, following pages, report net benefits, by option and benefit study region for, 

respectively, the 3% and 7% discount rate calculations. For further information on this analysis, see Section E3-1 

of Chapter E3. 

E3A-2 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Option North Mid- South Gulf of Great Inland National California Atlantic Atlantic Atlanticb Mexico Lakes Total 

a 

Low 

0.0 0.0 (0.1) 0.0 0.0 (0.5) (1.5) (2.2) 

0.0 0.0 (0.3) 0.0 0.0 (0.8) (1.9) (3.2) 

0.0 0.0 (0.4) 0.0 0.0 (0.9) (6.6) (8.0) 

(0.7) 0.0 (0.5) 0.0 (0.6) (8.4) (10.3) (21.5) 

(1.4) 0.0 (1.1) 0.0 (4.5) (10.1) (16.2) (34.7) 

(1.4) 0.0 (1.1) 0.0 (4.5) (10.0) (37.5) (56.5) 

(0.2) (0.4) (0.7) 0.0 (0.5) (4.2) (17.9) (24.2) 

(0.4) (2.0) (1.2) 0.0 (3.6) (9.4) (27.3) (44.6) 

0.0 0.0 (0.1) 0.0 0.0 (0.5) (1.5) (2.2) 

0.0 0.0 (0.3) 0.0 0.0 (0.8) (1.9) (3.2) 

0.0 0.0 (0.4) 0.0 0.0 (0.9) (6.6) (8.0) 

(0.7) 0.0 (0.5) 0.0 (0.6) (8.4) (10.3) (21.4) 

(1.4) 0.0 (1.1) 0.0 (4.5) (10.0) (16.1) (34.6) 

(1.4) 0.0 (1.1) 0.0 (4.5) (10.0) (37.4) (56.4) 

(0.2) (0.4) (0.7) 0.0 (0.2) (4.1) (17.8) (23.7) 

(0.4) (2.0) (1.1) 0.0 (3.0) (9.3) (27.1) (43.7) 

High 

0.0 0.0 (0.1) 0.0 0.0 (0.5) (1.5) (2.2) 

0.0 0.0 (0.3) 0.0 0.0 (0.8) (1.9) (3.1) 

0.0 0.0 (0.4) 0.0 0.0 (0.9) (6.6) (8.0) 

(0.7) 0.0 (0.5) 0.0 (0.5) (8.4) (10.2) (21.3) 

(1.3) 0.0 (1.1) 0.0 (4.4) (10.0) (16.1) (34.5) 

(1.3) 0.0 (1.1) 0.0 (4.4) (10.0) (37.4) (56.2) 

(0.2) (0.4) (0.7) 0.0 0.5 (4.0) (17.6) (22.7) 

(0.4) (2.0) (1.0) 0.0 (2.0) (9.1) (26.7) (42.0) a 

b 

Source: 

Table E3A-3: Total Net Benefits for Existing Phase III Facilities by Option and Region 

(millions; 2004$, discounted at 3%) 

Net Benefits Based on Use Benefits Only

Electric Generators 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 50+ MGD 

I-only Everywhere 

I&E Everywhere 

Mean 

Electric Generators 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 50+ MGD 

I-only Everywhere 

I&E Everywhere 

Electric Generators 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 50+ MGD 

I-only Everywhere 

I&E Everywhere 

Net benefits are computed by subtracting total annualized costs from total annual use benefits. The net benefits presented here are 

based on the comparison of a substantially complete measure of social costs with an incomplete measure of benefits. 

No benefits or costs are expected in the South Atlantic region because all potentially regulated facilities in this region already meet the 

national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this option. 

U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3A-3 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

a 

Option North South Gulf of Great National California Inland Atlantic Atlantic Atlanticb Lakes Total 

Low 

0.0 0.0 (0.1) 0.0 0.0 (0.5) (1.5) (2.1) 

0.0 0.0 (0.3) 0.0 0.0 (0.7) (1.8) (3.0) 

0.0 0.0 (0.4) 0.0 0.0 (0.8) (7.4) (8.8) 

(0.7) 0.0 (0.5) 0.0 (0.6) (10.1) (9.7) (22.5) 

(1.3) 0.0 (1.1) 0.0 (5.6) (11.7) (15.9) (37.0) 

(1.3) 0.0 (1.1) 0.0 (5.6) (11.7) (38.7) (60.2) 

(0.2) (0.4) (0.7) 0.0 (0.6) (4.6) (18.6) (25.4) 

(0.4) (2.0) (1.1) 0.0 (3.7) (9.6) (27.4) (45.0) 

0.0 0.0 (0.1) 0.0 0.0 (0.5) (1.5) (2.1) 

0.0 0.0 (0.3) 0.0 0.0 (0.7) (1.8) (3.0) 

0.0 0.0 (0.4) 0.0 0.0 (0.8) (7.4) (8.8) 

(0.7) 0.0 (0.5) 0.0 (0.6) (10.1) (9.6) (22.4) 

(1.3) 0.0 (1.1) 0.0 (5.6) (11.7) (15.9) (36.9) 

(1.3) 0.0 (1.1) 0.0 (5.6) (11.7) (38.7) (60.2) 

(0.2) (0.4) (0.7) 0.0 (0.4) (4.5) (18.5) (25.0) 

(0.4) (2.0) (1.1) 0.0 (3.3) (9.5) (27.3) (44.3) 

High 

0.0 0.0 (0.1) 0.0 0.0 (0.4) (1.5) (2.1) 

0.0 0.0 (0.3) 0.0 0.0 (0.7) (1.8) (3.0) 

0.0 0.0 (0.4) 0.0 0.0 (0.8) (7.4) (8.7) 

(0.7) 0.0 (0.5) 0.0 (0.6) (10.1) (9.6) (22.4) 

(1.2) 0.0 (1.0) 0.0 (5.6) (11.7) (15.8) (36.9) 

(1.2) 0.0 (1.0) 0.0 (5.6) (11.7) (38.6) (60.1) 

(0.2) (0.4) (0.7) 0.0 0.2 (4.4) (18.4) (24.2) 

(0.4) (1.9) (1.0) 0.0 (2.5) (9.3) (27.0) (43.0) a 

b 

Source: 

 Table E3A-4: Total Net Benefits for Existing Phase III Facilities by Option and Region 

(millions; 2004$, discounted at 7%) 

Net Benefits Based on Use Benefits Only

MidMexico 

Electric Generators 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 50+ MGD 

I-only Everywhere 

I&E Everywhere 

Mean 

Electric Generators 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 50+ MGD 

I-only Everywhere 

I&E Everywhere 

Electric Generators 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 50+ MGD 

I-only Everywhere 

I&E Everywhere 

Net benefits are computed by subtracting total annualized costs from total annual use benefits. The net benefits presented here are 

based on the comparison of a substantially complete measure of social costs with an incomplete measure of benefits and should be 

interpreted with caution. 

No benefits or costs are expected in the South Atlantic region because all potentially regulated facilities in this region already meet the 

national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this option. 

U.S. EPA Analysis, 2006. 

E3A-4 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Table E3A-5, Table E3A-6, and Table E3A-7 compile the time profiles of benefits and costs for the eight 

supplemental options. The tables also report the calculated present and annualized values of benefits and costs at 

3% and 7% discount rates. 

Table E3A-5: Time Profile of Benefits and Costs for Existing Phase III Electric Generator 2-50 MGD 

Facilities (millions; 2004$) 

“Electric Generators 2-50 MGD “Electric Generators 2-50 MGD “Electric Generators 2-50 MGD 

I-only Everywhere” I&E like Phase II” I&E Everywhere” Year 

Total Cost Total Cost Total Cost 

Benefits Benefits Benefits 

2007 $0.00 $2.18 $0.00 $2.18 $0.00 $2.22 

2008 $0.00 $2.69 $0.00 $3.23 $0.00 $3.56 

2009 $0.00 $3.45 $0.00 $3.96 $0.00 $5.28 

2010 $0.00 $3.76 $0.00 $5.36 $0.00 $42.00 

2011 $0.00 $5.68 $0.00 $6.78 $0.00 $43.58 

2012 $0.00 $5.99 $0.00 $6.78 $0.01 $8.21 

2013 $0.01 $4.49 $0.01 $5.28 $0.01 $7.78 

2014 $0.01 $6.31 $0.01 $8.39 $0.02 $9.54 

2015 $0.01 $3.39 $0.01 $4.43 $0.02 $5.59 

2016 $0.01 $3.63 $0.02 $4.31 $0.03 $6.29 

2017 $0.02 $6.24 $0.02 $6.97 $0.03 $8.19 

2018 $0.02 $4.88 $0.02 $5.70 $0.03 $7.19 

2019 $0.02 $6.11 $0.02 $6.86 $0.03 $8.23 

2020 $0.02 $5.27 $0.02 $6.69 $0.03 $11.04 

2021 $0.02 $6.48 $0.02 $6.55 $0.03 $9.22 

2022 $0.02 $8.53 $0.02 $9.27 $0.03 $10.49 

2023 $0.02 $5.44 $0.02 $6.25 $0.03 $8.90 

2024 $0.02 $8.39 $0.02 $9.87 $0.03 $10.98 

2025 $0.02 $4.79 $0.02 $5.84 $0.03 $6.99 

2026 $0.02 $5.09 $0.02 $5.77 $0.03 $7.74 

2027 $0.02 $7.28 $0.02 $8.01 $0.03 $9.23 

2028 $0.02 $5.04 $0.02 $5.86 $0.03 $7.35 

2029 $0.02 $6.62 $0.02 $7.37 $0.03 $8.74 

2030 $0.02 $5.20 $0.02 $6.62 $0.03 $10.97 

2031 $0.02 $6.39 $0.02 $6.46 $0.03 $9.13 

2032 $0.02 $8.85 $0.02 $9.59 $0.03 $10.81 

2033 $0.02 $5.26 $0.02 $6.07 $0.03 $8.72 

2034 $0.02 $8.51 $0.02 $10.00 $0.03 $11.11 

2035 $0.02 $4.49 $0.02 $5.54 $0.03 $6.69 

2036 $0.02 $4.87 $0.02 $5.55 $0.03 $7.52 

2037 $0.02 $6.27 $0.02 $7.00 $0.03 $8.21 

2038 $0.02 $4.02 $0.02 $4.83 $0.03 $6.33 

2039 $0.02 $4.55 $0.02 $5.22 $0.03 $6.35 

2040 $0.02 $2.69 $0.02 $3.17 $0.03 $3.96 

2041 $0.02 $2.52 $0.02 $2.89 $0.03 $3.56 

2042 $0.01 $4.53 $0.02 $4.85 $0.02 $5.15 

2043 $0.01 $2.07 $0.01 $2.29 $0.02 $2.41 

2044 $0.01 $2.88 $0.01 $2.88 $0.01 $2.88 

2045 $0.00 $1.74 $0.01 $1.74 $0.01 $1.74 

2046 $0.00 $1.68 $0.00 $1.68 $0.00 $1.68 

2047 $0.00 $2.48 $0.00 $2.48 $0.00 $2.48 

2048 $0.00 $0.65 $0.00 $0.65 $0.00 $0.65 

PV 3% $0.27 $121.00 $0.33 $139.92 $0.53 $238.62 

Annualized 3% $0.01 $5.99 $0.02 $6.93 $0.03 $11.82 

PV 7% $0.13 $69.69 $0.17 $81.42 $0.27 $157.82 

Annualized 7% $0.01 $5.25 $0.01 $6.13 $0.02 $11.89 

Monetized Monetized Monetized 

(excl. O&G) (excl. O&G) (excl. O&G) 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3A-5 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Table E3A-6: Time Profile of Benefits and Costs for Existing Phase III Manufacturer 2-50 MGD 

Facilities (millions; 2004$) 

“Manufacturers 2-50 MGD I-only “Manufacturers 2-50 MGD I&E “Manufacturers 2-50 MGD I&E 

Everywhere” like Phase II” Everywhere” Year 

Total Cost Total Cost Total Cost 

Benefits Benefits Benefits 

2007 $0.00 $2.34 $0.00 $3.65 $0.00 $3.99 

2008 $0.00 $6.76 $0.00 $10.19 $0.00 $12.19 

2009 $0.00 $11.50 $0.00 $16.65 $0.00 $20.20 

2010 $0.00 $22.93 $0.00 $65.88 $0.00 $76.31 

2011 $0.00 $30.60 $0.00 $131.86 $0.01 $141.24 

2012 $0.02 $181.68 $0.02 $192.66 $0.03 $203.06 

2013 $0.04 $17.76 $0.05 $25.69 $0.06 $323.07 

2014 $0.09 $14.32 $0.12 $21.81 $0.15 $32.65 

2015 $0.10 $14.74 $0.15 $21.17 $0.18 $29.73 

2016 $0.11 $16.17 $0.18 $22.49 $0.22 $33.11 

2017 $0.12 $17.26 $0.19 $23.26 $0.23 $34.28 

2018 $0.12 $11.65 $0.20 $18.20 $0.24 $27.02 

2019 $0.12 $12.11 $0.20 $19.48 $0.24 $29.75 

2020 $0.12 $19.53 $0.20 $29.69 $0.24 $42.36 

2021 $0.12 $27.63 $0.20 $36.53 $0.24 $47.13 

2022 $0.12 $25.79 $0.20 $35.54 $0.24 $46.56 

2023 $0.12 $17.70 $0.20 $25.56 $0.24 $34.09 

2024 $0.12 $16.26 $0.20 $23.63 $0.24 $33.91 

2025 $0.12 $16.12 $0.20 $22.55 $0.24 $31.09 

2026 $0.12 $17.62 $0.20 $23.94 $0.24 $34.54 

2027 $0.12 $18.30 $0.20 $24.30 $0.24 $35.32 

2028 $0.12 $11.81 $0.20 $18.36 $0.24 $27.18 

2029 $0.12 $12.61 $0.20 $19.98 $0.24 $30.26 

2030 $0.12 $19.47 $0.20 $29.62 $0.24 $42.30 

2031 $0.12 $27.55 $0.20 $36.44 $0.24 $47.05 

2032 $0.12 $26.11 $0.20 $35.86 $0.24 $46.88 

2033 $0.12 $17.52 $0.20 $25.38 $0.24 $33.91 

2034 $0.12 $16.39 $0.20 $23.76 $0.24 $34.03 

2035 $0.12 $15.83 $0.20 $22.25 $0.24 $30.79 

2036 $0.12 $17.39 $0.20 $23.72 $0.24 $34.32 

2037 $0.12 $17.29 $0.20 $23.29 $0.24 $34.31 

2038 $0.12 $10.79 $0.20 $17.33 $0.24 $26.15 

2039 $0.12 $10.00 $0.20 $15.15 $0.24 $23.63 

2040 $0.12 $7.73 $0.20 $11.78 $0.24 $18.30 

2041 $0.12 $6.17 $0.19 $8.38 $0.23 $14.23 

2042 $0.10 $6.43 $0.17 $7.35 $0.21 $11.01 

2043 $0.08 $2.58 $0.15 $2.83 $0.18 $4.33 

2044 $0.03 $2.88 $0.07 $2.88 $0.09 $2.88 

2045 $0.02 $1.74 $0.05 $1.74 $0.06 $1.74 

2046 $0.01 $1.68 $0.02 $1.68 $0.02 $1.68 

2047 $0.00 $2.48 $0.00 $2.48 $0.01 $2.48 

2048 $0.00 $0.65 $0.00 $0.65 $0.00 $0.65 

PV 3% $1.97 $510.10 $3.21 $778.32 $3.91 $1,218.35 

Annualized 3% $0.10 $25.27 $0.16 $38.55 $0.20 $60.35 

PV 7% $0.99 $340.26 $1.60 $533.65 $1.95 $842.29 

$0.08 $25.63 $0.13 $40.19 $0.16 $63.44 

Monetized Monetized Monetized 

(excl. O&G) (excl. O&G) (excl. O&G) 

Annualized 7% 

Source: U.S. EPA Analysis, 2006. 

E3A-6 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Table E3A-7: Time Profile of Benefits and Costs for Existing Phase III Manufacturer 50+ MGD Facilities 

(millions; 2004$) 

Year Total Cost Total Cost 

2007 $0.00 $3.59 $0.00 $5.26 

2008 $0.00 $9.76 $0.00 $15.66 

2009 $0.00 $14.07 $0.00 $23.41 

2010 $0.01 $121.55 $0.01 $61.10 

2011 $0.03 $43.23 $0.08 $171.40 

2012 $0.19 $56.68 $0.38 $68.41 

2013 $0.44 $32.44 $0.92 $120.46 

2014 $1.06 $16.01 $2.06 $31.63 

2015 $1.32 $18.66 $2.51 $29.05 

2016 $1.42 $14.28 $2.70 $22.80 

2017 $1.48 $16.65 $2.81 $26.89 

2018 $1.50 $12.83 $2.83 $22.18 

2019 $1.50 $16.57 $2.84 $28.48 

2020 $1.50 $30.44 $2.84 $49.49 

2021 $1.50 $42.55 $2.84 $105.53 

2022 $1.50 $22.30 $2.84 $34.05 

2023 $1.50 $32.83 $2.84 $70.06 

2024 $1.50 $18.30 $2.84 $33.62 

2025 $1.50 $20.05 $2.84 $30.43 

2026 $1.50 $15.74 $2.84 $24.25 

2027 $1.50 $17.69 $2.84 $27.93 

2028 $1.50 $12.99 $2.84 $22.34 

2029 $1.50 $17.07 $2.84 $28.99 

2030 $1.50 $30.38 $2.84 $49.42 

2031 $1.50 $42.47 $2.84 $105.45 

2032 $1.50 $22.62 $2.84 $34.37 

2033 $1.50 $32.65 $2.84 $69.88 

2034 $1.50 $18.43 $2.84 $33.74 

2035 $1.50 $19.75 $2.84 $30.13 

2036 $1.50 $15.52 $2.84 $24.03 

2037 $1.50 $16.68 $2.84 $26.91 

2038 $1.50 $11.97 $2.84 $21.32 

2039 $1.50 $12.36 $2.84 $20.70 

2040 $1.49 $9.30 $2.82 $15.47 

2041 $1.47 $5.30 $2.76 $8.88 

2042 $1.31 $6.57 $2.45 $9.31 

2043 $1.06 $2.10 $1.91 $2.67 

2044 $0.44 $2.88 $0.78 $2.88 

2045 $0.18 $1.74 $0.32 $1.74 

2046 $0.08 $1.68 $0.14 $1.68 

2047 $0.02 $2.48 $0.03 $2.48 

2048 $0.00 $0.65 $0.00 $0.65 

PV 3% $24.63 $580.11 $46.64 $1,005.88 

Annualized 3% $1.26 $28.73 $2.38 $49.82 

PV 7% $12.44 $386.74 $23.61 $654.94 

Annualized 7% $1.00 $29.13 $1.90 $49.33 

“Manufacturers 50+ MGD I-only Everywhere” “Manufacturers 50+ MGD I&E Everywhere” 

Monetized Benefits (excl. O&G) Monetized Benefits (excl. O&G) 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3A-7 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

E3A-2 INCREMENTAL ANALYSIS OF BENEFITS AND SOCIAL COSTS 

EPA conducted an incremental analysis of benefits and social costs to determine as increasingly more costly 

options are considered, by what amount do benefits, costs, and net benefits change from option to option. Table 

E3A-8, below, reports this analysis for the eight supplemental options evaluated. For a description of this 

analysis, see Section E3-3 of Chapter E3. 

c 

Optiona 

b c 

Mean High Mean High 

-$2.2 -$2.2 -$2.2 n/a n/a n/a 

-$3.2 -$3.2 -$3.1 $4.9 $4.9 $4.9 

-$8.0 -$8.0 -$8.0 -$5.8 -$5.8 -$5.8 

-$21.5 -$21.4 -$21.3 -$18.3 -$18.3 -$18.2 

-$34.7 -$34.6 -$34.5 $21.8 $21.8 $21.7 

-$56.5 -$56.4 -$56.2 -$35.0 -$35.0 -$34.9 

-$24.2 -$23.7 -$22.7 $10.5 $10.9 $11.8 

-$44.6 -$43.7 -$42.0 -$20.3 -$20.0 -$19.3 

-$2.1 -$2.1 -$2.1 n/a n/a n/a 

-$3.0 -$3.0 -$3.0 $5.7 $5.7 $5.7 

-$8.8 -$8.8 -$8.7 -$6.6 -$6.6 -$6.6 

-$22.5 -$22.4 -$22.4 -$19.5 -$19.4 -$19.4 

-$37.0 -$36.9 -$36.9 $23.2 $23.2 $23.2 

-$60.2 -$60.2 -$60.1 -$37.8 -$37.7 -$37.7 

-$25.4 -$25.0 -$24.2 $11.6 $11.9 $12.7 

-$45.0 -$44.3 -$43.0 -$19.6 -$19.3 -$18.8 

a 

b 

Table E3A-8: Incremental Benefit-Cost Analysis for Existing Phase III Facilities (millions; 2004$) 

Net Benefits Based on Use Benefits Only Incremental Net Benefits

Low Low 

Electric Generators 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 50+ MGD 

I-only Everywhere 

I&E Everywhere 

Electric Generators 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 2-50 MGD 

I-only Everywhere 

I&E like Phase II 

I&E Everywhere 

Manufacturers 50+ MGD 

I-only Everywhere 

I&E Everywhere 

3% discount rate 

7% discount rate 

Options are presented in order of increasing applicability, based on the number of facilities regulated. 

Net benefits are computed by subtracting total annualized costs from total annual use benefits. The net benefits presented here are 

based on the comparison of a substantially complete measure of social costs with an incomplete measure of benefits. 

Incremental net benefits are equal to the difference between net benefits of a given option and the net benefits of the previous less 

stringent option. 

Source: U.S. EPA Analysis, 2006. 

E3A-3 BREAK-EVEN ANALYSIS OF POTENTIAL NON-USE BENEFITS 

EPA conducted a break-even analysis for each option to determine the per household value and per age-1 

equivalent value of non-use benefits needed for total annual benefits to equal total annual costs. Table E3A-9 and 

Table E3A-10, following pages, present results at the national level (discounted at 3 and 7%, respectively). Table 

E3A-11 and Table E3A-12 present regional results. See Section E3-3 of Chapter E3 for details of this analysis. 

E3A-8 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Table E3A-9: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Cost for Existing Phase III Facilities - Break-Even Analysis (2004$, discounted at 3%) 

Option 

Total Social 

Costs 

(millions) 

Mean Value 

of Use 

Benefits 

(millions) 

Non-Use 

Benefits 

Necessary 

to Break 

Evena 

(millions) 

Number of 

Households 

BreakEven WTP 

per 

Household 

($) 

Reduction in 

I&E Losses 

(Age-1 

Equivalents) 

BreakEven 

Value per 

Age-1 

Equivalent 

($)b 

Electric Generators 2-50 MGD 

I-only Everywhere $0.01 $2.2 $2.2 33,016,327 $0.07 802,000 $2.77 

I&E like Phase II $0.02 $3.2 $3.2 15,242,880 $0.21 863,000 $3.66 

I&E Everywhere $0.03 $8.1 $8.0 13,639,187 $0.59 2,610,000 $3.08 

Manufacturers 2-50 MGD 

I-only Everywhere $0.10 $21.5 $21.4 0 n/a 4,720,000 $4.54 

I&E like Phase II $0.16 $34.8 $34.6 13,639,187 $2.54 8,040,000 $4.31 

I&E Everywhere $0.20 $56.6 $56.4 33,016,327 $1.71 9,340,000 $6.04 

Manufacturers 50+ MGD 

I-only Everywhere $1.26 $25.0 $23.7 15,242,880 $1.56 39,400,000 $0.60 

I&E Everywhere $2.38 $46.1 $43.7 0 n/a 103,000,000 $0.42 

a The non-use benefits category in this table may include some categories of use values that were not taken into account by the 

recreation and commercial fishing analyses. 

b The non-use value per age-1 equivalent reported in the table includes the value placed on the fish’s contribution to non-use 

ecological services (e.g., population, health, sustainability, and overall ecosystem health). 

Source: U.S. EPA Analysis, 2006. 

Table E3A-10: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Cost for Existing Phase III Facilities - Break-Even Analysis (2004$, discounted at 7%) 

Non-Use BreakBreak- Mean Value Benefits Reduction in Even

Total Social of Use Necessary Number of Even WTP I&E Losses Value per Option Costs Benefits to Break Households per (Age-1 Age-1 (millions) Household (millions) Evena 

($) Equivalents) Equivalent 

(millions) ($)b 

Electric Generators 2-50 MGD 

I-only Everywhere $0.01 $2.1 

I&E like Phase II $0.01 $3.0 

I&E Everywhere $0.02 $8.8 

$2.1 0 n/a 802,000 $2.65 

$3.0 0 n/a 863,000 $3.48 

$8.8 0 n/a 2,610,000 $3.35 

Manufacturers 2-50 MGD 

I-only Everywhere $0.08 $22.5 

I&E like Phase II $0.13 $37.1 

I&E Everywhere $0.16 $60.3 

$22.4 0 n/a 4,720,000 $4.75 

$36.9 0 n/a 8,040,000 $4.60 

$60.2 0 n/a 9,340,000 $6.44 

Manufacturers 50+ MGD 

I-only Everywhere $1.00 $26.0 $25.0 0 n/a 39,400,000 $0.63 

I&E Everywhere $1.90 $46.2 $44.3 0 n/a 103,000,000 $0.43 

a The non-use benefits category in this table may include some categories of use values that were not taken into account by the 

recreation and commercial fishing analyses. 

b The non-use value per age-1 equivalent reported in the table includes the value placed on the fish’s contribution to non-use 

ecological services (e.g., population, health, sustainability, and overall ecosystem health). 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3A-9 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Non-Use Reduction of Benefits of Use WTP per Option Costs Benefits Household (Age-1 Age-1 

(millions) (millions) 

a 

($) Equivalents) Equivalentb 

(millions) ($) 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $0.1 $0.0 $0.1 1,078,126 $0.12 26,600 $4.92 

c

 $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.5 $0.0 2,545,871 $0.18 303,000 $1.55 

Inland $1.5 $0.0 $1.5 5,501,774 $0.28 473,000 $3.21 

National Total $2.2 $0.0 $2.2 $0.24 802,000 $2.77 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $0.3 $0.0 $0.3 1,078,126 $0.30 26,600 $12.29 

c

 $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.8 $0.0 2,545,871 $0.30 327,000 $2.35 

Inland $1.9 $0.0 $1.9 5,840,778 $0.33 509,000 $3.76 

National Total $3.2 $0.0 $3.2 $0.33 863,000 $3.66 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $0.4 $0.0 6,388,407 $0.06 1,480,000 $0.28 

c

 $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.9 $0.0 2,545,871 $0.34 331,000 $2.59 

Inland $6.6 $0.0 $6.6 6,321,161 $1.04 802,000 $8.19 

National Total $8.1 $0.0 $8.0 $0.53 2,610,000 $3.08 

California $0.7 $0.0 804,176 $0.88 10,300 $69.02 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $0.5 $0.0 $0.5 5,275,611 $0.09 150,000 $3.08 

c

 $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

$0.6 $0.6 34,907 $16.58 543,000 $1.07 

$8.4 $0.0 3,689,094 $2.28 698,000 $12.07 

Inland $10.3 $0.0 $10.3 $0.48 3,320,000 $3.09 

National Total $21.5 $0.1 $21.4 $0.69 4,720,000 $4.54 

Table E3A-11: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Costs for Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 3%) 

Break-Even Mean Value Break-Even Total Social Number of I&E Losses Value per 

Necessary to Households Break Even

“Electric Generators 2-50 MGD I-only Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes $0.5 

9,125,771 

“Electric Generators 2-50 MGD I&E like Phase II” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes $0.8 

9,464,776 

“Electric Generators 2-50 MGD I&E Everywhere” Option 

North Atlantic 

$0.4 

South Atlantic

Gulf of Mexico 

Great Lakes $0.9 

15,255,439 

“Manufacturers 2-50 MGD I-only Everywhere” Option 

$0.7 

North Atlantic 

South Atlantic

Gulf of Mexico $0.0 

Great Lakes $8.4 

21,228,706 

31,032,495 

E3A-10 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Table E3A-11: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Costs for Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 3%) 

Option 

Total Social 

Costs 

(millions) 

Mean Value 

of Use 

Benefits 

(millions) 

Non-Use 

Benefits 

Necessary to 

Break Evena 

(millions) 

Number of 

Households 

Break-Even 

WTP per 

Household 

($) 

Reduction of 

I&E Losses 

(Age-1 

Equivalents) 

Break-Even 

Value per 

Age-1 

Equivalentb 

($) 

“Manufacturers 2-50 MGD I&E like Phase II” Option 

California $1.4 $0.0 $1.4 804,176 $1.69 481,000 $2.82 

North Atlantic $0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $1.1 $0.0 $1.1 5,275,611 $0.21 2,310,000 $0.48 

South Atlanticc $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

Gulf of Mexico $4.5 $0.1 $4.5 34,907 $128.36 855,000 $5.24 

Great Lakes $10.1 $0.0 $10.0 3,689,094 $2.72 732,000 $13.72 

Inland $16.2 $0.0 $16.1 23,255,379 $0.69 3,660,000 $4.41 

National Total $34.8 $0.2 $34.6 33,059,167 $1.05 8,040,000 $4.31 

“Manufacturers 2-50 MGD I&E Everywhere” Option 

California $1.4 $0.0 $1.4 804,176 $1.70 534,000 $2.56 

North Atlantic $0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $1.1 $0.0 $1.1 5,275,611 $0.21 2,310,000 $0.48 

South Atlanticc $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

Gulf of Mexico $4.5 $0.1 $4.5 34,907 $128.36 855,000 $5.24 

Great Lakes $10.1 $0.0 $10.0 3,689,094 $2.72 764,000 $13.14 

Inland $37.5 $0.1 $37.4 23,482,894 $1.59 4,880,000 $7.67 

National Total $56.6 $0.2 $56.4 33,286,682 $1.69 9,340,000 $6.04 

“Manufacturers 50+ MGD I-only Everywhere” Option 

California $0.2 $0.0 $0.2 1,221,712 $0.14 10,200 $16.35 

North Atlantic $0.4 $0.0 $0.4 0 n/a 0 n/a 

Mid-Atlantic $0.8 $0.0 $0.7 5,171,002 $0.14 1,000,000 $0.72 

South Atlanticc $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

Gulf of Mexico $0.9 $0.8 $0.2 1,315,491 $0.15 10,400,000 $0.02 

Great Lakes $4.4 $0.3 $4.1 5,434,405 $0.75 11,700,000 $0.35 

Inland $18.0 $0.2 $17.8 11,669,888 $1.52 16,200,000 $1.10 

National Total $25.0 $1.3 $23.7 24,812,498 $0.96 39,400,000 $0.60 

“Manufacturers 50+ MGD I&E Everywhere” Option 

California $0.4 $0.0 $0.4 1,221,712 $0.31 474,000 $0.79 

North Atlantic $2.0 $0.0 $2.0 3,171,400 $0.64 910,000 $2.22 

Mid-Atlantic $1.2 $0.1 $1.1 5,899,941 $0.19 44,500,000 $0.02 

South Atlanticc $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

Gulf of Mexico $4.4 $1.4 $3.0 1,570,063 $1.94 19,400,000 $0.16 

Great Lakes $9.7 $0.4 $9.3 7,300,769 $1.27 13,400,000 $0.69 

Inland $27.5 $0.4 $27.1 16,438,931 $1.65 24,600,000 $1.10 

National Total $46.1 $2.4 $43.7 35,602,817 $1.23 103,000,000 $0.42 

a The non-use benefits category in this table may include some categories of use values that were not taken into account by the 

recreation and commercial fishing analyses. 

b The non-use value per age-1 equivalent reported in the table includes the value placed on the fish’s contribution to non-use 

ecological services (e.g., population, health, sustainability, and overall ecosystem health). 

No benefits or costs are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

d Positive non-zero value less than $50,000. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3A-11 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Option Costs 

(millions) 

of Use 

Benefits 

(millions) 

Non-Use 

Benefits 

a 

(millions) 

WTP per 

Household 

($) 

Reduction of 

(Age-1 

Equivalents) 

Age-1 

Equivalentb 

($) 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $0.1 $0.0 $0.1 1,078,126 $0.11 26,600 $4.45 

c

 $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.5 $0.0 2,545,871 $0.18 303,000 $1.49 

Inland $1.5 $0.0 $1.5 5,501,774 $0.26 473,000 $3.07 

National Total $2.1 $0.0 $2.1 $0.23 802,000 $2.65 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $0.3 $0.0 $0.3 1,078,126 $0.28 26,600 $11.51 

c

 $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.7 $0.0 2,545,871 $0.29 327,000 $2.23 

Inland $1.8 $0.0 $1.8 5,840,778 $0.31 509,000 $3.58 

National Total $3.0 $0.0 $3.0 $0.32 863,000 $3.48 

California $0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $0.4 $0.0 6,388,407 $0.06 1,480,000 $0.26 

c

 $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

$0.8 $0.0 2,545,871 $0.42 331,000 $2.44 

Inland $7.4 $0.0 $7.4 6,321,161 $1.16 802,000 $9.18 

National Total $8.8 $0.0 $8.8 $0.57 2,610,000 $3.35 

California $0.7 $0.0 804,176 $0.84 10,300 $65.26 

$0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $0.5 $0.0 $0.5 5,275,611 $0.09 150,000 $3.09 

c

 $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

$0.6 $0.6 34,907 $16.92 543,000 $1.09 

$10.1 $0.0 3,689,094 $2.74 698,000 $14.50 

Inland $9.7 $0.0 $9.6 $0.45 3,320,000 $2.90 

National Total $22.5 $0.1 $22.4 $0.72 4,720,000 $4.75 

Table E3A-12: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Costs for Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 7%) 

Total Social Mean Value 

Necessary to 

Break Even

Number of 

Households 

Break-Even 

I&E Losses 

Break-Even 

Value per 

“Electric Generators 2-50 MGD I-only Everywhere” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes $0.5 

9,125,771 

“Electric Generators 2-50 MGD I&E like Phase II” Option 

North Atlantic 

South Atlantic

Gulf of Mexico 

Great Lakes $0.7 

9,464,776 

“Electric Generators 2-50 MGD I&E Everywhere” Option 

North Atlantic 

$0.4 

South Atlantic

Gulf of Mexico 

Great Lakes $0.8 

15,255,439 

“Manufacturers 2-50 MGD I-only Everywhere” Option 

$0.7 

North Atlantic 

South Atlantic

Gulf of Mexico $0.0 

Great Lakes $10.1 

21,228,706 

31,032,495 

E3A-12 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

Table E3A-12: Estimated Value of Non-Use Benefits Required for Total Benefits to Equal Total Social 

Costs for Existing Phase III Facilities - Break-Even Analysis by Regions (2004$, discounted at 7%) 

Option 

Total Social 

Costs 

(millions) 

Mean Value 

of Use 

Benefits 

(millions) 

Non-Use 

Benefits 

Necessary to 

Break Evena 

(millions) 

Number of 

Households 

Break-Even 

WTP per 

Household 

($) 

Reduction of 

I&E Losses 

(Age-1 

Equivalents) 

Break-Even 

Value per 

Age-1 

Equivalentb 

($) 

“Manufacturers 2-50 MGD I&E like Phase II” Option 

California $1.3 $0.0 $1.3 804,176 $1.56 481,000 $2.60 

North Atlantic $0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $1.1 $0.0 $1.1 5,275,611 $0.20 2,310,000 $0.46 

South Atlanticc $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

Gulf of Mexico $5.6 $0.0 $5.6 34,907 $160.15 855,000 $6.54 

Great Lakes $11.7 $0.0 $11.7 3,689,094 $3.18 732,000 $16.02 

Inland $15.9 $0.0 $15.9 23,255,379 $0.68 3,660,000 $4.34 

National Total $37.1 $0.1 $36.9 33,059,167 $1.12 8,040,000 $4.60 

“Manufacturers 2-50 MGD I&E Everywhere” Option 

California $1.3 $0.0 $1.3 804,176 $1.57 534,000 $2.36 

North Atlantic $0.0 $0.0 $0.0 0 n/a 0 n/a 

Mid-Atlantic $1.1 $0.0 $1.1 5,275,611 $0.20 2,310,000 $0.46 

South Atlanticc $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

Gulf of Mexico $5.6 $0.0 $5.6 34,907 $160.15 855,000 $6.54 

Great Lakes $11.7 $0.0 $11.7 3,689,094 $3.18 764,000 $15.35 

Inland $38.7 $0.1 $38.7 23,482,894 $1.65 4,880,000 $7.92 

National Total $60.3 $0.2 $60.2 33,286,682 $1.81 9,340,000 $6.44 

“Manufacturers 50+ MGD I-only Everywhere” Option 

California $0.2 $0.0 $0.2 1,221,712 $0.14 10,200 $16.90 

North Atlantic $0.4 $0.0 $0.4 0 n/a 0 n/a 

Mid-Atlantic $0.7 $0.0 $0.7 5,171,002 $0.13 1,000,000 $0.70 

South Atlanticc $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

Gulf of Mexico $0.9 $0.6 $0.4 1,315,491 $0.27 10,400,000 $0.03 

Great Lakes $4.7 $0.2 $4.5 5,434,405 $0.83 11,700,000 $0.38 

Inland $18.7 $0.2 $18.5 11,669,888 $1.59 16,200,000 $1.14 

National Total $26.0 $1.0 $25.0 24,812,498 $1.01 39,400,000 $0.63 

“Manufacturers 50+ MGD I&E Everywhere” Option 

California $0.4 $0.0 $0.4 1,221,712 $0.32 474,000 $0.83 

North Atlantic $2.0 $0.0 $2.0 3,171,400 $0.62 910,000 $2.15 

Mid-Atlantic $1.2 $0.1 $1.1 5,899,941 $0.18 44,500,000 $0.02 

South Atlanticc $0.0 $0.0 $0.0 0 $0.00 0 $0.00 

Gulf of Mexico $4.4 $1.1 $3.3 1,570,063 $2.11 19,400,000 $0.17 

Great Lakes $9.8 $0.4 $9.5 7,300,769 $1.30 13,400,000 $0.71 

Inland $27.6 $0.3 $27.3 16,438,931 $1.66 24,600,000 $1.11 

National Total $46.2 $1.9 $44.3 35,602,817 $1.24 103,000,000 $0.43 

a The non-use benefits category in this table may include some categories of use values that were not taken into account by the 

recreation and commercial fishing analyses. 

b The non-use value per age-1 equivalent reported in the table includes the value placed on the fish’s contribution to non-use 

ecological services (e.g., population, health, sustainability, and overall ecosystem health). 

No benefits or costs are expected in the South Atlantic region because all potentially regulated facilities in this region already meet 

the national categorical requirements in the baseline and therefore would not be required to install technologies to comply with this 

option. 

d Positive non-zero value less than $50,000. 

Source: U.S. EPA Analysis, 2006. 

June 1, 2006 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute E3A-13 

c 
§ 316(b) Final Rule: Phase III – EA, Part E: Social Costs, Benefits, and Benefit-Cost Analysis Appendix E3A: Supplemental Options 

REFERENCES 

U.S. Environmental Protection Agency (U.S. EPA). 2006. Regional Analysis for the Final Section 316(b) Phase 

III Existing Facilities Rule. EPA-821-R-06-002. June 2006. 

E3A-14 Internal Draft – Deliberative, Predecisional – Do not Quote, Cite, or Distribute June 1, 2006