POWER September 2014 - 48

WATER
EPA's New 316(b) Rule and the
Opportunity of Social Costs
Though " social costs " may be a new term of art in the power industry, it is
about to become a critical one. Here's what you need to understand about
the concept in general and how it applies to the recently finalized cooling
water intake rule.
Matthew Bingham and Jason Kinnell
T
he U.S. Environmental Protection Agency's
(EPA's) recently released rule regarding
Section 316(b) of the Clean Water Act
requires that state permitting directors make
site-specific determinations regarding fish protection
for cooling water intake structures. (For
an overview of the implications of the new rule
and determining what constitutes best technology
available, see " Site-Specific Factors Are
Critical for Compliance with Final 316(b) Existing
Facilities Rule " in the June 2014 issue,
available at powermag.com.) Written explanations
must accompany these determinations.
The determinations must consider social benefits
and social costs of various approaches to
reduce the amount of fish eggs and larvae that
are entrained in power plant cooling systems.
The requirement to assess and compare
social costs and benefits in site-level permitting
decisions is novel, and its inclusion in
the 316(b) rule argues that permit writers and
permittees should develop a deeper understanding
of social costs generally and specific
to entrainment remedies such as closed-cycle
cooling and screening technologies.
This article provides some preliminary
perspective on a topic that will undoubtedly
be more thoroughly studied in coming years.
We focus on the social cost of cooling towers
because the types of social costs caused
by screening technologies are also caused by
cooling towers, and cooling towers have additional
social costs.
What Are Social Costs?
" EPA Guidelines for Preparing Economic
Analysis " (EPA 2010) defines social cost as
" the value lost to society of all the goods and
services that will not be produced and consumed
if firms comply with the regulation. "
Considering what won't be consumed, entrainment
reduction technologies are expensive,
costing sometimes hundreds of millions
of dollars. These expenditures ultimately fall
on customers and stockholders who would
forgo consumption in response.
Conversely, the installation of entrainment
48
reduction technologies requires manufacturing
and construction. This generates economic
activity, which supports consumption
of goods and services.
Other affected services are environmentaland
health-related. Whether operated or not,
natural draft towers can dominate viewsheds.
Unlike screening technologies, the operation
of cooling towers results in a large reduction
in thermal flow. In removing this manmade
effect, cooling towers also eliminate warm
water outfalls that can attract gamefish, function
as wildlife refuges, and support yearround
angling in cold climates.
When operated, cooling towers are noisy.
They also consume water and create plumes
that precipitate particulate matter and can
affect views. Moreover, fine mesh traveling
screens and cooling towers both require power
to operate. Cooling towers are particularly
power intensive, and because of this, their
operation can increase stack emissions, leading
to environmental and health effects.
The myriad site-varying effects accompanying
cooling towers, combined with the
broadness of the social cost measurement
mandate, can make identifying the social
costs of 316(b) compliance options appear
daunting. Here we hope to make the topic
more accessible using the concepts of economic
externalities and equilibriums.
Economic Externalities and
Equilibriums
Economic externalities are benefits or costs
affecting a party that did not choose to incur
them. R. Coase's influential 1960 Journal of
Law and Economics paper " The Problem of
Social Costs " clarifies that the benefit/cost
distinction is one of perspective. Coase's
problem of social costs arises when production
activities create negative externalities. By
comparison, social benefits arise when production
activities create positive externalities.
The social cost requirements in the new
316(b) rule apply to existing facilities with
once-through cooling. From this perspective,
regulatory baseline conditions include the entrainment,
thermal flow, and unit performance
implications of once-through cooling. This
perspective is why fishing improvements from
entrainment reductions are commonly expressed
as a positive externality (that is, social
benefit) of cooling towers rather than a social
cost of once-through cooling. From this viewpoint,
the loss of outfall fishing opportunities
1. Electricity market under baseline conditions. The shaded bars represent units
that are operating so as to meet load at minimum cost. Source: Veritas Economic Consulting LLC
■ Market Supply ■ Market Demand
90
80
70
60
50
40
30
20
10
Less expensive to operate
Unit to be
removed
Generating units
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POWER | September 2014
More expensive to operate
Cost per hour ($)

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POWER September 2014

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