Notice of Data Availability; National Pollutant Discharge Elimination System Permit Regulation and Effluent Limitations Guidelines and Standards for Concentrated Animal Feeding Operations

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 122 and 412

[FRL-7104-7]

RIN 2040-AD19

Notice of Data Availability; National Pollutant Discharge Elimination System Permit Regulation and Effluent Limitations Guidelines and Standards for Concentrated Animal Feeding Operations

AGENCY:

Environmental Protection Agency (EPA).

ACTION:

Proposed rule; Notice of data availability.

SUMMARY:

On January 12, 2001 (66 FR 2959), EPA published a proposal to revise and update two regulations that ensure manure, wastewater, and other process waters generated by concentrated animal feeding operations (CAFOs) do not impair water quality. These two regulations include the National Pollutant Discharge Elimination System (NPDES) provisions that define which operations are CAFOs and establish permit requirements, and the Effluent Limitations Guidelines (ELG), or effluent guidelines, for feedlots (beef, dairy, swine and poultry subcategories), which establish the technology-based effluent discharge standards for CAFOs. EPA proposed revisions to these regulations to address changes that have occurred in the animal industry sectors over the last 25 years, to clarify and improve implementation of CAFO permit requirements, and to improve the environmental protection achieved under these rules.

In the proposal, EPA specifically solicited comment on 28 issues (66 FR 3133), in addition to a general comment solicitation on all aspects of the proposed regulations. EPA received comments from various stakeholders, including State, Tribal and Federal regulatory authorities, environmental groups, industry groups, land grant university researchers, and private citizens. This document presents a summary of certain data received in comments since the proposal and describes how these data may be used by EPA in developing its final CAFO regulations.

Due to the comments and data received, EPA is considering changes to certain aspects of the proposed CAFO rule, including changes to the technology options considered for regulation, as well as changes to the underlying data and methodology that EPA uses to estimate the costs and financial impacts associated with the regulation. Today, EPA is making these data and comments available for public review and comment. EPA solicits public comment on any of the issues or information presented in this notice of data availability and in the administrative record supporting this document.

DATES:

You must submit comments by January 15, 2002.

ADDRESSES:

Public comments regarding this document should be submitted electronically to CAFOS.comments@epa.gov. Electronic comments must specify docket number W-00-27 and must be submitted as an ASCII, Word, or WordPerfect file avoiding the use of special characters and any form of encryption. Electronic comments on this action may be filed online at many Federal Depository Libraries. No confidential business information (CBI) should be sent via e-mail.

You also may submit comments by mail to: Concentrated Animal Feeding Operation Proposed Rule, Office of Water, Engineering and Analysis Division (4303), USEPA, 1200 Pennsylvania Avenue, NW., Washington, DC 20460. Hand deliveries (including overnight mail) should be submitted to the Concentrated Animal Feeding Operation Proposed Rule, USEPA, Waterside Mall, West Tower, Room 611, 401 M Street, SW., Washington, DC 20460. Please submit an original and three copies of your written comments and enclosures, as well as any references cited in your comments. Commenters who want EPA to acknowledge receipt of their comments should enclose a self-addressed, stamped envelope. No facsimiles (faxes) will be accepted.

The public record for this action and the proposed rulemaking has been established under docket number W-00-27 and is located in the Water Docket East Tower Basement, Room EB57, 401 M Street SW., Washington, DC 20460. The record is available for inspection from 9:00 a.m. to 4:00 p.m., Monday through Friday, excluding legal holidays. For access to the docket materials, call (202) 260-3027 to schedule an appointment. A reasonable fee may be charged for copying.

FOR FURTHER INFORMATION CONTACT:

Renee Selinsky Johnson, Paul Shriner, or Karen Metchis at (202) 564-0766. You may also e-mail the above contacts at johnson.renee@epa.gov, shriner.paul@epa.gov, and metchis.karen@epa.gov.

SUPPLEMENTARY INFORMATION:

Contents of This Document

I. Purpose of this Document

II. Public Outreach and Data Gathering

A. Overview of Pre-Proposal Outreach

B. Post-Proposal Activities

1. Public Meetings

2. Stakeholder Meetings

3. USDA-EPA Workgroup Meetings

4. Review of EPA's Economic Analysis by the Food and Agricultural Policy Research Institute (FAPRI)

5. Other Outreach and Data Gathering

III. Summary of the Proposed ELG and NPDES Rules

A. Proposed Effluent Limitations Guidelines and Standards (ELG)

B. Proposed NPDES Regulations

IV. New Information Related to the Proposed Revisions to the Effluent Limitations Guidelines and Standards

A. Effluent Limitations Guidelines and Standards Terminology

1. Definition of Proper Agricultural Practices

2. Chronic Storm Event

3. Alternative Approach to Nutrient Management Planning

B. Proposed Performance Standards

1. Ground Water Controls

2. Alternatives to Proposed 100-foot Setback

3. Manure Application Rates Based on Limiting Nutrients

4. Alternative Requirements for Soil Sampling

5. Alternative Requirements for Manure Sampling

6. Feasibility of Zero Discharge Standard

V. Changes EPA is Considering to its Cost and Economic Impact Models

A. Industry Profile

1. Estimates of the Total Number of AFOs and Regulated CAFOs

2. Estimates of the Amount of Manure Nutrients Covered at Different Regulatory Thresholds

3. Changes in SBA's Small Business Definition and EPA's Estimates of the Total Number of Small Businesses Affected by the Proposed Regulations

B. Data and Analytical Approach to Estimate Compliance Costs to CAFOs

1. Alternate Analytical Approaches for Estimating Compliance Costs

a. EPA's assumptions of full compliance with existing regulations for CAFOs with more than 1,000 AU

b. EPA's cost model assumptions and use of “frequency factors”

c. Engineering cost test to determine appropriate technology systems

d. Changes to costs for land application of lagoon liquids for beef and dairy operations

e. Cost offsets and savings

2. Alternate Data and Information for Estimating Compliance Costs

a. Alternative costs and information to EPA's ground water assessment

b. Gas collection systems and cover materials for proposed technology Option 5

c. Engineering costs for nutrient management planning costs

d. Correction to EPA's compliance costs and economic analysis due to omitted costs for a subset of hog operations

e. Correction to EPA's summary of the range of estimated compliance costs across all proposed technology options

C. Data and Analytical Approach to Estimate Financial Impacts to CAFOs

1. Alternate Analytical Methodology for Determining Economic Achievability

a. Inclusion of new assessment criteria to measure changes in profitability

b. Evaluation of assessment criteria at multiple business levels

c. Revision of threshold values on a debt-to-asset test (some sectors only)

d. Consideration of debt feasibility

e. Consideration of tax savings

f. Consideration of various cost offsets

2. Alternate Data for Determining Baseline Financial Conditions at CAFOs

a. Alternative financial data for cattle feeding operations

b. Alternative financial data for hog operations

c. Alternative financial data for dairy and broiler operations

d. Alternative data to supplement available financial data for a single year

e. Alternative data to project out financial data over the 10-year analysis period

VI. Changes to EPA's Environmental Assessment

A. Estimates of “Edge-of-Field” Pollutant Loadings

B. Surface Water Modeling

C. Pathogens, Antibiotics, and Hormones

D. CAFO Air Emissions

1. Estimating air emissions from CAFOs

a. Revised emission factors

b. Revised methane methodology for anaerobic lagoons

c. Revision of boundary conditions

2. Quantifying the benefits of reduced air emissions

VII. New Information Related to the Proposed NPDES Regulations

A. Ducks and Horses

1. Ducks

2. Horses

B. Cow/Calf Operations

C. State Flexibility and Innovation

1. State Non-NPDES Programs

a. State Flexibility Alternative 1: Flexibilities Under NPDES for Middle Tier

b. State Flexibility Alternative 2: Opt-out from NPDES for State programs covering facilities below the CAFO threshold

c. EMS as a basis for State flexibility

d. Process for granting flexibility

e. State program assessment criteria

D. Environmental Management Systems

1. EMS-Based Regulatory Options

a. EMS Option 1: Modified permit requirements for facilities > 1,000 AU

b. EMS Option 2: EMS as a basis for excluding operations from the CAFO definition for facilities with 300 AU—1,000 AU

c. EMS Option 3: State flexibility for 300 AU—1,000 AU

d. EMS Option 4: Co-Permitting

2. Potential Evaluation Process and Standards

3. Potential Elements of an AFO EMS

4. Further Criteria for an Adequate EMS-Based Program

5. Potential Components of Third-Party Auditing Program

E. Three-tier Alternative

F. Technical Correction

VIII. Request for Comments

A. Specific Solicitation of New Information and Clarification on the Proposed ELG Requirements

B. Specific Solicitation of New Data and Information EPA is Considering for its Cost and Economics Model

C. Specific Solicitation of New Information EPA is Considering for its Nutrient Loading and Benefits Model

D. Specific Solicitation of New Information and Clarification on the Proposed NPDES Requirements

I. Purpose of This Document

In today's document, EPA presents a summary of new data and information submitted to EPA during the public comment period on the proposed CAFO regulations, including data received from the U.S. Department of Agriculture (USDA). There are four main components to this notice: (1) Discussion of new data and changes EPA is considering to refine its cost and economics model, (2) discussion of new data and changes EPA is considering to refine its nutrient loading and benefits analysis, (3) new data and changes EPA is considering to the proposed NPDES permit program regulations, and (4) new data and changes EPA is considering to the proposed ELG regulations. This notice addresses these and other issues related to the proposed CAFO regulations. To the extent possible, today's notice describes new analyses that may be performed by EPA and describes revisions that EPA is considering to its financial and engineering models, as well as new data or methodologies that EPA is considering.

This notice also discusses ways that EPA is considering to enhance flexibility for the use of State NPDES and non-NPDES CAFO programs, including options to encourage implementation of environmental management systems (EMS). The notice also describes regulatory thresholds that are being considered for operations that raise ducks and horses, and addresses how cow/calf pairs could be counted. The notice also describes new information received by EPA on the proposed CAFO performance standards.

New data that EPA is considering for use in its cost and economic models include estimates of technology adoption across a range of livestock and poultry operations, financial data specified at the livestock enterprise level only, and new information pertaining to various modeling assumptions used by EPA. Among the specific issues addressed in the discussion of how the Agency is considering to refine its cost and economic models are: expansion of the range of cost estimates per representative farm to account for variability across operations; addition of alternative assessment criteria to measure changes in profitability (post-compliance); new financial data to supplement available data at the farm level with data at the enterprise level; revision of the criteria threshold on a debt-asset test and other considerations of debt feasibility; and consideration of approaches to account for various cost offsets. Specific issues addressed in the discussion of how the Agency is considering to refine its nutrient loading and benefits analysis include: expansion of the number of representative farms to measure changes in nutrient loadings; and the addition of monetized benefit estimates from changes in air emissions. Other new data submitted to EPA include: estimates of the number of animal feeding operations and CAFOs; new information pertaining to the number of CAFOs that are small businesses; estimates of manure nutrient loadings and crop uptake needs; and USDA estimates of the amount of manure addressed by the regulations at different regulatory thresholds.

Through this notice of data availability, EPA is seeking further public comment on any and all aspects of the specific data and issues identified in this notice. However, EPA is seeking public comment

only

on these specific data and issues. Nothing in today's notice is intended to reopen any other issues discussed in the CAFO proposal or to reopen the proposal in general for additional public comments. EPA is continuing to review the comments already submitted on the proposed rule and will address those comments, along with comments submitted on the data and issues identified in today's notice, in the final rulemaking.

II. Public Outreach and Data Gathering

A. Overview of Pre-Proposal Outreach

During the development of the proposed regulations for CAFOs, EPA met with various members of the stakeholder community through meetings, conferences, and site visits. EPA convened a Small Business Advocacy Review Panel to address small entity concerns, provided outreach materials to and met with several national organizations representing State and local governments, and conducted approximately 110 site visits to collect information on waste management practices at livestock and poultry operations. EPA also established a

workgroup that included representatives from USDA, seven states, EPA regions, and EPA headquarters.

More detailed information on EPA's public outreach were published in Section XII of the

Federal Register

notice for the proposed rule (66 FR 3120, January 12, 2001).

B. Post-Proposal Activities

Following proposal of the rule, EPA has encouraged public participation through a series of public meetings, meetings with stakeholders and USDA representatives, and other activities described below.

1. Public Meetings

EPA conducted nine public meetings on the proposed CAFO regulations. Public meetings were held in: Baltimore, Maryland; Ames, Iowa; Riverside, California; Fort Wayne, Indiana; Dallas, Texas; Chattanooga, Tennessee; Denver, Colorado; Boise, Idaho; and Casper, Wyoming. The purpose of the meetings was to enhance public understanding of the proposed regulations for CAFOs and provide an opportunity for EPA to answer questions on the rule directly and to obtain informal feedback on the proposed requirements. The meetings consisted of a brief presentation by EPA officials on the proposed regulation followed by a question and answer session. Additional information on EPA's public meetings is available in the record and also at EPA's website at: http://www.epa.gov/npdes/afo. This website provides summaries of these public meetings and a copy of the presentation materials used at these public meetings, along with additional information on EPA's outreach activities following proposal.

2. Stakeholder Meetings

Since the proposal, EPA has met with representatives of various stakeholder groups, including representatives from various industry trade associations, environmental groups, as well as researchers from select land grant universities and research organizations, including Food and Agricultural Policy Research Institute. Throughout regulatory development, EPA worked with representatives from the national trade groups, including: National Cattlemen's Beef Association; American Veal Association; National Milk Producers Federation; Professional Dairy Heifers Growers Association; Western United Dairymen; National Pork Producers Council; United Egg Producers and United Egg Association; National Turkey Federation; the National Chicken Council; the American Horse Council; and representatives of the duck industry.

EPA has also consulted with State and local governments and also several national associations representing State governments. These include the National Governors' Association, the National League of Cities and the National Association of Conservation Districts and the Association of State and Interstate Water Pollution Control Agencies. Other state level organizations that the Agency has consulted with include the Delaware Nutrient Management Commission, Quad State Poultry Dialogue, National Association of State Departments of Agriculture, and the National Association of State Conservation Agencies. The purpose of these meetings was to provide clarification of the proposed regulations and the analyses supporting the development of these proposed regulations, as well as to discuss new information that stakeholders may have available for further analyses of the costs, impacts, and benefits of the proposed rules. These meetings typically focused on a specific regulatory or technical topic (e.g., permit nutrient plans, EPA's cost analysis supporting the proposal) or a specific animal sector (e.g., dairies). Additional documentation of these stakeholder meetings is available in the rulemaking record.

3. USDA-EPA Workgroup Meetings

In April 2001, USDA initiated a process to review the proposed revisions to EPA's CAFO rule and identify issues and concerns posed by the rule. USDA identified 15 specific areas of concern and a number of overarching issues. As a follow-up to this process, USDA and EPA's Office of Water initiated monthly meetings on issues of significance for agriculture and the environment, specifically water quality. The goal was to improve communication between the two agencies to provide better information to the public and policy makers on areas of mutual concern related to agriculture and water quality, and to facilitate informed decisions on approaches and needs to address the key agriculture and environment issues. In July 2001, EPA and USDA convened a joint workgroup to address the issues identified by the USDA workgroup and begin to develop options for EPA leadership to consider in developing the final rule. The collaboration is intended to strengthen the agricultural systems view in the analysis used to finalize the proposed CAFO rule.

The USDA-EPA workgroup is charged with developing an approach to pursue discussions between the two agencies. The focus of this dialogue is on the issues identified through USDA's review of the proposed revision to the CAFO rule, including identifying additional data or information needs to support analyses and identifying potential options that could be considered by EPA for consideration in its decision-making process. Four major broad topic areas were discussed by the USDA-EPA workgroup, including (1) EPA's proposed scope of the CAFO regulations, (2) EPA's cost and economic analysis supporting the proposed regulations, (3) EPA's proposed technology options, and (4) EPA's proposals for building State program flexibility into the regulations.

USDA's participation in these discussions is to identify issues, suggest strategies or approaches to resolve issues, and provide data and information to support additional analysis. EPA's participation in these discussions is to clarify the intent of sections giving rise to issues, identify additional data or information needed, and thoughtfully assess the information provided by USDA for use in finalizing the CAFO rule. As part of this process, USDA recognizes that the authority to develop the final CAFO regulations rests solely with EPA, as does the final responsibility for the content of the rule.

4. Review of EPA's Economic Analysis by the Food and Agricultural Policy Research Institute (FAPRI)

Researchers at the Food and Agricultural Policy Research Institute (FAPRI) at University of Missouri conducted a review of EPA's economic analysis at the request of the Committee on Agriculture, United States House of Representatives. To respond to this Congressional request, the FAPRI staff worked with other members of its consortium, including researchers at Iowa State University and the Agriculture and Food Policy Center (AFPC) at Texas A&M University.

The stated focus of FAPRI's review is to provide EPA with an alternative methodology for determining the financial impacts of the proposed CAFO regulations on the livestock industry. FAPRI's review did not specifically address technical aspects of the proposed requirements or EPA's data and methodology to estimate compliance costs associated with the management of animal effluents. To that end, FAPRI assembled agricultural and land grant university experts to help conduct an independent economic analysis and construct alternative models of animal feeding operations for use in this analysis. Once alternative

financial information was compiled, FAPRI designed an alternative economic model to first construct a financial baseline for each operation and then analyze the impact of the proposed CAFO regulations. FAPRI's study also predicted the aggregate level impacts in each of the livestock sectors due to implementation of the proposed CAFO regulations. For this study, FAPRI used cost estimates directly computed by EPA, with some exceptions made by FAPRI to improve the accuracy of these cost estimates.

FAPRI's reports on EPA's cost and economic analysis, “FAPRI's Analysis of the EPA's Proposed CAFO Regulation” and also “Financial Impact of Proposed CAFO Regulations on Representative Broiler Farms” are available in the record and at FAPRI's website at: http://www.fapri.missouri.edu/FAPRI_;Publications.htm. Additional detailed information about FAPRI's baseline model is available at http://www.fapri.missouri.edu.

5. Other Outreach and Data Gathering

EPA initiated several other means of providing outreach to stakeholders. Most notably, EPA manages a number of web sites that post information related to these regulations. Supporting documents for the rule include the Technical Development Document, Economic Analysis, Environmental Assessment, Environmental and Economic Benefit Analysis of the proposed CAFO regulations, and cost methodology reports and guidance related to Permit Nutrient Plans. These are located at http://www.epa.gov/waterscience/cafo/. Other outreach materials are located at http://www.epa.gov/npdes/afo/ and include a copy of the public meeting presentation materials, a fact sheet describing the proposed CAFO regulations, a compendium of AFO-related State program information, and various materials related to permitting issues.

In response to the public meetings, EPA developed a document entitled “Frequently Asked Questions About the Proposed Revisions to CAFO Regulations” published on June 27, 2001 and available on the outreach web site. This document identifies the major issues raised during the public meetings and provides brief answers for each question. EPA also developed a Public Commenter's Guide to the Proposed New CAFO Regulations, published on May 31, 2001. The Guide identifies the major issues in the proposal and summarizes how EPA has proposed to treat each issue in the revised regulations. The Guide also provides a cross reference list of the proposed regulatory language and the location of associated discussion in the preamble. This information is available at: http://www.epa.gov/npdes/afo/.

III. Summary of the Proposed ELG and NPDES Rules

The proposed rule, published on January 12, 2001 (66 FR 2959), identified potential revisions to existing NPDES permit provisions and effluent guidelines for CAFOs. The NPDES permit program for CAFOs defines which animal feeding operations are CAFOs and need to obtain a NPDES permit, and establishes the specific compliance requirements under a permit. Effluent guidelines and standards for CAFOs establish the technology-based effluent discharge and performance standards for both existing and new facilities for each of the beef, dairy, veal, swine and poultry subcategories.

In developing its proposed CAFO regulations, EPA considered various technology options and also different options in terms of the number of regulated operations. A summary overview of the ELG options and NPDES scenarios is provided in Table 3-1. For more detailed information, see Sections VII and VIII of the EPA's proposed rulemaking preamble (66 FR 2993-3061).

Table 3-1.—Summary Description of Options/Scenarios Considered by EPA

Technology Options

Option 1: N-based land application controls and inspection and recordkeeping requirements for the production area.

Option 2: Same as Option 1, but restricts the rate of manure application to a P-based rate where necessary (depending on specific soil conditions at the CAFO).

Option 3: Adds to Option 2 by requiring the operation to perform ground water monitoring and controls, unless it can show that the ground water beneath manure storage areas or stockpiles does not have a direct hydrologic connection to surface water.

Option 4: Adds to Option 3 by requiring sampling of surface waters adjacent to production area and/or land under control of the CAFO to which manure is applied.

Option 5: Adds to Option 2 by establishing a zero discharge requirement from the production area that does not allow for an overflow under any circumstances.

Option 6: Adds to Option 2 by requiring that large hog and dairy operations install and implement anaerobic digestion and gas combustion to treat their manure.

Option 7: Adds to Option 2 by prohibiting manure application to frozen, snow covered or saturated ground.

Regulatory Scope Options

Scenario 1: Retains existing 3-tier framework and establishes additional requirements.

Scenario 2: Same as Scenario 1; except that operations with 300-1,000 AU would be subject to the regulations based on a revised set of conditions at the feedlot site.

Scenario 3: Same as Scenario 2, but allows operations with 300-1,000 AU to either apply for a NPDES permit or to certify to the permit authority that they do not meet any of the conditions and thus are not required to obtain a permit.

Scenario 4a: Establishes 2-tier framework and applies ELG standard to all operations with more than 500 AU.

Scenario 4b: Establishes 2-tier framework and applies ELG standard to all operations with more than 300 AU.

Scenario 5: Establishes 2-tier framework and applies ELG standard to all operations with more than 750 AU.

Scenario 6: Retains existing 3-tier framework and establishes a simplified certification process.

A. Proposed Effluent Limitations Guidelines and Standards (ELG)

Under the current regulations, CAFOs are already prohibited from discharging process wastewater, except when rainfall events cause an overflow from a facility designed, constructed, and operated to contain all process-generated wastewater plus the runoff from a 25-year, 24-hour rainfall event. Under Option 1, CAFOs would also be required to implement certain best management practices and inspection and monitoring requirements for the production area. Option 1 would also require that land application of manure and wastewater be performed in accordance with a permit nutrient plan that establishes application rates based on crop nitrogen requirements. Option 2 is equal to Option 1, with the exception that application rates would be restricted to phosphorus-based rates where necessary.

Option 3 includes all requirements of Option 2, and would require ground water monitoring and controls unless the CAFO has demonstrated that there is not a direct hydrologic connection between the ground water beneath the production area and surface water. Option 4 includes all requirements of Option 3, with an additional requirement to monitor surface waters adjacent to feedlots and to CAFO cropland to which manure may be

applied that is under control of the CAFO. Option 5 includes all requirements of Option 2, and prohibits overflow from the CAFO production area under any circumstances. Option 6 includes all requirements of Option 2 and requires that large hog and dairy operations install and implement anaerobic digestion to treat manure and capture methane gas for energy or heat generation. Option 7 includes all requirements of Option 2 and prohibits manure application to frozen, snow covered, or saturated ground.

In developing the proposed regulations, EPA assembled information and data on each of the seven technology options considered. This information was used to identify the preferred technology option for each industry subcategory.

For existing operations, EPA proposed to require nitrogen-based and, where necessary, phosphorus-based land application controls of all livestock and poultry CAFOs (Option 2), with the additional requirement that all cattle and dairy operations must conduct ground water monitoring and implement controls, unless they demonstrate that the ground water beneath the production area does not have a direct hydrologic connection to surface water (Option 3), and with the additional requirement that all hog, veal, and poultry CAFOs must also achieve zero discharge from the animal production area with no exception for storm events (Option 5).

For new operations, EPA proposed that operations meet the same requirements that would apply to existing operations based on BAT (Option 3 and Option 5), with the additional requirement that all new hog, veal and poultry operations also would need to implement ground water controls unless they demonstrate that there is no direct hydrologic connection to surface water (Option 3).

In addition, EPA's proposed regulations would make the ELG applicable to all operations defined as a CAFO under the NPDES regulation (not including operations that are

designated

as a CAFO), as well as to establish a new subcategory for veal production. EPA proposed substantial changes to the applicability for chickens, mixed animal operations, and immature animals. EPA also proposed to rename the effluent guidelines regulation from Feedlots Point Source Category to CAFOs Point Source Category.

For more detailed information on these proposed technology options, see Section VIII of the EPA's proposed rulemaking preamble (66 FR 3050-3061).

B. Proposed NPDES Regulations

At proposal, EPA presented seven potential scenarios that differ in the number of operations that would be affected by the proposed regulations (see Table 3-1). Under the existing regulations for CAFOs, animal feeding operations with more than 1,000 animal units (AU) are defined as CAFOs and must obtain a NPDES permit. In addition, operations with between 300 AU and 1,000 AU may be defined as CAFOs, if they meet certain criteria (see 40 CFR 122.23 and Part 122, Appendix B).

Under the proposed revisions, EPA considered a number of alternatives to the existing CAFO definition. The “two-tier” structure would define as CAFOs all animal feeding operations with more than a specified number of animals. Operations with fewer animals would become a CAFO only if designated by EPA or the permit authority. Various two-tier alternatives considered by EPA included defining as CAFOs all animal feeding operations with more than 300 AU, 500 AU, 750 AU or 1,000 AU. The “three-tier” structure would define as CAFOs all animal feeding operations with more than 1,000 AU and any operation with more than 300 AU if they meet certain conditions at the feedlot site—and, under one alternative, would require all operations with between 300 and 1,000 AU to either apply for a NPDES permit or to certify to the permit authority that they do not meet certain conditions and thus are not required to obtain a permit. These alternatives are presented in Table 3-1.

EPA co-proposed two structures for defining which animal feeding operations (AFOs) are CAFOs. In the first alternative, EPA proposed to replace the existing three-tier structure with a simplified two-tier structure that defines a CAFO based on size alone. For this approach, EPA proposed to set the size threshold for CAFOs at 500 AU (see Table 3-1, Scenario 4a); EPA also requested comment on establishing the threshold at 750 AU (Scenario 5). In the second alternative, EPA proposed to retain the existing three-tier structure, but to revise the conditions that define a CAFO in the middle tier, and to require all middle-tier operations to either apply for a NPDES permit or to certify that they do not meet the conditions for being considered a CAFO (Scenario 3). EPA also requested comment on a three-tier structure with simplified conditions.

In addition, EPA proposed to revise the definition of a CAFO to include poultry operations, stand-alone swine nurseries, and stand-alone heifer operations. The definition of a CAFO would also specifically encompass both the production area and land application area. The definition of an AFO would be revised to clarify that animals are not “stabled or confined” when they are in areas such as pasture or rangeland. EPA also proposed that NPDES permits would be required for all CAFOs, even if they only discharge in the event of a 25-year, 24-hour storm. This would include all CAFOs that discharge or have the potential to discharge CAFO wastes to navigable waters via ground water with a direct hydrologic connection.

EPA proposed two alternatives for information reporting in connection with the off-site transfer of excess manure. EPA also proposed that integrators be “co-permitted” where they exercise “substantial operational control” over the CAFO. As an alternative, EPA proposed waiving co-permitting where the State already has an adequate program to address excess manure or where the processor implements an adequate environmental management system.

EPA proposed that operations that cease to be CAFOs must retain NPDES permits until the facilities are properly closed. That is, the operation must remain permitted until all CAFO wastes no longer have the potential to reach waters of the United States.

For more detailed information on these proposed regulatory scope alternatives, see Section VII of the EPA's proposed rulemaking preamble (66 FR 2993-3050).

IV. New Information Related to the Proposed Revisions to the Effluent Limitations Guidelines and Standards

Since proposal, EPA has obtained additional data and information from the industry, USDA, State and local governments, other stakeholders, and the Agency's continued data collection activities. The Agency has included these data, information, and the preliminary results of EPA's evaluation in sections 14 through 23 of the rulemaking record, available for review in the Water Docket (Docket W-00-27; see Addresses section of this notice). The information includes data received by the Agency during the extended comment period on the CAFO proposal from the above sources, materials submitted by vendors, and materials collected by EPA during outreach and conferences. The specific technical data, information, and comments provided to EPA with respect to various specific issues are discussed throughout the following sections of this document.

A. Effluent Limitations Guidelines and Standards Terminology

As part of EPA's effort to develop national manure management standards, EPA has reviewed comments received on the proposal and worked closely with USDA in refining definitions of some terms contained in EPA's proposed regulatory language (see Section II.B.3). These refinements and alternatives along with comments received on this notice will be considered as the Agency develops the final rules. EPA solicits comments on the appropriateness of the following alternatives, the extent to which they need to become formalized definitions, and data sources used to support these terms.

1. Definition of Proper Agricultural Practices

In the proposal, EPA defined the term “agricultural stormwater discharge” with respect to land application of manure and wastewater from animal feeding operations. Under EPA's proposal, an “agricultural stormwater discharge” was defined as “a discharge composed entirely of storm water, as defined in 40 CFR 122.26(a)(13), from a land area upon which manure and/or wastewater from an animal feeding operation or concentrated animal feeding operation has been applied in accordance with proper agricultural practices, including land application of manure or waste water in accordance with either a nitrogen-based or, as required, a phosphorus -based application rate” (66 FR 3029). Within this definition, EPA used the term “proper agricultural practices” as part of defining what qualifies as an agricultural storm water discharge. EPA also used the phrase “proper agricultural practices” as part of an alternative proposal for the permit conditions for off-site transfer of manure for the purpose of land application (see 122.23 (a)(3)(ii)(B)(6)). It should be noted that under the proposal, the definitions of “agricultural stormwater discharge” and “proper agricultural practices” do not provide an exemption for a facility's duty to apply for a permit (see Section VII).

Several comments indicated manure could be used for conditioning of soils to promote soil structure and health, and can be so used for numerous land reclamation practices that some may not consider strictly agricultural. An example is using manure as a resource for reclamation of disturbed or spent lands. Some comments suggest this practice may have some distinct environmental benefits even if it is not strictly “agricultural.” EPA solicits comment on the application of manure to disturbed or spent lands, and the extent to which such practices result in discharges to surface waters.

To clarify the term as well as to ensure consistency within the rule, several stakeholders suggested “proper agricultural practices” should be formally defined in such a manner as to encompass necessary local practices to protect receiving streams from storm water runoff. EPA did not propose a regulatory definition of proper agricultural practices, but in accordance with these comments, is considering adopting the following definition of “proper agricultural practices”:

A “proper agricultural practice” is one of any number of conservation practices, production measures, or management techniques that the CAFO operator or manure recipient can use to improve the efficiency, economy, or environmental condition of the site and surrounding land areas and waterbodies.

Examples of proper agricultural practices for control of CAFO-generated animal manures and wastewaters include, but are not limited to: adequate and proper storage for manures and wastewaters that facilitates timely and efficient land application practices; chemical/physical treatment of manures and wastewaters to stabilize nutrients in a manner that reduces loss to water and air; manure analysis; soil and plant testing to monitor soil nutrient levels and determine crop nutrient needs; calibration of manure spreaders and irrigation equipment; timely and efficient application of manures relative to nutrient uptake patterns and realistic yield goals of crops; crop management practices that optimize yields and plant nutrient uptake while minimizing nutrient losses to ground and surface waters; and tillage practices and other soil conservation measures that prevent soil erosion and nutrient leaching and runoff. What constitutes proper agricultural practices is a case-by-case decision that depends on the circumstances at each site and may necessitate a combination of one or more of the practices listed above or other practices not listed here.

EPA solicits comment on the proposed definition of “proper agricultural practices” and the extent to which the suggested definition reduces ambiguity.

2. Chronic Storm Event

The current effluent guidelines for CAFOs require zero discharge of process waste water pollutants to navigable waters, except that process waste pollutants in the overflow may be discharged to navigable waters whenever rainfall events, either chronic or catastrophic, cause an overflow of process waste water from a facility designed, constructed and operated to contain all process generated waste waters plus the runoff from a 25 year, 24 hour rainfall event for the location of the point source (see 40 CFR 412.13). EPA does not define chronic or catastrophic storm events in the current rule (see 40 CFR 412.11).

In EPA's proposed revisions to the effluent guidelines for the production areas for the beef and dairy subcategories, EPA proposed to retain this design standard. EPA did not, however, propose to define chronic or catastrophic storm events. EPA also proposed to remove the terms chronic and catastrophic from the regulations. In the proposal, EPA noted persistent rainfall over a period longer than 24 hours can occasionally overwhelm a system designed for the 25 year 24 hour storm event even though such persistent rainfalls may be expected to occur more frequently than every 25 years (see 66 FR 3042). In EPA's proposal, EPA solicited comment on whether EPA should define chronic events, and whether EPA should develop additional design specifications for handling chronic rainfall events.

Some stakeholders agreed chronic rainfall events could cause a discharge from a system that has been designed, constructed, maintained and operated to contain all process waste waters plus the runoff from a 25 year, 24 hour rainfall event. One analysis performed by the Texas Institute for Applied Environmental Research shows the return interval of the equivalent volume of the 25 year, 24 hour storm event from consecutive wet days occurs every 6 years. Despite the occurrence of such chronic events, none of the stakeholders indicated the volume of any resulting discharges, the extent to which such discharges reached surface waters, or whether such discharges were indeed occurring. EPA solicits comment on the extent to which chronic events cause discharges from the production areas that subsequently reach surface waters.

Some stakeholders requested EPA evaluate a technology option using larger storm events as the design standard, especially in systems that collect runoff in addition to direct precipitation. For example, under one suggested approach, surface impoundments would need to provide storage for 10 year chronic events, or a combination of chronic events plus the 25 year 24 hour storm event. EPA is soliciting comment on the consequences

of establishing design standards based on chronic events, such as standards that would significantly increase the size of manure storage systems, significant increases in costs to expand existing storage capacity, and potentially increased environmental risks of creating larger liquid impoundments. EPA also solicits comment on the extent to which potential CAFOs already have sufficient storage to accommodate chronic events. EPA further solicits comment on an approach for clarifying when a discharge is considered to be caused by “chronic rainfall;” whether clarification is needed to enable the operator and the permit authority to be assured that the lagoon is being properly constructed and managed; whether existing state requirements adequately capture chronic storm events while leaving capacity for the 25 year, 24 hour storm events; and whether technology guidelines or permitting regulations are necessary in either Section 412 or 122 to address discharges due to chronic rainfall.

3. Alternative Approach to Nutrient Management Planning

EPA proposed to specify which components of a Comprehensive Nutrient Management Plans (CNMP) would be required under the name “Permit Nutrient Plan” (66 FR 3065). Many stakeholders believe the term Permit Nutrient Plan, or “PNP,” may cause confusion despite EPA's efforts to clarify that it is not a new or additional plan, but rather the enforceable portions of a CNMP. In light of feedback EPA has already received, EPA is now considering a change in terminology under which the effluent guidelines would specify that, instead of a PNP, each CAFO must have a CNMP that includes, at a minimum, a number of specific components. By eliminating the term “PNP”, EPA would hope to quell the confusion over terminology. This would be a change in terminology only, since EPA would specify as “minimum measures of a CNMP” the same components that EPA described in the proposal as required elements of a PNP.

B. Proposed Performance Standards

1. Ground Water Controls

EPA proposed that in the absence of a certification that there is no direct hydrologic link between ground water below the production area and surface waters, facilities must take ground water samples to demonstrate compliance with the no discharge requirement from the manure storage areas. Some stakeholders incorrectly interpret the ground water controls to apply to the entire production area, or to the land application areas. EPA is clarifying that the proposed performance standard for ground water in § 412.33 is intended to apply to any liquid manure storage areas (e.g., ponds, lagoons, pits) or uncovered solid manure storage areas (e.g. stockpiles). EPA did not intend for this requirement to apply to the temporary mounding of manure in cattle dry lots. EPA also reiterates it did not propose that the requirement of zero discharge to ground water that has a direct hydrologic connection to surface waters would apply to discharges at the land application areas. Several stakeholders stated that ensuring zero discharge to ground water is not technologically feasible with the technologies identified by EPA as best available technologies, i.e., synthetic and clay double liners. These stakeholders assert all lagoons, including those lined with clay and some synthetic materials, leak to some degree. EPA continues to believe that the information in the record supports the Agency's determination that the technology we identified as BAT (synthetic/clay double liners) will achieve a standard of zero discharge to ground water. At proposal, EPA also identified additional technologies that the Agency believes would achieve a zero discharge standard, including glass-lined steel tanks, above ground tanks, and new liquid-impermeable synthetic liners. Because these technologies are more expensive than synthetic/clay double liners, EPA did not identify them as BAT or analyze their economic impacts.

Nevertheless, in light of the comments and information received, EPA intends to reexamine whether synthetic/clay double liners are truly capable of achieving zero discharge to ground water, based on the information in the record, including any new information received since the proposal. If EPA concludes that this technology is not available to achieve zero discharge, EPA is considering two further ways to proceed. First, EPA may examine whether it can identify the alternative technologies described above (glass-lined tanks, above ground tanks and liquid-impermeable liners) as BAT technologies, after evaluating their economic impacts. (The proposal already contained information on their costs.) Based on this analysis, EPA could retain the zero discharge standard based on identifying these alternative technologies as BAT technologies.

Second, if EPA cannot identify any alternative technologies as best available technologies economically achievable, EPA may reevaluate the performance achievable using synthetic/clay double liners. If these materials cannot achieve zero discharge, EPA may consider adopting a performance standard based on their permeability. Literature information in the record, as reflected in regulations adopted by several States, indicates that these materials can, at the very least, minimize discharges and achieve a leakage rate of no more than 10

−

7

cm per second. EPA would generally reevaluate the technological availability and economic achievability of adopting this numeric standard as a BAT standard based on the performance and costs and economic impacts associated with this technology. EPA solicits additional comment on these issues. EPA is also considering a variation on the above alternative standard. If EPA adopts a numeric BAT standard such as 10

−

7

cm per second, EPA is considering an option where a facility could demonstrate compliance with this standard by demonstrating that when it was first constructed or last modified, it was built to NRCS conservation practice standards, including criteria and considerations for design, used in conjunction with the Agricultural Waste Field Handbook and other technical references. This option would be based on a determination that meeting the NRCS practice standards will ensure that the 10

−

7

cm per second standard will be met. Information on the NRCS practice standards is contained in the record. EPA solicits comment on this alternative approach as a performance standard applicable to all CAFOs. EPA further solicits comments on the extent to which the alternative approaches under consideration may reduce costs, remove burden, reduce uncertainty associated with assessments of hydrologic connections, and possibly reduce monitoring and reporting requirements.

At proposal, EPA solicited comment on an approach that would narrow the ground water sampling requirements to only those facilities located in areas with topographical characteristics that indicate the presence of ground water that is likely to have a direct hydrologic connection to surface waters (

e.g.

, sandy soils, karst topography, and shallow water tables). Despite its narrowed focus, this approach would retain the proposal's presumption of a direct hydrologic connection, but only for those operations located in sensitive areas; operations not located in sensitive areas could still be subject to ground water sampling requirements if the permitting authority deemed it appropriate. EPA is clarifying that an alternative approach would be to

include ground water sampling provisions in the effluent guidelines but not to presume that there is a direct hydrologic connection for any facility. Thus, the need for ground water sampling or an assessment would not be specified in the effluent guidelines but would be left to the discretion of the permitting authority in all cases. EPA solicits comment on this approach. Should ground water requirements be included in the final rule, EPA further solicits comment on the level of discretion that is appropriate in the application of such requirements.

2. Alternatives to Proposed 100-foot Setback

EPA proposed a manure application setback of 100 feet from surface waters, open tile drain inlets, sinkholes, and agricultural drainage wells (see proposed rule § 412.37). EPA intended such setbacks would provide an additional barrier for pollutants in the runoff from land applied manure. EPA also determined the setback would provide an additional measure to prevent trace amounts of metals, pathogens, and antibiotics in the manure from leaving the field with runoff. In the proposal, EPA acknowledged and continues to believe the most effective combination of setbacks and vegetated buffers will be site specific. EPA believes the appropriate site specific combination will depend, among other things, the type of vegetation present, the use of soil conservation practices in or adjacent to the setback, the consideration of slope in determining the potential risk to water courses, and the method and timing of manure and wastewater applications in the setback zone. EPA further solicited comment on EPA's concern that a setback from these select features might preclude manure based fertilization of large areas of crop land in certain geographic locations.

To evaluate the costs of this proposed requirement, EPA assumed facilities would establish vegetated buffers with a width of 100 feet on each side of any streams. EPA assumed the net loss of tillable land for facilities to establish these buffers as 3.5 percent of total crop land. EPA believed this approach could overstate the costs of requiring a setback, but would encourage vegetated buffers and other practices to supplement the setback. EPA solicited comment on the use of vegetated buffers or other management practices to minimize pollutants in the runoff from land application. EPA also solicited comment on how it might revise the setback requirement and still adequately protect water quality. Many stakeholders agreed the determination should be site specific, but most stakeholders did not provide any information to indicate that there are any other practices that would perform equal to or better than EPA's proposed setback requirement. Therefore, EPA continues to solicit comments on the proposed 100 foot setback requirement; specifically, as to whether any such superior practices exist. EPA reiterates that nothing in today's notice, including this section, is intended to reopen the proposal in general for further comment. EPA is seeking additional public comment only on the discrete issues identified in this notice. In this case, EPA is interested in further comments on this specific issue to see whether there is any additional information of which we are unaware. EPA solicits comment on whether there are any specific practices that could be established on a site specific basis that would perform as well as or better than EPA's proposed setbacks or buffers.

3. Manure Application Rates Based on Limiting Nutrients

EPA proposed the determination of manure application rates to crop land must, at a minimum, consider the limiting nutrient phosphorus (

See

proposed rule at § 412.31). Where phosphorus levels pose a low to medium risk, the limiting nutrient is typically nitrogen, although in certain cases other factors, such as salt concentrations, could limit manure application rates. EPA proposed the criteria for phosphorus-based management for CAFOs be those that are specified in each state's Nutrient Management Standard (NRCS Conservation Practice 590) so that the decision on the most effective approach(es) and the exact criteria and definitions (either agronomic soil test P levels, soil P thresholds, or the P Site Index) would be state specific.

At the time of proposal, EPA noted that several States already required animal feeding operations to develop nutrient management that consider phosphorus. Several stakeholders stated the nutrient management standards, especially the P-index, were not sufficiently developed to allow their implementation with EPA's final rule. Since proposal, most states have developed their P-index or a nutrient standard based on the P-index, as indicated in additional information that EPA has received from NRCS and is making available today. Since the proposal, 45 States have updated their Nutrient Management Standard; 44 States are using the P-index and one State is opting to use soil test P values. The remaining 5 States have been granted an extension by USDA to revise their Nutrient Management Standards. EPA solicits specific comment on this new information, on whether there is any other information indicating the extent to which States are already mandating phosphorus-based management of manure, and on the extent to which States are implementing their recently revised Nutrient Management Standards in newly written nutrient management plans. EPA intends to use the information received, and any new information, to reevaluate the existing or “baseline” requirements for P-based application under State law and the costs of complying with those requirements. Any change to the baseline costs and economic impacts could affect EPA's analysis of the overall economic impacts of the revised regulations.

Several stakeholders expressed concern that EPA was mandating phosphorus application rates for land application under all circumstances. Quite to the contrary, EPA's proposed use of NRCS” recommended nutrient risk assessment tools contained in the Nutrient Management Standards (NRCS Conservation Practice 590) such as the P-index would allow application rates to be managed differently for each field. The phosphorus index considers many circumstances that affect nutrient transport from the field, and rates each field's potential for nutrient losses accordingly. For States using soil test levels as a screening tool, only fields with excessively high phosphorus levels would be required to undergo the development of a more rigorous phosphorus-based strategy. While EPA's approach may limit land application to phosphorus-based rates on some fields, particularly those fields that have received manure every year for decades, other fields could continue to receive manure at a nitrogen rate.

Some comments suggest EPA's proposal is too prescriptive by requiring one of three methods for phosphorus-based management. Indeed many stakeholders in academia feel nutrient management is continuously evolving in each State. These stakeholders felt EPA should allow for other State-approved nutrient management standards based on the Nutrient Management Standard, such as the PLAT (phosphorus loss assessment tool) under development in North Carolina. PLAT is intended for application on a field-by-field basis as part of the nutrient management planning process. This tool will rate each site as low, medium, high, or very high. Based on this site-specific assessment, phosphorus may be

identified as the “limiting” nutrient in the development of the specified nutrient application rate being developed by North Carolina.

EPA continues to consider other nutrient management approaches developed by States while maintaining EPA's need for enforceable standards. Based on comments, EPA is now considering an approach that bases the determination of application rates on the Nutrient Management Standards (NRCS Conservation Practice 590) without mandating the use of one of the three methods described in EPA's proposal. EPA solicits comment on this possible approach.

EPA believes there are regions where crop removal rates of nutrients are unusually low, or where manure is typically stored in a concentrated form such as poultry litter or under house slurry storage. Some application equipment may not be able to evenly distribute this form of manure nutrients at very low application rates. EPA determined this could prevent some facilities from applying manure to land on a phosphorus-based rate. Therefore EPA proposed poultry litter could be applied to fields above the phosphorus rate, but no additional manure or litter could be spread until the phosphorus applied has been removed by harvest. This type of application of phosphorus in excess of the current year's crop requirements is often referred to as “banking”. Some comments expressed the need for more flexibility in multi-year phosphorus application rates, because of the limitations imposed by current manure application equipment on the ability to apply manure at single-year crop removal rates. Some stakeholders also stated the need to apply commercial fertilizer to fields that receive manure on a phosphorus-based rate would increase soil compaction and reduce crop yields. EPA believes the agricultural industry will continue to develop new modifications for application equipment that, in combination with GIS based monitoring systems, will make precision applications feasible and affordable. EPA also believes the combination of feed management (precision feeding, feed additives), improved animal genetics, and manure handling practices that minimize nitrogen losses will result in land applied manure that more closely meets the needs of the crops.

Nevertheless, EPA is considering alternative nutrient management strategies that balance the nutrient needs of the crop plus the “banking” of phosphorus in the soil, if necessary, so the facility can realistically land apply manure on the acreage available, or find alternatives if necessary. For those fields that require manure be applied at a phosphorus-based rate, EPA is considering an approach that would continue to allow manure application up to the nitrogen-based rate. Under this approach, no additional manure application to these same fields could occur until all phosphorus applied has been removed through plant uptake and or crop removal.

The Agency is considering determining that this practice would be acceptable as part of what constitutes “proper agricultural practices.” EPA believes such an approach would result in from 2 to 8 years “phosphorus banking” for most manure, but more than 10 years “phosphorus banking” in the more concentrated manure. EPA envisions commercial fertilizers would continue to be used to meet the nitrogen requirements of the crops in subsequent years. EPA is concerned some levels of phosphorus banking would no more prevent discharges to the waters than would unrestricted application rates or application of manure on a nitrogen basis, especially after prolonged storage. Therefore EPA solicits comment on reasonable amounts of phosphorus banking that could be considered an acceptable nutrient management practice. EPA also solicits comment on whether banking practices should be limited to solids and slurries, or whether banking should be considered for all manure applications. EPA specifically solicits data comparing runoff from fields receiving manure on a phosphorus based rate and runoff from fields where phosphorus has been “banked.”

4. Alternative Requirements for Soil Sampling

EPA proposed the CAFO must take soil phosphorus samples every three years if the manure is applied to crop or pasture land under the control of the CAFO. EPA proposed samples should be collected in accordance with accepted State agricultural extension protocols and the analyses must be conducted in accordance with the state nutrient standards. Records of the sampling methods and sampling results should be maintained by the CAFO for five years.

EPA has obtained new data indicating local protocols may already consider the site-specific nature of soils. Consequently, EPA is considering allowing relatively less frequent sampling of those soils slow to accumulate nutrients, but requiring multiple soil phosphorus samples each year in mobile soils and high risk areas. EPA solicits comment on the appropriate frequency for soil sampling under such conditions.

After reviewing comments, EPA discussed sampling frequencies and protocols with USDA, and is considering an approach where soil sampling should be done at a frequency as specified by state protocols, but at least once per five years to allow at least one sample to be conducted per field unit per NPDES permit cycle. EPA believes sampling methods and analyses still need to be conducted locally to allow for meaningful information to be gathered from the sampling. EPA also believes the documentation of soil sampling is an important tool for managing phosphorus buildup in soils, but is interested in ways to minimize the recordkeeping burden, especially for small businesses. EPA solicits comment on the approach of allowing States to determine appropriate sampling frequencies and protocols.

5. Alternative Requirements for Manure Sampling

EPA proposed annual minimum sampling frequencies for nitrogen, phosphorus, and potassium in manure (§ 412.37). EPA believes an essential component to sampling is ensuring the manure sampled is “representative.” Therefore, under the proposal, such samples were to be collected from all manure storage areas and wastewater storage areas to provide representative samples of each waste stream at the CAFO. Manure transported off site would need to be sampled at least once a year for nitrogen, phosphorus, and potassium. EPA proposed samples must be collected in accordance with accepted Extension protocols, and the analyses must be conducted in accordance with the state nutrient standards. Records of the sampling methods and sampling results would need to be maintained by the CAFO for five years.

Some stakeholders expressed concerns over the burden of annual manure sampling all waste streams, particular if nothing has changed at the farm that would affect the results of manure analysis. For example, after a “history” or profile of manure analyses has been documented, these stakeholders assert less frequent analysis may be sufficient as long as production practices remain constant. EPA solicits comment on allowing less frequent manure sampling after such a profile has been established by the CAFO. Similar to the approach described for soil sampling, EPA is considering an approach where manure sampling periodicity can be set to follow state protocols, with a minimal

sampling rate of once per year per waste stream. EPA also believes the documentation of manure sampling is very important, but is interested in ways to minimize the recordkeeping burden, especially for small businesses. EPA solicits comment on the approach of allowing States to determine appropriate sampling frequencies and protocols, and whether EPA should establish a minimum sampling requirement and testing frequency.

6. Feasibility of Zero Discharge Standard

EPA proposed a zero-discharge performance standard for the production area (technology option 5) for the swine, veal, and poultry subcategories without allowance for discharges from chronic or catastrophic storms (see § 412.43). EPA's proposed technology option 5 assumes outside liquid manure storage (lagoons) that do not collect open lot runoff could be designed and maintained to handle precipitation from virtually any storm through the use of liquid-impermeable covers. Some facilities could choose to close out their lagoons and construct smaller covered liquid storage or new slurry storage. As described in the preamble, manure stored under the confinement housing (such as swine deep pits or layers in high-rise houses) could meet the performance standard at generally little or no additional cost. Dry manure systems (most broilers, pullets, and turkeys) where litter is stored under cover (storage sheds or stored in bermed areas with tarps) could also meet the standard.

Some stakeholders felt impermeable lagoon covers in particular posed a number of operational challenges: freezing, biogas collection, clean storm water management, wind shear, cover repair, and disposal of spent covers. For these reasons, these stakeholders concluded the zero discharge standard was technologically unfeasible.

EPA believes the record information on the demonstration status of impermeable lagoon covers, including those in use in other industries, adequately addresses these feasibility concerns. EPA has data from several vendors; one such vendor has developed over a dozen such systems ranging in size from 3 acres to almost 20 acres. Covered lagoon systems have been successfully implemented in colder climates such as northern Illinois, South Dakota, and Wisconsin, and in high rainfall areas such as South Carolina, North Carolina, and Georgia. These systems are routinely exposed to and resist freezing, high winds, and other extreme weather events. Furthermore, the systems are typically retrofit to existing lagoon applications, and EPA believes the technology is further established in the municipal and food processing sectors. To date, EPA has not received any additional information demonstrating cover susceptibility to extreme weather events.

Since proposal, EPA has received additional information on one type of lagoon cover technology used in other industries (food processing, municipal wastewater treatment) that uses a heavy HDPE floating cover. The cover, including additional slack to compensate for changing liquid levels, is anchored in a trench filled with concrete. The cover system also has ballast pipes to keep the cover in place during high winds and peak methane production periods. Current membrane technologies include heavier synthetic materials approaching a 25-year useful life. The systems utilize supports under the cover for buoyancy, and a sump collection system is fabricated into the cover to remove storm water during periods of rain and snow melt. One series of plumbing allows liquid to be pulled from the top of the lagoons under the cover. A second series of piping allows sludge to be periodically removed with a vacuum truck, eliminating the need to move the cover. In addition to eliminating all discharges in dozens of lagoon applications, the technology has demonstrated an ability to reduce air emissions, to mitigate odors, and in some limited cases to provide cost offsets in the form of alternative energy. EPA believes this is useful additional information in indicating the feasibility and availability of this type of technology. The Agency believes this technology would be equally available for use in the animal feeding operations industry. EPA solicits comment on the use of these demonstrated technologies for application in the animal feeding operations industries.

EPA also has extensive experience in the use of impermeable lagoon covers in the AgStar program. While these systems were not designed for the purpose of preventing discharges under any storm event, these systems have routinely demonstrated zero discharge is attainable. Digesters such as heated tanks further incorporate features to contain possible discharges that can occur from pipe penetration points in the tank. Additional experiences of those farms participating in EPA's AgStar program demonstrate gas generation and collection is crucial to the profitability of anaerobic digesters. Despite the potential for energy generation and other cost offsets, EPA does not believe anaerobic digesters are necessarily suitable for all locations and conditions. EPA believes the sizable capital expenditure coupled with today's low energy costs make it difficult for many anaerobic digesters to be cost effective. EPA also noted digesters need to be properly managed, which can pose challenges for smaller facilities because they have fewer resources available to control a digester. Material vendors and digester consultants also point to the gas collection system as a critical component. A properly sized and managed collection system does not experience foaming, freezing, and cover bubbling. The covers are designed to support weights such as workers during routine inspection or repair and maintenance, and as noted the covers are routinely and safely installed as a retrofit. Therefore EPA's costs for the proposed performance standards assume all such biogas is flared to simplify management and time constraints of operating a covered lagoon system.

EPA will continue to evaluate the feasibility of the proposed technology option 5, especially for smaller facilities that are more likely to employ open lot or partially housed confinement practices (see section V.B.2 for additional discussion of EPA's extension of its model farm approach). To reiterate, EPA is not reopening the proposal in general for further comment, however EPA solicits additional comment and information on the identification of impermeable lagoon covers as BAT technologies to meet a zero discharge performance standard. Specifically, EPA solicits additional information on CAFOs (or other facilities with similar liquid impoundments) where impermeable covers are in use, including detailed information describing the system design, construction, cost, and operation. As EPA stated above in this section, some commenters speculate that impermeable covers pose certain operational challenges that would lead to the zero discharge standard being technologically infeasible. To further investigate the commenters' concerns about technological feasibility, EPA also solicits data that would support a determination that the technologies serving as a basis for the proposed BAT and NSPS are infeasible. Examples of such data include detailed information on specific locations where the technologies were attempted but failed, data regarding the design and size of the system employed (both physical

dimensions and wastewater throughput), construction materials and methods employed, and detailed descriptions of the manner in which the technology failed and the reasons for the failure.

V. Changes EPA Is Considering to its Cost and Economic Impact Models

EPA received a number of comments questioning the approach EPA used to assess costs and financial impacts to regulated CAFOs. In general, commenters expressed concern that EPA had underestimated the costs associated with the proposed rule and also overestimated the CAFO's ability to absorb expected compliance costs. In particular, commenters question the accuracy of EPA's estimated average compliance costs associated with the proposed requirements as well as the appropriateness of EPA's financial model to evaluate financial impacts from these expected costs. For these reasons, many comments received by EPA challenge the Agency's proposal that the proposed revisions to the CAFO regulations are “economically achievable.” Some commenters provided EPA with alternative data and suggestions on ways that EPA could improve its analyses supporting the rule. Today EPA presents these data and describes modifications to its existing cost and economic models that the Agency is considering in order to address commenter's concerns.

EPA received additional cost and financial data from USDA, FAPRI (Food and Agricultural Policy Research Institute), some industry trade associations, and researchers at some land grant universities. In addition, since proposal, EPA has considered ways to refine its cost and financial models and has received many suggestions on how to modify its modeling approach by these major stakeholder groups. A summary of these additional data and information are summarized in this section.

A summary of the principal concerns about EPA's cost and economic analyses that were raised during the public comment period include: (1) EPA's assumption that CAFOs are already in full compliance with existing Federal and State regulations for operations with more than 1,000 AU, (2) EPA's approach for estimating expected incremental compliance costs that would be incurred by CAFOs, (3) financial data used as inputs to EPA's economic models to depict baseline financial conditions, particularly for certain sectors, (4) EPA's failure to assess the feasibility of an operation to incur new debt associated with additional capital investments required under the proposed requirements, and (5) EPA's suggested criteria and overall analytical approach to evaluate post-regulatory changes and to determine economic achievability.

Following a discussion of the alternate data and information obtained by EPA to update its industry profile of the individual CAFO sectors (Section V.A), this section describes alternative data and information obtained by EPA that the Agency is considering to use to further refine the analytical models that it will use to develop and evaluate the final CAFO regulations. Section V.B describes alternative data and approaches that EPA is considering to address comments about its cost models to estimate compliance costs; Section V.C describes alternative data and approaches that EPA is considering to address comments about its economic model to evaluate financial impacts to regulated CAFOs.

All record materials cited in today's notice are available for public review in the rulemaking record located at EPA's docket office.

A. Industry Profile

1. Estimates of the Total Number of AFOs and Regulated CAFOs

For the proposal, EPA used publicly available data from the

1997 Census of Agriculture,

supplemented by other data sources, to estimate the number of AFOs and potential CAFOs nationwide that would be required to obtain a permit. EPA used this information to assess the costs and evaluate the financial impacts to CAFOs under the proposed regulations. Today EPA is presenting alternative data provided by USDA on total number of AFOs and regulated CAFOs. EPA is soliciting comment on these revised USDA AFO-CAFO estimates for use in EPA's cost and economic impact analyses.

Following proposal, USDA evaluated available information from the

1997 Census of Agriculture

to estimate the number of animal feeding operations at different size thresholds. USDA estimates the number of operations with confined animals by focusing on those operations that meet certain minimum characteristics based on USDA-assumptions in terms of the number of animals and the amount of revenue generated at an operation. This approach does not specifically focus on characteristics that meet the regulatory definition of an animal feeding operation, as codified at 40 CFR 122, in terms of the number of days animals are confined or the amount of vegetative cover at the production area.

For this analysis, USDA assumed that operations that confine animals consist of commercial operations only, excluding: (1) operations with less than $5,000 in annual sales of specialty livestock products, and (2) operations with few animals, defined by USDA as farms with less than 7 animal units of any combination of fattened cattle, milk cows, swine, chickens and turkeys (as well as farms with less than 10 animal units of cattle other than fattened cattle and milk cows, farms with less than 15 horses, ponies, mules, burros, or donkeys, and farms with less than 40 sheep, lambs, or goats). In USDA's analysis, the use of animal units to establish the 7 AU cutoff is based on the USDA definitions of 1,000 pounds of liveweight and not EPA's regulatory definitions which are expressed in terms of the number of animals on-site (codified in 40 CFR 122). However, USDA estimates of the number of confinement operations at different AU thresholds is based on EPA's regulatory definitions.

Table 5-1 reflects revised estimates by USDA on the number of AFOs that confine livestock and poultry and the number of potential CAFOs. These estimates are preliminary and may be subject to further revision by USDA. The table compares these numbers against those used by EPA for the proposed rulemaking. Detailed information on USDA's estimated AFO and CAFO counts are provided in the record (see USDA/NRCS “Profile of Farms with Livestock in the United States: A Statistical Summary,” most recent draft available).

As shown in the table, there is a substantial difference between USDA's and EPA's estimates of the total number of AFOs. For the proposal, EPA estimated that there were a total of 376,000 AFOs nationwide in 1997. In contrast, USDA estimates indicate that there are about 218,000 AFOs during that year. One reason for this discrepancy is that EPA used publicly available data from the

1997 Census of Agriculture,

supplemented by other data sources, to estimate the number of AFOs for its proposed rule. In some cases, EPA estimates were extrapolated from available information. Since EPA did not have access to the underlying farm level census data it was unable to fully evaluate the data and exclude certain operations that are likely not AFOs that may be included in EPA's estimates, such as some operations that raise animals for on-farm consumption only as well as grazing or pasture-based operations that are not AFOs. Instead EPA assumed that all operations listed in the published census data, with

limited exceptions, were potential AFOs. As shown in Table 5-1, EPA's estimate of the total number of AFOs greatly exceeds that estimated by USDA across all sectors: EPA estimated more than 420,000 AFOs with fewer than 300 AU; USDA estimates that there are less than 170,000 AFOs with fewer than 300 AU.

Another reason for the difference between EPA and USDA estimates of the total number of AFOs is that USDA excludes certain operations based on the size of the operation (number of animals or annual revenue generated), regardless of whether they would otherwise fall within the regulatory definition of an animal feeding operation, as codified in 40 CFR 122. This information is a regulatory definition and generally not reflected in any available data sets of the number of livestock and poultry operations. Nevertheless, EPA believes USDA estimates that exclude these smaller sized operations provide a reasonable approximation of the total number of animal feeding operations from which to determine the relevant regulated universe because it is unlikely that many of the smaller, non-commercial operations would meet EPA's definition of an AFO. EPA solicits comment on this assumption.

There is less of a difference between USDA's and EPA's estimates of the total number of potentially regulated CAFOs at the varying size thresholds (operations with more than 1,000 AU and, at select increments, operations with fewer than 1,000 AU but with more than 300 AU). However, USDA estimates that there are more than 6,000 additional operations with between 300 AU and 1,000 AU (see Table 5-1 where EPA estimates indicate about 26,500 operations and USDA estimates are about 32,800 operations for that size group). This difference could raise the number of potential CAFOs, depending on how the Agency defines a CAFO. The principal reason for this difference between EPA and USDA estimates is attributable to EPA's use of a simple correction factor to account for the number of operations with more than a single animal type (described further below). Table 5-2 presents data that delineate the number of facilities in each sector by broad size grouping that are expected to be affected by the proposed regulations.

For the purposes of developing and evaluating the final CAFO regulations, EPA is considering using revised estimates provided by USDA. Tables 5-1 through Table 5-3 present preliminary estimates of these data. These estimates are subject to further revision by USDA. More information on these data and how they were developed are included in EPA's record.

Preliminary estimates presented in Table 5-1 would supplement data previously presented by EPA in Table 6-1, also published in the proposal (66 FR 2984). Data presented in Table 5-2 would supplement data previously presented by EPA in Table 6-2, published in the

Federal Register

notice of the proposed rulemaking (66 FR 2985). Where USDA estimates are provided at a higher level of aggregation than that needed by EPA to conduct its analyses, EPA will extrapolate from available USDA estimates. For example, USDA estimates shown in Table 5-2 does not distinguish between the number of operations with chickens that are broiler and egg laying operations, as well as the number of hog operations that are grow-finish and farrow-finish.

Table 5-3 presents preliminary estimates that delineate the number of facilities in each State and each EPA Region that are expected to be affected by the proposed regulations. Data presented in this table replaces data previously presented in Tables 9-1 and 9-2 of the proposal (66 FR 3074-3077). Where USDA estimates are provided at a higher level of aggregation than that needed by EPA to conduct its analyses, EPA will extrapolate from available USDA estimates. For example, USDA data does not distinguish between the number of operations within some individual States, including Alaska, Arizona, Connecticut, Hawaii, Nevada, New Hampshire, New Jersey, New Mexico, North Dakota, Maine, Massachusetts, Montana, Oregon, Rhode Island, Utah, Vermont, and Wyoming (see Table 5-3). These base data would also need to be further distributed out onto a county level basis for use in EPA's analysis of the estimated reduction in nutrient loadings that is expected under the proposed regulations.

EPA's use of these data will affect underlying assumptions of the number of operations reflected in various analyses supporting the CAFO proposal, including EPA's estimate of the number of regulated CAFOs for the purposes of estimating costs and financial impacts to regulated CAFOs and estimating benefits in terms of reduced nutrient loadings, and EPA's estimate of the number of permits required under the proposed regulation to estimate the costs to the State and Federal permitting authority.

EPA is also interested in obtaining preliminary data and information on general trends in the U.S. livestock and poultry sectors in terms of changes in the number of operations since 1997—the last available

Census of Agriculture

year used by USDA to estimate the number of potential CAFOs. EPA is requesting this information to determine whether there has been a substantial increase in the number of larger sized operations since 1997 and to consider whether the Agency should revise available USDA estimates of the number of potential CAFOs. Specifically, EPA requests recent sector level data on the number of operations with more than 1,000 AU and also the number of operations with between 300 AU and 1,000 AU. To ensure uniformity within a sector, these data should be national in scope and reflect trends across all producing States. EPA will consider using these data to update USDA estimates of the number potential CAFOs for some sectors, to the extent that these new data allow.

An advantage of using these alternate data is that the USDA data reflect the number of operations based on dominant production type at the facility and do not need to be corrected to account for “mixed” operations that have more than one animal type. For the proposed rulemaking, EPA adjusted the sum total number of operations from the published data to eliminate double counting of operations with mixed animal types. The factors EPA used were based on data from the

1992 Census of Agriculture

indicating that operations with mixed animal types account for roughly 200 operations with more than 1,000 AU and about 25 percent of all operations with less than 1,000 AU. (This latter correction factor is likely more representative of smaller operations; information was not available to better identify the number of operations with mixed animals with between 300 and 1,000 AU.) Use of USDA's revised estimates of the number of operations avoids the need to correct the data using a simple adjustment factor. This will ultimately contribute to more accurate cost analyses by minimizing the chance of error associated with deriving an estimate of the number of potential CAFOs that require a permit.

Under the USDA-EPA Unified National Strategy for Animal Feeding Operations, EPA predicted that approximately 20,000 animal feeding operations would be subject to regulation, estimated at that time to comprise roughly 5 percent of the estimated 450,000 AFOs. Estimates of the number of AFOs reported in the Strategy were based on the published data from the

1992 Census of Agriculture

and so include smaller, non-commercial operations. The data presented here provide updated

estimates of the AFO base population and have been substantially revised to eliminate smaller, non-commercial operations. However, EPA's expected

number

of potentially regulated CAFOs remains unchanged and consistent with the goals of the Strategy—estimated at about 20,000 regulated entities or CAFOs.

Table 5-1.—Comparison of Estimates by EPA and USDA of the Number of AFOs by Size Group

Sector/size category

EPA estimates at proposal

All AFOs

>1000 AU

300-1000 AU

<300 AU

USDA's revised estimates

All AFOs

>1000 AU

300-1000 AU

<300 AU

(Number of operations grouped by AU

1

)

Cattle

106,080

2,080

2,000

102,000

43,560

1,970

3,130

38,460

Veal

850

10

200

640

4,250

30

90

3,550

Heifers

1,250

300

750

200

310

270

Dairy

116,870

1,450

5,680

109,740

92,610

1,470

5,670

85,480

Hogs

117,880

4,090

10,280

103,510

48,180

4,080

10,150

33,950

Broilers

34,860

3,940

10,200

20,720

17,740

3,720

12,380

8,020

Layers

75,170

640

1,410

73,120

6,380

Turkeys

13,720

370

1,330

12,020

3,290

450

1,600

1,240

Sum Total

466,680

12,880

31,850

421,950

216,010

12,020

33,290

170,700

Total AFOs

2

375,700

12,660

26,450

336,590

218,320

11,380

32,820

NA

1

As defined for the proposed CAFO regulations, one AU is equivalent to: One slaughter or feeder cattle, calf or heifer; 0.7 mature dairy cattle; 2.5 hogs (over 55 pounds) or 5 nursery pigs; 55 turkeys; and 100 chickens regardless of the animal waste system used.

2

For EPA data, “Total” eliminates double counting of operations with mixed animal types based on

1992 Census of Agriculture

data (operations with mixed animal types account for roughly 25 percent of total AFOs). USDA data reflect number of operations based on dominant production type. The difference between the sum total and total AFOs is about 2,000 operations (reflect operations that are difficult to classify including dairies that have gone out of business, farms with only feeder pigs, and egg-hatching operations).

Source: EPA estimates, see proposed CAFO regulations (Section 6 of 66 FR 2959). USDA estimates, see NRCS “Profile of Farms with Livestock in the United States: A Statistical Summary” most recent draft available. Rounded to nearest tenth.

Table 5-2.—Estimated Number of CAFOs by Sector and Size

Sector

Potential CAFOs >1,000 AU

Potential CAFOs 750-1,000 AU

Potential CAFOs 500-750 AU

Potential CAFOs 300-500 AU

(Number of Operations grouped by AU)

Cattle

1,970

500

940

1,690

Heifers

310

40

90

150

Veal

30

10

20

60

Dairy

1,470

600

1,360

3,710

Hogs

4,080

1,570

2,920

5,670

Chickens

3,720

2,660

4,440

5,280

Turkeys

450

260

470

870

Sum over all

12,020

5,630

10,240

17,420

Adjustment

640

140

180

150

Total CAFOs

11,380

5,490

10,060

17,280

Source: USDA/NRCS (“Profile of Farms with Livestock in the United States: A Statistical Summary” most recent draft available). Rounded to nearest tenth. AU groupings defined in Table 5-1.

Table 5-3.—Estimated Number of Potential CAFOs by Region, State and Size

1

State/EPA region

Potential CAFOs >1000 AU

Potential CAFOs >750 AU

Potential CAFOs >500 AU

Potential CAFOs >300 AU

(Number of Operations grouped by AU)

Alabama

410

760

1,390

2,200

Arkansas

510

920

1,730

2,970

California

950

1,240

1,660

2,150

Colorado

190

230

300

410

Delaware

70

140

310

580

Florida

140

220

330

450

Georgia

660

1,060

1,640

2,350

Idaho

140

170

240

380

Illinois

360

550

910

1,680

Indiana

370

520

830

1,450

Iowa

1,080

1,670

2,900

5,300

Kansas

350

420

570

840

Kentucky

110

160

270

440

Louisiana

70

150

250

350

Maryland

90

200

430

740

Michigan

170

230

340

670

Minnesota

590

850

1,370

2,380

Mississippi

340

630

990

1,290

Missouri

290

430

660

1,270

N. Carolina

1,310

1,760

2,450

3,470

Nebraska

700

860

1,220

1,960

New York

70

120

250

650

Ohio

180

280

450

930

Oklahoma

130

220

420

700

Pennsylvania

240

380

680

1,250

S. Carolina

180

280

400

570

South Dakota

190

250

360

630

Tennessee

60

110

230

490

Texas

610

790

1,170

1,680

Virginia

160

310

560

940

Washington

140

190

290

500

West Virginia

60

90

150

200

Wisconsin

100

160

380

960

UT, MT, WY, ND, NV

140

190

290

540

OR, AK, HI

50

80

140

250

AZ, NM

190

220

260

280

ME, VT, NH, MA, RI, CT, and NJ

30

60

120

300

All states

11,380

16,870

26,920

44,200

Source: USDA/NRCS (“Profile of Farms with Livestock in the United States: A Statistical Summary” most recent draft available). Rounded to nearest tenth. AU groupings defined in Table 5-1.

2. Estimates of the Amount of Manure Nutrients Covered at Different Regulatory Thresholds

For the proposal, EPA estimated the amount of manure nutrients covered under the different regulatory scenarios. These estimates were based on publicly available data from the

1997 Census of Agriculture

supplemented by other data sources. EPA used this information, among other factors, to determine the proposed regulatory thresholds based on the number of animals on-site (inventory basis). As cited in the Agency's proposal, EPA estimated that about 50 percent to 64 percent of manure nutrients

generated

(nitrogen and phosphorous) would be addressed by the proposed regulations at the 1,000 AU threshold and proposed 500 AU threshold, respectively. Today EPA presents new information on the manure nutrient coverage under the different regulatory scenarios based on a supplemental analysis conducted by USDA. EPA is soliciting comment on this analysis for consideration in the final rulemaking.

In its analysis that re-estimates the number of AFOs and CAFOs nationwide using data from the

1997 Census of Agriculture

(presented in Section V.A.1 of this notice), USDA also conducted an analysis of the expected amount of manure nutrients addressed at each regulatory threshold. These results are presented in this notice both in terms of the amount of manure nutrients

generated

at potential CAFOs and also the estimated amount of nutrients in

excess

of crop needs through land application. (USDA defines farm level “excess” of manure nutrients on a confined livestock farm as manure nutrient production less crop assimilative capacity. USDA has estimated manure nutrient production using the number of animals by species, standard manure production per animal unit, and nutrient composition of each type of manure. Recoverable manure is the amount that can be collected and disposed by spreading on fields or transporting off the producing farm.)

Table 5-4 presents USDA's estimates of the amount of manure nutrients addressed by the proposed regulations and compared against the expected number of potential permits that would be required at different threshold levels. USDA submitted these data to EPA for consideration in establishing its regulatory threshold for defining a CAFO as part of the Agency's final rulemaking. The information presented today would replace and supplement previous estimates by EPA, which was presented in Table 6-3 of in the

Federal Register

notice of the proposed rule (66 FR 2986-2987). USDA estimates of the amount of coverage of manure nutrients generated are more or less consistent with EPA's estimates for the proposed regulations. (See 66 FR 2986-2987.) For proposal, EPA was not able to estimate the amount of excess manure nutrients because of data limitations.

USDA's analysis supplements EPA estimates by assessing the amount of excess manure nutrients addressed by the regulations using

1997 Census of Agriculture

data. This analysis is available at USDA's website at: http://www.ers.usda.gov/briefing/ConservationAndEnvironment/. Information on USDA's approach for conducting this analysis is documented in two published USDA reports, including “Manure Nutrients Relative to the Capacity of Cropland and Pastureland to Assimilate Nutrients: Spatial and Temporal Trends for the United States” available at http://www.nhq.nrcs.usda.gov/land/pubs/manntr.html and also “Confined Animal

Production and Manure Nutrients” available at http://www.ers.usda.gov/publications/aib771/. These documents are also available in EPA's record for the proposed rule.

Some commenters endorse USDA's analysis and cite these results to highlight the perceived lower environmental gain relative to the increase in the number of operations affected as the regulatory threshold is lowered. EPA will consider this information when re-evaluating the range of proposed CAFO threshold definitions for the final CAFO regulations. EPA solicits comment on the use of these USDA estimates for the development of EPA's final regulations.

Table 5-4.—Potential CAFOs, Animal Units, and Manure Nutrients, 1997 Census of Agriculture

Item

Units

Total for Item

AFOs defined as CAFOs, by threshold

1000AU

750AU

500AU

300AU

Percent of Total

Farms/AFOs

number

218,000

5.4

8.0

12.8

21.1

Animal Units

million

36.3

51.8

56.9

64.0

72.9

Recoverable Nutrients:

Nitrogen

1000 tons

1,260

48.6

56.3

66.3

76.6

Phosphorus

1000 tons

689

52.2

59.4

68.8

78.9

Excess Nutrients:

Nitrogen

1000 tons

743

64.4

73.4

84.1

92.8

Phosphorus

1000 tons

467

67.3

75.1

84.5

92.7

Source: USDA. Includes operations with feedlot beef, dairy (including confined heifer and veal), swine, and poultry (including layers, broilers, pullets, and turkeys). For AU definitions, see Table 5-1

3. Changes in SBA's Small Business Definition and EPA's Estimates of the Total Number of Small Businesses Affected by the Proposed Regulations

For the proposal, EPA estimated the number of small businesses that are CAFOs that would be subject to the proposed regulations. Today EPA presents revised estimates of the number of affected small business using new small business definitions as revised by the Small Business Administration (SBA) in June, 2001. EPA is soliciting comment on these estimates for consideration in the final rulemaking.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), generally requires EPA to define small businesses according to size standards as defined by the Small Business Administration (SBA). For these regulated industries, SBA sets size standards for defining small businesses by the amount of annual revenue generated, representing total facility revenue at the farm level (i.e., includes revenue from all sources, including livestock, crop and other farm-related income at a livestock or poultry operation) and expressed as an average over a 3-year period. These size standards vary by North American Industry Classification System (NAICS) code; CAFOs are listed under NAICS 11 (Agriculture, Forestry, and Fishing).

Prior to 2001, SBA defined a “small business” for most agriculture enterprises as operations with annual sales of less than $0.5 million per year, averaged over the most recent three fiscal years. For the proposed rulemaking, SBA standards used by EPA to define a “small business” in the hog, dairy, broiler, and turkey sectors assumed a threshold of less than $0.5 million in annual sales. In the beef feedlot sector, SBA defines small businesses as those with less than $1.5 million in annual sales. EPA assumed an alternative definition for small businesses in the egg laying sector of operations with less than $1.5 million in annual revenue and did not use SBA's definition of $9 million in annual sales. The rationale for this decision is discussed in detail in EPA's record and in the Economic Analysis that supports this rulemaking. A summary of EPA's rationale for using an alternative definition is provided in the

Federal Register

notice of the proposed rulemaking (66 FR 3099).

On June 7, 2001, SBA increased the size standards used to define small businesses for most agriculture sectors listed under NAICS 11. These size standards were raised from $0.5 million to $0.75 million in average annual receipts (see 66 FR 30646). This change affects EPA's assumptions of small business in the hog, dairy, broiler, and turkey sectors and effectively raises EPA's estimate of the number of small businesses that are animal feeding operations and are potentially defined as CAFOs and subject to the proposed requirements. (This change does not affect EPA's assumptions of small business in the beef feedlot and egg laying sectors.)

For the proposed regulations, EPA estimated that 11,000 to 15,000 confinement operations that will be subject to the proposed requirements are small businesses (depending on the proposed regulatory alternative). As a result of this change in SBA's small business definition, preliminary estimates by EPA now indicate that roughly 19,000 to 25,000 of the affected operations are small businesses. Although these estimates may be subject to further revision, data presented in Table 5-5 would replace information previously presented by EPA in Table 10-17 of the

Federal Register

notice of the proposed rulemaking (66 FR 3100). EPA solicits comment on these preliminary estimates of the number of small businesses affected by the proposed regulations.

Table 5-5.—Number of Small CAFOs That May Be Affected by the Proposed Regulations

Sector

Total Annual ($million)

Revenue

1

(a)

Old

New

Total Farm Revenue per Head

2

(b)

No. of Animals (Avg. U.S.) (c=a/b)

Old

New

Number of “Small” CAFOs Affected by Proposed Regulations

Old

New

Cattle

3

$1.5

NC

$1,060

1,400

NC

2,280-2,600

NC

Dairy

0.5

$0.75

2,573

200

300

50

1,000-2,000

Hogs

0.5

0.75

363

1,400

2,100

300

4,000-5,000

Broilers

0.5

0.75

2

260,000

375,000

9,470-13,410

10,000-14,000

Egg Layers

9.0

NC

25

365,000

ND

ND

ND

1.5

NC

61,000

NC

200-590

NC

Turkeys

0.5

0.75

20

25,000

37,500

0

500-1,000

All AFOs

NA

NA

NA

NA

NA

10,550-14,360

19,000-25,000

NA=Not Applicable. ND = Not Determined. NC = No Change from original proposal. “AFOs” have confined animals on-site. “Old” refers to SBA size definitions prior to June, 2001. “New” refers to revised SBA size definitions published on June 7, 2001.

1

SBA Size Standards by NAICS industry (13 CFR Part 121). EPA assumes an alternative definition of $1.5 million in annual revenues for egg layers.

2

Average total farm revenue (i.e., including livestock, crop and other farm-related income at a livestock or poultry operation) expressed on a per animal basis across all operations for each sector. Per-animal (inventory) calculations as derived by EPA using aggregated farm level data from USDA's 1997 ARMS database.

3

Includes fed cattle, veal and heifers.

B. Data and Analytical Approach to Estimate Compliance Costs to CAFOs

This section describes alternative data and approaches that EPA is considering to address commenters' concerns about the methodology to estimate compliance costs.

1. Alternate Analytical Approaches for Estimating Compliance Costs

This section describes alternative approaches that EPA is considering to address concerns about the methodology used to estimate compliance costs.

a. EPA's Assumptions of Full Compliance With Existing Regulations for CAFOs With More Than 1,000 AU

In the proposal, EPA assumed that all operations with more than 1,000 AU that are defined as CAFOs by the existing regulations are currently in compliance with the existing regulatory program. This includes the NPDES regulations and the effluent limitations guidelines and standards for feedlots, and existing State laws and regulations. For those operations with less than 1,000 AU, EPA used available data regarding current waste treatment practices at these operations to estimate the incremental cost they would incur to comply with the requirements of the proposed regulations.

A number of commenters disagree with this approach, claiming that many CAFOs do not have the necessary waste management components in place to comply with the existing CAFO regulations promulgated in the early 1970s. Despite the fact that the existing regulations were issued over 25 years ago, these commenters claim that many operations with more than 1,000 AU are not currently in compliance with these baseline requirements and would therefore incur substantial costs just to meet the 1970s requirements, in addition to any additional costs that would be incurred to comply with the new requirements of the proposed rule. The commenters thus assert that EPA's failure to acknowledge this widespread noncompliance has the effect of underestimating the full costs that CAFOs will ultimately pay. The commenters further assert that by underestimating costs in this manner, EPA understates the financial impacts to CAFOs.

It is EPA's longstanding practice to assume compliance with current regulatory requirements when revising existing regulations. This assumption is consistent with EPA's guidance for conducting regulatory analysis, outlined in EPA's “Guidelines for Preparing Economic Analyses.” EPA's guidance is available online at http://www.epa.gov/economics/. In accordance with EPA practice and guidance, EPA assumes that operations with more than 1,000 AU are in compliance with existing requirements promulgated in the 1970s; these operations are assumed to have already incurred whatever costs were necessary to achieve compliance with these existing requirements. Guidance from the Office of Management and Budget (OMB), as outlined in “Economic Analysis of Federal Regulations Under Executive Order 12866,” recommends that the baseline for assessing the costs and benefits of a regulation be, “* * * the best assessment of the way the world would look absent the proposed regulation.” OMB's guidance goes on to discuss various factors that may be considered in choosing an appropriate baseline, including existing regulations and the likely degree of compliance with these regulations, and recommends that, “when more than one baseline appears reasonable or the baseline is very uncertain, and when the estimated benefits and costs of proposed rules are likely to vary significantly with the baseline selected, the agency may choose to measure benefits and costs against multiple alternative baselines as a form of sensitivity analysis.” OMB's guidance is available online at http://www.whitehouse.gov/omb/inforeg/riaguide.html.

Because of the possibility that there may be widespread noncompliance with the existing regulations and because the potential costs associated with the existing regulations might be substantial, particularly when added to EPA's estimated incremental cost associated with the proposed revisions, EPA is considering ways to evaluate these additional potential costs as a supplement to its cost and economic analyses.

To evaluate the cost of the existing regulations, EPA is requesting additional data and information on current rates of non-compliance. Specifically, information is needed on the number or share of operations with more than 1,000 AU that are not in compliance with the existing regulations. During the development of the proposed CAFO rulemaking, EPA requested additional data and information to substantiate industry claims of widespread non-compliance with the existing regulations. As part of

today's notice, EPA is again requesting any information on current rates of non-compliance with the existing regulation, differentiated to the extent possible by production type or facility size for each of the major livestock and poultry sectors. This information would need to account for animal waste management systems and practices that are already being implemented at the CAFO to manage manure and wastewater, including practices associated with various voluntary programs as well as practices to assist with basic day-to-day production needs at the facility.

EPA is considering to use this information to conduct an evaluation of the combined additional cost to comply with the existing regulations plus the incremental costs of the proposed regulations. EPA is soliciting comment on an approach that would be conducted in two stages, which is outlined as follows. The first stage of this analysis would assess the cost to CAFOs to comply with current requirements—specified for the production area—promulgated under the existing 1970s regulations and further evaluate the expected financial impacts of these costs. Using a representative farm approach, where the Agency determines that compliance with the existing regulations would have resulted in financial stress and potential closure of a representative facility, this operation would be removed from the analysis under the assumptions that this operation would not have remained in business. This representative facility would now constitute a baseline closure for purposes of evaluating the proposed revisions to the existing rule. This approach by which baseline closures are removed from any subsequent analyses is consistent with longstanding Agency practice to assess only the incremental costs associated with a specific regulatory action.

The second stage of this analysis would evaluate costs and financial impacts to comply with the proposed new requirements. These costs and impacts would be assessed for operations within the assumed remaining CAFO universe based on the number of operations assumed to have remained in business while complying with the existing regulations (i.e., excluding assumed baseline closures determined to close under the existing regulations in the first stage of this analysis). EPA solicits comment on this approach and requests data and information in order to conduct this supplemental analysis.

b. EPA's Cost Model Assumptions and Use of “Frequency Factors”

For the proposal, EPA estimated compliance costs for a model CAFO facility by first estimating the total cost to an individual facility to employ a given technology and then calculating the average facility level cost by adjusting this total cost to account for current use of the technology or management practice nationwide. Average costs were obtained by multiplying the total cost of a particular technology or practice by the percent of operations that are believed to use this particular technology or practice in order to derive the average expected cost that could be incurred by a model CAFO. EPA refers to this adjustment factor as the “frequency factor” and has developed such a factor for each individual cost (i.e. each technology) and cost component (i.e. capital and annual costs) in each of its CAFO models. More detailed information on the methodology used by EPA to estimate compliance costs and the actual frequency factors assumed by EPA for this analysis are provided in the

Development Document for the Proposed Revisions to the National Pollutant Discharge Elimination System Regulation and the Effluent Guidelines for Concentrated Animal Feeding Operations

(referred to as the “Development Document”).

Comments about EPA's cost and economic analysis express concerns about EPA's use of frequency factors to generate a set of single average compliance costs to further evaluate financial impacts to CAFOs as well as to assess larger-scale market impacts. The overarching concern with EPA's use of this approach is that the weighted average costs might either understate costs or overstate costs, depending on the range of production practices at a facility. Use of these estimated costs to assess financial impacts might, therefore, either understate or overstate economic impacts to CAFOs in EPA's analysis. To address this concern, EPA is considering alternative ways to characterize the variability of costs that may be incurred by increasing the number of representative models EPA uses to assess compliance costs.

Today EPA presents data and information on an alternative approach that would refine its existing cost models to account for greater variability among producers by calculating costs across a broader range of potential scenarios, including costs to operations that have implemented a wider array of technology controls and management practices and also costs to operations that have little or no management practices in place. This alternative approach would generate three sets of compliance costs per representative model CAFO, instead of a single average cost per representative model. EPA attempted to develop such a approach for its proposal, but was unable to obtain the data necessary to support this approach.

This notice presents the availability of new data and information that would allow EPA to adopt such an approach, including data received from USDA. This approach would build upon an approach that is being developed by USDA to assess costs and economic impacts at livestock facilities as part of USDA's Report to Congress on the USDA-EPA Unified Strategy that seeks to estimate the costs to animal feeding operation to implement Comprehensive Nutrient Management Plans (CNMP) (forthcoming: “Cost and Capability Assessment of the Unified Strategy for Animal Feeding Operations”). Details on the approach that is being developed to support this forthcoming study is provided in USDA's ongoing work in progress titled “Estimated Private and Public Costs Associated with Comprehensive Nutrient Management Plan Implementation: A Documentation.” Preliminary versions of this latter report are provided in EPA's rulemaking record.

In these reports, USDA outlines an approach that, first, defines a set of representative CAFOs that represent typical or dominant production practices; second, identifies the expected compliance costs associated with the proposed CAFO rule requirements; and, third, adjusts these costs according to how many CAFOs are expected to need upgrades to their facility or practices to meet requirements. This approach is consistent with that used by EPA for the proposal. The difference is the third step in USDA's analysis further breaks out these costs into three categories of farms based on the “average” operation and also operations with “least needs” and “most needs.” USDA's simplifying assumption for this approach is that 50 percent of all operations within each representative farm group represents the average while each representative group representing operations outside the average accounts for 25 percent each of all operations.

For USDA's analysis, it compiled data representing the percent of facilities needing upgrades to meet CNMP requirements. For example, a value of 80 percent indicates that 20 percent of the operations in that category meet the requirements and 80 percent of the

operations need to install or adopt the required controls or practices. USDA's estimates reflect five broad cost components: manure and wastewater handling and storage, nutrient management, record keeping, feed management, and off-farm export. These estimates are contained in USDA's Appendix to its ongoing work in progress (see, “Estimated Private and Public Costs Associated with Comprehensive Nutrient Management Plan Implementation”).

For EPA's analysis, the Agency is considering using USDA's data and approach, with some modifications to supplement USDA's information and approach where necessary to fit within EPA's existing analytical framework. These additional cost scenarios include costs to operations that have implemented a wider array of technology controls and management practices, as well as costs to operations that have little or no management practices in place. To do this, EPA is considering breaking out its estimated average compliance costs across three different performance group scenarios: below average performers, average performers, and above average performers. For the purpose of this analysis, average performers would represent 50 percent of all operations that employ an average mix of waste management practices and technology controls. These costs would be roughly equivalent to the average costs assumed by EPA for the proposal, with some refinements to incorporate new data and information as necessary. Costs incurred by operations assumed to be above (below) this average would reflect 25 percent of all operations with a higher (lower) mix of practices and controls in place. Stated differently, operations with little or no environmental controls on-site to manage manure would be considered a below average performer, whereas operations that already have substantial manure management practices and controls in place would be considered to perform above average.

Table 5-6 presents an example of this proposed approach for an operation that compares the approach used by EPA for proposal and the alternative approach that EPA is considering using for its analysis to support the final regulations. As shown with this simple example, EPA would develop revised compliance cost estimates arrayed onto three different cost categories for each representative CAFO model, resulting in greater refinement of its estimated costs. These three sets of costs would each be used to assess financial impacts to CAFOs, instead of the single weighted-average cost used by EPA to assess impacts for the proposal. As discussed previously, for proposal, EPA developed its own estimates of the average percent of operations needing upgrade to adjust estimated total costs assumed across all operations. For the analysis supporting the final analysis, EPA is considering using estimates of the average percent of operations needing upgrade across three groups of operations—operations categorized as “average needs,” “least needs,” and “most needs” operations. Financial impacts would therefore be measured against these three sets of average costs per representative model facility, rather than a single average cost. Preliminary estimates that USDA has developed depicting the percent of operations needing upgrade across these three groups of operations that EPA is considering to use for the final analysis are provided in the EPA's record.

Table 5-6.—Example of Alternative Approach to EPA's Model Farms Being Considered for the Final Rule

Cost component

Approach used for proposal

Frequency factor

Avg. weighted cost

Alternative approach considered

Least needs (25%) Average

Average (50%)

Most needs (25%)

Cost component #1

Cost Component #2

Cost Component #

Average percent of operations needing upgrade (each cost component)

Average cost across all operations (each cost component)

Average percent of “least needs” operations needing upgrade (each cost component)

Average percent of “average needs” operations needing upgrade (each cost component)

Average percent of “most needs” operations needing upgrade (each cost component)

Total Costs

Average Costs all operations (per Model CAFO)

Average Costs “least needs” operations (per Model CAFO)

Average Costs “average needs” operations (per Model CAFO)

Average Costs “most needs” operations (per Model CAFO)

In order to adopt this approach EPA needs additional information on the adoption and use of various types of management practices and technology controls employed at different types of livestock and poultry operations. In part, USDA is in the process of compiling such estimates that EPA will consider using for the purpose of refining its compliance cost models. These data are based on existing published data and USDA surveys conducted by the Animal and Plant Health Information Service (APHIS) and other State level or industry supplied data and information. This data set covers each of the key sectors (including: Fattened cattle, dairies, confined heifers and veal, swine, broilers, layers, chicken pullets, and turkeys) differentiated by select production regions, facility size, and dominant production type. Additional information on these data and USDA's supporting documentation on how these data were obtained are available for public review in the rulemaking record located at EPA's docket office. The record also contains various supplemental information collected by EPA using this general modeling framework. EPA solicits comment on these data and the alternative approach described here to refine EPA's compliance cost models.

c. Engineering Cost Test To Determine Appropriate Technology Systems

EPA's engineering costs models incorporated an engineering cost test to determine the least expensive combination of technologies that could be used to meet EPA's proposed performance standards. EPA used this cost test to compare the costs of various technology trains that could be used to meet a specific performance standard (a technology train is the combination of linked technologies or BMPs that could be used as part of a manure management system). For example, the engineering cost test was used to compare the overall system cost of various land application methods, nutrient management strategies, capital expenses

for improvements at the production area, and other technologies (see the Development Document).

The engineering costs test was performed by addition of the start-up costs, the fixed costs, and the annual costs, plus a percentage of the capital expenditures to determine the total costs incurred in year one. The percent of capital costs included in this equation depended on the interest rate, period of payback, and down payment consistent with those criteria used in the economic analysis. EPA used 14 percent of the capital expenses to reflect a 10-year depreciation at 7 percent interest (see Economic Analysis). Table 5-7 provides an example of the engineering cost test used for proposal.

Table 5-7.—Example of EPA's Engineering Cost Test Used for Proposal

Cost component

Technology train A

Technology A

BMP A

Total for technology train A

(1) Start-up Costs

$200

$10

$210

(2) Other Fixed Costs

300

50

350

(3) Annual Costs (O&M)

40

400

440

(4) Capital Costs

5,000

0

-

(5) 14 Percent of Capital Costs

700

0

700

Total Cost for Technology Train A Incurred in Year (1+2+3+5)

$1,700

EPA is considering alternative payback terms and lending arrangements, as discussed in Section V.C. EPA intends to modify the engineering cost test to be consistent with the alternative loan terms under consideration in this notice. For example, if the economic analysis methodology assumes 30 percent of capital would be incurred in year one as a result of down payments, closing costs, and other fees, for consistency the engineering costs test would add 30 percent of the capital to the total start-up costs, fixed costs, and recurring costs in the engineering costs test. Table 5-8 provides an example of the modified engineering cost test applied to the same technology train presented in Table 5-7.

Table 5-8.—Example of EPA's Modified Engineering Cost Test

Cost component

Technology Train A

Technology A

BMP A

Total for Technology Train A

(1) Start-up Costs

$200

$10

$210

(2) Other Fixed Costs

300

50

350

(3) Annual Costs (O&M)

40

400

440

(4) Capital Costs

5,000

0

-

(5) 30 Percent of Capital Costs

1,500

0

1,500

(6) Remaining Capital Costs (4-5)

3,500

0

-

(7) 14 Percent of Remaining Capital Costs

490

0

490

Total Cost for Technology Train A Incurred in Year (1+2+3+5+7)

$2,990

The cost incurred for development and implementation of technology train A in the first year is $1,700 using EPA's engineering cost test used for proposal. The total cost for Technology Train A incurred in year 1 would be $2,990 using EPA's modified cost test. EPA solicits comment on the use of the engineering cost test, and the changes to the cost test under consideration.

d. Changes to Costs for Land Application of Lagoon Liquids for Beef and Dairy Operations

The purchase of new or additional land application equipment is often a primary contributor to the overall costs in the beef and dairy cost models. EPA's cost model estimates the costs to purchase irrigation equipment to apply liquid from ponds and lagoons to the crop fields; the model assumed facilities already had access to equipment for solid manure applications. The poultry models assumed dry manure/litter equipment was already available. The swine models considered certain cases where new or different application equipment would be needed, especially under technology option 5 which could change the composition of land applied manures. EPA selected center pivot irrigation for costing land application of liquids from runoff ponds. EPA is considering three additional areas pertaining to the costs for land application; alternative irrigation and land application equipment; additional sludge removal; and limits to land application based on hydraulic loadings (hydraulic loading is used to measure how much water can be applied before the ground approaches saturation and pooling on the surface occurs).

For proposal, EPA costed facilities to spread manure over all acres owned or rented. EPA costed many of these facilities for new or additional land application and irrigation equipment to land apply liquid manure. EPA calculated these costs of irrigation equipment based on all acres owned, even when the facility owned more acres than was needed to utilize all manure as a fertilizer based on nitrogen or phosphorus rates, as appropriate. EPA believes as a practical matter, facilities will irrigate closest fields first, saving solids hauling for the fields farther away from the liquid storage areas. EPA is considering adjusting the model farms to reflect this practice,

which would reduce a facility's overall compliance costs.

For proposal, EPA assumed excess nutrients (excess nutrients are those nutrients beyond the farm's total annual crop requirements) would be hauled off site each year. In the case of liquid storage, EPA costed solids separation for facilities with a large nutrient excess. For other facilities with minimal nutrient excess, EPA costed hauling of liquid assuming the lagoon was mixed prior to pumping. EPA is evaluating an approach where excess nutrients, particularly the excess phosphorus that tends to settle on the bottom of the liquid storage area, would be assumed to accumulate for a period of approximately 3 years. The top liquid fraction would continue to be land applied locally each season, but without mixing of the bottom sludge. The bottom sludge would be removed every three years to maintain capacity of the lagoon, but also to facilitate hauling of a more concentrated slurry. EPA believes this will reduce the volume to be hauled, the number of trips needed, and therefore reduce costs. EPA data suggests facilities are not likely to haul liquid manures more than one mile. EPA believes one mile is approximately the distance the manure can be hauled based on the nutrient value of the manure as compared to the costs of hauling. EPA believes these facilities are more likely to haul a concentrated slurry longer distances and still maintain a net positive value for the transported nutrients.

EPA acknowledged in the proposal that in some cases factors other than nutrients could limit the application rates of manure to crop land. EPA is evaluating those areas where the water holding capacity of the soil could result in a manure application rate more limiting than the phosphorus based rate. For these areas, EPA intends to perform a sensitivity analysis of application rates that considers the hydraulic loading limitations of the crop land. EPA believes facilities currently applying manure on a nitrogen based rate and that need to go to a phosphorus based rate will be mostly unaffected by hydraulic limitations. EPA solicits comments and information on the extent to which hydraulic loading limitations may affect the costs of applying manure.

EPA also assumed that all manures would be distributed evenly on all land available to the animal feeding operation. EPA is considering revisions to the cost estimates for hauling manure to the closest fields first, particularly under a scenario that would allow phosphorus banking. Under such a scenario, additional commercial nitrogen fertilizer would not be needed the year the manure was “banked”. EPA solicits comments on these modeling assumptions, as well as the baseline model changes under consideration.

e. Cost Offsets and Savings

For proposal, EPA's incremental costs of compliance were potentially overstated because EPA did not include all cost offsets and savings associated with animal production. For example, in the proposal EPA acknowledged some facilities give away manure, and some must pay for the transport of excess manure. To the extent EPA's proposal would require additional transport, EPA has included this expense in its cost models. EPA also accounted for the costs of commercial fertilizer when facilities apply manure on a phosphorus basis, but did not account for the nutrient value of the manure. In EPA's cost reports, EPA estimated an incremental value of $1.70 per ton of for composted manure for Option 5 for beef and dairy. This nutrient value is equal to the difference between the nutrient value of manure versus the nutrient value of compost. EPA is considering an approach that places a nutrient value on manure when it is used on the farm as a resource, especially as a fertilizer replacement. EPA also intends to consider the 1997 (EPA's baseline year) Commercial Fertilizer Institute values of nitrogen and phosphorus for purposes of estimating the nutrient value of manure. EPA solicits comment on the value of the nutrients in manure when used as a fertilizer replacement.

EPA has further estimated that sales of dry poultry litter could offset the costs of meeting the regulatory requirements on the order of more than 50 percent. Some stakeholders have confirmed manure sales, in some cases, can exceed the value of livestock sales. U.S. Poultry conducted a producer survey, the results of which indicate that the producer directly sells 34 percent of litter, and an additional 17 percent is “traded out” with a broker, normally for fresh bedding material. EPA analysis and data further indicate concentration of manure nutrients through changes in the moisture and form of the manure allow longer economical hauling distances, particularly with the current increases in fuel prices and increasing costs of diesel-based commercial fertilizers. Similarly wetter manures have increased value after composting or treatment, on the order of $17 per ton for composted dairy and steer manure.

EPA believes its current approach to account for the cost of hauling excess manure off-site is further overstated, as EPA did not consider alternative uses and destinations of manure in its cost analysis. For example, EPA has documented an increasing trend in centralized manure treatment and value-added processing, as well as increased integrator involvement in manure marketing. Poultry litter in particular is considered more valuable than most other animal manures due to its low moisture content and relatively high nutrient value. EPA conservatively estimates litter sales generates an average of $8 per ton. In some circumstances, wetter manures, such as layer manures, are successfully transported and sold at a profit. Market opportunities are further increased by providing a value added or composted product, or by offering custom application services. Bagged compost can be bought at local garden centers for $4 per 40 pound bag, or $200 per ton.

Therefore, EPA is considering

limited

amounts of litter and manure sales with those model farms corresponding to the geographic regions where the data indicates manure is sold. EPA solicits comment on the costs and data used with this approach, and solicits comment on EPA's calculated value of $8 per ton for litter. EPA notes it does not intend to use retail values for value added manure, but will use the information in support of considering cost offsets due to manure value. EPA solicits comment on these data and assumptions.

2. Alternate Data and Information for Estimating Compliance Costs

This section describes additional cost data and information obtained by EPA to address concerns about its cost methodology to estimate compliance costs. This section also presents corrections to EPA's estimated compliance costs as well as clarification on cost information presented in the preamble to the proposed rulemaking.

a. Alternative Costs and Information to EPA's Ground Water Assessment

EPA proposed all new sources and existing beef and dairy farms must provide a certification that the ground water in their area is not hydrologically connected to surface water. Without a certification, facilities must monitor the ground water surrounding the manure storage areas and take necessary measures to ensure no discharge to ground water that is hydrologically connected to surface waters. Some stakeholders stated EPA's cost estimate for obtaining the assessment

(approximately $3,000) is reasonable only if the statement is based on a site visit and records review with no intrusive sampling. However , these stakeholders believe even if there is no hydrologically connected ground water on a site, it will be difficult for a permit applicant to obtain a hydrologist's statement to this effect that is acceptable to the permitting agency. Several vendors indicated such an assessment would require additional soil core sampling and monitoring data, and a certified statement that proves the absence of a direct hydrological connection to ground water to the satisfaction of the permitting agency would probably cost two or three times as much as EPA proposed. EPA solicits additional comment on the costs of obtaining a hydrologist's certification.

EPA is considering alternatives to the assessment that might reduce costs and burden. Under one alternative, EPA would require ground water controls at a given site based on certain high risk geographical criteria. EPA would consider sandy soils, karst topographies, and shallow ground water tables, among other factors, in its determination of high risk criteria. As described in Section IV, EPA solicits comment on an option that would define the high risk criteria that would automatically trigger the requirement for additional ground water controls, replacing the cost of an assessment.

b. Gas Collection Systems and Cover Materials for Proposed Technology Option 5

As part of proposed technology option 5, EPA estimated the cost of flares for covered lagoon systems for all swine facilities. EPA has solicited additional comment on the feasibility of technology option 5, and will continue to evaluate the costs and affordability of such technologies. In particular EPA will consider its estimate of costs associated with the gas collection systems and the installation costs of the cover materials. EPA will also reconsider the gas collection system costs for certain veal operations that employ open lagoons for storage. EPA solicits additional data on the component costs for covered lagoon systems, such as cover materials, additional berm development for anchoring the cover, flotation and ballast systems, and sump pump systems. EPA also solicits additional data and information on the operation and management of gas collection systems, such as automated flares.

c. Engineering Costs for Nutrient Management Planning Costs

EPA intends to use the USDA Cost and Capability Study to update the costs of nutrient management planning. In particular, EPA will add a one-time fixed cost for engineering assessments associated with the development of a Comprehensive Nutrient Management Plan. EPA will also reevaluate the costs of hiring a certified consultant to write or approve the plan. Data provided by the University of Tennessee suggests the cost for a certified planner ranges from $50 per hour to $125 per hour. Other comparable data sources in the record include state assessments of nutrient management costs, watershed level experiences with comprehensive nutrient management plan implementation, and vendor supplied costing information. EPA solicits additional comment on the component costs of nutrient management planning such as engineering assessments, mapping and planning activities, and the annual record keeping costs associated with nutrient management.

d. Correction to EPA's Compliance Costs and Economic Analysis Due to Omitted Costs for a Subset of Hog Operations

In the cost analysis supporting the proposed CAFO regulations, EPA inadvertently omitted the cost of impermeable lagoon covers for a subset of hog operations under the proposed BAT Option 5 (refers to EPA's proposal to require nitrogen-based and, where necessary, phosphorus-based land application controls of all livestock and poultry CAFOs, with the additional requirement that all hog, veal, and poultry CAFOs must also achieve zero discharge from the animal production area with no exception for storm events). The subset of operations that were not correctly costed in the analysis included hog operations classified as “Category 3” operations, which are assumed to represent CAFOs without adequate landbase for application of manure on cropland; Category 3 CAFOs are those operations that would likely need to transport manure offsite for alternative use or to be spread as fertilizer. This cost omission in EPA's analysis does not affect any other livestock or poultry sectors or other land-use categories (Category 1 and Category 2 CAFOs) in EPA's cost analysis.

The number of hog operations with understated costs due to the omission of lagoon cover costs includes 210 hog operations, or about 1 percent of the total number of 14,370 hog facilities assumed in EPA's analysis. By broad facility size grouping, an estimated 81 hog operations with more than 1,000 AU and 129 hog operations with fewer than 1,000 AU were undercosted.

EPA estimates that the effects of these omitted costs understates EPA's estimated total compliance costs for the hog sector as follows. These omitted costs would result in additional capital costs to hog facilities of $33 million to $68 million over a 10-year period (1997 dollars). On an annual basis, additional costs to the hog sector would total $5 million to $10 million, or a 2 percent to 3 percent increase in estimated industry costs (based on EPA's original cost analysis that estimated costs to the hog sector at $294 million to $306 million per year). Expressed on a per-hog basis for this subgroup of hog operations, the additional annual cost to hog facilities could be as much as $3 to $5 per marketed hog. This represents a 75 percent increase in estimated per-head costs compared to EPA's original estimate at $4 to $7 per head (post-tax) for Category 3 CAFOs in the hog sector.

If these omitted costs were considered in EPA's analysis that evaluates financial impacts to the hog sector, this would raise the estimated total number of hog operations that would be considered to experience financial stress and be vulnerable to facility closure as a result of the proposed regulations. Assuming a worst-case scenario, all of the 129 hog operations with fewer than 1000 AU without landbase for manure application might close. (All 81 hog operations with more than 1,000 AU without landbase for application were already projected to close in EPA's original economic analysis.) This would raise the total number of hog operations that would be vulnerable to facility closure to 1,550 hog operations, up from EPA's original estimate of 1,420 hog CAFOs projected closures. As a percentage of all hog CAFOs, hog operations projected to close would total more than 22 percent of all CAFOs in the hog sector, up from EPA's original estimate of 17 percent of hog CAFOs projected to close as a result of the proposed regulations. EPA has not yet evaluated this change in financial impacts under a cost passthrough scenario. (EPA's original analysis showed that all 1,420 hog CAFOs would be able to afford EPA's estimated compliance costs under a scenario of long-run market adjustment and cost passthrough.)

EPA will consider these costs and projected economic impacts when reviewing alternative technology options for the final rulemaking.

e. Correction to EPA's Summary of the Range of Estimated Compliance Costs Across All Proposed Technology Options

In the preamble to the proposed rulemaking, EPA provided a summary table listing the range of annualized compliance costs developed for EPA's analysis. This table presented the range of estimated costs across all the technology options considered by EPA but inadvertently failed to reflect the full range of costs estimated by EPA across all of the proposed technology options. Even though EPA is in the process of revising all its cost estimates based on new information and is incorporating changes to its cost models in preparation to develop the final CAFO regulations, today's notice presents corrections to this table to clarify omissions to information presented previously for the proposed rulemaking.

Costs presented in the preamble to the proposed rule (Table 10-1, see 66 FR 3083) listed annualized costs for each sector, summarized across the estimated range of minimum and maximum costs across all facility sizes, production regions and land use category. Prior to publication in the

Federal Register

, this table was not updated to reflect EPA's final cost estimates, as well as expected higher compliance costs, to some facilities under the proposed BAT Option 3 (refers to EPA's proposal to require nitrogen-based and, where necessary, phosphorus-based land application controls of all livestock and poultry CAFOs, with the additional requirement that all cattle and dairy operations must conduct ground water monitoring and implement controls, if the ground water beneath the production area has a direct hydrologic connection to surface water). However, these costs were correctly documented in EPA's

Economic Analysis of the Proposed Revisions to the National Pollutant Discharge Elimination System Regulation and the Effluent Guidelines for Concentrated Animal Feeding Operations

(referred to as “Economic Analysis”). In addition, all the costs and financial impact results presented in subsequent sections of the preamble (66 FR 3084-3103) were correctly evaluated based on EPA's final compliance cost estimates for the proposal.

Corrections to these estimated annualized costs are presented in Table 5-9 (1999 dollars, post-tax). In this table, upper bound costs for the cattle sectors reflect higher costs associated with operations where there is a hydrologic connection from ground water to surface waters at the CAFO. These higher costs reflect the need for ground water controls and monitoring at some operations (referred to in EPA's supporting analyses as Option 3A costs). The previous table shown in the preamble only presented average cost conditions across all operations—both operations with and without a hydrologic link (referred to as Option 3 costs). Compared to the original estimates previously presented by EPA, these costs are in some cases much higher, especially in the beef and dairy sectors. Data presented in Table 5-9 would replace information previously presented by EPA in Table 10-1, published in the

Federal Register

notice of the proposed rulemaking (66 FR 3083). EPA's Economic Analysis for the proposed rule provides more detailed cost information, including annualized costs broken out by production region, land use category, and broad facility size groupings, as well as costs expressed on a per-head inventory basis.

As part of EPA's ongoing efforts to develop final regulations for CAFOs, EPA is reviewing the data, methodology and assumptions that were used to its develop estimated compliance costs assumed for the proposed rulemaking and, in some cases, might use alternative data and information to develop its compliance cost estimates for the final CAFO regulations. Consequently, EPA's final cost estimates will likely undergo further refinement and revision and might vary from those presented in this notice.

Table 5-9.—Range of Annualized Model CAFO Compliance Costs ($1999, Post-tax)

Sector

Category 1

Minimum

Maximum

Category 2

Minimum

Maximum

Category 3

Minimum

Maximum

(1999 dollars per model CAFO across all size groups)

Beef

$2,100

$984,500

$7,300

$1,217,900

$1,000

$895,400

Veal

1,500

7,800

1,100

6,100

1,000

6,000

Heifers

1,500

37,300

1,600

42,300

1,000

34,700

Dairy

3,600

148,100

4,100

179,300

2,600

143,600

Hogs: GF

300

52,300

1,400

63,500

7,000

81,400

Hogs: FF

300

83,800

1,300

100,500

5,900

115,300

Broilers

3,600

36,300

3,400

25,800

2,900

21,300

Layers: wet

300

24,800

2,100

29,300

1,500

18,000

Layers: dry

900

59,000

900

31,600

700

27,600

Turkeys

2,500

111,700

2,500

29,400

1,700

20,800

Source: EPA. Category 1 CAFOs have sufficient cropland for all on-farm nutrients generated; Category 2 CAFOs have insufficient cropland; and Category 3 CAFOs have no cropland. “Hogs: FF” are farrow-finish (includes breeder and nursery pigs); “Hogs: GF” are grower-finish only. “Layers: wet” are operations with liquid manure systems; “Layers: dry” are operations with dry systems.

C. Data and Analytical Approach To Estimate Financial Impacts to CAFOs

This section describes alternative data and approaches that EPA is considering to address commenters' concerns about its economic model and associated input data and assumptions to evaluate financial impacts to regulated CAFOs.

1. Alternate Analytical Methodology for Determining Economic Achievability

For the proposal, EPA developed an economic model to assess financial impacts to regulated CAFOs based on predicted changes to select financial criteria. As introduced in Section II.B.4 of today's notice, researchers at FAPRI have conducted a review of EPA's economic analysis at the request of the Committee on Agriculture, United States House of Representatives. The results of this study were submitted to EPA for its consideration. The stated purpose of FAPRI's study was to provide EPA with an alternative methodology of calculating the expected financial impacts to CAFOs under the proposed regulations. Although the results of FAPRI's analysis are not

directly comparable to EPA's own analysis because the underlying model and input data are different, FAPRI's results do indicate some degree of sensitivity in the conclusions of EPA's economic analysis using different input data and modeling assumptions. FAPRI's study also provides EPA with additional information and suggested approaches for further refining and improving its economic model to assess financial impacts to regulated CAFOs. Today, EPA presents two alternative approaches that the Agency is considering to modify and refine its existing model.

The economic model that EPA used to evaluate financial impacts to CAFOs under the proposed regulations uses a representative farm approach. Such an approach is consistent with research conducted by other industry experts, including FAPRI. This approach provides a means to assess average impacts across numerous facilities by grouping facilities into broader categories to account for the multitude of differences among animal confinement operations. Under this general framework, EPA constructed a series of model facilities (“model CAFOs”) that reflect the EPA's estimated compliance costs and available financial data. EPA uses these model CAFOs to develop an average characterization for a group of operations based on certain distinguishing characteristics for each sector, such as facility size and production region, that may be shared across a broad range of facilities.

For the proposal, EPA evaluated the economic achievability of the proposed regulatory options at existing animal feeding operations based on changes in representative financial conditions across three criteria. These criteria include: a comparison of incremental costs to total gross revenue (sales test), projected post-compliance cash flow over a 10-year period, and an assessment of an operation's debt-to-asset ratio under a post-compliance scenario. EPA used the financial criteria to divide the impacts of the proposed regulations into three impact categories: affordable, moderate, and financial stress. Operations experiencing affordable or moderate impacts are considered to have some financial impact on operations at the affected CAFOs, but EPA does not consider these operations to be vulnerable to closure as a result of compliance. Operations experiencing financial stress impacts are considered to be vulnerable to closure post-compliance. More information on these criteria is provided in the proposal (66 FR 3088). Additional information on EPA's economic models is available in EPA's Economic Analysis; EPA's cost models are described in EPA's Development Document.

Specific recommendations on how EPA might improve its modeling framework include an expansion of the types of financial criteria that EPA examines and incorporation of uncertainty into the analysis, along with other suggestions on the use of various modeling assumptions and input data to depict financial conditions at the facility. For example, many commenters recommend that EPA evaluate impacts in terms of additional profitability criteria, such as return on assets or equity, internal rate of return, profit margins, or returns to labor and overhead before taxes. Many commenters also point to FAPRI's baseline model which generates results that place probability distributions around each of the point estimates of the baseline. By comparison, EPA's economic model used for the proposal, utilizes a point estimate deterministic approach—an approach that is consistent with recent regulatory analyses of financial impacts of many EPA regulations. Many representatives of the major trade associations and researchers at USDA publicly endorse FAPRI's suggested modeling approach and the results of its analyses.

FAPRI's comments to EPA's CAFO rule generally focus on the process EPA adopted to develop cost and economic analyses to support the proposed rulemaking rather than to address specific policies in the proposed CAFO regulations. To review EPA's economic analysis, FAPRI assembled industry experts to help construct alternative CAFO models and designed spreadsheets to, first, construct a financial baseline for each operation and, second, to analyze the impact of the proposed CAFO regulations. (FAPRI did not develop alternative compliance cost estimates but instead used EPA's estimated costs for the proposal.) The underlying model that FAPRI uses for its study is its 2001 long-term agriculture baseline model that is used to analyze agriculture policy requests from the U.S. Congress. This model consists of a large scale econometric model of both U.S. and world agriculture containing roughly 5,000 behavioral equations and identities. Additional detailed information about FAPRI's baseline model is available at http://www.fapri.missouri.edu. FAPRI's reports on EPA's cost and economic analysis are available in the record and at FAPRI's website: http://www.fapri.missouri.edu/FAPRI_Publications.htm.

At the market level, FAPRI's analysis is largely in agreement with EPA's economic analysis in terms of the magnitude of market price increases associated with production shifts due higher production costs from complying with the regulation. However, at the representative CAFO level, FAPRI's analysis generates a different set of results with respect to financial impacts based on its use of alternative input data, assessment criteria, and methodology for determining impacts. As a result of this review, FAPRI identified several areas of concern associated with EPA's analysis that assesses the financial impact to CAFOs. These range from the way in which EPA tracked the cost components to the basic approach used by EPA related to the financial viability of the respective CAFO operations. Other concerns highlighted by FAPRI's report are recommendations that EPA conduct its analysis on an enterprise basis only and also consider an operation's ability to incur new debt, among other analytical issues.

Based on these comments, EPA is considering ways to further refine the analytical models and assessment criteria that it uses to determine financial impacts to regulated CAFOs, as well as consider the use of alternative input data for conducting this analysis. This section describes the approaches that EPA is considering to refine its financial impact models. As discussed below, EPA would potentially add modules to its existing economic model and incorporate changes to various assumptions as well as additional financial data, but would retain the basic internal structure of EPA's existing economic model. These model refinements are described in the following subsections and include: addition of new assessment criteria to evaluate changes in profitability (Section V.C.1(a)); examination of impacts at both the farm and enterprise level (Section V.C.1(b)); revision of threshold levels on a debt-to-asset test for some sectors (Section V.C.1(c)); considerations of debt feasibility (Section V.C.1(d)); and consideration of various assumptions by EPA in its analysis for the proposal, including whether to use post-tax costs and other cost offsets that may be available to producers, such as cost share assistance and income from manure and litter sales (Sections V.C.1(e) and V.C.1(f)). EPA solicits comment on these approaches to further refine its economic impact analysis and, where indicated, EPA requests additional information to

follow through on these suggested modifications.

Section V.C.2 of this notice describes additional sources of data to depict baseline financial conditions that the Agency is considering to supplement available financial data provided by USDA that was used for the proposal.

At this time EPA is not proposing an alternative, more comprehensive overhaul of EPA's existing model based on recommendations by some commenters that the Agency instead design an entirely new modeling framework. Nevertheless, Section V.C.1(g) concludes with a brief discussion of a possible alternative approach for further refining EPA's model by incorporating an extensive sensitivity analysis within its baseline process and providing a fuller treatment of the range of expected outcomes than would be the case with only a point estimate deterministic approach, as used by EPA for the proposal. EPA also solicits comment on the use of such an alternative approach.

a. Inclusion of New Assessment Criteria to Measure Changes in Profitability

As described in more detail in the preceding introduction, for the proposal, EPA evaluated the potential financial impacts of the proposed regulatory options based on changes in representative financial conditions across select criteria. Among these criteria were a comparison of incremental costs to total gross revenue (sales test), intended to broadly measure changes in a regulated facility's profitability under a post-compliance scenario. This test was largely considered as a screening test for further analysis and assessment using discounted cash flow analysis and an assessment of an operation's debt-to-asset ratio.

Several commenters claim that the sales test is not a useful measure of whether producers can afford the regulations. They suggested that it should be replaced with a rate of return measure, such as return on assets, equity, or investment. One commenter suggested a criterion based on cost as a percent of profit margin (measured as revenue less cost of goods sold) or gross margin (measured as returns to labor and overhead before taxes). Another commenter recommended evaluating profits measured as earnings before interest, taxes, depreciation, and amortization (EBITDA). Others indicated that the sales test, if retained, should be measured against a lower threshold value due to the lower profit margins on sales in agriculture. In general, commenters state that potential impacts, even at lower cost-sales ratios, can result in proportionately large reductions in net returns and erode the attractiveness of reinvestment in animal agriculture.

To address these concerns, EPA is considering adding additional assessment criteria that would measure changes in an operation's profitability from complying with the regulations. One potential criterion would assess compliance costs as a share of profit margin or, alternatively, EBITDA (“profit test”). EPA is considering a 20 percent to 30 percent threshold value on a profit test, for profits measured as revenue less cost of goods sold, but not including returns to unpaid labor and overhead. Using this threshold value, if compliance costs as a share of profit margin is less than 20 percent this would be considered affordable; compliance costs as a share of profits greater than 30 percent could indicate potentially significant impacts. This proposed threshold range is consistent with past analyses supporting regulatory actions by EPA, including standards for pesticide containment structures under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), arsenic residue standards for preserved wood, and also regulations under the Resource Conservation and Recovery Act (RCRA). Additional supporting information for this proposed threshold value is provided in EPA's record. EPA solicits comment on the use of this additional criterion and the range of suggested threshold values to evaluate this criterion. EPA will consider adding this criterion to the extent that the available financial data for each of the affected regulated sectors allow.

EPA requests comment on alternate profitability thresholds and the basis for them. EPA also solicits comment and requests information on the use of a profit test and applicable threshold values for this test should EPA use available USDA financial data that defines “net farm income” to include depreciation and interest, as well as other nonmoney expenses and returns to unpaid farm labor.

EPA did consider evaluating regulatory impacts to CAFOs using profitability measures for the proposal, but decided not to include such criteria because of limitations in the financial data available to EPA to conduct its regulatory analysis. Specifically, given boom and bust conditions that are common in the agricultural sectors, these financial data often show negative returns to risk, management, and unpaid labor. Consequently, the only way for EPA to conduct its analysis using these data is either to assume it is a baseline enterprise closure (i.e., it should not be considered in the regulatory analysis since the operation would be discontinued even without considering the impact of the regulations) or to determine that the operation cannot be analyzed at this level (i.e., the operation is remaining in business because of certain mitigating fac

This text is long and has been trimmed here. Open the source document for the complete record.