[Federal Register Volume 66, Number 225 (Wednesday, November 21, 2001)]
[Proposed Rules]
[Pages 58556-58607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-28738]



[[Page 58555]]

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Part II





Environmental Protection Agency





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40 CFR Parts 122 and 412



Notice of Data Availability; Proposed Rule

  Federal Register / Vol. 66 , No. 225 / Wednesday, November 21, 2001 / 
Proposed Rules  

[[Page 58556]]


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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.

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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 [email protected]. 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 [email protected], [email protected], and 
[email protected].

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

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    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

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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

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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
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                           Technology Options
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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

[[Page 58560]]

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.

[[Page 58561]]

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

[[Page 58562]]

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 Sec. 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

[[Page 58563]]

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 Sec. 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 Sec. 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

[[Page 58564]]

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 (Sec. 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

[[Page 58565]]

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 Sec. 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

[[Page 58566]]

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

[[Page 58567]]

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

[[Page 58568]]

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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               EPA estimates at proposal                           USDA's revised estimates
              Sector/size category               -------------------------------------------------------------------------------------------------------
                                                    All AFOs     >1000 AU   300-1000 AU     300 AU      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                        30           90
                                                                                                            4,250                                  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
----------------------------------------------------------------------------------------------------------------
                                              Potential CAFOs  Potential CAFOs  Potential CAFOs  Potential CAFOs
                   Sector                        >1,000 AU       750-1,000 AU      500-750 AU       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\
----------------------------------------------------------------------------------------------------------------
                                              Potential CAFOs  Potential CAFOs  Potential CAFOs  Potential CAFOs
              State/EPA region                    >1000 AU         >750 AU          >500 AU          >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

[[Page 58569]]

 
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

[[Page 58570]]

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
----------------------------------------------------------------------------------------------------------------
                                                                    AFOs defined as CAFOs, by threshold
            Item                  Units       Total for  -------------------------------------------------------
                                                Item         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.

[[Page 58571]]



                                   Table 5-5.--Number of Small CAFOs That May Be Affected by the Proposed Regulations
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Total Annual ($million)                 No. of Animals (Avg. U.S.)      Number of ``Small'' CAFOs
                                                        Revenue 1  (a)         Total Farm             (c=a/b)           Affected by Proposed Regulations
                     Sector                      ----------------------------  Revenue per -------------------------------------------------------------
                                                       Old           New       Head 2  (b)       Old           New            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

[[Page 58572]]

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

[[Page 58573]]

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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Approach used for proposal                              Alternative approach considered
                                    --------------------------------------------------------------------------------------------------------------------
           Cost component                                                              Least needs (25%)
                                        Frequency factor       Avg. weighted cost           Average             Average (50%)         Most needs (25%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost component #1..................  Average percent of      Average cost across     Average percent of     Average percent of     Average percent of
Cost Component #2..................   operations needing      all operations (each    ``least needs''        ``average needs''      ``most needs''
Cost Component #...................   upgrade (each cost      cost component).        operations needing     operations needing     operations needing
                                      component).                                     upgrade (each cost     upgrade (each cost     upgrade (each cost
                                                                                      component).            component).            component)
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Costs....................  ......................  Average Costs all       Average Costs ``least  Average Costs          Average Costs ``most
                                                              operations (per Model   needs'' operations     ``average needs''      needs'' operations
                                                              CAFO).                  (per Model CAFO).      operations (per        (per Model CAFO)
                                                                                                             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

[[Page 58574]]

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
----------------------------------------------------------------------------------------------------------------
                                                                               Technology train A
                                                              --------------------------------------------------
                        Cost component                                                              Total for
                                                                 Technology A        BMP A          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
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
      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
----------------------------------------------------------------------------------------------------------------
                                                                               Technology Train A
                                                              --------------------------------------------------
                        Cost component                                                              Total for
                                                                 Technology A        BMP A          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
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
      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,

[[Page 58575]]

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

[[Page 58576]]

(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.

[[Page 58577]]

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)
----------------------------------------------------------------------------------------------------------------
                                      Category 1                  Category 2                  Category 3
           Sector            -----------------------------------------------------------------------------------
                                 Minimum       Maximum       Minimum       Maximum       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

[[Page 58578]]

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

[[Page 58579]]

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 factors). EPA often 
encounters such problems when analyzing certain multi-facility 
manufacturing or service firms in other EPA regulations using actual 
facility level data; in such cases the facility is removed from the 
analysis since it cannot be analyzed and is considered a baseline 
closure.
    However, in the case of the analysis supporting the CAFO 
regulations, EPA is using a representative farm approach since it did 
not conduct a survey of all CAFOs nationwide. Using aggregated 
published data, this approach analyzes impacts across select groupings 
of livestock and poultry operations based on certain shared 
characteristics (e.g., animal production, region, facility size, etc.). 
Therefore, if the financial data for a certain representative group 
show negative returns under EPA's traditional approach, EPA would need 
to consider all operations within a group as a baseline closure. 
Financial data presented in Tables 5-10 through 5-12 provide an 
indication of which sectors would likely show large numbers of baseline 
closures given available data using a profit test with USDA's 
definitions of net farm income (which includes depreciation and 
nonmoney expenses). For example, as shown in Table 5-11, if EPA were to 
use alternate 1998 hog data from USDA, EPA's traditional approach would 
assume that all operations within each of the representative groups are 
baseline closures. However, EPA recognizes that when available data 
show large numbers of baseline closures (including even whole sectors), 
this may indicate limitations with the underlying data and/or 
methodologies rather than a realistic picture of the industry. EPA is 
further aware that facilities identified as baseline closures under 
EPA's traditional approach may be the very facilities likely to 
experience stress as a result of additional compliance costs, and that 
it is therefore important to account for these facilities in the 
analysis.
    For proposal, EPA evaluated impacts using a sales test and not 
other profit measures. If EPA decides to adopt a profit test as part of 
its final analysis, EPA will need to consider ways to address concerns 
regarding the potential number of large baseline closures using 
available data for operations that show

[[Page 58580]]

negative returns. A possible approach that might avoid this concern 
would be to consider compliance costs as a share of net income 
excluding depreciation and nonmoney expenses as part of the profit test 
(e.g., profits defined as profit margin or EBITDA). However, available 
financial data may be limited to allow for this level of 
differentiation among individual accounting line items. EPA solicits 
additional comment on these concerns.
    Because of these concerns, EPA is also considering other 
profitability criteria, including return-on-assets (ROA) and return-on-
equity (ROE). ROA is measured as the percent profit before taxes as a 
share of total assets in the RMA data. ROE is measured as the percent 
profit before taxes as a share of tangible net worth. EPA has evaluated 
changes to ROA as a measure of impact in previous effluent guidelines 
analyses, including analyses for the pharmaceutical manufacturing 
industry and the pesticide formulating, packaging and repackaging 
industry. The benchmark that has been used for these criteria are based 
on data reported by Robert Morris Associates (RMA). Each year, RMA 
surveys a number of operations in most sectors of economy, including 
agriculture, to gather basic financial data on which to report various 
balance sheet and income statement items, as well as key financial 
ratios. In previous analyses by EPA, it was assumed that operations 
that are at risk of closure or bankruptcy under a post-compliance 
scenario are those with, for example, estimated ROA higher than the 
lowest quartile of value in the baseline that are determined to have 
ROA below the lowest quartile value reported by RMA after complying 
with the regulations. Because of issues related to data indicating 
negative returns within some of these sectors (as discussed 
previously), the proposed benchmark values using this approach are 
negative. Accordingly, for the CAFO analysis, EPA has determined that 
the following relevant ROA and ROE lowest quartile benchmarks would 
apply based on RMA for 1994-1997: lowest quartile ROA ranges from -0.4 
percent for hog operations to -4.3 percent for egg operations; lowest 
quartile ROE ranged from -0.4 percent for dairy operations to -10.7 
percent for egg operations. These benchmarks are preliminary and 
subject to modification using additional data to ensure a 
representative ROA or ROE benchmark has been identified. Additional 
supporting information for these proposed threshold values is provided 
in EPA's record. EPA solicits comment on the use of these alternative 
criteria and also the range of suggested threshold values to evaluate 
these criteria. EPA will consider adding these criteria to the extent 
that the available financial data for each of the affected regulated 
sectors allow.
b. Evaluation of Assessment Criteria at Multiple Business Levels
    In the proposal, EPA evaluated financial impacts using USDA 
Agricultural Resource Management Study (ARMS) data that were aggregated 
at the farm level. EPA's basis for determining economic achievability 
among regulated CAFOs was therefore measured in terms of the potential 
for closure of the facility and not as a potential product line 
closure. Among the principal concerns raised in the FAPRI study as well 
as by researchers at the land grant universities and also USDA is that 
EPA should evaluate financial impacts to regulated CAFOs for the single 
regulated livestock or poultry enterprise only.
    Many commenters claim that EPA's use of farm-level financial data 
raises questions as to whether a CAFO would willingly subsidize one 
enterprise with dollars from other farm enterprises. These commenters 
question whether producers at more diversified operations would choose 
to cross-subsidize an unprofitable enterprise for long periods or 
whether they would instead shift assets towards other, more profitable 
enterprises at their operation; these producers might not quit farming 
but would only remove the non-productive enterprise from their farming 
mix. Moreover, some commenters point out that larger operations are 
normally enterprise specific and tend to specialize and focus on a 
single enterprise and, therefore, an enterprise approach is considered 
more appropriate for EPA's analysis. Other commenters also note that 
the use of enterprise level data in the form of ``enterprise budgets'' 
is more consistent with a representative farm approach, which was the 
general approach adopted by EPA for evaluating financial impacts for 
the proposal. FAPRI also noted that while an evaluation of impacts at 
the farm level has merit, it is also prone to confounded results 
because enterprise specific costs are spread over a larger share of the 
business (e.g., non-livestock enterprises bear the cost of livestock 
regulatory costs).
    EPA recognizes the importance of considering financial impacts at 
multiple levels within a business since this is consistent with 
economic theory and a more technically sound approach. EPA typically 
conducts its analyses of regulated entities using data for a business 
as a whole as opposed to an individual product line at a firm. The main 
reason for this is that data are often not available at the enterprise 
or product line level. Similarly, data limitations restricted the types 
of analyses EPA was able to conduct to support the proposed CAFO 
regulations; because the available ARMS data obtained by USDA did not 
provide usable data and information for an individual enterprise at a 
model facility, EPA was not able to evaluate impacts at the enterprise 
level. Instead, the ARMS data available to EPA were expressed for an 
operation's entire business, which includes revenue and cost 
information across all enterprises at a facility. Although the ARMS 
data's revenue information is roughly distinguishable between gross 
income from total livestock production and revenue from other farm 
source (including crops, government payments, and other farm-related 
income), the operating cost data are not differentiated by an 
operation's livestock enterprise but are reported as total cost and 
reflect joint production and labor costs across all the different 
enterprises at a facility.
    Today, EPA presents options that the Agency is considering to 
modify its economic analysis to take into consideration new financial 
data received by EPA in order to assess financial impacts at multiple 
businesses levels within a representative facility. This addresses 
recommendations received through public comment in conjunction with new 
financial data that has been provided to or compiled by EPA at the 
enterprise level for some sectors (presented in Section V.C.2 of this 
notice). EPA is considering whether to use these enterprise data to 
supplement the farm level data used by EPA for the proposal.
    Given the availability of these new data for some sectors, EPA is 
considering an approach that would supplement available data at the 
farm level with data at the enterprise level. EPA has adopted such an 
approach for previous regulations where data are available (e.g., 
regulations related to the Pesticide Formulating, Packaging and 
Repackaging industry which were evaluated according to product-line 
closures, see 61 FR 57518). For this analysis, EPA is considering using 
available financial data to assess changes in a representative 
facility's profitability based on changes at both the farm and 
enterprise level. EPA proposes to continue to evaluate changes in 
solvency using a debt-to-asset test at the farm level. Any additional 
considerations of a debt

[[Page 58581]]

down payment requirement, as discussed later in Section V.C.1(d), would 
also be assessed at the total farm level. EPA's discounted cash flow 
analysis will continue to be conducted using farm level data. Using 
this approach, EPA is considering ways to evaluate the financial 
impacts of the proposed regulations that consider impacts at these 
multiple business levels (e.g., both the farm and enterprise sector) to 
differentiate circumstances under which an enterprise or product line 
may be discontinued but the farm or larger business entity remains in 
operation. While closure of the farm business is the focus of EPA's 
analysis, several commenters have expressed concern about enterprise 
closure for reasons of risk diversification and industry concentration. 
EPA solicits comment on the use of this approach and also requests 
additional input from the public on how to reconcile these issues for 
purposes of assessing financial impacts to regulated CAFOs for the 
final rulemaking.
    EPA is not considering evaluating financial impacts at the 
enterprise level only, as some commenters have recommended. One reason 
for this is that usable enterprise level data are not available across 
all sectors in order to be able to complete such an analysis. In 
addition, some components of EPA's analysis are simply only appropriate 
when conducted at the farm level, such as EPA's standard discounted 
cash flow analysis or an assessment of an operation's debt. Moreover, 
EPA is unlikely to ignore available farm level data for some aspects of 
its analysis. For example, it is a long-standing practice and 
consistent with Agency guidance to assess impacts to small businesses 
at the broader business level, as part of EPA's obligation to conduct a 
regulatory analysis of the impacts to small businesses under the RFA. 
Furthermore, previously published academic research by both the land 
grant universities and USDA have typically evaluated impacts using data 
and methods specified at the farm level or have, at least, taken into 
consideration information for the larger business concern.
    EPA's alternate proposal to supplement available farm level data 
with new enterprise level data also addresses concerns that EPA has 
about evaluating impacts at the enterprise level only. These are 
summarized briefly as follows. As a practical matter, EPA recognizes 
that often the individual enterprises at an operation are highly 
interdependent, such as in the case of integrated production systems 
where there may be considerable cost savings due to shared production 
and labor costs among multiple enterprises at a farm or as in the case 
of where one enterprise, e.g., grain crop production, serves as an 
input to another, e.g., livestock production. In addition, an analysis 
using enterprise level data may fail to account for the range of 
assistance to the farming operation through various government 
programs, which are often noted as a separate source of farm level 
income in USDA's data compendiums. Also, as pointed out by one lender 
questioned by EPA, lenders usually look at the debt carrying capacity 
of the farm operation as a whole, except in the unusual instance when 
their lien is only on the enterprise. Finally, farms are commonly noted 
to be motivated by non-economic factors that may influence an 
operation's decision to weather the boom and bust cycles that are 
commonplace in agricultural markets. These issues raise questions about 
whether a decision to conduct EPA's analysis strictly at the enterprise 
level is simple and straightforward. EPA requests information on how to 
reconcile these concerns in the context of its analysis.
    As part of this approach, however, EPA is not considering modifying 
its existing economic models to take into consideration financial data 
for processing firms. Such an approach has been suggested because of 
the affiliation between some CAFOs (e.g., contract growers) and 
processing firms through various contractual arrangements in some 
sectors. Data are not available to conduct such an analysis: EPA does 
not have market information on which processors and CAFOs participate 
in such contract agreements; financial data for processing firms that 
contract out the raising of animals to CAFOs is also not available. 
Consistent with how EPA conducted its analysis for the proposal, EPA 
will continue to assume that an assessment of the regulatory impacts of 
the proposed regulations is more accurately conducted for the regulated 
CAFO since the CAFO is the operation that would incur the cost of the 
proposed requirements. EPA solicits comment on this assumption and 
overall approach. Although EPA is not considering evaluating the 
financial impacts of the proposed regulations at the processor or 
integrator level, EPA will continue to evaluate expected broader market 
level changes using the assumptions of cost passthrough that were 
developed for the proposal as a surrogate for more complex market level 
models that would appropriately take into account structural adjustment 
among farmers as well as market adjustment in the long run.
    At this time, EPA has not re-evaluated its analysis using the 
approach presented in this notice that would determine regulatory 
impacts based on both farm and enterprise level financial data. 
However, EPA did evaluate available enterprise level as part of its 
sensitivity analysis of its study results for the proposal. The results 
of this sensitivity analysis provide an indication of the potential 
changes that might occur if enterprise level data are evaluated in 
conjunction with farm level data used as discussed in this notice. For 
this assessment, EPA evaluated changes to its sales test criterion 
using USDA data for total livestock revenue only (i.e., excluding 
revenue from all other sources, including crops, government payments, 
and other farm-related income). This approach differed from EPA's main 
analysis where cost-to-sales ratios were evaluated using financial data 
for the farm operation as a whole and does not differentiate between an 
operation's livestock and other business enterprises. EPA was not able 
to evaluate changes in other financial criteria because enterprise 
level data was not available with respect to an operation's operating 
costs. This analysis is provided in Appendix D of EPA's Economic 
Analysis that supports the proposed rulemaking.
    Table 5-9 presents the results of this analysis as well as a 
comparison of gross revenue at both the enterprise and farm business 
levels assumed in this sensitivity analysis, expressed on a per-animal 
basis. Overall, consideration of enterprise level data only could 
result in these operation's being depicted as having lower ability to 
pay for additional compliance costs, as compared to consideration of 
broader farm level data. EPA's analysis using only enterprise level 
data resulted in an increase in the assessed number of enterprise and 
potentially farm closures. As shown in the table, the reported USDA 
data show that livestock revenues comprise roughly one-half of a farm's 
total operating revenue for most sectors. In the broiler sector, 
enterprise revenue is about 10 percent of that reported for the entire 
operation: business revenue is $1.10 to $1.50 per bird when expressed 
at the farm level, as compared to $0.10 to $0.20 per bird when 
expressed at the broiler enterprise level only. As is also shown in the 
table, if cost-to-sales ratios at the enterprise level are assumed to 
be the sole basis for determining whether the proposed regulations are 
affordable, the number of potential product line failures would 
increase significantly as compared to an assessment using farm

[[Page 58582]]

level data only. These results do not take into consideration the 
potential offsetting effects of cost passthrough and longer term market 
adjustment. In addition, EPA considers the results of this analysis for 
some operations, particularly broiler operations, to be overstated 
since this simple test does not take into consideration lower 
production costs at contract grower operations where production inputs 
are often provided by the affiliated processor firm under various 
contractual agreements.
    EPA solicits comment on EPA's intention to supplement available 
farm level financial data with new data received at the enterprise 
level, and to use these data to determine economic impacts to regulated 
CAFOs.

     Table 5-9.--Comparison of Input Data and Results Using Entity (Main) and Enterprise (Sensitivity) Data
----------------------------------------------------------------------------------------------------------------
                                                       Input revenue data              EPA's analysis result
                                              ------------------------------------------------------------------
                                                                                                    Sensitivity
                                  Number of                        Sensitivity     Main analysis     analysis
            Sector                  CAFOs        Main analysis       analysis        number of       number of
                                                 entity level       enterprise         CAFOs           CAFOs
                                                 revenue/head     level revenue/     financial       financial
                                                                       head           stress          stress
----------------------------------------------------------------------------------------------------------------
Beef.........................           5,330  $502-$862.......  $340-$512......              90             660
Dairy........................           7,140  $2,343-$2,620...  $2,166-$2,650..             700             700
Hog..........................          14,370  $84-$606........  $47-$307.......           1,420           3,020
Broiler......................          14,140  $1.10-$1.40.....  $0.10-$0.20....             320          14,140
Layer........................           2,060  $25.00..........  $17.00.........               0               0
Turkey.......................           2,100  $11.0-$20.0.....  $6.0-$17.0.....               0             100
                              ----------------------------------------------------------------------------------
    Total....................          45,140  n/a               n/a                       2,520         18,610
----------------------------------------------------------------------------------------------------------------
Source: Input data are from USDA's 1997 ARMS data, derived on a per-animal basis. Data used for sensitivity
  analysis are derived from the data in the main analysis, based on USDA-reported livestock portion of total
  farm revenue only and disregards revenue from other farm-related sources, including crops.
EPA's analysis compares results in terms of the number of operations that might experience financial stress
  between the main (entity) and sensitivity (enterprise) analysis (shown for the proposed technology options all
  operations with more than 300 AU).

c. Revision of Threshold Values on a Debt-to-Asset Test (Some Sectors 
Only)
    For the proposal, data on a representative operation's debt-to-
asset ratio were obtained from USDA. These data were used along with 
other financial criteria to assess an operation's debt-to-asset ratio 
under a post-compliance scenario and constitute one of the tests used 
by EPA to assess financial impacts to CAFOs. For the debt-to-asset 
test, EPA assumed a threshold value of 40 percent, such that if an 
operation's debt-to-assets measured more than 40 percent after 
incurring the compliance costs, then EPA might consider this operation 
to experience financial stress associated with the proposed 
regulations, subject to other considerations. The basis for EPA's 40 
percent test was USDA's financial classification of U.S. farms that 
identifies an operation with negative net farm income and a debt-asset 
ratio in excess of 40 percent as ``vulnerable.'' An operation with 
positive net income and a debt-asset ratio of less than 40 percent is 
considered ``favorable.'' EPA adopted this classification scheme as 
part of its economic achievability criteria in assessing the change in 
debt relative to asset at a regulated CAFO.
    Commenters generally approve of using a debt-to-asset ratio in the 
economic analysis, but criticize the baseline assumptions, how the 
post-compliance ratio was computed, and the criteria chosen for the 
threshold. However, some commenters claim that USDA's 40 percent 
threshold value used by EPA in its baseline model to assess post-
regulatory debt-to-asset ratios does not reflect the financial reality 
of today's livestock or poultry industry. Many commenters also note 
that debt-to-asset ratios from USDA's ARMS data set do not represent 
the current state of borrowing in many of these sectors. Specifically, 
they assert that the ARMS data reflect a current debt position that is 
too low, given that most operations face higher debt levels; also, 
these data reflect an assumed equity position of more than 60 percent 
that is considered too high to be representative of the livestock and 
poultry industry. Commenters indicate that some operations typically 
are highly leveraged, especially those operations that finance a large 
portion of their livestock.
    Several commenters noted that EPA's use of average debt-to-asset 
ratios using the ARMS data fail to account for the wide range of 
variability among farm operators, based on a variety of factors 
including facility size and the age of the farm operators. One 
commenter cited survey data for the hog sector indicating that although 
average debt-to-asset ratios may fall within a range roughly at the 40 
percent threshold, individual operations may operate below or above 40 
percent depending on size of operation: generally, the majority of 
smaller sized operations tended to have debt-to-asset ratios less than 
40 percent (roughly 60 percent of operations in that size class) 
whereas larger operations tended to have debt-to-asset ratios greater 
than 40 percent (roughly 50-60 percent of operations in that size 
class). Another commenter noted that operators seeking to expand their 
operations to better compete may face a higher debt load.
    Some commenters support the use of alternate data and assumptions 
that reflect higher debt-to-asset ratios in the baseline model, 
approaching 70 percent. Some indicate that a baseline of more than 60 
percent is not unusual, with some operations with levels of 70 percent 
to 80 percent. These comments are generally consistent with new 
financial data received by EPA that indicates that baseline debt-to-
asset levels at some representative facilities in this industry exceeds 
40 percent and tends toward 50 percent to 60 percent (see Section V.C.2 
for more information).
    Because of these comments, EPA is considering revising its debt-to-
asset threshold and will look into alternatives to USDA's 40 percent 
value for those sector where alternative data support this approach 
(i.e., if EPA uses alternate and/or supplemental data based on 
submissions by NCBA for cattle feeding operations and FAPRI for hog and 
dairy operations, as described in Section V.C.2). Most commenters 
stated that financial stress would occur at operations facing debt-to-
assets ratios of roughly 60 percent to 80 percent. One commenter 
suggested that a ratio of

[[Page 58583]]

more than 60 percent would be indicative of stress and that a ratio of 
more than 70 percent would result in bankruptcy. The basis for this 
recommendation cites farm credit information from the American Bankers 
Association's Farm Financial Standards Task Force suggesting that debt-
to-asset levels in excess of 60 percent act as ``red light'' indicators 
to lenders. EPA's own discussions with farm lenders also indicate a 60 
percent debt level for ``typical'' operations. Most lenders require an 
operation to retain a 40 percent equity base in the operation, although 
lower bases may be acceptable, particularly where the majority of debt 
is in short-term livestock loans or at very large operations. 
Therefore, the 70 percent debt-to-asset ratios (reflecting a 30 percent 
equity stake) at the very large operations represented in the NCBA 
survey may reflect both of these factors. Another commenter suggested 
assessing impacts based on the probability that an operation will 
experience two consecutive years of negative cash balances, in 
conjunction with a debt-to-asset ratio of greater than 70 percent in 
the second year of incurring new debt associated with the regulations. 
EPA requests additional information that further supports these and 
similar suggestions for modifying the threshold values assumed for 
purposes of conducting a debt-to-asset test.
    Given these recommendations, EPA is considering revising the 
existing assessment criteria threshold on a debt-to-asset test from a 
40 percent level assumed in the proposal, unless EPA obtains 
substantiated data to the contrary in comments to today's notice. At 
this time, EPA is considering a threshold value on this test of 60 
percent for small and medium operations, and 70 percent to 80 percent 
for large operations--in certain sectors only. This revised threshold 
value will be applied as a test within those sectors where available 
data supports such an approach. At this time, based on available data 
that EPA has obtained, these revised thresholds will likely be applied 
within the beef, dairy, and hog sectors only. The basis for this 
revised threshold value in these sectors is new data obtained by EPA 
from FAPRI and NCBA indicating that operations in these sectors already 
carry much higher debt loads than average data reported by USDA. EPA is 
not considering revisions to the 40 percent threshold value for the 
debt-to-asset test for the the poultry sectors because available data 
does not support such an approach. Although a lender survey conducted 
by EPA indicates that debt levels may also be high within these other 
sectors, EPA did not receive data or information contrary to that 
reported by USDA during the comment period. Which applicable threshold 
level to apply for EPA's analysis will also depend, in part, on which 
alternate or supplemental data EPA chooses for the purposes of its 
analysis (for example, if EPA were to use available USDA data then the 
higher threshold values would not apply). As part of this notice, EPA 
also requests additional debt and asset data for these sectors, if 
available.
d. Consideration of Debt Feasibility
    For proposal, EPA did not directly assess a representative 
operation's ability to service new debt. Many commenters criticize EPA 
for not considering impacts in a way that takes into account all of the 
cash outlays for an operation, including principal payments on loans to 
purchase the required technology. These commenters feel that cash 
outlays in the first year associated with a down payment might be 
substantial and could critically deplete equity and make second year 
cash flow requirements difficult. Today EPA presents how it is 
considering to respond to this comment and solicits comment on this 
approach.
    Many commenters support a general assumption of 40 percent down 
payment on new debt. The general basis cited for this recommendation is 
the presumption that capital expenditures associated with compliance 
are viewed as non-productive investments that are usually sized to a 
particular operation's needs, therefore they not fungible or saleable 
as a secondary or tertiary source of repayment for that note and may 
even have negative value due to costs of removal and disposal. Given 
these types of single-purpose livestock facility investments, some 
commenters claim that banks would be reluctant to lend over 60 percent 
to 65 percent of the total costs. Another commenter made the general 
claim that a 40 percent down payment assumption is consistent with the 
typical lender demand that the farm have 40 percent equity in the 
operation after the loan is made. Few commenters provided documentation 
from lenders to support a general recommendation of a 40 percent down 
payment assumption.
    Following the close of the comment period, EPA contacted many of 
the commenters that made this recommendation to solicit additional 
information on the necessary documentation to support this assumption. 
In return, EPA received contact information of farm credit specialists 
and additional information on recommended equity requirements. Because 
the Agency recognizes the value of taking debt feasibility into 
consideration, EPA has initiated its own review of what such an 
assumption would entail, based on information about a typical down 
payment. As part of this effort, EPA also conducted further evaluation 
of how lenders assess the ability of an operation to service new debt 
to determine whether such test is necessary and, if so, how such a test 
would be incorporated into the Agency's analysis. This section provides 
a summary of EPA's review. More detailed information is provided in the 
record.
    To review public comments received on this topic, EPA conducted a 
wider review of documentation on farm lending practices and guidance 
manuals, as well as contacted each of the farm lender contacts 
submitted to EPA following the comment period and also other industry 
credit specialists.
    Initially EPA set out to determine a appropriate level of down 
payment to assume as part of EPA's analysis. Based on EPA's preliminary 
review of available farm credit information, EPA believes that a 40 
percent down payment is not supported by a review of agricultural loan 
requirements from several agencies. Instead, information collected by 
EPA supports a down payment assumption of 20 percent to 30 percent. 
This information is available for review in EPA's record. However, as 
EPA was reviewing possible down payment assumptions to assume as part 
of its analysis, it further became clear that the necessary financial 
data to do such an analysis are limited. Few enterprise budgets report 
cash reserves, and USDA data do not report cash reserves or cash 
balances as a line item. As part of its data submission, new data from 
FAPRI does include ending cash reserves, but these data are available 
for a limited number of sectors. Without this information, it is not 
clear whether EPA could evaluate if an operation would be able to 
provide the necessary cash to make up a shortfall in borrowing. In 
other words, even if EPA were to determine that it should consider a 
down payment requirement as part of its analysis, it might not be able 
to do this because of limitations in the available financial data. EPA 
requests additional information on first year net cash and/or cash 
reserves specified at the farm level for these sectors in order to 
properly apply this recommended debt feasibility test uniformly across 
each of the sectors. EPA also solicits comment on how EPA would conduct 
such an analysis given the data limitations and also requests

[[Page 58584]]

new information backed by supporting documentation as part of today's 
notice. Moreover, EPA solicits comment on whether such a test is even 
necessary, for reasons outlined as follows.
    As part of this effort to obtain addition farm credit information 
to further supplement the Agency's economic models, EPA also 
investigated how lenders assess the ability of an operation to service 
new debt. In this process, EPA determined that if an operation has a 
sufficient equity base, a down payment might be a misleading concept. 
If a borrower were to take out a fixed term loan for an environmental 
improvement, a lender would be likely to finance 60 percent of the 
amount needed, similar to what many commenters pointed out. But the 
borrower has other choices than cash reserves for the additional funds 
needed. According to one lender, most farmers have access to other 
sources of lending limited only by cash flow and equity considerations. 
For these types of loans lenders are primarily concerned with cash flow 
and equity base. Operations may typically use their fixed assets as 
collateral and have access to borrowing (much like a homeowner might 
have to a home improvement loan) that is limited generally to a point 
at which their equity base would fall below 35 to 40 percent for a 
typical operation. This translates to a 60 to 65 percent debt-to-asset 
ratio on average. Two specialists contacted by EPA indicated that 
lenders typically demand that the farm have 40 percent equity in the 
operation after the loan is made. According to one of EPA's contacts, 
however, borrowers with high levels of equity could borrow up to 100 
percent of the necessary funds (and presumably could borrow any 
necessary down payment under a fixed term loan). Thus as long as their 
equity base remains sufficient (i.e., they do not exceed their credit 
line), then obtaining additional funds should not be an insurmountable 
problem for farms. Stated differently, as long as an operation meets 
the threshold requirements of a debt-to-asset ratio, the operation 
should be able to obtain the money needed to meet the requirements of 
the CAFO regulations as long as cash flow remains sufficient to cover 
the payments. This would mean that additional tests to account for a 
down payment requirement as part of EPA's economic analysis are not 
necessary given the types of analyses (debt-to-asset assessment and 
cash flow analysis) already in place.
    For its analysis supporting the proposed regulations, EPA assumed 
that operations where the debt-to-asset ratio under a post-compliance 
scenario exceeded a particular threshold might experience financial 
stress. These operations are likely those that would have to find ways 
to finance less than the full amount of the capital expenditure (i.e., 
make some sort of down payment, in effect, that might entail using any 
cash reserves, liquidating assets, or undertaking other difficult 
financial maneuvers). As a practical matter, these operations would be 
exceeding what might be estimated to be their available credit line. 
Assuming that these operations are automatically facing financial 
stress is simpler than trying to determine whether they could somehow 
manage a 40 percent down payment. Even if EPA was able to determine 
whether such marginal operations could manage to borrow only a portion 
of the necessary funds and pay for the rest out of pocket, the data to 
do such an analysis are limited (as previously noted).
    Additionally, at proposal, operations where the equity base is 
sufficient prior to the regulations, but where the cash flow analysis 
indicates that they may not be able to cover the annualized costs of 
the regulations (which include both interest and principal payments, as 
well as operating costs) are also considered to experience financial 
stress. This may be considered as equivalent to assuming that lenders 
would not offer them a credit line sufficient to cover this level of 
expenditure. Lenders would also have determined that cash flow would 
not cover this level of debt and consequently would have provided a 
more limited credit line. EPA thus believes that the analysis performed 
at proposal that takes into account both the equity base (in the form 
of the debt-to-asset ratio) and the ability of cash flow to cover 
annual costs functions in the same way and reflects many of the same 
decisions used by lenders in granting access to credit.
    For reasons presented here, EPA solicits comment on the assumption 
that a down payment assumption is not necessary given the analysis 
already in place, including EPA's joint analysis of debt-to-asset 
ratios and also cash flow. If an operation does not exceed a debt level 
considered problematic and if the analysis does not indicate cash flow 
difficulties, EPA would assume that the operation would not face 
financial stress as a result of the proposed requirements. 
Consequently, the inclusion of a debt feasibility test that assumes a 
certain percent down payment in addition to this analysis would not be 
needed. EPA solicits comment on this assumption and requests that any 
new information and recommendations as part of today's notice.
e. Consideration of Tax Savings
    For the proposal, EPA calculated compliance costs to CAFOs both 
under pre-tax and post-tax scenarios. The pre-tax costs reflect the 
estimated total social cost of the proposed regulations, including lost 
tax revenue to governments. Pre-tax dollars are used when comparing 
estimated costs to monetized benefits that are estimated to accrue 
under the proposed regulations. The post-tax costs reflect the fact 
that a CAFO would be able to depreciate or expense these costs, thus 
generating a tax savings. Post-tax costs thus are the actual costs the 
CAFO would face. For this reason, EPA evaluated financial impacts to 
CAFOs taking into account the tax savings to facilities (i.e., 
according to estimated post-tax costs) using available Federal and 
State tax information to compute the expected tax shield for a 
representative facility. More detail on this approach is provided in 
Appendix A of EPA's Economic Analysis that supports the proposed 
rulemaking.
    Some commenters oppose EPA's use of post-tax costs to assess 
financial impacts on the grounds that it is not appropriate to factor 
tax savings into the cost of compliance for producers. They recommend 
that EPA base its financial tests without the expected tax offset since 
operations whose survival is in question would have no positive income 
against which to offset these ``tax benefits'' but would be forced to 
bear the full ``pre-tax'' costs of implementation. Related comments 
recommend that EPA evaluate costs as a share of gross income (``sales 
test'') using pre-tax and not post-tax costs. In addition, overall 
commenters have expressed a preference that EPA evaluate compliance 
cost impacts using various income and profitability measures based on 
effects prior to consideration of tax offsets (such as net income 
before taxes).
    Previous regulatory impact analyses conducted by EPA have evaluated 
compliance costs impacts on a post-tax basis using a standard cash flow 
model, incorporating an annualization approach that accounts for tax 
savings as well as depreciation at a business since these are more 
reflective of the costs that are actually incurred by that business. 
Given this longstanding practice that follows standard business and 
accounting practices, at this time EPA is not considering revising its 
approach to assess business impacts as part of the Agency's cash flow 
analysis.
    However, EPA is considering evaluating financial impacts for some 
financial criteria using both post-tax and

[[Page 58585]]

pre-tax costs and will consider whether to jointly include these 
analyses as part of its overall impact assessment. For example, for 
proposal, EPA evaluates the ratio of costs to sales using post-tax cost 
estimates. If EPA retains the sales test as a measure of the impact of 
compliance, it will consider whether to instead evaluate pre-tax costs 
of compliance as part of its sales test. If EPA decides to evaluate 
compliance costs as a share of net farm income, it will consider the 
use of pre-tax costs for this test as well. EPA solicits comment on 
this approach.
f. Consideration of Various Cost Offsets
    For the proposal, EPA did not consider the range of potential cost 
offsets available to most farms. One source of cost offset is manure 
sales, particularly of relatively higher value dry poultry litter. For 
example, EPA has estimated that sales of dry poultry litter could 
offset the costs of meeting the regulatory requirements on the order of 
more than 50 percent; however, EPA did not formally consider this 
analysis for the proposal. Another source of potential cost offset is 
cost share and technical assistance available to farmers for on-farm 
improvements from various State and Federal programs, such as the 
Environmental Quality Incentives Program (EQIP) administered by USDA. 
For example, cost sharing for eligible producers under EQIP may cover 
up to 75 percent of the costs of certain conservation practices, such 
as grassed waterways, filter strips, manure management facilities, 
capping abandoned wells, and other practices important to improving and 
maintaining the health of natural resources in the area. Technical 
assistance is also available for formulating conservation plans. EPA 
also did not formally consider these offsets as part of its analysis 
for the proposal.
    Comments by some State representatives have suggested that EPA 
should account for the availability of cost share and technical 
assistance in the Agency's cost and economic analysis, including, for 
example, how producers might use these program dollars to help secure 
loans for capital investment associated with regulatory compliance. To 
address these comments, EPA may consider ways to evaluate the potential 
cost savings to an operation in terms of available cost-share and 
technical assistance. Such an approach is consistent with various 
academic studies of economic impact analyses that have been conducted 
in the past, which often take into account government assistance to a 
facility as part of an overall assessment. A review of the available 
literature demonstrating the use of such assumptions is provided in the 
record. To conduct this analysis, EPA may estimate these cost offsets 
using an approach similar to that previously conducted for other EPA 
regulations affecting agricultural producers. For example, available 
cost share program funding was considered as part of previous analyses 
of management control measures for CAFOs under the Coastal Zone 
Management Act, and was estimated at an average rate of $3,500 per 
facility. EPA anticipates that these estimates will reflect cost share 
assistance for new capital investments for each representative CAFO 
model, annualized over the time period of the analysis (and subject to 
certain program restrictions including program eligibility requirements 
and other restrictions such as the types of investments covered, as 
well as overall program funding limitations and availability of program 
staff to provide assistance.)
    In addition, EPA may also consider ways to evaluate the potential 
income generated and/or cost savings to an operation from the sale or 
use of manure by the CAFO as a fertilizer substitute. This analysis may 
be based on the volume of manure nutrients estimated for each 
representative CAFO model adjusted by the average reported value for 
these nutrients (according to, for example, market prices for nitrogen, 
phosphates, and potassium). The use of such an approach is also 
consistent with much of the academic research conducted by the land 
grant universities, as summarized in literature review conducted by EPA 
of previous economic impact analyses to derive an average annual 
offset.
    EPA solicits comment on these approaches to consider various cost 
offsets to incurred compliance costs, as described in this notice. 
Also, as part of today's notice EPA requests information from States 
and others on various conservation and assistance programs, 
particularly in terms of the amount of program dollars available to 
livestock and poultry producers through their State level cost-share 
and technical assistance programs.
2. Alternate Data for Determining Baseline Financial Conditions at 
CAFOs
    For the proposal, EPA did not conduct a survey of all CAFOs to 
obtain financial budgets for use in its analysis. Instead, EPA relied 
on financial data from USDA's 1997 ARMS data to evaluate financial 
impacts at regulated CAFOs. Data for representative farms were obtained 
by USDA through special tabulations of the 1997 ARMS data, conducted by 
USDA's Economic Research Service (ERS). These data differentiate 
financial conditions among operations by commodity sector, facility 
size (number of animals on site), and major farm producing region. Data 
that EPA received from USDA were expressed for an operation's entire 
business and included revenue from an operation's livestock business as 
well as other enterprises at the facility, e.g., including crops, 
government payments and other farm-related revenue (but excluding off-
farm revenue). Many commenters question the appropriateness of these 
ARMS data to evaluate financial impacts to CAFOs particularly for 
certain sectors. Most notably, USDA contends that its ARMS data are not 
suitable for evaluating impacts to cattle feeding and hog sectors. 
Other related issues about the ARMS financial input data include 
concerns about the fact that these data are specified at the farm level 
and are for a single year only (1997).
    Today EPA presents additional data collected by EPA and also data 
received for the cattle feeding and hog sectors from USDA, National 
Cattlemen's Beef Association (NCBA), FAPRI, and other sources (Sections 
V.C.2(a) through (c)). Following a description of the alternate and 
supplemental financial data received or obtained by EPA is further 
discussion of sources of alternate data for other sectors that EPA will 
consider for use in its analysis to address concerns about the use of a 
single year of data (Section V.C.2(d)) and also how to forecast out 
data in EPA's financial models over the 10-year analysis period 
((Section V.C.2(e)).
a. Alternative Financial Data for Cattle Feeding Operations
    During the development of the proposed rulemaking, EPA received 
alternative enterprise level data for the cattle feeding sector from 
National Cattlemen's Beef Association (NCBA). These data provided 
aggregated summary information on financial conditions at cattle 
feeding operations based on responses to a survey questionnaire of its 
membership. After a review of these data, however, EPA decided--for 
reasons discussed below--not to base its economic analysis using NCBA's 
data for the proposal. Instead, given the lack of other statistically 
validated survey data for this sector, EPA used USDA's 1997 ARMS data 
for beef operations despite recognition of the limitations of these 
data for assessing cattle feeding operations. Both prior to EPA's 
proposal and during the comment period, NCBA expressed concern that the 
ARMS data are more

[[Page 58586]]

reflective of cow-calf operations and represent few feedlots and, 
therefore, might not be representative of operations in this sector. In 
addition, USDA has indicated to EPA that the available ARMS data are 
more reflective of cow-calf operations and might not suitable for 
evaluating impacts to cattle feeding operations. Iowa State University 
also notes the inappropriateness of ARMS financial data to represent 
beef feedlots.
    EPA decided not to use NCBA's survey data for the proposal because 
of questions about these data, including statistical representativeness 
given a low survey response rate, lack of information on the 
statistical methodology used to compute averages, inconsistencies with 
other reported data by USDA, and other factors. EPA's assessment of the 
NCBA survey data is contained in EPA's record for the proposed 
rulemaking. Also, EPA determined that the NCBA survey data, if used, 
might lead to difficulties in estimating impacts given questions about 
NCBA's reported high debt-to-asset ratios in the baseline data that 
appeared inconsistent with other data, including that from USDA. Use of 
these data would have resulted in most cattle feedlots being assumed as 
``baseline closures'' based on the criteria developed for EPA's 
analysis; these operations would be excluded from analysis since they 
would be assumed to close in the pre-regulatory baseline.
    As part of EPA's public comment period, NCBA has submitted 
additional financial data and information for cattle feeding 
operations. This new data submission addresses many of EPA's initial 
concerns about NCBA's previously submitted survey data by providing 
additional information about how these data were collected and by 
including additional diagnostic information that allows EPA to more 
fully evaluate these survey data. And, based on information provided by 
NCBA and other commenters, EPA has received additional information 
indicating that the Agency's initial concerns about NCBA's reported 
debt-to-asset ratios are largely unfounded (also see discussion in 
Section V.C.1(c)).
    Today EPA presents summary information on alternative financial 
data for cattle feeding operations provided by NCBA as well as FAPRI 
and Iowa State University. NCBA provided data developed on the basis of 
a survey of their members. FAPRI provided enterprise budgets developed 
by a panel of industry experts. Iowa State University provided 
information on beef feedlots in Iowa that might be representative of a 
``typical'' (roughly 300-500 head) enterprise in Iowa. The data 
provided by these commenters are summarized briefly below and assessed 
for their usefulness to EPA's analysis.
    NCBA provided the results of a survey of their members. A total of 
66 surveys with 1997 financial data, 72 surveys with 1998 data, and 73 
surveys with 1999 data were returned by respondents, of which 54, 60, 
and 58, respectively, were used by NCBA to characterize the finances of 
the beef feedlots these surveys represent. These data are enterprise 
level but include information on both company owned cattle and cattle 
not owned by the feedlot but that are fed on-site (e.g., custom 
operations). If EPA were to use these data, EPA would consider these 
representative of both the enterprise and farm since these data are 
more inclusive of a range of revenue sources. NCBA organized the survey 
data to present average line items associated with three feedlot size 
groups (0-10,000 head, 10,001-30,000 head and 30,000+ head). Regional 
breakouts were not provided. NCBA presented gross receipts, total 
operating costs, interest payments and receipts, net cash income, 
depreciation, pretax net income, current assets, total assets, current 
liabilities, total liabilities, and total equity. NCBA also provided a 
variety of ratios, including debt-to-assets. These key parameters 
represent an average over a 3-year period from 1997 to 1999.
    FAPRI provided data that might also be used to characterize beef 
feedlots. For its study, FAPRI convened a panel of experts ``to provide 
a snapshot of each enterprise at a given point in time.'' These experts 
developed information on the financial characteristics of each model 
farm at the enterprise level for 2000. Data submitted are in the form 
of full financial statements and include other information such as 
beginning cash reserves, productivity measures, and feed efficiency. 
The statements represent three sizes and two regions: A 500-head 
Midwest operation, a 5,000-head Midwest operation, and a 30,000-head 
Southern Plains operation. Although data are single year, other 
information provided by FAPRI allow for a more extensive analysis of 
expected changes over a 10-year period (2001-2011) based on FAPRI's 
projections that take into account various pricing cycles. FAPRI did 
not provide corresponding revenue and cost data at the farm level which 
would allow EPA to appropriately conduct its discounted cash flow 
analysis at the farm level (see Section V.C.1(b)).
    Iowa State University also provided data on average feedlot 
operations based on actual financial data for feedlots in Iowa. 
Financial data collected by the university were averaged for 1991-2000 
and broken out by type of animal (calf feeder versus yearling feeder).
    Table 5-10 shows a summary overview of these alternate data. EPA is 
considering using these data to characterize financial conditions at 
beef feedlots and EPA solicits comment on the use of these alternate 
financial data. EPA is considering using these data in a way that would 
best match up EPA's estimated representative cost models that are being 
developed for the final rulemaking (i.e., based on region and facility 
size characteristics). More detailed information on these data are 
provided in the record, along with a more thorough assessment and 
comparison of these data against other available data is provided in 
the record. This summary also describes publicly available enterprise 
budget data for this sector that EPA has collected since proposal from 
various land grant universities. For additional information on how the 
results of EPA's analysis may change as a result of the use of these 
alternate enterprise level data, as compared to the farm level data 
used by EPA for the proposal, see the discussion provided in Section 
V.C.1(b) of this notice.

                                           Table 5-10.--Summary of Alternate Financial Data for Beef Feedlots
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Fixed/
                                                                                        Operating      overhead        Net                    D-A ratios
             State/region date                   Sector/assumptions         Revenue       costs      costs (incl.   operating   Net returns      (In
                                                                                                    depreciation)     income                   percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
NCBA 1997-99 \1\..........................  0-10,000 head...............         $749         $721           $29           $15        ($14)           65
NCBA 1997-99 \1\..........................  10,001-30,000 head..........          853          818            13            26           14           69
NCBA 1997-99 \1\..........................  30,000+ head................        1,301        1,267            10            21           10           68
FAPRI 2000................................  beef 500 head (Midwest).....          875          844            33            30          (3)           68

[[Page 58587]]

 
FAPRI 2000................................  beef 5,000 head (Midwest)...          875          850            36            25         (12)           72
FAPRI 2000................................  beef 30,000 head (Southern            875          851            35            24         (11)           73
                                             Plains).
ISU 1991-00...............................  Calves......................          787          783            NA            NA            5       \2\ 39
ISU 1991-00...............................  Yearlings...................          856          844            NA            NA           12      \2\ 39
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources vary. For more information on the source of these data see EPA's record.
\1\ Net operating costs are actually net cash; fixed costs include only depreciation. All values are calculated on a per average occupancy basis, not on
  a per-marketed head basis.
\2\ Average 1997-1999 over all farms.

b. Alternative Financial Data for Hog Operations
    For the proposal, EPA used available USDA ARMS data for hog 
operations to assess financial impacts to this sector. The principal 
concern among commenters centered around the fact that the data used 
represented a single year only (1997), a year that happened to be 
relatively favorable to pork producers. In addition, as recognized by 
EPA in the proposal, the available 1997 ARMS data used by EPA do not 
reflect differences in financial conditions associated with differing 
production and facility types in the hog sector. Specifically, the data 
are for an average farm and do not distinguish between hog farrow-
finish and hog grow-finish operations, as well as independent owner-
operator and contract growers. Given potential differences in financial 
conditions across these types of hog operations and the fact that the 
prevalence of type varies by factors such as production region and 
facility size, EPA acknowledged that use of these average data might be 
problematic in terms of representing specific types of operations 
within this sector. However, EPA did not have other readily available 
financial data from which to base its analysis.
    Today EPA presents summary information on alternative data provided 
USDA and FAPRI. EPA is considering use of these data to supplement 
available data from the 1997 ARMS database used by EPA for the 
proposal. The USDA data are from a special ARMS survey conducted by 
USDA in 1998 of the hog sector. FAPRI provided enterprise budgets 
developed by a panel of industry experts. EPA is considering using 
these data to characterize financial conditions at hog operations and 
solicits comment on the use of these alternate financial data. More 
detailed information on these data are provided in the record, along 
with a more thorough assessment and comparison of these data against 
other available data is provided in the record. This summary also 
describes publicly available enterprise budget data for this sector 
that EPA has collected since proposal from various land grant 
universities.
    The alternative hog data provided by USDA are based on hog cost and 
return estimates for 1998 from information collected as part of a 
special version of USDA's annual ARMS data. The survey obtained more 
than 1,600 responses from 21 States. The survey target population was 
farms with 25 or more hogs on the operation at any time during 1998 in 
order to screen out farms with only a few hogs for on-farm consumption 
or club project. Each surveyed farm represents a number of similar 
farms in the population as indicated by its expansion factor. The 
expansion factor, or survey weight, was determined from the selection 
probability of each farm and thereby expands the sample to represent 
the target population. The hog sample expands to represent about 95 
percent of the U.S. hog inventory in 1998.
    These data have been aggregated by USDA on an enterprise basis and 
are broken out the four main production groups: Farrow-finish and grow-
finish operations, and independent owner-operator and contract grower 
operations. The main advantage of these data is that they are broken 
out by production type and reflect varying financial conditions for 
different types of operations, particularly among contract grower 
versus independent owner-operators where operating conditions can be 
very different. However, in order for EPA to properly utilize these 
data, the Agency needs information on the number of operations 
nationwide and/or regionally within each of these four production 
groups. Specifically, EPA does not have information needed in order to 
estimate the number of contract grower operations in the hog sector. As 
part of this notice, EPA requests additional data and information on 
the number of operations within each of these four production hog 
groups for use in EPA's final analysis of this sector.
    These alternative hog data from USDA represent financial conditions 
for all operations nationwide and do not differentiate by the 
production region. The data are, however, differentiated by two major 
size groups, including operations with more than 1,000 AU and 
operations with between 300 and 1,000 AU. Among the key parameters 
provided in USDA's aggregation include gross receipts, total operating 
costs, net cash income, depreciation, pretax net farm income (the 
latter are measured as USDA's definitions of net farm income, which 
includes depreciation and nonmoney expenses and, for these data, 
exclude off-farm income). Data provided to EPA do not include full 
income statement and balance sheets for representative facilities, 
which would allow EPA to evaluate other financial variables. The data 
also include and total assets and liabilities specified at the farm 
level only, and not the enterprise level. These alternative USDA data 
do not include information on beginning cash reserves. The data 
represent financial conditions for a single year (1998) only. All data 
are expressed on a per animal (inventory) basis.
    This initial submission by USDA does not include corresponding data 
at the farm level. At this time, USDA is considering whether it is 
possible to provide these data on a farm level basis in order for EPA 
to conduct its discounted cash flow analysis (which is more 
appropriately evaluated at the farm level, as discussed in Section 
V.C.1(d)). If alternative data are not provided at the farm level, EPA 
will continue to use available 1997 ARMS farm level data used by EPA 
for the proposal. An alternative approach would be to use available 
published ARMS farm level data for farrow-finish and grow-finish 
operations that are expressed on a per animal

[[Page 58588]]

(hundredweight gain) basis, adjusted by EPA onto a per animal 
(inventory) basis. USDA published farm level data is available at 
http://www.ers.usda.gov/data/arms/Results99/drctab.htm.
    FAPRI also provided data that might be used to characterize hog 
operations. FAPRI provided enterprise budgets that reflect farrow-
finish operations in the Midwest and Mid-Atlantic regions. No 
considerations have been made for differences between contractor and 
independent operations. For its study, FAPRI convened a panel of 
experts ``to provide a snapshot of each enterprise at a given point in 
time.'' These data reflect information on the financial characteristics 
of each model farm at the enterprise level for 2000. Although data are 
single year, other information provided by FAPRI allow for a more 
extensive analysis of expected changes over a 10-year period (2001-
2011) based on FAPRI's projections that takes into account various 
pricing cycles. Data submitted are in the form of full financial 
statements and include other information such as beginning cash 
reserves, productivity measures, and feed efficiency. FAPRI did not 
provide corresponding revenue and cost data at the farm level which 
would allow EPA to appropriately conduct its discounted cash flow 
analysis at the farm level (see Section V.C.1(b)).
    Table 5-11 shows a summary overview of these alternate data. EPA is 
considering using these data to characterize financial conditions at 
hog operations and EPA solicits comment on the use of these alternate 
financial data. EPA is considering using these data in a way that would 
best match up EPA's estimated representative cost models that are being 
developed for the final rulemaking (i.e., based on region and facility 
size characteristics). More detailed information on these data are 
provided in the record, along with a more thorough assessment and 
comparison of these data against other available data is provided in 
the record. This summary also describes publicly available enterprise 
budget data for this sector that EPA has collected since proposal from 
various land grant universities. For additional information on how the 
results of EPA's analysis may change as a result of the use of these 
alternate enterprise level data, as compared to the farm level data 
used by EPA for the proposal, see the discussion provided in Section 
V.C.1(b) of this notice.

                                           Table 5-11.--Summary of Alternate Financial Data for Hog Operations
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Fixed/
                                                                                        Operating      overhead        Net
             State/region date                   Sector/assumptions         Revenue       costs      costs (incl.   operating   Net returns   D-A ratios
                                                                                                    depreciation)     income
--------------------------------------------------------------------------------------------------------------------------------------------------------
FAPRI 2000................................  Hogs 2,400 sows (Midwest)...          $46          $37            $6            $9           $3           66
FAPRI 2000................................  Hogs 2,400 sows (Mid-                  46           37             6             8            2           67
                                             Atlantic).
FAPRI 2000................................  Hogs 150 sows (Midwest).....           46           39             5             7            3           56
FAPRI 2000................................  Hogs 500 sow (Midwest)......           46           37             7             9            4           60
FAPRI 2000................................  Hogs 500 sow (Mid-Atlantic).           46           37             6             8          460
FAPRI 2000................................  Hogs (Pacific)..............           46           38             5             8            2           56
USDA 1998.................................  Hog contract GF 300-1,000              92           88            32             5         (27)           25
                                             head.
USDA 1998.................................  Hog contract GF 1,000 head..           92           87            17             8         (19)           36
USDA 1998.................................  Hog indep. FF 300-1,000 head           71           67            61             4         (57)           20
USDA 1998.................................  Hog indep. FF 1,000 head....           80           61            38            19         (19)           24
USDA 1998.................................  Hog indep. GF 300-1,000 head           80           86            39           (6)         (45)           23
USDA 1998.................................  Hog indep. GF 1,000 head....          100           95            27             5         (21)          42
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources vary. For more information on the source of these data see EPA's record.

c. Alternative Financial Data for Dairy and Broiler Operations
    For some other sectors where enterprise data are not available or 
have not been submitted--including the dairy, heifer and poultry 
sectors--EPA is considering use of available enterprise budget data for 
these sectors to supplement available data from the 1997 ARMS database 
used in the proposal. Today EPA solicits comment on these data and 
requests information on any additional sources of similar or alternate 
data for the key livestock sectors. At this time, EPA has not received 
or obtained any enterprise level data for the turkey and egg laying 
sectors. As part of this notice, EPA is requesting any available data 
for these two sectors. As part of this notice, EPA requests similar 
enterprise budget information for the turkey and egg laying sectors.
    Since the publication of the proposed CAFO regulations, EPA has 
collected published ``enterprise budget'' data from various land grant 
university sources in order to further evaluate the availability of 
usable enterprise level data and information. Enterprise budgets show 
some ``typical'' operations able to cover their variable expenses, and 
in many cases to cover fixed expenses and provide the operator with 
some return. However, many budgets indicate that--as a stand-alone 
operation--the enterprise would not generate positive operating 
earnings (that is, the operator is unable to cover operating expenses). 
This may be explained by savings due to shared production costs among 
multiple enterprises at a farm or due to integrated production 
practices (such as the use of one enterprise, e.g., grain crops, as an 
input to another, e.g., livestock operation), as well as support 
through government subsidies.
    As part of this effort, EPA has compiled enterprise budgets for 
beef feedlots (14 budgets), farrow-finish hog operations (10 budgets), 
grow-finish hog operations (5 budgets), dairy operations (7 budgets), 
heifer operations (4 budgets), and broiler operations (3 budgets). The 
range of sources included University of Idaho, Ohio State University, 
Oklahoma State University,

[[Page 58589]]

Kansas State University, North Carolina State University, Ohio State 
University, Clemson University, and University of Arkansas. The 
enterprise budgets span a wide range of assumptions, including size and 
type of operation, the type, age, or sex of animal raised, and also 
feed and operating efficiency. The budgets varied greatly with respect 
to line items, which items were considered variable or fixed, whether 
depreciation and interest were reported separately, or whether a 
capital recovery item or building and equipment charge was reported. 
The year for which data in these budgets represents varies, tending to 
be within the period from 1997 to 2000, with some exceptions. More 
detailed information on these enterprise budgets are provided in the 
record, along with a more thorough assessment and comparison of these 
data against other available data is provided in the record.
    For the dairy sector, among the sources of alternative financial 
data that EPA is considering to supplement available data used for the 
proposal is available enterprise budget data for dairy and heifer 
operations compiled by EPA. A second source of alternative data for 
dairy operations is from FAPRI, submitted to EPA as part of FAPRI's 
analysis of this sector. These data consist of expert panel data for 
six representative operations at the enterprise level, and are similar 
in format to those described for beef feedlots and hog operations in 
Sections V.C.2(a) and (b). A third source of alternate data for diaries 
is USDA, who is intending to submit alternate financial data for 2000 
from information collected as part of a special version of USDA's 
annual ARMS data. This survey consist of information obtained from 
about 900 responses from dairy producers in 22 States. If these 
alternative ARMS data are provided to EPA, they will reflect enterprise 
and/or farm level financial conditions similar to that provided by USDA 
for the hog sector (as described in Section V.C.2(b)). Since data will 
only be provided for a single year only (2000), EPA is considering ways 
to derive these data onto a more representative basis by linking these 
single year data up with other market and financial data for multiple 
years (as discussed in Section V.C.2(e)). Table 5-11 shows a summary 
overview of each of these alternate data. EPA is considering using 
these data to characterize financial conditions at dairy operations and 
would use these data in a way that would best match up EPA's estimated 
representative cost models that are being developed for the final 
rulemaking (i.e., based on region and facility size characteristics). 
More detailed information on these data are provided in the record. For 
additional information on how the results of EPA's analysis may change 
as a result of the use of these alternate enterprise level data, as 
compared to the farm level data used by EPA for the proposal, see the 
discussion provided in Section V.C.1(b) of this notice.
    For the broiler sector, EPA has collected enterprise budgets that 
it is considering to use as a supplement to available 1997 ARMS data 
used by EPA for the proposal. For this sector, three representative 
broiler operations are available from the University of Arkansas (2000 
data), Oklahoma State University (1997 data), and North Carolina State 
University (1993 data). Table 5-12 shows a summary overview of these 
alternate enterprise budget data. Given limited financial data at the 
enterprise level for broiler operations, EPA is considering using these 
data as a supplement to the 1997 ARMS data used for the proposal for 
this sector. EPA solicits comment on the use of these alternate 
financial data. More detailed information on these data is provided in 
the record.

                                Table 5-12.--Summary of Alternate Financial Data for Dairy, Heifer and Broiler Operations
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Fixed/
                                                                                        Operating      overhead        Net
             State/region date                   Sector/assumptions         Revenues      costs      costs (incl.   operating   Net returns   D-A ratios
                                                                                                    depreciation)     income
--------------------------------------------------------------------------------------------------------------------------------------------------------
KS 2000...................................  600 lactating cows, 19,000          $2491        $2739          $321        ($248)       ($569)           NA
                                             lbs./cow.
KS 2000...................................  600 lactating cows, 24,000           3085         2956           321           129        (192)           NA
                                             lbs/cow.
KS 2000...................................  2,400 lactating cows, 19,000         2539         2621           287          (82)        (369)           NA
                                             lbs/cow.
KS 2000...................................  2,400 lactating cows, 24,000         3145         2838           287           307           20           NA
                                             lbs/cow.
ID 1998...................................  Jerseys, 120 cows, 15,000 lb/        2452         1830           359           622          263           NA
                                             cow.
ID 1998...................................  Holsteins, 210 cows, 20,000          2775         2258           224           518          294           NA
                                             lbs/cow.
ID 1998...................................  Holsteins, 210 cows, 22,000          3026         2365           350           660          310           NA
                                             lbs/cow.
FAPRI 2000................................  250-cow (Mid-Atlantic)......         3115         2605           292           510          218         0.41
FAPRI 2000................................  500-cow (Mid-Atlantic)......         3115         2474           291           641          350         0.41
FAPRI 2000................................  1,000-cow (Southern)........         3168         2527           288           641          352         0.45
FAPRI 2000................................  250-cow (Midwest)...........         3094         2584           292           510          218         0.41
FAPRI 2000................................  500-cow (Central)...........         3072         2510           291           562          271         0.46
FAPRI 2000................................  1,000-cow (Pacific).........         3254         2533           288           721          432         0.40
OH 1999...................................  Small Breed Heifer..........         1150         1154           123           (4)    \1\ (127)           NA
OH 1999...................................  Large Breed Heifer..........         1200         1381           123         (181)    \1\ (304)           NA
ID 1998...................................  Holstein, 210 head heifer...         1268         1053           117           215           98           NA
ID 1998...................................  Jersey, 127 head heifer.....          942          754           141           189           48           NA
OK 1997...................................  134,300 birds sold per year.        0.275        0.090         0.088         0.184    \1\ 0.096           NA
NC 1993...................................  105,320 birds sold per year.        0.255        0.077         0.077         0.178        0.102           NA
AR 2000...................................  313,500 birds sold per year.        0.298        0.098         0.159         0.200        0.041          NA
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources vary. For more information on the source of these data see EPA's record.

[[Page 58590]]

 
\1\ Property taxes and interest not included or not broken out in this budget.

d. Alternative Data To Supplement Available Financial Data for a Single 
Year
    For the proposal, EPA used available USDA's ARMS data for each of 
the livestock and poultry operations affected by the proposed 
regulations to assess financial impacts to these sectors under post-
compliance scenarios. The available data for these sectors was 1997. 
Although data were only available for a single year, for most sectors, 
financial data for 1997 was fairly representative of average market 
conditions in recent years. For some sectors, such as for the hog 
sector, the available 1997 data was less representative of average 
conditions in recent years since 1997 happened to relatively favorable 
to pork producers. By comparison market conditions for the hog sector 
were particularly poor for this sector during 1998-1999, given large 
decreases in producer prices. These concerns about the use of 1997 ARMS 
data to assess facility impacts in the hog sector was acknowledged by 
EPA to be problematic; however, EPA did not have additional alternate 
financial data from which to base its analysis.
    As discussed in earlier in Section V.C.2, EPA has received 
alternate data for some sectors, including hog and cattle feeding 
operations, that it is considering using for its analysis, if convinced 
of the superiority of that data to the data used for the proposal. To 
address concerns about the use of a single year of data for the 
purposes of EPA's analysis, the Agency is considering an approach to 
link up available financial data to other market and financial data for 
preceding and subsequent years. The type of data that may be used for 
this purpose would include, but not be limited to, commodity price and 
income information to represent changes for a representative facility's 
revenue, as well as feed costs or corn and/or soybean prices to 
represent changes for a representative facility's operating costs. This 
approach would provide an attempt to level out financial conditions 
over a three- or five-year period to derive data that are more 
representative of average conditions within a particular sector--for 
example, providing better characterization of year-to-year changes and 
pricing cycles--and avoid potential misrepresentation due to use of a 
single year of available data.
    An example of how this approach would be utilized for the purpose 
of this analysis is as follows using available financial data for the 
hog sector. This sector is used for this example because financial data 
used by EPA for the proposal as well as alternate data being considered 
for EPA's final analysis may be regarded as less than representative or 
average conditions, since 1997 ARMS data reflect conditions when hog 
prices were relatively high and 1998 ARMS data reflect conditions when 
hog prices were relatively low. Because of concerns about 
misrepresentation, EPA is considering ways to derive more average, 
representative data across a few years (say, 1997-1999) based on an 
extrapolation from other available market and financial data to 
represent a longer-term average representation of revenues, costs and 
returns.
    There are two possible approaches that EPA is considering. The 
first approach involves using price indices representing hog prices and 
feed prices, as well as cost indices representing other cost of 
production factors (Commodities, Services, Interest, Taxes, and Farm 
Wage Rates). The second approach that EPA is considering would use USDA 
estimates of hogs costs and returns, which are from the same ARMS 
survey, to establish a set of indices based on these data. Using 
available financial data for 1998, on an enterprise specific basis, 
these indices can be applied to approximate financial returns for other 
years (e.g., 1996-2000). Given potential data limitations and unforseen 
difficulties in adopting such an approach, the only other alternative 
would be to use a single year of data since publicly available data is 
not available to characterize these sectors over a multiple year 
period. EPA solicits comment on the preferred approach that the Agency 
should use--either single year or EPA-derived multiple year data based 
on available data and information.
e. Alternative Data To Project Out Financial Data Over the 10-Year 
Analysis Period
    For the proposal, EPA projected future earnings from the 1997 ARMS 
baseline data based on USDA's Agricultural Baseline Projections to 
2009. USDA projections are expressed on a per-unit basis (i.e., cash 
returns per animal or per-unit output). These projected values were 
linked to USDA's 1997 ARMS data by first translating the USDA-projected 
changes onto a per-animal basis, using available market information, 
such as average per-animal yields reported by USDA and/or annual 
marketing cycles based on industry data. Once USDA's projections were 
expressed on a per-animal basis, future earnings are approximated by 
applying the incremental national average change (dollars per animal) 
between each year during the forecast period to the 1997 baseline data 
for each representative model CAFO. These revised cash streams over the 
forecast period are presented in EPA's Economic Analysis.
    Many commenters express concerns about EPA's use of the USDA's 
forecasts, primarily because they fail to account for variability of 
returns year-to-year. Commenters point out that the methods used by 
USDA to derive these forecasts do not account for supply and demand 
shocks in the baseline that may dampen pricing cycles common in many of 
these sectors. Since USDA's price forecasts may not account for the 
real and emerging price risks faced by producers from exogenous and 
random shocks, this may understate financial stress with respect to 
cash flow over the forecast period. Also, according to commenters, the 
USDA forecasts and methods fail to capture dynamic, secondary effects 
of interspecies shifts, and the dynamic interaction between an 
individual operation's year-to-year financial performance and the 
overall change in supply and demand for the entire meat industry.
    To address this concern EPA is considering using other available 
timeline data by FAPRI that accounts for these types of price shocks in 
order to develop its long-term agricultural baseline estimates. These 
data are available for review in FAPRI's ``2001 U.S. Baseline Briefing 
Book'' available at FAPRI's website. These data may also be used in 
conjunction with other baseline results generated by FAPRI's model, 
including upcoming updates to FAPRI's baseline as well as additional 
work conducted by FAPRI in connection with its review of EPA's proposed 
CAFO regulation (see, ``FAPRI's Analysis of the EPA's Proposed CAFO 
Regulation'' and also ``Financial Impact of Proposed CAFO Regulations 
on Representative Broiler Farms''). These reports are provided in EPA's 
record and are also available at FAPRI's website at: http://www.fapri.missouri.edu/FAPRI_Publications.htm.
    EPA solicits comment on the use of these data for depicting 
expected price changes over EPA's 10-year analysis period (1997-2006). 
A potential necessary adjustment that EPA may need to make prior to 
using FAPRI's data is to remove the effects of inflation in these 
values by backing out the

[[Page 58591]]

assumed inflationary rates. This is consistent with EPA's longstanding 
practice whereby only the effects of a new regulatory action is 
evaluated without the effects of inflation. This approach is also 
consistent with OMB and EPA guidance. EPA solicits comment on this 
approach for the purposes of using FAPRI's data for its analysis.

VI. Changes to EPA's Environmental Assessment

    EPA received comments on the methodologies and data used to 
estimate CAFO pollutant loadings and air emissions associated with the 
proposed regulatory options, as well as data and methodologies used to 
perform surface water modeling and to evaluate the presence of 
pathogens, antibiotics, and hormones in CAFO wastes. Some commenters 
provided EPA with alternative suggestions for these analyses and 
estimates. Today's notice presents the suggestions currently under 
consideration by EPA for use in the environmental assessment.

A. Estimates of ``Edge-of-Field'' Pollutant Loadings

    For proposal, EPA modeled ``edge-of-field'' pollutant releases (or 
``loadings'') from the application of manure, manure storage 
structures, and feedlots. The loadings were estimated for several 
sample farms for baseline conditions and each proposed regulatory 
option. The Groundwater Loading Effects of Agricultural Management 
Systems (GLEAMS) model was used to estimate the loadings from land 
application areas receiving manure and/or commercial fertilizer.
    GLEAMS is a field-scale model that simulates hydrologic transport, 
erosion, and biochemical processes such as chemical transformation and 
plant uptake. The model uses information on soil characteristics and 
climate, along with characteristics of the applied manure and 
commercial fertilizer, to model losses of nutrients, metals, pathogens, 
and sediment in surface runoff, sediment, and ground water leachate. 
EPA solicited input from USDA to refine the loadings analysis using the 
GLEAMS model. Based on these discussions, EPA is considering increasing 
the number of sample farms to better characterize runoff from CAFOs, in 
particular to better account for varying climate and soils and to 
incorporate revised data on crop rotations and nutrient uptake.
    More specifically, at proposal, EPA modeled five sample farms for 
each animal type representing various regions of the country (Central, 
Mid-Atlantic, Midwest, Pacific, and South). EPA is now considering 
defining additional sample farms by sector, size, and land availability 
class using USDA data from the 1997 Census of Agriculture, as well as 
the 1997 National Resources Inventory. This methodology is consistent 
with the original proposal. Alternatively, EPA may use data derived 
from USDA's published reports, such as ``Confined Animal Production and 
Manure Nutrients'', the draft report ``Profile of Farms with Livestock 
in the United States: A Statistical Summary'', and ``Confined Animal 
Manure Nutrient Data System,'' for additional sample farm development. 
These aggregated data modeled from the 1997 Census of Agriculture and 
the 1997 National Resources Inventory, are available in the record. 
This aggregated state level data provides farm counts, manure 
application rates based on crop nutrient requirements, and total acres 
by crop type. EPA would use this aggregated data to develop additional 
sample farms, representing different farm sizes and soil types. EPA 
would then disaggregate results from GLEAMS to estimate loadings by 
size of operation, animal sector, and land availability class based on 
the distribution of collectible manure described in USDA's report 
``Manure Nutrients Relative to the Capacity of Cropland and Pastureland 
to Assimilate Nutrients'', and subsequent reports.
    Improved characterization of cropping rotations and potential 
nutrient uptake on sample farms may be developed from the 1997 Census 
of Agriculture and the 1997 National Resources Inventory. EPA is also 
considering increasing the number of soils modeled for each sample farm 
from one to three to better represent the diversity of soil types at 
CAFOs. Data summaries from the 1997 Census of Agriculture and the 1997 
National Resources Inventory are available in the record.
    EPA recognizes the potential for subsurface drainage effects on 
``edge-of-field'' loadings but data are currently inadequate to model 
these effects. EPA also recognizes that improved animal genetics and 
feeding strategies may alter manure nutrient characteristics. Due to a 
lack of new data and the difficulties of characterizing those changes, 
EPA anticipates continuing to use manure characteristics used in the 
original model analysis unless sufficient alternative data become 
available.
    EPA is continuing to evaluate the use of the Better Assessment 
Science Integrating Point and Nonpoint Sources (BASINS) model 
(described in Section VI.B) to provide additional information for 
modeling pathogen loads, loads from the production area, and manure 
storage lagoon effects.

B. Surface Water Modeling

    For proposal, EPA used the estimates of pollutant loadings and a 
distribution of AFOs and CAFOs in the National Water Pollution Control 
Assessment Model (NWPCAM) to develop estimates of changes in surface 
water quality. Based on new data and suggested methodologies, EPA is 
evaluating whether the Better Assessment Science Integrating Point and 
Nonpoint Sources (BASINS) model can be used to provide additional 
analysis of surface water impacts.
    The BASINS model supports the analysis of point and nonpoint source 
management alternatives and can support the analysis of a variety of 
pollutants at multiple scales. BASINS contains five categories of 
components: (1) National databases; (2) assessment tools for evaluating 
water quality and point source loadings at a variety of scales; (3) 
utilities including local data import, land-use and DEM 
reclassification, watershed delineation, and management of water 
quality observation data; (4) watershed and water quality models; and 
(5) post processing output tools for interpreting model results.
    BASINS includes integration of the Soil and Water Assessment Tool 
(SWAT) model, developed by the USDA's Agricultural Research Service 
(ARS). SWAT is a watershed-scale model developed to predict the impact 
of land management practices on water, sediment, and agricultural 
chemical yields in large complex watersheds with varying soils, land 
use, and management conditions over long periods of time.
    Using BASINS, EPA developed a case study to model environmental 
impacts and potential improvements associated with the proposed 
regulations. EPA modeled the Middle Neuse River (HUC# 03020202) in 
North Carolina for swine farms. The input data sets used include: (1) 
Farm locations; (2) crop types, cropping dates, and crop rotation from 
the December 1997 USDA report entitled ``Usual Planting and Harvesting 
Dates for U.S. Field Crops''; (3) 100-year weather data; (4) manure 
application rates and timing; and (5) frequency of manure storage type. 
As part of the case study, EPA estimated baseline loadings to surface 
waters at specific locations using a yearly average of a 100-year run 
for nitrogen, phosphorus, sediment, and metals; where feasible, 
baseline loadings for pathogens, hormones, and antibiotics were also 
estimated. Relative changes in water quality as a result of

[[Page 58592]]

pollutant load changes were assessed for nitrogen, phosphorus, 
sediment, and metals, and, where feasible, for pathogens, hormones, and 
antibiotics. EPA is considering expanding this case study method to the 
dairy, beef, broiler, turkey, and layer sectors. EPA solicits comments 
on this approach. This case study is available in the record for 
today's notice.

C. Pathogens, Antibiotics, and Hormones

    During the comment period, EPA received new data on the presence of 
pathogens, antibiotics, or hormones in fresh animal manure, storage 
lagoons, ground water, and surface water. For example, a review of 
literature by Mulla et al. (1999) found there were no significant 
differences in fecal bacteria levels in surface runoff from manured 
versus unmanured or grazed versus ungrazed lands. Furthermore, rate, 
method, or timing (spring versus fall) of manure application had little 
effect on fecal bacteria counts in surface runoff. Much of the new data 
received by EPA pertains to antibiotic resistance. EPA is considering 
ways to incorporate these new data into its analyses. These new data 
are available in the record.
    EPA also received data on the effectiveness of certain treatment 
technologies in reducing the level of pathogens in animal waste and 
associated effluents. These technologies include anaerobic lagoons, 
aerobic lagoons, digesters, constructed wetlands, overland flow, solids 
separation, and alkaline treatment. Many of these technologies have the 
potential to achieve substantial pathogen reductions, depending on 
their mode of operation, but several factors may greatly impact the 
efficiency of these technologies. Most of these technologies are time 
dependant (some requiring months of residence time) and pathogen 
reduction may be lower with reduced residence time. Continuous addition 
of manure also reduces the efficiency of pathogen removal or 
destruction for some technologies. Other technologies operate best when 
treating waste with specific solids content (e.g., constructed wetlands 
and composting), or when operating under specific temperature ranges 
(e.g., anaerobic thermophilic digesters, constructed wetlands, and 
thermal processes). EPA is considering ways to incorporate these new 
data into its analyses. These new data are available in the record.

D. CAFO Air Emissions

    Based on additional data and comments received, EPA is considering 
revising some of the methodologies for estimating air emissions from 
CAFOs, as well as the quantification of benefits associated with 
reduced air emissions. EPA solicits comment on these potential 
revisions, which are discussed below.
1. Estimating Air Emissions from CAFOs
    Since proposal, EPA has continued to gather additional data on the 
type and quantity of air emissions from CAFOs (``Air Emissions from 
Animal Feeding Operations'', Draft, available in the record). EPA has 
requested the National Academy of Science (NAS) review the scientific 
issues and make recommendations related to characterizing the swine, 
beef, dairy, and poultry AFO industry; measuring and estimating 
emissions; and analyzing potential best management practices, including 
costs and technological feasibility. The NAS review is expected to 
focus on emissions of PM10, PM2.5, hydrogen sulfide, ammonia, odor, 
VOC, methane, and nitrous oxide. NAS will recommend approaches for 
characterizing emission profiles and identifying emission mitigation 
techniques, including: (1) The use of process characterization at model 
farms to estimate emissions from individual farms, (2) modeling 
approaches for estimating emissions, (3) monitoring or measurement 
methods of emissions, (4) modeling approaches for determining off-site 
impacts, (5) modeling approaches for determining ammonia deposition 
patterns, (6) emission mitigation technologies and management 
practices, including capital and operating costs, and methods for 
validating the effectiveness once installed, and (7) critical research 
needs with appropriate methodological approaches.
    EPA has evaluated the new data presented today to determine whether 
changes in air emission methodologies are warranted for the non-water 
quality impacts assessment. Based on these data, EPA has identified 
three areas for possible revision: alternative emission factors, 
revised methane methodology for anaerobic lagoons, and revised boundary 
conditions. Today's record includes a memorandum discussing these 
potential changes.
a. Revised Emission Factors
    EPA has identified the following revisions to emission factors for 
certain pollutants or animal operations based on values found in the 
peer reviewed literature: (1) More recent emission factors for 
transportation emissions of VOC, NOX, CO, and PM are 
available from the Mobile 6 model, maintained by the Office of 
Transportation and Air Quality, (2) additional emission factors for 
ammonia and hydrogen sulfide emissions from swine deep pit operations, 
(3) additional emission factors for ammonia emissions from dairy 
drylots, broiler and turkey cake and litter storage, and land 
application, (4) an emission factor for hydrogen sulfide emissions from 
land application of swine manure, and (5) a correction to the emission 
factor used for nitrous oxide emissions from poultry housing without 
bedding.
    In addition, for proposal, the emission rates for ammonia and 
hydrogen sulfide from lagoons and ponds were dependent on the size of 
the impoundment. EPA used this approach to reflect expected increases 
in emissions that would occur with Option 7, which required larger 
storage lagoons and ponds. However, EPA now believes the available flux 
factors may significantly overestimate the increased emissions. 
Therefore, EPA is considering revising this methodology to use emission 
factors that do not vary based on the size of the lagoon or pond.
b. Revised Methane Methodology for Anaerobic Lagoons
    For proposal, estimates of methane emissions were based on guidance 
developed for international reporting of greenhouse gas emissions (IPCC 
2000) and used by EPA to develop the annual inventory of greenhouse gas 
emissions. The basic methodology, which bases methane emissions on the 
mass of volatile solids excreted, the maximum methane production 
potential per unit mass of volatile solids excreted (which is animal-
type specific), and a management-specific methane conversion factor 
(MCF), has not changed. Since November 2000, EPA refined the 
methodology to calculate MCFs for anaerobic lagoon systems to better 
account for long-term storage of manure in these systems.
    At proposal, anaerobic lagoon MCFs were calculated using the Van't 
Hoff-Arrhenius equation and annual average regional temperatures to 
estimate the effect of temperature on volatile solids degradation and 
methane generation under anaerobic conditions. The MCFs were then 
adjusted using a factor of 1.35 for regions with annual average 
temperatures exceeding 20 deg.C and a factor of 1.75 for regions with 
annual average temperatures below 20 deg.C. These factors accounted for 
the relatively long hydraulic and solids retention times associated 
with these systems, which allows organic matter to break down over 
time. EPA has, since proposal, refined this methodology to specifically 
calculate the monthly generation of

[[Page 58593]]

methane and the expected retention of volatile solids in the lagoon 
from month to month. The refined methodology is documented in the 
``Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-1999'' 
(EPA 236-R-01-001, April 2001).
c. Revision of Boundary Conditions
    At proposal, EPA estimated non-water quality impacts for changes in 
air emissions that occurred only at the feedlot's production and land 
application areas, as well as those transportation-related emissions 
from hauling manure off site. EPA did not include changes in emissions 
occurring at the off-site land application area. For example, EPA 
estimated the loss of nitrogen as ammonia when manure is applied to 
cropland at the CAFO; however, EPA did not include similar ammonia 
emissions that occur when CAFO-generated manure is land applied off 
site. EPA is considering expanding the non-water quality impacts to 
include off-site releases associated with land application.
2. Quantifying the Benefits of Reduced Air Emissions
    At proposal, EPA presented a qualitative discussion of the health 
and environmental impacts of air emissions from CAFOs in the 
Environmental Assessment for the proposed rulemaking. EPA also 
quantified certain air emissions as part of the non-water quality 
analysis of the proposal, but did not quantify or monetize any of the 
human health or ecological benefits from any changes in air emissions 
attributable to the proposed rule. In the analysis for the proposed 
rule, EPA quantified changes in emissions for methane, carbon dioxide, 
nitrogen oxides, volatile organic compounds, particulate matter (PM), 
and carbon monoxide. EPA is now considering the feasibility of 
developing quantified and monetized estimates of the benefits of 
changes in health effects resulting from changes in air emissions from 
CAFOs, if data are available.
    PM represents a broad class of chemically and physically diverse 
substances. It can be principally characterized as discrete particles 
that exist in the condensed (liquid or solid) phase spanning several 
orders of magnitude in size. All particles equal to and less than 10 
microns are called PM10. Fine particles can be generally defined as 
those particles with a diameter of 2.5 microns or less (also known as 
PM2.5). The health and environmental effects of PM are strongly related 
to the size of the particles; fine particles are considered to be more 
harmful to human health because their small size enables them to 
penetrate more deeply into the lungs.
    Particulate matter has been linked to a range of serious 
respiratory health problems. Scientific studies suggest ambient 
particulate matter likely contributes to a series of health effects. 
The key health effects categories associated with ambient particulate 
matter include premature mortality; aggravation of respiratory and 
cardiovascular disease (as indicated by increased hospital admissions 
and emergency room visits, school absences, work loss days, and 
restricted activity days); aggravated asthma; acute respiratory 
symptoms, including aggravated coughing and difficult or painful 
breathing; chronic bronchitis; and decreased lung function that can be 
experienced as shortness of breath. PM also causes damage to materials, 
soiling of commonly used building materials and culturally important 
items such as statues and works of art, and is a major cause of 
substantial visibility impairment in many parts of the U.S.
    Livestock production is one of the major sources of air emissions 
of ammonia which, in turn, leads to PM production when the ammonia 
volatilizes. Volatilized ammonia can contribute to the formation of 
both ammonium sulfate and ammonium nitrate, which are two of the main 
components of fine PM. In some areas of the country, ammonia is 
believed to be the limiting factor in the formation of ammonium sulfate 
and ammonium nitrate. In these areas, reductions in ammonia emissions 
would result in reductions of both ammonium sulfate and ammonium 
nitrate, with a possible corresponding reduction in fine PM and the 
associated adverse health effects. Increases in ammonia emissions 
could, in turn, result in increased adverse health effects. The 
atmospheric reactions involving PM fine formation are very complex and 
the changes in health effects would be highly dependent on the 
formation of other particles in the absence of ammonia, some of which 
could be more hazardous. Modeling these changes is highly dependent on 
the accuracy of ammonia emission estimates.
    Additional detail and background on this process is contained in 
the record for today's notice. EPA solicits comment generally on the 
feasibility of these approaches and requests information on data and 
studies not included in the record that could be used for these 
analyses.

VII. New Information Related to the Proposed NPDES Regulations

A. Ducks and Horses

    Following publication of the proposed rulemaking, EPA received 
additional information that is leading the Agency to consider other 
size thresholds for determining whether duck and horse operations are 
CAFOs and subject to NPDES permitting. Specifically, EPA is considering 
two alternative thresholds for ``dry lot'' duck operations. EPA is also 
presenting for consideration two options for revising the horse 
threshold that could be used in whatever approach is adopted in the 
final rulemaking, whether two-tier or three-tier.
    The preamble to the proposed rulemaking discusses the relevance of 
the proposed regulation for the duck, horse and sheep sectors. While 
the effluent guideline for these sectors is not being revised, the 
changes to the NPDES regulation would affect them. Operations that are 
defined as CAFOs that have greater than 1,000 AU would continue to be 
subject to the existing effluent guidelines and standards (as they are 
in the existing regulation), while those with 1,000 AU or fewer would 
be issued permits with technology-based requirements determined by the 
permit writer based on best professional judgment.
    As discussed in the proposed rulemaking, EPA limited its economic 
analysis to those animal types that produce the greatest amount of 
manure and wastewater in the aggregate while in confinement and, 
therefore, did not analyze the horse, sheep/lamb or duck sectors. EPA 
stated its belief that most horse and sheep/lamb operations are not 
confined and, therefore, are not subject to permitting; thus, the 
impacts in these sectors are expected to be minimal. Most duck 
operations, on the other hand, probably are confined. EPA requested 
comment on the effect of the proposed regulation on the horse, sheep/
lamb, and duck sectors.
    EPA used the size thresholds under the existing regulation as a 
basis for adjustments to be consistent with the general restructuring 
of the NPDES regulation. Consequently, the size of operations under the 
different threshold options of the co-proposed two-tier and three-tier 
alternatives would have been as depicted in Table 7-1.

[[Page 58594]]



    Table 7-1.--Size of Operations Under Different Threshold Options
------------------------------------------------------------------------
                 Sector                   1,000 AU    500 AU     300 AU
------------------------------------------------------------------------
Ducks..................................      5,000      2,500      1,500
Horses.................................        500        250        150
Sheep/Lambs............................     10,000      5,000      3,000
------------------------------------------------------------------------

    Once defined as CAFOs, operations in these sectors would be 
affected by all the other general changes that were proposed, such as 
elimination of the 25-year, 24-hour storm permit exemption; the duty to 
apply for an NPDES permit; land application and Permit Nutrient Plan 
requirements; and other miscellaneous permit conditions described in 
the proposed rulemaking.
    The horse and duck communities raised a variety of concerns with 
the proposed regulation. Both sets of commenters specifically 
questioned the reasonableness of the original threshold values that 
were used to realign these sectors under the new structure.
    As described in the proposed rulemaking (66 FR 3013, January 12, 
2001), the legislative history indicates that the threshold numbers 
initially established by the Agency were based generally on a statement 
by Senator Muskie when the Clean Water Act was enacted. Senator Muskie, 
floor manager of the legislation, stated that: ``Guidance with respect 
to the identification of `point sources' and `nonpoint sources,' 
especially with respect to agriculture, will be provided in regulations 
and guidelines of the Administrator.'' 2 Legislative History of the 
Water Pollution Control Act Amendments of 1972 at 1299, 93d Cong, 1st 
Sess. (January 1973). Senator Muskie then identified the existing 
policy with respect to identification of agricultural point sources as 
generally that ``runoff from confined livestock and poultry operations 
are not considered a ``point source'' unless the following 
concentrations of animals are exceeded: 1000 beef cattle; 700 dairy 
cows; 290,000 broiler chickens; 180,000 laying hens; 55,000 turkeys; 
4,500 slaughter hogs; 35,000 feeder pigs; 12,000 sheep or lambs; 
145,000 ducks.'' Id. In the original CAFO regulations, the Agency and 
commenters agreed that, while Senator Muskie's statement provided 
useful general guidance, particularly in support of the idea of 
defining CAFOs based on specified numbers of animals present, it was 
not a definitive statement of the criteria for defining a CAFO. 41 FR 
11458 (Mar. 18, 1976). The Agency thus looked to data with respect to 
the amount of manure generated by facilities above the threshold, the 
operating characteristics in each sector, and the number of facilities 
potentially covered by the regulation.
1. Ducks
    EPA is considering retaining the size thresholds contained in the 
existing regulation for ``wet lot'' duck operations, but is considering 
two alternative methods for establishing new, separate threshold 
equivalents for ``dry lot'' duck operations.

                             Table 7-2.--Alternative Thresholds for Duck Operations
----------------------------------------------------------------------------------------------------------------
                                                                     1,000 AU
                                                                     number of     500 AU number   300 AU number
                                                                       ducks         of ducks        of ducks
----------------------------------------------------------------------------------------------------------------
Proposed Rule: All Confined Ducks...............................           5,000           2,500           1,500
NODA Option: Wet Lot Systems....................................           5,000           5,000           1,500
NODA Options: Dry Lot Systems--NODA Option A....................          30,000          15,000          10,000
NODA Option B...................................................         100,000          50,000          30,000
----------------------------------------------------------------------------------------------------------------

    The Technical Development Document for the 1974 effluent guideline 
indicates that there were 13 million ducks raised in 1969, primarily in 
New York, Indiana, Wisconsin, California and Illinois. At that time wet 
lots comprised 80 percent of duck operations, predominantly in the 
eastern U.S., and 45 percent of all ducks were raised on eastern Long 
Island, New York. Ninety-five percent of ducks were market ducks, and 
five percent were breeder ducks.
    In its analyses for the original rulemaking in 1974, EPA initially 
evaluated two subcategories for ducks: wet lots and dry lots. Wet lots 
have sloped edges leading to a swimming area; dry lots are buildings 
usually with flushing troughs placed under the wire floor. EPA's 
selection of the 5,000 head threshold for ducks was based largely on 
the predominance of wet lot systems and the birds' direct contact with 
water. The effluent guideline applies to both wet lot and dry lot 
operations.
    Information provided by commenters on the demographics of duck 
operations and the characteristics of duck manure and wastewater argues 
for reevaluating the number of ``dry lot'' ducks that would meet the 
thresholds for being defined as CAFOs under either a two-tier or three-
tier structure. EPA notes that using the existing threshold under 
either structure would cause most duck operations to be subject to 
NPDES regulation.
    Today, almost all duck operations are dry lot operations. 
Commenters provided information to the Agency that indicates that most 
duck operations now use confinement methods that are similar to those 
used in the chicken sector, where the animals do not come into contact 
with water. Therefore, they suggest, the thresholds should be similar 
to those EPA is considering for poultry (30,000 birds, 50,000 birds, 
and 100,000 birds, respectively, for the 300 AU, 500 AU and 1,000 AU 
equivalents). Other commenters suggest setting a threshold (rounded off 
by EPA) of 10,000 birds (300 AU), 15,000 birds (500 AU) or 30,000 birds 
(1,000 AU). The latter threshold values would represent a more moderate 
change from the regulatory threshold of 5,000 ducks, and would take 
into account the larger quantity of manure that ducks generate compared 
to chickens. EPA is considering whether to adopt either of these 
suggested thresholds.
    Concomitant with selecting either of these alternatives for dry lot 
duck operations in the final rulemaking, EPA is considering retaining 
the existing threshold of 5,000 ducks for wet lot operations. Very few 
duck operations in

[[Page 58595]]

the U.S. use wet lots, and may not warrant increased regulation by 
lowering the threshold to, say, 2,500 ducks should a two-tier structure 
at 500 AU be selected. By retaining the current thresholds, operations 
covered under the existing regulation would remain subject to the 
revised regulation, but an unnecessary expansion to smaller operations 
would be avoided.
    According to the 1997 Agricultural Census (United States Department 
of Agriculture, National Agricultural Statistics Service, 1997 Census 
of Agriculture) there are 30,452 farms with ducks and 8,918 farms with 
duck sales. Information provided by the duck industry indicates that 
approximately 24 million ducks are produced in the United States by 
approximately 7 processors as of 2001. Three-fourths of all ducks are 
raised by one processor. Approximately 10 million birds are raised at 
operations located in Indiana, 7 million in Wisconsin, 3 million in 
California, and the remaining 4 million primarily in New York and 
Pennsylvania.
    An operation with grower ducks would typically have 13 turns per 
year, although a few operations have as many as 19 turns per year. As 
shown in Table 7-3, a count of operations from five of the seven major 
duck processors indicates that most facilities have fewer than 30,000 
ducks at a time, and very few have greater than 100,000. Almost all are 
dry lot operations. Forty-nine percent of duck manure is produced by 
the largest ten percent of operations.
    Table 7-3 summarizes the distribution of duck facilities and manure 
generated derived from these data.

                         Table 7-3.--Dry Lot Ducks: Facility Counts and Manure Generated
----------------------------------------------------------------------------------------------------------------
                                                               Cumulative
                                                  Number of    percentage     Manure     Percentage   Cumulative
                   Bird count                     facilities       of       (tons/yr)    of manure    percentage
                                                               facilities                             of manure
----------------------------------------------------------------------------------------------------------------
2,500-3,000....................................           48          100      132,000          3.6        100.0
4,000-10,000...................................           65           77      455,000         12.5         96.4
11,000-15,000..................................           33           45      429,000         11.8         83.8
16,000-25,000..................................           31           29      635,500         17.5         72.0
26,000-30,000..................................            7           14      196,000          5.4         54.5
31,000-50,000..................................           11           10      445,500         12.3         49.1
90,000.........................................            2            5      180,000          5.0         36.9
117,000........................................            3            4      351,000          9.7         31.9
144,000........................................            2            3      288,000          7.9         22.2
165,000........................................            2            1      330,000          9.1         14.3
190,000........................................            1            1      190,000          5.2          5.2
                                                ----------------------------------------------------------------
                                                         205  ...........    3,632,000        100.0  ...........
----------------------------------------------------------------------------------------------------------------

    Setting the 1,000 AU threshold equivalent at 30,000 birds for dry 
lot operations would result in an estimated 20 or so facilities subject 
to NPDES permitting, with another 70 or so potentially subject to 
provisions of the middle tier (300-1,000 birds) under a three-tier 
structure. This would account for about 45 percent of all duck 
operations and provide coverage for 84 percent of duck manure. Under a 
two-tier structure with a 500 AU threshold, about 60 facilities, or 29 
percent of all operations, would be CAFOs subject to permitting, and 
about 72 percent of duck manure would be covered.
    Alternatively, if EPA sets the 1,000 AU threshold for dry lot 
operations at sizes equivalent to the chicken sectors, 8 facilities 
would be defined as CAFOs and subject to permitting under the three-
tier structure, with another 13 facilities potentially subject to the 
middle tier provisions (ten percent of operations covering 49 percent 
of manure). Under a two-tier structure at a 500 AU threshold, 
approximately 10 facilities, or five percent, would be defined as 
CAFOs, covering 37 percent of duck manure.
    All of these possible alternative thresholds would represent an 
equivalent or, in most cases, higher threshold than is in the existing 
regulations and, therefore, would result in fewer duck operations being 
defined as CAFOs. Accordingly, EPA concludes that the costs and 
economic impacts that would be associated with the alternatives 
presented today would be lower than the costs associated with both the 
existing and proposed regulations regarding duck operations.
    Permits for dry lot as well as wet lot duck operations would 
continue to be based on the existing effluent guideline, which is 
applicable to all duck operations with greater than 5,000 ducks.
    EPA requests comment on whether to adopt either of these 
alternative options for dry lot and wet lot duck operations. EPA is 
also soliciting more complete data concerning the number and size of 
duck operations in the U.S.
2. Horses
    EPA is considering revising the threshold for the number of horses 
that would determine whether or not a facility is a CAFO and subject to 
NPDES permitting. EPA is presenting for consideration two alternative 
options for revising the horse threshold that would be used in whatever 
approach is adopted in the final rulemaking (i.e., whether the Agency 
decides to adopt a two-tier or three-tier structure).
    According to the Technical Development Document supporting the 1974 
effluent guideline, the existing guideline applies only to commercial 
horse operations, defined as racetracks, resort ranches and riding 
stables, with more than 500 horses. It does not apply to horses kept 
for commercial farm use or for pleasure uses. Any commercial horse 
operation that meets the definition of a CAFO, and that has more than 
500 horses in confinement, will continue to be subject to the existing 
effluent guideline as the effluent guideline for horse feedlots is not 
being revised in this rulemaking. The revised NPDES regulation, on the 
other hand, could apply to any type of confined horse operation; any 
permit issued to a horse operation not covered by the existing effluent 
guideline would contain the technology-based requirements established 
in the permit based on the best professional judgment of the permit 
writer, consistent with 40 CFR 122.44(a) and 125.3(c).
    Many public commenters requested that EPA classify horses by body 
weight, with the assumption that one horse weighs 1,000 pounds. The 
existing regulations establish the animal unit

[[Page 58596]]

(AU) equivalent for horses as 2 AU per horse. As a result, 500 horses 
represent 1,000 AU under the existing regulation. A review of the 1976 
Technical Development Document indicates this was based on biochemical 
oxygen demand (BOD) of manure from thoroughbreds, in comparison to 
other animal sectors. However, information EPA is making available 
today on manure content suggests that BOD and phosphorus content of 
manure from a typical 1,000 pound horse may be more similar to manure 
from a 1,000 pound beef cow, and that the nitrogen content of manure 
from horses and beef cattle may be similar. Based on this information, 
it may not be appropriate to adopt the reduced thresholds considered in 
the proposed regulation. However, the facilities most likely to be 
permitted are racetracks, where horses are fed a high carbohydrate diet 
and manure nutrient content is potentially different from that of 
typical horses. EPA is still analyzing data submitted to evaluate how 
nutrient content of race horse manure with specialized diets compares 
with that of horses with average diets.
    Commenters also point out that, in 1976, when the original rule was 
written, the horse industry numbered approximately 7.5 million horses, 
of which one percent, or approximately 75,000, were actively involved 
in racing at any given time--race tracks being the type of horse 
facility most likely to be permitted. In 2001, there are an estimated 
6.9 million horses, with one to two percent involved in racing, and are 
spread across the nation. Such data indicates that this industry is not 
growing or consolidating in the same dramatic manner that is seen in 
other sectors, and, combined with the relatively modest numbers of 
horses in confinement, poses less risk to the environment than do other 
animal sectors listed in the NPDES regulations.
    Data submitted by industry suggest that there are 225 facilities 
that offer pari-mutuel horse racing in the U.S. These range from small, 
fair-type facilities with few stalls which operate for only a few days 
a year, to large commercial tracks with hundreds of stalls, operating 
for many months. These facilities involve Thoroughbred, Standardbred, 
Quarter Horse and Arabian racing. Preliminary data submitted by 
industry suggests that approximately 90 facilities meet the 45-day-in-
confinement criterion, but the stall capacity of all of these is 
unclear. EPA is interested in receiving more complete information on 
the racetrack industry, as well as information on the number and size 
of non-racetrack facilities.
    In order to fully evaluate additional regulatory options for horse 
operations, EPA would need to examine further both the manure content 
of racetrack horses compared to typical horses, and the extent of the 
potential impact of the revised thresholds on non-racetrack horse 
facilities. If the proposed rulemaking primarily affected racetracks, 
it would be reasonable to change the threshold if racehorses qualify 
for a change in the threshold. Therefore, EPA needs to examine whether, 
in fact, race horse manure is similar to beef cattle manure in quantity 
or content. Conversely, if the altered permitting thresholds would 
impact a large number of non-racetracks, it could support an upward 
revision of the thresholds.

  Table 7-4.--Relative Pollutant Characteristics of Beef Cow and Horse
                                 Manure
------------------------------------------------------------------------
                                  Size of    BOD    Nitrogen
             Animal                animal   (lbs/      (lb/   Phosphorus
                                   (lbs.)    day)     day)      (lb/day)
------------------------------------------------------------------------
Beef Cow........................    1,000      1.6      0.34      0.092
Horse...........................    1,000      1.7      0.30     0.071
------------------------------------------------------------------------
Source: ASAE Standards 2000, ASAE D384.1 Dec99, Manure Production and
  Characteristics.

    As summarized on Table 7-5, EPA is considering two alternative 
means for addressing the horse sector under the revised regulation.

                Table 7-5.--Alternative Horse Thresholds
------------------------------------------------------------------------
                                           3-Tier (1,000      2-Tier
                                            AU/300 AU)     (assuming 500
                                             (horses)      AU) (horses)
------------------------------------------------------------------------
Proposed Rule...........................         500/150             250
NODA Option A...........................         500/150             500
NODA Option B...........................       1,000/300             500
------------------------------------------------------------------------

    In the proposed rulemaking, EPA proposed to use the existing 
thresholds as the basis to proportionately scale the thresholds under a 
two-tier structure. Thus, since 500 horses equal 1,000 AU, 250 horses 
would equal 500 AU.
    Under the first alternative option for horses (NODA Option A), EPA 
would retain 500 horses as the regulatory threshold regardless of 
whether a two-tier or three-tier structure were selected. In other 
words, 500 horses would be the equivalent of 500 AU in the proposed 
two-tier structure, and 1,000 AU in the proposed three-tier structure. 
Thus, EPA would not change the horse thresholds either higher or lower, 
but would retain the existing thresholds in whatever structure is 
adopted in the final regulation. Such a decision would be premised on 
the recognition that this sector is relatively small and increased 
regulation is unnecessary. Facilities subject to the existing 
regulation would continue to be covered. Under the second alternative 
option for horses (NODA Option B), EPA would adopt commenters' 
suggestion to modify the threshold such that one horse would be 
equivalent to one AU under both the three-tier and two-tier scenarios.
    EPA requests comment on the two new options, and requests that 
commenters supply the following additional data to assist EPA in 
evaluating these options: data comparing nutrient content of race horse 
manure to that of non-race horses; complete data on the number of 
confined horse operations, differentiating those at racetracks from 
those that are not racetracks; and the number of horses confined at 
each.

B. Cow/Calf Operations

    EPA is considering revising how cow/calf pairs are counted in 
temporary confinement areas such as birthing areas of pasture-based 
cow/calf operations. It has not been EPA's intention to regulate 
(through the existing or proposed CAFO rules) pasture-based or 
rangeland operations. However, a farm or facility that utilizes 
pastures or rangeland may also have pens, lots, barns, or stables where 
animals are ``stabled or confined'' for portions of their lives. 
Provided that these areas meet the other AFO definition requirements, 
these confinement areas would meet the definition of AFO under either 
the existing rule or the proposed rule. For example, a beef operation 
that uses rangeland to support most of its herd may have a number of 
pens where animals are kept for short periods of time for birthing, 
veterinary care, or other purposes. Provided that these pens confine 
animals for 45 days or more in a 12-month period and meet the AFO 
definition's vegetation criteria, the pens themselves are AFOs. 
Further, if these pens confine the requisite number of animals and meet 
other conditions, the AFO would then be considered a CAFO. For purposes 
of determining whether the facility is a CAFO, only animals in 
confinement are counted.
    EPA received many comments expressing concern over the impact of 
this regulation on small beef operations. The commenters expressed 
concern over a wide range of issues potentially

[[Page 58597]]

affecting their operations, that in the aggregate assumes EPA proposed 
to regulate pasture-based operations. While the final rulemaking will 
address the many different issues raised, EPA wishes to stress that the 
regulations apply only to animals in confinement. Thus, for example, a 
1,000 head rangeland-based beef operation with 200 head in confinement 
at any given time would only count the 200 head to determine whether 
the confinement area meets the conditions for being considered a CAFO.
    The current regulations do not distinguish between beef cattle of 
different size or weight. Thus, immature beef cattle have always been 
counted as one animal and, therefore, a cow/calf pair in confinement 
would be counted as two animals under both the existing and proposed 
regulation. As a result of public comment, however, EPA is now 
considering revising how cow/calf pairs are counted in temporary 
confinement areas such as birthing areas of pasture-based cow/calf 
operations. A cow/calf pair potentially would be counted as one animal, 
which would be consistent with how EPA treats immature animals in other 
sectors, e.g., dairy and swine. Such a change could alleviate concern 
expressed by commenters about the effects of the proposed rulemaking on 
small, pasture-based beef operations with temporary confinement areas.
    One possible definition of a cow/calf pair would count the pair as 
one animal, but would count them as two animals where weaned offspring 
are kept longer than 120 days. EPA requests comment on whether to count 
cow/calf pairs as one animal in the beef sector and, if so, for what 
period of time offspring should be considered part of the cow/calf pair 
rather than counted independently.

C. State Flexibility and Innovation

1. State Non-NPDES Programs
    EPA received many comments from the regulated community and from 
State agencies saying that many States have active and effective non-
NPDES programs that, in many cases, are as effective as or more 
comprehensive than EPA's NPDES program, although they may differ in 
certain respects. Commenters felt that requiring States to implement 
what they view as the inflexible requirements of NPDES would drain 
State resources and impede effectiveness of their own programs. In 
particular, many State commenters asserted that facilities with less 
than 1,000 animal units are often best managed through these existing 
state programs. Some States requested complete recognition of their 
non-NPDES programs as ``functionally equivalent'' to NPDES, in order to 
exempt them from operating an NPDES program for CAFOs. Others requested 
flexibility to rely on State non-NPDES programs and focus NPDES efforts 
only where needed, particularly with respect to regulating facilities 
with fewer than 1,000 AU.
    The Clean Water Act specifically defines point sources as including 
CAFOs, and authorizes EPA to issue NPDES permits to point sources. EPA 
may approve State programs to implement NPDES, and EPA regulations list 
the elements that all NPDES programs must contain. Those elements, for 
example, include (1) federal enforceability; (2) public participation; 
(3) citizen suits; (4) 5-year permit terms, and (5) permit conditions 
and limitations designed to limit the discharge of pollutants and 
protect water quality. Facilities required to be covered by an NPDES 
permit must obtain a permit from an agency authorized to issue NPDES 
permits. Thus, in order for a program to be ``functionally 
equivalent,'' it would have to issue permits that meet all these 
elements.
    The requirements for State NPDES program authorization are 
specified under Sec. 402(b) of the CWA and within the NPDES regulations 
(40 CFR part 123). These provisions set out specific requirements for 
State authorization applicable to the entire NPDES program.
    EPA believes, however, that flexibility could be provided to State 
programs within the design of those portions of the NPDES program 
relating to CAFOs. For example, although the CWA requires CAFOs, as 
point sources, to be covered by an NPDES permit, it leaves the 
definition of CAFO to EPA. While EPA believes that the current and 
proposed CAFO NPDES program provides a reasonable degree of flexibility 
consistent with CWA requirements, we are today soliciting comment on 
alternatives that could more explicitly allow States to continue their 
non-NPDES programs while still incorporating a degree of federal 
oversight to ensure public accountability for protection of water 
quality.
    EPA received many comments on whether to adopt either the two-tier 
or three-tier structure of the NPDES rule. Today's notice is not 
addressing these comments (including specific elements of the middle 
tier conditions in the three-tier structure, the proposed certification 
process, and other elements). Those issues will be addressed in the 
final rulemaking.
    EPA through today's notice is seeking comment on ways to provide 
additional flexibility for recognizing the value of well-developed non-
NPDES State programs. EPA believes the proposed regulation includes 
several options to provide flexibility under both a two-tier and a 
three-tier approach. Today's notice discusses two additional ways to 
provide flexibility for middle-tier facilities under a three-tier 
approach. In both these new options, EPA would still require permits of 
the largest CAFOs that meet the regulatory threshold, such as those 
with greater than 1,000 AU, but States could seek flexibility to 
address smaller operations (i.e., middle-tier operations with 300 AU to 
1,000 AU and those with less than 300 AU) using non-NPDES programs.
    Under these two options, for the middle-tier operations, EPA would 
set forth a definition of CAFO that could vary depending on whether the 
State had a non-NPDES program that adequately addressed manure 
management for operations of this size. If the State does have an 
adequate program, it would be entitled to greater flexibility in how it 
manages CAFOs under the NPDES program. As discussed below, this 
flexibility could take two basic forms. First, an NPDES-authorized 
State could alter its CAFO definition for middle-tier operations to 
contain a tailored set of conditions different from what would be in 
the federal regulations defining which operations of this size are 
CAFOs. Second, the State could adopt a simpler regulatory structure 
than would otherwise be required (i.e., two-tier versus three-tier). 
This flexibility in the CAFO definition would recognize that the 
appropriate management of middle-tier operations under the non-NPDES 
State programs minimize water quality impacts from these facilities to 
such a degree that EPA is justified in altering the definition of who 
needs to be permitted in this category of facilities.
a. State Flexibility Alternative 1: Flexibility Under NPDES for Middle 
Tier
    The first State flexibility alternative would apply in the case 
where EPA would adopt a three-tier structure in the final rule. All 
CAFOs with greater than 1,000 AU would be required to obtain an NPDES 
permit; for those with fewer than 1,000 AU (or whatever regulatory 
threshold is selected in the final regulation), EPA would in this 
alternative grant specific negotiated flexibility to a State for a 
portion or portions of the NPDES program in order to facilitate 
effective State non-NPDES programs that assist smaller operations

[[Page 58598]]

to avoid meeting the middle tier conditions for being defined as a CAFO 
under NPDES. In this manner, States would be able to utilize their 
existing non-NPDES programs to minimize the number of AFOs that would 
otherwise become subject to NPDES permitting. EPA would grant the 
flexibility through the existing NPDES program modification process, 
discussed below. EPA would use the relevant program assessment criteria 
discussed in following sections to evaluate the adequacy of the State 
program in the areas of the requested flexibility.
    One type of flexibility EPA might provide for middle-tier 
operations is negotiation of the time frame for when the revised CAFO 
definition would take effect within the State. The intent would be to 
give States sufficient time to implement their non-NPDES programs, 
provided that the State has a plan for active enforcement and 
compliance for middle-tier facilities under the existing regulation 
during the negotiated period. By allowing the State time to carry out 
appropriate management of animal feeding operations under its non-NPDES 
program, the effect could be that fewer operations in the State would 
meet the conditions for being defined as a CAFO once the revised 
regulations go into effect. During the phase-in period, the middle-tier 
conditions under the existing CAFO definition would remain in force 
(direct discharge, water of the U.S. running through the facility). 
After the negotiated phase-in period, the revised middle tier 
conditions would take effect.
    Another type of flexibility EPA is now considering in order to 
recognize an adequate State non-NPDES program is to allow the State to 
adopt a CAFO definition that has a different set of conditions for 
being defined as a CAFO for the middle tier operations. EPA would work 
with a State to determine how to modify the CAFO middle tier 
conditions. For example, if the State has an alternative method for 
addressing excess manure statewide, a tailored condition could be 
devised to replace middle-tier conditions that would otherwise apply in 
the final rule to address excess manure. Finally, if the State has a 
program for targeting watersheds at risk, specific conditions or 
requirements could be developed to target CAFOs in those watersheds. 
EPA might also offer this flexibility on an interim basis. As a 
variation on this alternative, a State could implement for a limited 
period an alternative set of middle tier conditions based on those in 
the current regulation in order to allow the State to focus resources 
on high risk facilities.
    This alternative could include a good faith flexibility option for 
first time discharges at middle-tier AFOs that are not CAFOs. The 
State's regulations could provide that if the State program succeeds in 
correcting the deficiencies at a middle-tier facility that led to the 
one-time discharge, the facility remains outside the definition of a 
CAFO if there is just that one time occurrence. Failure to correct the 
deficiencies in a timely way, or recurrence of a discharge, would cause 
the facility to be defined as a CAFO, to require a permit, and to be 
subject to enforcement under NPDES. Even for first-time discharges, 
however, owners or operators would have a duty to notify the permit 
authority and to seek assistance in correcting the problem. Failure to 
do so would result in a reporting violation under Section 308 of the 
CWA.
    EPA seeks comment on this flexibility and on other possible 
specific means of granting flexibility that States may be interested in 
to facilitate implementation of their non-NPDES programs for middle-
tier facilities. EPA also seeks comment on ways the State could 
demonstrate an assurance that the program will continue to meet the 
criteria used to obtain approval for the State program, described 
below.
b. State Flexibility Alternative 2: Opt-Out From NPDES for State 
Programs Covering Facilities Below the CAFO Threshold
    In the second State flexibility alternative, EPA would recognize 
effective State non-NPDES programs by allowing States with such 
programs to define CAFOs under a two-tier NPDES structure, while other 
States would be required to continue to define CAFOs under a three-tier 
structure. In this alternative, under the two-tier structure, 
facilities over 1,000 AU (or the final regulatory threshold) in States 
with approved non-NPDES programs would be CAFOs and would be required 
to obtain an NPDES permit while facilities with fewer than 1,000 AU 
would not be CAFOs, unless designated by EPA or the permit authority.
    In this alternative, when States amend their NPDES programs to 
incorporate the requirements of the final revised regulation, they 
would submit a description of their non-NPDES program for smaller AFOs, 
those under 1,000 AU. EPA would evaluate, as part of the modification 
review process, whether the State non-NPDES program provides enough 
assurance such that EPA could determine that the AFOs in the middle 
tier posed sufficiently lowered risk of discharging as to make them 
unlikely to be considered a point source. Upon approval by EPA, the 
State would be allowed to operate under a two-tier NPDES structure, in 
which permits would be required only of large CAFOs (e.g., those over 
1,000 AU) or those that are designated. States that do not apply for 
this alternative, or States that fail to obtain approval of their 
alternative program, would be required to implement the middle tier 
requirements of the three-tier structure, assuming it is adopted in the 
final regulation.
    In this case, although States would not be operating an NPDES 
permitting program for the middle tier, federal accountability would 
still be retained since the State would be expected to pursue NPDES 
permitting and enforcement actions against facilities that continue to 
fail to adopt the controls called for under the State AFO program. 
States would still have the authority to designate AFOs below the 
regulatory threshold as CAFOs and, under the proposed rule, EPA itself 
could also designate facilities of this size as CAFOs if the State has 
not done so.
    EPA is soliciting comment on the flexibility options described 
above, and is also seeking additional comments on other approaches to 
provide States with greater flexibility, in recognition of effective 
State non-NPDES programs for manure management.
c. EMS as a Basis for State Flexibility
    States would be encouraged to consider the use of Environmental 
Management Systems (EMSs) as a tool in either of the flexibility 
options described above to enhance their State programs, particularly 
in areas such as manure management, identifying and tracking AFOs, 
providing systems of accountability, and public participation. EMSs can 
be a key aspect of a permitting and/or voluntary program in achieving 
environmental goals and addressing a full range of significant 
environmental impacts. EMSs currently are being used in certain 
portions of the AFO industry. As discussed more fully in the section 
below entitled ``Environmental Management Systems,'' EPA is considering 
several additional options for including flexibility in the regulations 
to recognize the value of EMSs as a tool for helping operators to 
achieve performance goals.
d. Process for Granting Flexibility
    EPA envisions that under the alternatives described above, a State 
would be required to apply for the flexibility it is interested in when 
it submits an NPDES program modification in order to implement the 
final CAFO rule. (A State could also do

[[Page 58599]]

so at a later date, but would be required to adopt EPA's approach for 
regulating middle-tier facilities until an alternative State program 
was approved.) EPA could require public review of the proposed 
modification by designating the modification as a ``substantial 
modification'' under 40 CFR 123.62. The NPDES program modification 
process is described in 40 CFR 123.62 and in guidance issued in 1986 
(National Pollutant Discharge Elimination System State Program Guidance 
for Development and Review of State Program Applications and Evaluation 
of State Legal Authorities, at 40 CFR parts 122-125 and 403, Volume 
One, July 29, 1986). The regulations provide that EPA can make a case-
by-case determination for each modification as to whether it is 
``substantial'' and, therefore, must undergo public notice and comment 
prior to approving the modification. The basis for making this 
determination as described in the guidance is (1) the degree of public 
interest and (2) the magnitude of change to the State's program.
    EPA seeks comment on this approach and on the advisability and need 
to seek public comment prior to granting any flexibility.
e. State Program Assessment Criteria
    EPA would establish performance criteria for any alternative non-
NPDES State program that is a candidate for NPDES CAFO program 
flexibility to assure national consistency in facility standards and 
environmental outcomes. Presented below are a set of performance 
criteria EPA is considering for making this evaluation. These criteria 
would enable EPA and the public to assess a State's readiness to 
operate part or all of its non-NPDES program in lieu of the final 
rule's requirements for the middle tier. EPA seeks comment on the 
criteria and their ability to serve as the basis for an assessment of 
non-NPDES State programs.
    The most revealing measure of a State program's effectiveness at 
reducing the risk of a discharge from AFOs would ultimately be water 
quality monitoring data and attainment of state water quality 
standards. EPA is considering whether and to what extent this type of 
information could be useful in evaluating the effectiveness of the 
State program. Among the challenges to be addressed would be a need to 
understand how existing water quality data, including whether the State 
is achieving water quality standards, could predict the effectiveness 
of State programs in preventing future discharges and/or maintaining 
water quality standards in the future. EPA requests comment on these 
issues.
    In addition to actual water quality monitoring, EPA believes 
certain programmatic performance measures can serve as criteria for 
assessing the effectiveness of a State program. While favorable answers 
to questions posed under each criterion in and of themselves do not 
guarantee program effectiveness, collectively they can serve as 
indicators of environmental performance and are generally viewed as 
characteristic of State programs that exhibit leadership in feedlot 
management. Therefore, to be considered effective, EPA is considering 
requiring through the regulations that any alternative State program 
would need to meet some or all of the following criteria, which are 
discussed in more detail below: (1) Identify and track AFOs in a 
systematic manner; (2) adopt facility standards for development of 
technically sound CNMPs for all AFOs and zero discharge from the 
production area; (3) establish performance measures that provide 
feedback on the efficacy of CNMPs; (4) implement a system of 
accountability (e.g., inspection, compliance, enforcement); (5) 
demonstrate resources are adequate to meet program objectives, 
including delivery and management mechanisms for technical assistance 
and funding; and (6) contain provisions for public participation that 
meet or exceed CWA objectives for participation.
    Through today's notice, EPA seeks comment on these criteria as a 
valid basis for assessing whether a State non-NPDES program is 
sufficient for allowing the flexibility in the CAFO definition 
described in this section. EPA also seeks comment on any burden 
associated with meeting these criteria and whether there is an 
alternative set of criteria (including some or all of these or other 
criteria), which would increase flexibility for State non-NPDES 
programs while ensuring adequate protection of water quality from CAFO 
discharges.
    Identify and track AFOs. EPA has observed in the past that a 
State's ability to track its AFOs is highly correlated with a program's 
effectiveness. To assess a State's ability to meet this criterion, EPA 
would need to determine that the State's program adequately and 
reasonably addresses the following elements: (1) How does the State 
identify and track AFOs? (2) Is there a State permitting or 
registration program for smaller AFOs? (3) What thresholds are used for 
permits, registration, or other tracking mechanism? (4) What terms and 
conditions are used for permits or registration? (5) How many 
facilities are covered by State permit(s)/registration compared to 
absolute numbers of AFOs? (6) In which cases does the State use non-
NPDES general permits and individual permits?
    As an example of a effective tracking program, EPA is aware of one 
State that has a comprehensive registration component that serves as a 
basis for referring facilities for technical and financial assistance. 
To identify the target universe of AFOs, the State works with local 
conservation districts to inventory the facilities. This information is 
then entered into a tracking system, and serves as the basis for 
scheduling site visits to the AFOs.
    EPA requests comment as to what extent AFOs should be identified 
and tracked to assure environmental performance of non-NPDES State 
programs. EPA further solicits examples of how this is done in 
effective State programs.
    Facility standards for development of CNMPs and for zero discharge 
from the production area. The goal of the NPDES provisions in the CAFO 
rule is to minimize environmental impacts either directly from a 
facility's animal production areas or through the use and application 
of the nutrients generated at the facility. Therefore, EPA would need 
to find that an alternative State program at a minimum provides for 
adequate development of CNMPs and ensures that facilities will meet 
zero discharge standards. To evaluate a State's ability to meet this 
criterion, EPA would need to evaluate the following: (1) How will the 
State work with AFOs to help them develop CNMPs? (2) How are overflows 
from manure storage areas prevented? (3) What lagoon seepage rate is 
allowed? (4) What other controls does the State promote?
    The goal of the USDA/EPA Unified Strategy for Animal Feeding 
Operations is to promote development of CNMPs for all AFOs. A CNMP 
incorporates conservation practice standards that go beyond basic 
nutrient management planning, and incorporates a variety of practices 
to preserve water quality. In addition, the EPA proposed regulation 
includes a zero discharge standard, requiring beef and dairy facilities 
to be designed, operated and maintained to prevent discharge in less 
than a 25-year, 24-hour storm, and limiting swine and poultry 
facilities from discharging in any non-catastrophic storm. EPA would 
evaluate whether the State program adequately addresses both the CNMP 
and zero discharge goals. EPA solicits comment on whether and to what 
extent requirements for CNMPs and zero discharge from the production 
areas for

[[Page 58600]]

AFOs in the middle tier could be met through State Non-NPDES programs.
    In general, EPA would take into account all aspects of the State 
program that demonstrate control of pollutants from AFOs. To that end, 
EPA would also take into account features of the program that go beyond 
direct NPDES requirements, such as bans on new construction, phase-out 
of lagoons, or controls on air, odor or ground water. An example of a 
program that goes beyond the proposed NPDES requirements is a State 
that requires AFO operators to seek and obtain construction permits 
based on design standards that are more stringent than NPDES standards. 
Other examples may exist as well, and EPA would welcome such 
information.
    Establish performance measures. An effective State program would 
need to have in place measures that provide feedback on the program's 
ability to control water quality impacts from nutrients, sediment, and 
other conventional and nonconventional pollutants associated with 
CAFOs. Despite the challenges often inherent in collecting and 
analyzing these data, EPA believes that a State's activities in 
establishing environmental baselines and measuring trends (e.g., trends 
for nutrient loading) can help demonstrate the program's intent and 
maturity. In assessing a State's performance measures to control water 
quality impacts, EPA would consider whether the State has undertaken 
efforts to understand sources, fate, and transport of pathogens and 
antibiotics since this is an emerging water quality issue. EPA requests 
comment on what kind of performance measures, if any, EPA should 
consider requiring.
    Implement a system of accountability. Facility standards, however 
rigorous, are without value if there is no corresponding effort to 
ensure adherence to the standards. Consequently EPA believes that an 
important indicator of an effective State program is how the State 
works with facilities once they are identified as AFOs. EPA would 
evaluate whether the State's program provides adequate accountability 
based on the following criteria: (1) What is the frequency of 
inspections or site visits? (2) What happens once a complaint is 
received? (3) What is the relationship with EPA? (4) How is EPA kept 
informed of actions at facilities? (5) At what point are federal 
enforcement authorities applied? (6) What steps are taken if a problem 
or potential problem is detected at a facility (e.g., referral to local 
industry group, agricultural agency, or other organization for 
technical assistance services; regulatory agency compliance/ 
enforcement procedures; fines; etc.)? (7) What voluntary efforts are 
underway to aid facilities in achieving facility standards? (8) Does 
the State regularly track and evaluate the magnitude and resolution of 
problem/discharge reports?
    States currently have a variety of approaches for ensuring that 
AFOs adhere to standards. One obvious indicator of effective follow-
through would be the vigor of the AFO program's inspection, compliance 
and follow-up component. These measures must however be analyzed 
carefully to determine their true correlation with program efficacy. 
For example, one State AFO program inspects facilities twice a year, as 
part of its non-NPDES program. However, critics of this particular 
program note that the State takes little subsequent action to follow up 
with facilities once a problem is detected. Another example of a 
program that might be viewed critically is a case where the State has 
permitted all AFOs down to a very low threshold, but rarely inspects or 
performs site visits to assess compliance at individual facilities.
    AFO programs for smaller facilities could still be judged as 
providing appropriate oversight regardless of whether the State makes 
extensive use of permits and enforcement orders. For the majority of 
AFOs, voluntary programs are often the most appropriate means for 
guiding the facility to achieving any design or operating standards. 
For example, one State with an active program uses a graduated system 
of referrals under which operators who fail to address problems in a 
timely manner are first referred to technical assistance groups, then 
State support programs, and then State regulatory programs. If the 
facility still is deemed to present a problem, it may ultimately be 
``designated'' as a CAFO and be required to apply for a permit.
    Other States offer varying degrees of technical assistance, and may 
promote or fund environmental assessment programs such as the America's 
Clean Water Foundation On-Farm Assessment and Environmental Review 
(OFAER). For example, one State has an AFO program that provides more 
funding for AFOs in that State than does EPA and USDA combined. With 
this in mind, the Agency would plan to give due weight to a State's 
technical assistance program, including elements that offer education, 
training, technical or financial assistance.
    Demonstrate adequate resources. To be considered effective, a State 
would also need to demonstrate that it possesses adequate resources to 
meet the program's objectives. Beyond obvious concerns for staffing and 
program budgets, EPA would also be interested in State efforts to 
deliver program resources to particular environmental problems. For 
example, EPA would evaluate: (1) Is there a State-wide manure 
management program? (2) How does it work? (3) What mechanisms does the 
State use for targeting or prioritizing actions on specific AFOs or 
groups of AFOs (e.g., targeting based on sector of concern, watersheds 
at risk, citizens complaints). (4) How does the State use non-point 
source information to guide actions on AFOs?
    A State-wide manure management program, for example, could help 
target geographic areas where nutrient production exceeds demand, and 
could assist in locating other jurisdictions where a shortfall exists. 
Another example of environmental targeting occurs in a State whose AFO 
program uses a watershed-based approach to prioritize actions on 
facilities. Even though this particular State issues permits on a 10-
year cycle (rather than the 5-year cycle called for under NPDES), the 
program is widely respected for its ability to control AFO impacts in 
at-risk watersheds. Other States have programs that target inspections 
and technical assistance to AFOs based on geographic concentration of 
facilities.
    EPA seeks comment on these measures to evaluate whether States 
possess adequate resources for program objectives and whether 
alternative measures would be appropriate.
    Provisions for public participation. EPA does not believe that a 
State with a non-NPDES program should receive flexibility without 
assurance of adequate public participation in its development and 
implementation. To evaluate State efforts in this area, EPA would 
assess the adequacy of all of the following factors: (1) Stakeholder 
involvement in program development and implementation; (2) opportunity 
for public input on permit issuance; (3) opportunity for the public to 
request hearings on permits; (4) public availability of permit/
registration information; (5) method of tracking and responding to 
citizen complaints; and (6) provisions for appeals and citizen suits.
    EPA requests comment on the appropriate level of public 
participation in non-NPDES programs and whether these or an alternative 
set of factors would be more appropriate for States, to ensure adequate 
public participation.
    EPA seeks comment on which of these would be critical factors in 
making

[[Page 58601]]

its determination concerning program adequacy.
    EPA in general requests comment on the various ideas for 
flexibility discussed today, and on how any aspect of them might be 
used in combination to achieve the goals of providing enhanced 
flexibility for State non-NPDES programs while ensuring appropriate 
assurances to the public for protection of water quality from CAFO 
discharges.

D. Environmental Management Systems

    EPA is soliciting comment on three new options concerning the use 
of environmental management systems (EMS). In the preamble for the 
proposal (at 66 FR 3027), EPA described an option under which a 
processor would not be required to be co-permitted with its producer(s) 
if the processor developed an EMS that met certain conditions. 
Reactions to this specific option and to EMSs in general were mixed. In 
light of discussions with stakeholders and further information on the 
use of EMSs in other industries, EPA is continuing to consider how best 
to incorporate EMS-based alternatives into the final rulemaking. 
Today's notice outlines additional ways in which EPA is considering 
incorporating EMS-based alternatives into the final regulations as a 
way of providing States with flexibility in managing their CAFO 
programs.
    EPA is also setting forth an EMS protocol, or framework for an 
acceptable EMS, that it is considering incorporating into the 
regulations. EPA might require States to adopt such a protocol if they 
want to offer these EMS-based options. EPA is soliciting comments on 
this protocol.
    The four potential EMS options that EPA is now considering, as 
discussed below, are: (1) EMS Option 1: Modified Permit Requirements 
for Facilities > 1,000 AU; (2) EMS Option 2: EMS as a Basis for 
Excluding Operations from the CAFO Definition for facilities with 300 
AU to 1,000 AU; (3) EMS Option 3: EMS as a Basis for State Flexibility 
in Defining Who is a CAFO for 300 AU--1,000 AU; and (4) EMS Option 4: 
Co-permitting.
    EPA recognizes that developing an EMS, including successful 
completion of third-party audits, would cause a facility to incur 
certain costs. Therefore, in addition to soliciting overall comments on 
these EMS-based alternatives, EPA would like to get any information on 
the existing costs of EMS implementation for animal feeding operations, 
both on a per-facility and organization-wide basis. Types of costs that 
could be relevant include staff and consultant costs, costs of 
upgrading operations to make them conform to the EMS elements contained 
in this notice, and costs of completing third-party audits. EPA will 
consider this information carefully as it determines whether EMS-based 
alternatives should be included in the final rule. EPA is also 
requesting any available information on the performance of EMSs in 
addressing regulated and unregulated environmental impacts.
    A simple definition of an EMS is a continual cycle of planning, 
implementing, reviewing, and improving the actions an organization 
takes to meet its environmental obligations. These obligations include, 
but need not be limited to, regulated activities. First adopted by 
manufacturing industries, EMSs are now being increasingly used in the 
U.S. and throughout the world by various industry sectors, including 
animal agriculture, and by a growing number of public agencies. EMSs 
provide organizations with powerful tools to assess environmental 
impacts systematically from a wide variety of activities, many of which 
are not regulated, and to reduce these impacts over time. Common 
examples of activities typically not subject to federal regulation that 
can be addressed through an EMS include odor, noise, and energy 
consumption. Benefits may include cost savings, increased operational 
efficiency, risk reduction, improved internal communication, and 
improved relations with external parties. EMSs typically incorporate a 
feedback mechanism that supports measurement of performance against a 
set of measurable objectives and provides a mechanism for correction or 
preventive action. Implementing an EMS provides an organization with a 
broad-based yet flexible way of managing a full range of environmental 
issues. Best management practices (BMPs) can, and often do, provide the 
substantive underpinning of an effective EMS, but BMPs alone cannot 
substitute for a dynamic management system that reduces current risks 
and provides a way of anticipating future risks, and addressing these 
risks, before they cause a significant environmental impact.
    The EMS, by its nature, is designed to address multiple pollutants 
and pathways. While potentially less prescriptive and more flexible 
than regulatory requirements for a particular pollutant or pathway, an 
EMS would offer compensating, and potentially offsetting, environmental 
gains from other measures such as air pollution control, dust control, 
and having an emergency response plan in place. An EMS provides the 
operator of the animal feeding operation with an efficient and 
effective means of analyzing the sources and pathways of pollution at 
the facility, identifying appropriate controls, and assessing progress 
against identified goals. An EMS alternative in the regulations would 
need to take into account all forms and sources of pollution and would 
describe a facility's commitment to implement strategies, identify 
needed investments in structures and changes in practices, and develop 
emergency response plans to minimize all forms of pollution that could 
reach the waters of the U.S.
    The basic elements of an EMS, whether they are based on the ISO 
14001 International Standard or a more industry-specific model, are not 
new and have proven they have the potential to be effective in a 
variety of settings. To make effective use of EMSs in the CAFO 
regulations, EPA believes it is important that relevant stakeholders be 
given an opportunity to provide input to the facility as the EMS is 
developed, that information on the performance of the EMS be readily 
available to regulators and the public, and that some form of 
independent third party verification be included as means of ensuring 
public confidence. A May 2001 National Academy of Public Administrators 
(NAPA) report on third party auditing of EMSs under ISO 14001 noted 
that given the public policy implications, it is important to ensure 
credible and consistent results so that all who rely on an EMS, 
including the public, have appropriate expectations of what it 
represents. The options described below contain these important 
features.
    EPA has been involved in strategically promoting the voluntary 
adoption of EMS for several years, and described its policy in its 1999 
report ``Aiming for Excellence--Actions to Encourage Stewardship and 
Accelerate Environmental Progress.'' This report states that ``we will 
encourage organizations to use EMSs that improve compliance, pollution 
prevention, and other measures of environmental performance.'' Copies 
of this report are available at www.epa.gov/reinvent/taskforce/report99. EPA has also developed an action plan that identifies a wide 
range of activities the Agency will undertake to follow up on the 
recommendations of the Report.
    Some of the key EMS-based programs EPA is supporting, in 
partnership with industry and others, are the National Environmental 
Performance Track, the United Egg Producers XL Project, and the 
National Biosolids Partnership EMS program. More recently, the Agency 
has begun to work with selected meat

[[Page 58602]]

processing facilities in the Midwest to help them adopt EMSs, using an 
EMS guide tailored to these types of facilities. In addition, certain 
companies in the animal feeding operations industry, such as Smithfield 
and Premium Standard Farms, have adopted formal EMSs under the ISO 
14001 International Standard for their operations to help improve their 
compliance records. While EPA does not specifically endorse the efforts 
of these companies, we note the existence of their EMS programs simply 
to point out that the EMS concept is not new in the AFO industry.
1. EMS-Based Regulatory Options
    Today, as a result of information received since the proposed rule 
was published, EPA is soliciting comment on three additional potential 
approaches for incorporating EMS-based options in the CAFO regulations. 
In the proposed rule, EPA solicited comment on EMS as an option for co-
permitting. The three additional options that EPA is now considering 
would make the EMS-based flexibility more generally available to both 
large and medium size CAFOs.
    In general, these EMS-based approaches would be based on a 
recognition that a comprehensive EMS program made available by the 
State and implemented by the facility would have the effect of reducing 
the facility's point source-like attributes--more specifically, 
reducing its potential for a discharge to the waters from a discrete, 
identifiable and controllable source. Accordingly, because these 
facilities would have fewer attributes of a point source, and given 
EPA's discretion to define who is a CAFO point source under the Clean 
Water Act, EPA would conclude that it is appropriate to scale back or 
eliminate certain middle-tier operations that employ the EMS approach 
from being defined as CAFOs. In the case of Option 1 below, EPA would 
not exclude large operations from the CAFO definition where they 
implement EMSs but would simply find it appropriate to curtail some of 
the technology-based requirements that would otherwise apply, 
recognizing that the EMS activities would make those requirements 
unnecessary.
a. EMS Option 1: Modified Permit Requirements for Facilities > 1,000 AU
    Under the original CAFO proposal, all facilities over 1,000 AU 
would be required to obtain an NPDES permit, with limited exceptions. 
In Option 1, the permit authority could develop an EMS program 
consistent with EPA's framework that would grant certain flexibility to 
permittees such as coverage under a general permit, modification of 
selected requirements in the effluent guideline, or reduced reporting 
requirements. EPA could define certain elements of the effluent 
guideline that could be modified for facilities that adopt an EMS. EPA 
is soliciting comment on which types of permit requirements it may be 
appropriate to amend if a facility of this size implements an EMS 
program.
b. EMS Option 2: EMS as a Basis for Excluding Operations From the CAFO 
Definition for Facilities With 300 AU-1,000 AU
    Under the second potential approach, EMSs could also be used by 
those animal feeding operations in the middle tier of the three-tier 
structure (those between 300 AU and 1,000 AU). Under the proposed 
regulation, owners or operators of middle tier facilities would be 
defined as CAFOs unless they certify that they do not meet certain 
criteria (that are adopted in the final regulation) that indicate a 
risk of discharge to the waters. Specifically, in the proposed 
rulemaking, the facilities in the middle tier would be required to 
demonstrate the following to not be defined as a CAFO: (1) Waters of 
the United States do not come into direct contact with the animals 
confined in the operation; (2) there is sufficient storage and 
containment to prevent all pollutants from the production area from 
entering the waters of the United States; (3) there has not been a 
discharge from the production area within the last five years; (4) no 
part of the production area is located within 100 feet of waters of the 
United States; (5) in cases where manure or process-generated 
wastewater are land applied, they will be land applied in accordance 
with a Permit Nutrient Plan.
    Under this EMS option, a State could adopt an alternative condition 
that would exclude a middle-tier facility from being defined as a CAFO 
if the facility demonstrates that it is carrying out an appropriate 
EMS. The operation would need to show that it has successfully 
completed an independent third party audit of its EMS. Among other 
things, the EMS would need to ensure that the operation achieves zero 
discharge from the production area, and that it has a CNMP in place 
that ensures that manure is land applied in accordance with proper 
agricultural practices.
    A determination of the adequacy of the EMS would be made during the 
initial third-party EMS audit, described in more detail later in this 
notice. Any facility that failed to properly implement its approved EMS 
would become a CAFO and be required to obtain a permit. More discussion 
of potential implementation issues follows later in this section.
c. EMS Option 3: State Flexibility for 300 AU-1,000 AU
    Under the third approach, an NPDES authorized State could seek to 
rely on its EMS program as a basis for requesting flexibility in how it 
defines which AFOs in the middle-tier become CAFOs. Once it found that 
the State had an adequate EMS program, EPA could approve State CAFO 
regulations that contain a modified set of conditions for defining who 
is a CAFO, or could approve State regulations that define CAFOs under a 
two-tier rather than a three-tier structure. Please see the above 
section on State Flexibility for a complete discussion.
d. EMS Option 4: Co-Permitting
    Please see the discussion in the proposed rule (66 FR 3027) of the 
use of EMS to waive the requirement for co-permitting. In this option, 
the permit authority could waive the requirement for co-permitting 
entities that exercise substantial operational control over a CAFO if 
the entity adopts and implements an EMS for its contract producers. The 
EMS could include elements to effectively manage excess manure.
2. Potential Evaluation Process and Standards
    Under each of the four EMS options, a State would first need to 
develop an EMS program under one of the alternatives listed below, and 
would need to obtain EPA's approval. As described earlier in the 
discussion of State Flexibility, the State EMS program would need to be 
evaluated and approved by EPA as part of the NPDES program modification 
process. EPA is considering providing in the regulations that a State 
EMS program would be acceptable where it meets one of the following:
    Alternative 1: State program requires the operation to adopt an EMS 
that meets the ISO 14001 International EMS standard and certain other 
EMS requirements specified below;
    Alternative 2: An authorized State could develop its own EMS 
program standards, and require the operation to adopt an EMS that meets 
these standards. To be approved by EPA, the State EMS program would 
need to be consistent with the EMS elements described below. EPA would 
develop guidelines for an acceptable EMS program for use by States.
    EPA would find that a State had an adequate EMS program only if the

[[Page 58603]]

program required an operation to certify that it meets the standards of 
ISO 14001. Alternatively, the program could allow operations to certify 
to a different set of standards as long as EPA found that they were no 
less stringent than ISO 14001. As further criteria that EPA is 
considering for an adequate EMS program, the program would need to 
require each operation to demonstrate that it had (1) provided 
interested community members with a reasonable opportunity to provide 
input to the facility as its EMS was developed; (2) demonstrated how it 
had responded to this input; (3) maintained ongoing communications with 
community members and other stakeholders as the EMS was implemented and 
addressed relevant issues raised by these stakeholders; (4) made the 
results of successful third party audits publicly available, either at 
the facility or through the regulatory agency; and (5) developed and 
was implementing a CNMP in accordance with NRCS 590 guidelines. EPA 
specifically requests comment on these criteria.
    EPA believes that all operations that seek to be excluded from 
being defined as a CAFO on the basis of implementing an EMS would need 
to meet the State program criteria, as determined by passing a third 
party audit. EPA believes that independent third party audits provide a 
high degree of confidence that the EMS is in place and is being 
implemented in a consistent and credible manner, including helping to 
assure compliance. However, EPA realizes that these audits may pose a 
significant cost burden to certain small facilities. Therefore, EPA is 
also seeking comment on alternatives to requiring each facility to 
complete the audit, including approaches like self-certification of the 
EMS, risk-based auditing, and random auditing, and the way in which 
these alternatives would provide the appropriate level of confidence 
for regulatory agencies and the public, as EPA believes requiring third 
party audits for all facilities would provide.
    A facility deciding to make use of the EMS option would have until 
the effective date of the new NPDES CAFO regulation (approximately 
January 2006) to get an approved EMS in place. At that time, consistent 
with the proposed rule, all facilities that meet the definition of a 
CAFO would be required to either obtain an NPDES permit or have an 
approved EMS in place which would entitle them to be excluded from the 
definition. The State program could also allow facilities that had 
already applied for or obtained permits as CAFOs and that later 
developed an EMS to be excluded from the definition at that time.
    EPA is requesting comment on the standards the State EMS program 
must meet, and on how States would obtain approval from EPA for 
implementing such a program.
3. Potential Elements of an AFO EMS
    EPA believes that an EMS has the ability to enhance environmental 
protection, especially if it includes the evaluation and abatement of 
all forms of pollution. This includes pollutants that may not currently 
be regulated in some areas, such as air deposition of nitrogen from hog 
lagoons, which has been found to be a major contributor to nitrogen 
loadings in streams and rivers. The ability to control multiple 
pollutants and pathways in a holistic manner could foster greater 
control of agriculture's negative impact on the environment, 
potentially at lower cost to producers.
    Accordingly, EPA is considering that, in order to deem the AFO EMS 
sufficient, the State program would require a facility to develop and 
carry out a plan to evaluate and effectively address the environmental 
impacts of the facility across multiple media and pathways. The 
pathways that the facility would need to address, for example, could 
include air deposition of contaminants to the waters and odor and pest 
control. It is within EPA's discretion to define which operations are 
CAFOs. EPA believes that under this regulatory alternative, multiple 
pathways of contamination should be addressed by an EMS in order for a 
middle-tier operation not to be considered a ``concentrated'' animal 
feeding operation under the regulations. EMSs, by their very nature, 
allow organizations to decide the relative degree of emphasis and 
attention that needs to be given to a particular environmental issue. 
For example, if the facility's own assessment and input from community 
members and other stakeholders indicated that odor was not a 
significant issue, the facility could continue to manage odor issues as 
it had been doing. However, the facility would need to maintain ongoing 
communications with the community and be in a position to take 
additional steps to deal with odor issues, as part of its EMS, if odor 
were to become a significant issue in the future.
    Additionally, EPA is considering specifying in the regulations 
that, in order for an AFO EMS to be deemed sufficient, it would need to 
ensure, among other things, zero discharge from the production area. 
Also, an acceptable AFO EMS would need to require the facility to have 
a CNMP. The CNMP, to be sufficient, would need to assure land 
application of manure at proper agricultural rates and require 
employment of BMPs to minimize discharges to waters of the U.S. from 
the production area and the land application area. These requirements 
would need to be established as specific objectives in the EMSs against 
which the facility's performance would be evaluated and its EMS 
conformance audited.
    A critical element for EPA to approve of an EMS would be the third 
party audit process and local public participation. Local participation 
is essential as it is local residents that will be impacted most 
directly by discharges from the operation.
    As described earlier, a State would be required to submit a 
description of its overall EMS program to EPA for approval. The program 
description would need to contain a description of how the adequacy and 
effectiveness of each element would be determined through independent 
third party EMS audits conducted at each facility seeking the 
regulatory relief under one of the options described above. The program 
description would also need to include other program elements that 
would be determined in the final rule. EPA is considering the set of 
program elements outlined below and solicits comment on them.
    When EPA evaluates a State's EMS program under Alternative 1, it 
would assess whether the program adequately addresses the following 
elements. It would also be EPA's intention to address these items in 
national AFO EMS guidance discussed in Alternative 2 above:
    Environmental Policy--A written statement of policy committing to 
ensure compliance with all applicable regulatory requirements, 
pollution prevention, ongoing improvement of environmental performance, 
including areas not subject to regulation, in order to reduce negative 
impacts on the environment over time, and sharing information with 
stakeholders on environmental performance against EMS objectives and 
targets;
    Environmental Planning--A process to: (1) Identify all 
environmental impacts of the facility, assess significant impacts, and 
prioritize them by significance across all media and all pathways; (2) 
document all applicable federal, State, and local environmental legal 
requirements (e.g., pesticide storage and handling, odor control, air 
emissions, oil and grease) and the facility's compliance with those 
requirements; (3) set objectives and

[[Page 58604]]

measurable targets consistent with the impact assessment and 
commitments described in the policy statement which, at a minimum, 
should include the following: (a) zero discharge from production area; 
(b) development and implementation of a CNMP; and (c) under the CNMP, 
provisions to ensure land application will be performed in accordance 
with proper agricultural practices.
    Implementation of Policy and Plan--Adoption of appropriate USDA-or 
State-endorsed conservation practice standards to help meet the EMS 
objectives and targets (using USDA handbook or other relevant 
guidance), including: (1) Implementation of a CNMP; (2) adoption of 
necessary operational controls and procedures to ensure that the EMS is 
effectively implemented; (3) proper employee training and clear 
employee roles and responsibilities that address implementation of the 
EMS at the facility; (4) CNMP certification; (5) implementation of 
conservation practice standards (including documentation that necessary 
practices have been installed, their operation has been verified 
periodically, and any performance deficiencies have been identified and 
that the facility has outlined and implemented steps to correct the 
deficiencies); (6) documentation of procedures for an emergency action 
plan; and (7) appropriate conservation practice standards required for 
pest control, odor management, dead animal disposal, and preventative 
maintenance.
    Community Involvement/External Communications--A process to allow 
interested community members and other stakeholders to provide input to 
the facility as its EMS is developed. The State should show that its 
program calls for facilities to demonstrate how they responded to this 
input as part of the third-party audit. Under this element, each 
facility should be required to maintain regular communications with 
these stakeholders on the performance of the EMS as it implemented and 
address relevant issues raised by these stakeholders. In addition, 
information on the results of third party audits must be publicly 
available. EPA seeks comment on the most appropriate method of sharing 
this information, and the appropriate level of detail that should be 
included for any information that is shared. EPA seeks comment on the 
most appropriate method of sharing the audit results, including web 
site publication. EPA is also seeking comment on the content, frequency 
and level of detail of audit results and whether there are confidential 
business information concerns that need to be addressed.
    Checking Progress and Success of EMS--The State should have a 
process that causes facilities to: monitor conformance with the EMS and 
compliance with applicable laws; maintain records that document EMS 
implementation and compliance; and conduct internal EMS audits and 
internal reviews by facility management of the overall performance of 
the EMS on an ongoing basis.
    Independent Third Party Audits--As described earlier, EPA is 
soliciting comment on an approach that would require all facilities to 
successfully complete an independent audit of the EMS by a qualified 
third party organization before becoming eligible for the EMS 
alternative, but is seeking comments on other approaches such as random 
auditing, risk-based auditing, and/or self-certification of the EMS. 
The Agency is requesting comment on the appropriate frequency for 
independent follow-up audits (e.g., annual or less frequent basis). 
Such follow-up audits would not have to be full audits but rather could 
be targeted to audit certain components of the environmental management 
system such as record keeping, communication, or others. The 
independent third-party auditing program, including qualifications of 
auditors, would need to follow auditing guidelines developed by the 
State and approved by EPA as part of the State's EMS program. Results 
of all third party audits would need to be submitted to the regulatory 
authority in a timely manner and available to the public upon request.
    Examples of third party auditors that EPA is considering finding to 
be qualified under the regulations include certified CNMP specialists, 
OFAER-trained assessors/auditors (On-Farm Assessment and Review), and 
ISO 14001 certified auditors with appropriate animal agriculture 
background.
    EPA seeks comment on the appropriate elements of a State EMS 
program.
4. Further Criteria for an Adequate EMS-Based Program
    This potential EMS framework raises implementation issues that EPA 
would need to address in the final rule should we go forward with the 
approach. EPA solicits comments on the six EMS elements discussed above 
as well as each issue area described below and the options for 
addressing the issues.
    Facility operator qualifications/eligibility criteria. EPA seeks 
comment on eligibility criteria for determining whether AFOs should be 
allowed to implement EMSs in lieu of applying for permits. The purpose 
of the criteria would be to screen the AFOs to ensure they can 
demonstrate an appropriate compliance history and commitment. For 
example, EPA could specify in the final rule that if the AFO has had a 
violation (i.e., a discharge to a water of the U.S.) within a certain 
number of years, e.g., five, the owner/operator would have to 
demonstrate that the violation was corrected and steps taken to prevent 
recurrence. EPA may also wish to specify that persons whose compliance 
history includes certain types of serious violations, e.g., criminal 
violations, must always apply for permits. The permitting authority may 
be in the best position to determine at the outset whether an AFO's 
compliance history should exclude it from participation. Other 
screening factors may come into play only during the initial third-
party EMS audit, described in more detail later in this notice. EPA 
also seeks comment on the timing of the screening.
    Frequency of self and third-party auditing. Once a facility has an 
approved EMS in place, to ensure it is being implemented appropriately, 
periodic follow-up through self and third-party auditing and 
certification will be needed. EPA solicits comment on how frequently 
the follow-up auditing should be specified in the regulations. For 
example, EPA is considering requiring facilities with EMSs to conduct 
follow up self-audits every six months, and third party audits every 
one to five years.
    Correction of EMS nonconformances/return to CAFO status. Despite 
best efforts, some facilities will experience EMS nonconformances, 
potentially including noncompliance with key EMS conditions such as the 
requirement for zero discharges. Such EMS nonconformances can range 
from minor problems with no significant environmental impacts that can 
be easily corrected and are unlikely to be repeated, to serious or even 
criminal problems which lead to imminent and substantial endangerments, 
significant environmental impacts, or continuing discharges.
    EPA solicits comment on the best approach, or combination of 
approaches, for reacting to and addressing EMS nonconformance under an 
EMS program. EPA's intent is to balance the need to provide AFOs with 
incentives to participate in the EMS program, including certainty as to 
their NPDES status and how their nonconformances will be handled, with 
the need to ensure that permitting

[[Page 58605]]

authorities can react promptly and effectively to serious problems, 
including, if warranted, issuing CWA administrative orders with 
compliance schedules or injunctive provisions.
    There are a range of options that EPA is considering to address 
this issue. They are not mutually exclusive. For example, EPA could 
distinguish between facilities with significant and insignificant 
problems. The final rule could provide for the former to return to the 
NPDES permitting program, while allowing the latter to correct their 
nonconformance problems under their EMSs with no change in AFO status.
    Some approaches EPA could employ in this regard include the 
following: (1) The final rule could provide for AFOs with significant 
discharges to revert automatically to CAFO/ NPDES status upon discharge 
and be required to apply for NPDES permits; (2) Rather than operate 
automatically, the rule could authorize the permitting authorities to 
designate AFOs with significant discharges as CAFOs, if determined to 
be appropriate; (3) AFOs which revert to CAFO status could be required 
to apply for NPDES permits immediately, or CAFO status could be 
deferred, allowing the permitting authorities the discretion to require 
permit applications when deemed necessary; (4) AFOs could correct 
noncompliance problems which are not significant under the EMS program, 
without any effect on their status as non-CAFOs (unless they do not 
correct the problem), pursuant to established guidelines and time 
lines.
    Time line for obtaining EMS or permit. EPA believes it would be 
appropriate to implement the EMS option in the same time frame as the 
proposed regulation, i.e., States and facilities would have three years 
following promulgation of the final rulemaking to develop and implement 
EMS programs and plans. EPA solicits comment on an appropriate time 
line for implementing the EMS-in-lieu-of-permitting requirements for 
participating facilities. For example, a facility deciding to opt out 
of a permit under this option could be given until 2006 to get an 
approved EMS in place. At that time, all facilities that meet the CAFO 
criteria would have either obtained a NPDES permit or developed and 
implemented an approved EMS.
    EPA seeks comment on any further criteria that it may be 
appropriate to specify as necessary for an adequate State EMS program.
5. Potential Components of Third-Party Auditing Program
    An effective third-party auditing program is essential to the 
credibility of any EMS, including the EMS options described in today's 
notice. The auditing program would need to provide States, EPA, 
participating facilities, and the public the essential information to 
determine if the EMS is being implemented in a manner consistent with 
the guidelines outlined above. At the time a State submits its overall 
EMS program to EPA for approval, it would be required to also describe 
how the third-party auditing system will work by describing the 
following features of the program: (1) The process by which a facility 
may apply to the State for participation in the EMS program; (2) The 
written EMS guidance or other guidelines that will be used by auditors 
when auditing each facility, consistent with the EMS elements described 
above; (3) The specific EMS auditing qualifications for auditors, and 
other relevant qualifications, including minimum educational, training 
and/or hands-on experience requirements, such as expertise in 
agricultural engineering, nutrient management and field management; (4) 
The content, frequency and level of detail of audit reports and the 
mechanism for making this information available to the public (audit 
reports must include all the elements listed above); (5) The frequency 
and scope of follow up audits that will take place to confirm that the 
facility is continuing to adequately implement its EMS; (6) The 
oversight mechanism that will be used to ensure overall program 
integrity as well as auditor objectivity and consistency; (7) The 
criteria in addition to the program elements that will be used to 
determine when a facility is failing to adequately implement its EMS, 
and the timing of corrective actions that must be taken (see Further 
Criteria for an Adequate EMS-Based Program above); and (8) The process 
by which a facility that has failed to take necessary corrective action 
will then be subject to applicable regulatory requirements and the time 
frame for accomplishing this based on the requirements listed above. 
States that choose to use ISO 14001 certification as the basis for 
evaluating a facility's EMS could use relevant ISO guidelines to 
address certain of these features.
    EPA requests comments on the auditing program components described 
herein, as well as on the use of EMS in general in the CAFO program.

E. Three-Tier Alternative

    In the proposed rulemaking, EPA proposed and discussed several 
alternative scenarios for structuring the NPDES regulation (66 FR 2996-
3004). USDA has suggested that EPA consider an additional alternative 
that is a variant of the three-tier structure in which the middle-tier 
would include operations with 500 AU to 1,000 AU (rather than 300 AU to 
1,000 AU). Thus, all facilities over 1,000 AU would be CAFOs based on 
size alone, those with 500 AU to 1,000 AU would be CAFOs if they met 
certain conditions, and those with fewer than 500 AU would be CAFOs 
only if so designated by the permit authority.
    Table 5-4 from Section 5 of today's NODA compares the percent of 
CAFOs to the percent of recoverable nutrients under various thresholds. 
USDA data indicate that approximately 85 percent of excess recoverable 
nutrients are located at CAFOs with 500 AU or greater, representing 
almost 13 percent of AFOs. An additional 8 percent of excess 
recoverable manure nutrients are located at facilities with 300 AU to 
500 AU, representing an additional 8 percent of facilities. USDA 
suggests that adopting a middle-tier category of 500 AU to 1,000 AU 
would focus regulatory efforts in areas where excess manure is more 
prevalent while avoiding imposing regulatory burden on large numbers of 
smaller facilities. EPA believes that economic analyses for this 
alternative are subsumed in the array of analyses that were conducted 
for the various thresholds, scenarios, and options in the proposed 
rulemaking.
    EPA is requesting comment on whether to adopt this alternative 
three-tier structure.

F. Technical Correction

    EPA is correcting a typographic error at 66 FR 2999, second column, 
first full paragraph. At the end of this paragraph, in the clause that 
reads ``unless the recipient has complied with the requirements for 
off-site shipment of manure,'' the term ``recipient'' is incorrect and 
should be replaced with the term ``CAFO owner or operator.'' The 
corrected paragraph reads as follows:
    The revised conditions for the middle tier would require the owner 
or operator to apply for an NPDES permit if the operation meets any of 
the following conditions and is therefore a CAFO: (1) There is direct 
contact of animals with waters of the U.S. at the facility; (2) there 
is insufficient storage and containment at the production area to 
prevent discharges from reaching waters of the U.S.; (3) there is 
evidence of a discharge from the production area in the last five 
years; (4) the production area is located within 100 feet of waters of 
the U.S.; (5) the operator does not have, or is not implementing, a 
Permit Nutrient Plan that meets EPA's minimum requirements; or (6) more

[[Page 58606]]

than twelve tons of manure is transported off-site to a single 
recipient annually, unless the CAFO owner or operator has complied with 
the requirements for off-site shipment of manure.

VIII. Request for Comments

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

    1. EPA solicits comment on the extent to which EPA needs to 
establish additional performance or design criteria in the effluent 
guidelines to address chronic events, as described in section IV.A of 
this notice.
    2. EPA solicits comment on the alternative ground water 
assessments, performance standards for liners, and new cost data for 
the ground water option described in sections IV.B.1 and V.B.2.a of 
this notice.
    3. 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.
    4. EPA further solicits additional data and information on the 
technical feasibility, costs, and benefits of its proposed zero 
discharge standards for the swine and poultry sectors.

B. Specific Solicitation of New Data and Information EPA Is Considering 
for Its Cost and Economics Model

    1. EPA is soliciting comment on its intention to use USDA's revised 
estimates of the number of potential CAFOs and the total number of 
AFOs, as described in section V.A.1 of this notice. EPA is also 
requesting information on suggested approaches to evaluate recent 
industry trends and changes in the number of larger-sized operations 
since 1997.
    2. EPA is soliciting comment on revised estimates by USDA on the 
amount of manure nutrient coverage by the different regulatory 
scenarios in the proposed CAFO regulation, as described in section 
V.A.2 of this notice.
    3. EPA is soliciting comment on revised estimates of the number of 
small businesses that are CAFOs that would be subject to the proposed 
regulations, as described in section V.A.3 of this notice. These 
revised estimates reflect changes in the small business definitions for 
these sectors, as established by the Small Business Administration 
(SBA).
    4. EPA solicits comment on an approach to conduct a supplemental 
analysis that would assess the combined additional cost to comply with 
the existing regulations in addition to the incremental costs of the 
proposed regulations. EPA also requests data and information in order 
to conduct this supplemental analysis, as described in section V.B.1(a) 
of this notice. This analysis would serve as a separate ancillary 
analysis to the Agency's rulemaking package.
    5. EPA solicits comment on suggested data and an alternative 
approach to refine EPA's engineering cost models to estimate compliance 
costs to regulated CAFOs, as described in section V.A.1(b) of this 
notice. This approach is based on additional data and information 
received by USDA and an approach that is currently under development by 
USDA to estimate the costs to animal feeding operations to implement 
Comprehensive Nutrient Management Plans (CNMP). EPA's alternative 
approach would be based on the alternative approach to frequency 
factors that evaluates three different performance group scenarios: 
below average performers, average performers, and above average 
performers.
    6. EPA solicits comment on alternative approaches that EPA is 
considering to refine its economic models to estimate financial impacts 
to regulated CAFOs, as described in section V.C.1 of this notice. The 
changes EPA is considering include: addition of assessment criteria to 
measure changes in profitability; evaluation of financial impacts using 
data specified at multiple businesses levels within a representative 
facility (both the farm and the enterprise level, where data are 
available); revision to the debt-to-asset test threshold value; 
inclusion of a debt feasibility test; and addition of supplemental 
analyses that take into consideration various cost-offsets, such as tax 
savings, income from manure sales, and cost share assistance.
    7. EPA solicits comment on alternate data that the Agency received 
and/or obtained during the comment period for use in its analysis for 
the final rulemaking package, as described in section V.C.2 of this 
notice. These data include alternative financial data to depict 
conditions at cattle feeding and hog operations that were provided to 
EPA through public comment, as well as other available alternative 
financial data for some other sectors that EPA has obtained since 
proposal. Other data that EPA is considering include available market 
and financial data in order to extrapolate available financial data for 
a single year and obtain longer-term average representation of 
financial conditions, as well as available projections by FAPRI for use 
in depicting financial conditions over the 10-year analysis period.

C. Specific Solicitation of New Data and Information EPA Is Considering 
for Its Nutrient Loading and Benefits Model

    1. EPA solicits comment on a proposal to utilize the BASINS case 
study method for the swine, dairy, beef, broiler, turkey, and layer 
sectors in addition to the GLEAMS analysis to provide additional 
information on modeling of pathogen loads, production area, and manure 
storage lagoon effects.
    2. EPA solicits comment on approaches it is considering for the 
quantification and monetization of changes in air emissions resulting 
from the regulation, the appropriateness of these steps for the 
pollutants it is considering, and requests information on data and 
studies not included in the record that could be used for these 
analyses.

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

    1. EPA requests comment on alternative size thresholds for ``dry 
lot'' duck operations. EPA is also soliciting more complete data 
concerning the number and size of wet lot and dry lot duck operations 
nationwide.
    2. EPA requests comment on two new options for determining whether 
a horse operation is a CAFO and subject to NPDES permitting. To support 
evaluation of these options, the Agency requests that commenters supply 
data comparing the nutrient content of race horse manure with that of 
non-race horses. EPA also seeks complete data on the number of confined 
horse operations--including the number of horses confined--
differentiating racetrack operations from non-racetrack operations.
    3. EPA requests comment on whether to count cow/calf pairs in the 
beef sector as one animal, and if so, for what period of time offspring 
should be considered part of the cow/calf pair.
    4. EPA seeks comment on alternatives--either those discussed in 
this notice or others--that could more explicitly allow states to 
implement well-developed non-NPDES state programs for middle-tier 
facilities. In particular, EPA seeks comment on: the appropriate level 
of federal oversight for such programs to provide assurance of 
protection of water quality; how a State could provide assurance that 
its program would continue to meet the criteria used to obtain program 
approval; the need for public comment prior to granting such 
flexibilities; the

[[Page 58607]]

validity of the criteria discussed in this notice for assessing whether 
a State non-NPDES program is sufficient for allowing flexibility; and 
what kind of performance measures, if any, EPA should consider 
requiring.
    5. EPA solicits comment on the use of environmental management 
systems (EMS) in the CAFO regulations as a way to enhance state 
flexibility. In particular, EPA seeks comment on the following issues: 
comments on the three additional potential approaches discussed in this 
notice for incorporating EMS-based options in the CAFO regulations; for 
the first potential approach (modified permit requirements for 
facilities with more than 1,000 AU), which types of permit requirements 
it may be appropriate to amend; which standards a state EMS program 
would be required to meet to obtain EPA approval, and the process for 
obtaining EPA approval; the appropriate elements of a state EMS 
program, including the six elements discussed in this notice; screening 
criteria for determining an AFO's eligibility to implement an EMS in 
lieu of applying for a permit, as well as the timing of the screening; 
the frequency of follow-up self-auditing and third-party auditing of a 
facility's EMS; requiring independent third party audits for all 
facilities or alternative approaches such as random auditing, risk-
based auditing, and/or self-certification of the EMS; the most 
appropriate method of sharing third-party audit results (including web 
site publication), the content of results shared, and the frequency 
with which results should be shared; the best approach, or combination 
of approaches, for reacting to and addressing EMS nonconformance; an 
appropriate time line for implementing the EMS-in-lieu-of-permitting 
requirements for participating facilities; and the existing costs of 
EMS implementation for AFOs, both per-facility and organization-wide; 
and requests any available information on the performance of EMSs in 
addressing regulated and unregulated environmental impacts.
    6. EPA is requesting comment on an alternative three-tier 
structure, setting the middle-tier at 500 AU to 1,000 AU.

    Dated: November 9, 2001.
G. Tracy Mehan III,
Assistant Administrator for Water.
[FR Doc. 01-28738 Filed 11-20-01; 8:45 am]
BILLING CODE 6560-50-P