Find the PVB and PVC in real terms over a 3-year period, assuming a discount rate of 7 percent and an inflation rate of 3 percent. Use the midpoint benefit value, or $4.2 billion, and the midpoint cost value, or $645 million, for each year. Round to two decimal values for each year.

Question

REGULATORY IMPACT ANALYSIS (RIA) FOR LEAD IN DRINKING WATER

In June 1991, the EPA announced a maximum contaminant level goal (MCLG) of zero for lead and a more stringent maximum contaminant level (MCL) of 0.015 mg/l. This new primary standard lowered the allowable lead level in drinking water from its former limit of 50 parts per billion (ppb) to 15 ppb. Because these regulations were expected to have a substantial financial impact on the regulated community — in excess of $100 million per year, they were subject to Executive Order 12291 and had to be accompanied by a Regulatory Impact Analysis (RIA). A summary of the estimated benefits and costs (stated as annualized values) from this RIA, is given below.

BENEFITS
Health (based on avoided medical costs)
From corrosion control and source water treatment: $2.8 – $4.3 billion per year
From replacement of lead service lines $70 – $240 million per year
Material
Accruing to households and water systems $500 million per year
Incremental Benefits $3.4 – $5.0 billion per year

COSTS
Treatment, implementation, education costs
Treatment costs: $390 – $680 million
Monitoring costs: $ 40 million
Education costs: $ 30 million
State implementation costs: $ 40 million
Incremental Costs $500 – $790 million per year

NET BENEFITS
Net Benefits: $2.9 – $4.2 billion per year

Answer 1

The calculations for PVB are as follows: