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6-21
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6-22
-------
subcategory under option 1, and to indirect dischargers in the Truck Food subcategory under option 2. In all
cases except the Truck Hopper subcategory, the projected closures occur to large faculties; note, however,
that there are no projected closures under the proposed options.
6.4.3 Financial Distress
Table 6-7 presents the projected incremental financial distress impacts by subcategory and small
business status. Incremental financial distress occurs only in the Truck Chemical and Truck Food
subcategories. For indirect dischargers in the Truck Chemical subcategory, financial distress is incurred by
the same number of small entities as large entities. However, because there are fewer small entities in the
subcategory, the percentage of small entities that incur financial distress exceeds the percentage of large
entities incurring financial distress under both options. For indirect dischargers in the Truck Food
subcategory, only large business-owned facilities experience incremental financial distress; PSES standards
are not proposed at this time for indirect dischargers in the Truck Food subcategory.
6.4.4 Observations
The proposed regulation for the TEC industry specifies option 2 for the Truck Chemical subcategory,
and option 1 for the Rail Chemical subcategory and for direct dischargers in the Barge Chemical and
Petroleum subcategory.61 Under these proposed options, a total of 75 small entities in the three Chemical
subcategories incur pre-tax annualized compliance costs that exceed 1 percent of revenues, and 64 small
entities incur pre-tax annualized costs that exceed 3 percent of revenues. However, using post-tax annualized
compliance costs ins the sales test under the alternative assumption of cost pass-through, 68 small entities
incur costs exceeding Lpercent of revenues and 17 small entities incur costs exceeding 3 percent of revenues.
As explained in Section 6.4.1, EPA may certify that the proposed rule will not have a significant impact on a
substantial number of small entities. EPA, however, chose to perform a regulatory flexibility analysis, see
Section 6.5.
6 EPA was unable to determine the size of the parent business entity for the four direct discharging
screener survey facilities hi me Truck and Rail Chemical subcategories. There are no projected impacts to
the 19 direct discharging screener survey facilities in the Food grade subcategories (Section 5.5).
. ' 6-23
-------
Table 6-7
Incremental Financial Distress, by Small Business Status
Including Monitoring Costs [1]
Total
Business Analyzed
Size in Class
Incremental Financial Distress by Option
Option 1 % of Class
Option 2
% of Class
Option 3 % of Class
TT/CHEMp]
RT/CHEMP]
1B/CHEM
Direct
Indirect
TT/PETR
RT/PETR
XT/FOOD P)
RTffOOD P]
TB/FOODPJ
TOHOPPER
RWHOPPER
BH/HOPPER
Small
Other
Small
Other
Small
Other
Small
Other
Small
Other
Small
Other
Small
Olhcr
Small
Other
SmaH
Other
Small
Other
Small
Other
Small
Other
70
218
9
29
g
6
0
1
1
25
3
0
72
102
0
86
0
2
11
23
0
5
2
3
7
14
0
0
0
0
NA
ND
0
0
ND
NA
0
17
NA
ND
NA
ND
0
0
NA
ND
0
0
10.3%
6.6%
0.0%
0.0%
0.0%
0.0%
NA
ND
0.0%
0.0%
ND
NA
0.0%
16.7%
NA
ND
NA
ND
0.0%
0.0%
NA
ND
0.0%
0.0%
14
14
0
0
NA
ND
0
17
NA
ND
NA
ND
20.6%
6.6%
0.6%
0.0%
0.6%
0.0%
NA
ND
NA
ND
0.0%
0.0%
NA
ND
0.0%
16.7%
NA
ND
NA
ND
[1] Monthly monitoring costs for all subcategories except TB/CHEM direct, which includes costs for combined weekly/monthly monitoring.
P] Remits for indirect dischargers contained in detailed questionnaire database; does not include direct dischargers from screener survey.
Note: Entities displayed in table do not total to those presented in Table 5-5 due to rounding; however percentages are calculated from the exact data.
NA: Calculation not applicable.
ND: Not disclosed due to business confidentiality.
For 7 entities in the BH/HOPPER subcategory and 9 entities in the TT/PETR subcategory
anah/sts was not conducted because insufficient data were provided.
Entity is «""1 business-owned if parent business entity earned less man S5 million in revenues in 1994.
6-24
-------
6.5 REGULATORY FLEXIBILITY ANALYSIS
The regulatory flexibility analysis focuses on characterizing entities by variables, such as tank
cleanings, revenues, and employment, to determine if some distinct subgroup of small entities is especially
impacted by the proposed regulation. The regulatory flexibility analysis is presented for die detailed
questionnaire facilities in the three Chemical subcategories that EPA proposes to regulate (Sections 6.5.1
through 6.5.3); the results of the analysis are summarized in Section 6.5.5.
The EPA examined impacts under a variety of criteria for options under consideration in each
subcategory. Impacts examined were:
• Incremental closures
• Incremental financial distress
• Pre-and post-tax sales test
Impacts were examined under the following criteria, both individually and in combination:
• Tank cleanings per year
• Parent business revenues
• Parent business employment
• Gallons of wastewater discharged per day
• Commercial status
r •
• $5 million revenue small business definition
• $18.5 million revenue small business definition
> • •
Impacts were evaluated as a percentage of:
• Affected entities
• Affected and ZDT entities
6-25
-------
• Small entities
• Entities in the subcategory
• Entities in the commodity group
• Potentially affected entities
,! ' • i • • ' '.;••••,: I f
EPA examined the sensitivity of impacts to excluding a certain proportion of entities from the regulation for
each subcategory. The results summarized below in Tables 6-8 through 6-14 present the results of the sales
test for the proposed regulation.7 EPA emphasized the sales test results because no entities are projected to
close under the proposed options and because the pattern of financial distress impacts occurring in the Truck
Chemical subcategory generally resemble the sales test results.
65.1 Truck Chemical Subcategory
Table 6-8 shows the number of entities and pollutant load distribution for indirect dischargers in the
Truck Chemical subcategory based on different categories whose subdivisions are based on revenues, tanks
cleaned per year, employment, and wastewater flow. The left-hand block of columns are the numbers and
pollutant loads for all entities in the subcategory. The right-hand set of columns are the number of entities
that meet EPA's definition of small (i.e., $5 million in annual revenues at the parent business entity level) and
also meet the subdivision criterion. For example, $5 million in annual revenues is the EPA definition of small
business for the TEC industry effluent guideline. Seventy entities in the Truck Chemical subcategory meet
this criterion. The 70 entities form 24 percent of the 288 entities in the subcategory. These 70 entities are
listed in Table 6-2, and in both sets of columns in Table 6-7 (see line labeled "$5.0"). Of these 70 entities,
only 18 clean 1,500 tanks per year or fewer while 91 entities in the whole subcategory meet this criterion
(sec Table 6-8).
7 Although results presented in the EA are only for the sales test under the proposed options, all
criteria and impacts specified in the bullet list were examined and those analyses are contained in the
rulemaking record.
6-26
-------
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6-27
-------
Baseline pound equivalent loads measure the pollutants discharged by a facility to U.S. surface
•waters. Each pollutant discharged by an entity is multiplied by a toxic weighting factor; toxic weighting
factors provide a measure of pollutant toxicity relative to the benchmark toxicity of copper. This enables the
aggregation of, as well as comparisons between, dissimilar pollutants on a common scale. In addition,
facilities that discharge wastewater indirectly to a POTW have pollutants multiplied by a POTW removal
factor. This factor adjusts loads to account for pollutants removed at the treatment works and not discharged
to surface waters; see the Cost-Effectiveness Document (U.S. EPA, 1998b) for details. EPA must balance
the requirements of the Clean Water Act with the potentially conflicting goals of providing regulatory relief.
Hence, both the number of entities and the pollutant loads are given in Table 6-8, which also provides the
cost of regulatory relief—the amount of unregulated pollutants that still enter U.S. waters—if EPA selects to
exclude a category.
Table 6-8 illustrates some of the complexities involved in selecting a potential exclusion for the
Truck Chemical subcategory. For almost all but the smallest subdivisions, the proportion of excluded
facilities is very similar to the proportion of excluded pollutants. This means there is no obvious breakpoint
for selecting an exclusion on the basis of revenues or employment The technologies considered for pollution
control include flow reduction measures, raising the possibility that flow reduction technologies used to meet
the requirements of an effluent guideline might also have the potential to exclude an entity from meeting the
•,,'!'" , • ,,'•",'!
requirements. Finally, if an exclusion were based on the number of tanks cleaned per year, there are more
large TEC entities that meet a given criterion than small entities that meet the same criterion. Thus, an
exclusion based only on the number of tanks cleaned per year would benefit large businesses more than small
businesses. Excluding entities that clean fewer than 1,500 tanks per year would exclude 91 affected entities,
only 18 of which are small.
Table 6-9 examines the results of the pre-tax sales test based on the proposed option (Option 2); it
provides the estimated benefit of regulatory relief—the number of impacted small entities that no longer have
to meet the effluent guideline requirements. The column labeled "Small Entities" corresponds to the number
of entities that meet both, the $5 million revenue for small business and the subdivision criterion. That is, it is
the number of entities listed in the right-hand block of columns in Table 6-8. The column labeled "Percent of
Small Entities" is the ratio of the number of entities that meets both criteria over the number of entities that
meet the $5 million revenue small business definition (i.e., 70 entities for the Truck Chemical subcategory).
•. ' ,' ., r . •' ,'',', i • • i
The remaining columns show the results of the 1 percent and 3 percent thresholds for the pre-tax sales test.
6-28
-------
Table6-9
Pre-Tax Financial Distribution for Small Business-Owned Entities
TT/CHEMSubcategory [1]
$5 Million Small Business Definition
Option 2
Criteria
>1% Sales Test
Small
Entities
% of Small
Entities
Small
Entities
% of Small
Entities
>3% Sales Test
Small
Entities
% of Small
Entities
Maximum
Annual Revenue
(millions')
$0.5
$1.0
$2.5
$5.0
14
47
61
70
20.6%
67.0%
87.7%
100.0%
14
39
54
61
20.6%
56.7%
77.3%
87.7%
14
29
43
50
20.6%
41.3%
61.9%
72.2%
Maximum
Tanks Cleaned
Per Year
1,500
2,500
5,000
10,000
18
32
47
70
25.8%
46.4%
67.0%
100.0%
18
32
47
61
25.8%
46.4%
67.0%
87.7%
7
22
36
50
10.3%
31.0%
51.6%
72.2%
Maximum
Employment
5
10
25
50
7
22
43
52
10.3%
31.0%
61.9%
74.2%
7
22
36
43
10.3%
31.0%
51.6%
61.9%
7
22
36
43
10.3%
31.0%
51.6%
61.9%
Maximum
Flow
(gallons/day)
2,000
4,000
6,000
8,000
7
32
39
54
10.3%
46.4%
56.7%
77.3%
7
32
39
54
10.3%
46.4%
56.7%
77.3%
7
22
29
43
10.3%
31.0%
41.3%
61.9%
[1] Results for indirecfcliscnargers contained in detailed questionnaire database; does not include direct dischargers from
screener survey.
Entity is classified as small if its parent business entity earned less than $5 million in revenues in 1994.
Numbers may not sum due to rounding. ,
6-29
-------
The percentage of entities showing an impact is very similar to the percentage of small entities in the
i1 "ii!i .,'•,"•,,,!,, i ". • ' '" ' i ; i
subdivision. There is no obvious breakpoint at which to draw an exclusion. As mentioned above, the total
number of small entities for all regulated subcategories in the TEC industry may not meet EPA's guidance for
a substantial number of small entities; hence, there is no overriding need to develop such an exclusion.
For example, if EPA excluded small entities that employ 50 workers or fewer in the Truck Chemical
subcategory, 52 entities and 70,282 pe of pollutants (nearly 20 percent of the subcategory pollutant load)
would be excluded (Table 6-8). These 52 entities would incur no incremental pollution control costs and 43
entities would no longer be impacted, as measured by the 1 percent or the 3 percent sales test (Table 6-9);
however, 18 entities (26 percent of small entities) would still have pollution control costs that exceed 1
percent of sales while excluding 20 percent of the subcategory pollutant load.
Table 6-10 is the Table 6-9 counterpart for Option 1. Excluding the smallest subdivision would not
change the results of me 3 percent sales test for three of the four criteria.
6.5.2 Rail Chemical Subcategory
Tables 6-11 and 6-12 summarize the findings for the Rail Chemical subcategory. No entities exist
where the business earns less than $1 million or employs 25 workers or fewer. As with the Truck Chemical
subcategory, there are no clear breakpoints for identifying excluded subdivisions.
6JS3 Barge Chemical and Petroleum Subcategory (Direct Dischargers)
Tables 6-13 and 6-14 summarize the findings for the Barge Chemical and Petroleum subcategory.
No entities exist where the business earns less than $1 million. As with the Truck Chemical subcategory,
there are no clear breakpoints for identifying excluded subdivisions.
6-30
-------
Table 6-10
Pre-Tax Financial Distribution for Small Business-Owned Facilities
TT/CHEM Subcategory [1]
$5 Million Small Business Definition
. Option 1
>1% Sales Test
Criteria
Small
Entities
% of Small
Entities
Small
Entities
% of Small
Entities
>3% Sales Test
Small
Entities
% of Small
- Entities
Maximum
Animal Revenue
(millions)
$0.5
$1.0
$2.5
$5,0
14
47
61
70
20.6%
67.0%
87.7%
100.0%
7
32
47
54
. 10.3%
46.4%
67.0%
77.3%
7
14
22
29
10.3%
20.6%
31.0%
41.3%
Maximum
Tanks Cleaned
Per Year
1,500
2,500
5,000
10.000
18
32
47
70
25.8%
46.4%
67.0%
100.0%
18
25
39
54
25.8%
36.1%
56.7%
77.3%
0
7
14
29
0.0%
10.3%
20.6%
41.3%
Maximum
Employment
5
10
25
50
7
22
43
52
10.3%
31.0%
61.9%
74.2%
0
14
29
36
0.0%
20.6%
41.3%
51.6%
0
14
22
22
0.0%
20.6%
31.0%
,31.0%
Maximum
Flow
(gallons/day)
2,000
4,000
6,000
8,000
7'
32
39
54
10.3%
46.4%
56.7%
77.3%
7
32
39
47
10.3%
46.4%
56.7%
67.0%
0
14
22
29
0.0%
20.6%
31.0%
41.3%
[1] Results for indirect~dischargers contained in detailed questionnaire database; does not include direct dischargers from
screener survey. . .
Entity is classified as small if its parent business entity earned less than $5 million in revenues in 1994.
Numbers may not sum due to rounding.
6-31
-------
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6-32
-------
Table6-12
Pre-Tax financial Distribution for Small Business-Owned Entities
RT/CHEMSubcategory [1]
$5 Million Small Business Definition
>1% Sales Test
Criteria
Small
Entities
% of Small
Entities
>3% Sales Test
SmaU
Entities
% of Small
Entities
Small
Entities
% of Small
Entities
Maximum
Annual Re venue
(millions)
$1.0
$2.5
$5.0
0
6
9
0.0%
72.0%
100.0%
0
6
6
0.0%
72.0%
72.0%
0
6
6
0.0%
72.0%
72.0%
Maximum
Tanks Cleaned
Per Year
750
1,000
2,000
3.000
2
2
9
9
28.0%
28.0%
100.0%
100.0%
0
0
6
6
0.0%
0.0%
72.0%
72.0%
0
0
6
6
0.0%
0.0%
710%
72.0%
jMaximum
Employment
25
50
0
6
0.0%
72.0%
0
6
0.0%
72.0%
0
6
0.0%
72.0%
Maximum
Flow
(gallons/day)
5,000
10.000
2
2
28.0%
28.0%
0
0
0.0%
0.0%
0
0
0.0%
0.0%
.[1] Results for indirect dischargers contained in detailed questionnaire database; does not include direct dischargers from
screener survey.
Entity is classified as small if its parent business entity earned less man $5 million in revenues in 1994.
Numbers may not sum due to rounding.
6-33
-------
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6-34
-------
Table 6-14
Pre-Tax Financial Distribution for Small Business-Owned Entities
TB/CHEM Subcategory
$5 Million Small Business Definition
, , >!%SalesTest
Criteria
Small % of Small
Entities Entities
Small
Entities
% of Small
Entities
>3% Sales Test
Small
Entities
% of Small
Entities
Maximum ,
Annual Revenue , . ••-..'"
(niillions)
$1.0
$2.5
$5.0
0
3
8
0.0%
38.1%
100.0%
0
3
8
0.0%
38.1%
100.0%
0
3
8
0.0%
38.1%
100.0%
Tanks Cleaned
Per Year
150
250
500
1,000
1,500
2
5
8
8
8
23.8%
61.9%
100.0%
100.0%
100.0%
2
5
8
8
8
23.8%
61.9%
100.0%
100.0%
100.0%
2
5
8
8
8
23.8%
61.9%
100.0%
100.0%
100.0%
Maximum
Employment
20
50
3
3
38.1%
38.1%
3
-• 3"
38.1%
38.1%
3 :
3
38.1%
38.1%
Maximum . '. .
Flow
(gallons/day)
5,000
10,000
5 .
8
61.9%
100.0%
5
8
61.9%
100.0%
. 5
8
61.9%
100.0%
Entity is classified as small if its parent business entity earned less than $5 million in revenues in 1994.
Numbers may not sum due to rounding.
6-35
-------
6.5.4 Sensitivity Analysis of Additional Regulatory Relief Options in the Truck Chemical
Subcategory
EPA considered two additional forms of relief for the Truck Chemical subcategory:
• Allowing eligible small entities a five-year grace period before they are required to comply
\viththeproposedregulation
• Allowing eligible small entities to meet the less stringent requirements set for option 1 rather
than option 2
Four sets of criteria for small entities were examined for these two forms of regulatory relief:
, ., • • •' | , •'•.•. |, • ; i
• : '' , i
I • !'
• j u :,
• Small entities where the business employs fewer than 10 workers
• Small entities where the business employs fewer than 30 workers
• Small entities where the business earns less than $500,000 in revenues
• Small entities where the business earns less than $2 million in revenues
EPA considered the effect of these two forms of relief on financial distress and sales test impacts.
i !
The results of this sensitivity analysis are presented in Table 6-15. The five-year grace period has no
effect on financial distress incurred by small entities. The grace period decreases the number of small entities
incurring post-tax compliance costs exceeding 3 percent of revenues by a minimum of seven faculties under
all four relief criteria examined. The grace period has no effect on the number of small entities exceeding the
1 percent sales test threshold.
Permitting small entities to meet option 1 requirements rather than option 2 requirements reduces
. financial distress impacts by seven under all criteria. This form of relief also reduces the number of small
entities exceeding both the 1 and 3 percent sales test thresholds.
6-36
-------
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6-37
-------
6.5.5 Summary and Conclusion of the Regulatory Flexibility Analysis
Based on the results presented in Tables 6-8 through 6-15, the EPA chose not to provide regulatory
relief to small entities hi the TEC industry. This decision is based primarily on the proportionality of entities
and entity loads in each subcategory. In all Chemical subcategories, the percentage of small entities and the
percentage of pollutant loads attributable to those entities is highly correlated. It is therefore impossible to
provide regulatory relief to a significant percentage of entities without simultaneously excluding a similar
percentage of subcategory pollutant discharges from regulation. For example, excluding small Rail Chemical
entities that clean fewer than 2,000 tanks per year provides relief to all small entities in the subcategory (23
percent of the subcategory); it also excludes 24 percent of pollutant loads from the regulation.
EPA has, however, proposed to exclude IBC wastewater from the scope of the regulation. This
provides relief to 39 small TEC industry entities. EPA is also requesting comment on exclusions based on
wastewater flow or tanks cleaned.
6.6 REFERENCES
', • • >
US. EPA. 1992. EPA guidelines for implementing the Regulatory Flexibility Act Washington, DC: U.S.
Eavkonmental Protection Agency, Office of Policy, Planning, and Evaluatioa April.
U.S. EPA. 1996a. Economic impact analysis for final effluent limitations and standards for the coastal
subcategory of the oil and gas extraction point source category. Washington, DC: U.S. Environmental,
Protection Agency, Office of Water. October.
U.S. EPA. 1996b. Responses to public comments on effluent limitations guidelines and standards for the
coastal oil and gas subcategory of the oil and gas extraction point source category. Washington, DC: U.S.
Environmental Protection Agency. Rulemaking Docket, item number m.B.(c).l. October 30.
U.S.EPA. 1997. EPA~interim guidance for implementing the Small Business Regulatory Enforcement
Fairness Act and related provisions of the Regulatory Flexibility Act Washington, DC: U.S. Environmental
Protection Agency. Februarys.
U.S.EPA. 1998a. Development document for the proposed effluent limitations guidelines and standards for
the transportation equipment cleaning industry. EPA-821-B-98-011. Washington, DC: U.S. Environmental
Protection Agency, Office of Water. May. ,
6-38
-------
U.S. EPA. 1998b. Cost-effectiveness analysis of proposed effluent limitations guidelines and standards for
the transportation equipment cleaning industry point source category. EPA-821-B-98-013. Washington,
DC: U.S. Environmental Protection Agency, Office of Water. May.
6-39
-------
6-40
-------
CHAPTER 7
BENEFITS METHODOLOGY
7.1 PROJECTED WATER QUALITY IMPACTS
The water quality impacts and associated risks/benefits of TEC discharges at various treatment
levels are evaluated by: (1) comparing projected instream concentrations with ambient water quality criteria,1
(2) estimating the human health risks and benefits associated with the consumption offish and drinking water
from waterbodies impacted by the TEC industry, (3) estimating the ecological benefits associated with
improved recreational fishing habitats on impacted waterbodies, and (4) estimating the economic productivity
benefits based on reduced sewage sludge contamination at POTWs receiving the wastewater of TEC
facilities. These analyses are .performed for a representative sample set of six direct Barge Chemical and
Petroleum facilities, one indirect Barge Chemical and Petroleum facility, 12 indirect Rail Chemical faculties,
and 40 indirect Truck Chemical facilities. Results are extrapolated to the national level based on the
statistical methodology used for estimated costs, loads, and economic impacts. The methodologies used in
this evaluation are described in detail below.
7.1.1 Comparison of Instream Concentrations with Ambient Water Quality Criteria
Current and proposed pollutant releases are quantified and compared, and potential aquatic life and
human health impacts resulting from current and proposed pollutant releases are evaluated using stream
modeling techniques. Projected instream concentrations for each pollutant are compared to EPA water
1 In performing this analysis, EPA used guidance documents published by EPA that recommend numeric
human health and aquatic life water quality criteria for numerous pollutants. States often consult these guidance
documents when adopting water quality criteria as part of their water-quality standards. However, because those
State-adopted criteria may vary, EPA used the nationwide criteria guidance as the most representative values.
EPA also recognizes that currently there is no scientific consensus on the most appropriate approach for
extrapolating the dose-response relationship to the low-dose associated with drinking water exposure for arsenic.
EPA's National Center for Environmental Assessment and EPA's Office of Water sponsored an Expert Panel
Woikshop, May 21-22,1997, to review and discuss the relevant scientific literature for evaluating the possible
modes of action underlying the carcinogenic action of arsenic.
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quality criteria or, for pollutants for which no water quality criteria have been developed, to toxic effect levels
(i.e., lowest reported or estimated toxic concentration). Inhibition of POTW operation and sludge
contamination are also evaluated. The following three sections (i.e., Section 7.1.1.1 through Section 7.1.1.3)
describe the methodology and assumptions used for evaluating the impact of direct and indirect discharging
facilities.
7.1.1.1 Direct Discharging Facilities
Using a stream dilution model that does not account for fate processes other than complete
immediate mixing, projected instream concentrations are calculated at current and proposed BAT treatment
levels for stream segments with direct discharging facilities. For stream segments with multiple facilities,
pollutant loadings are summed, if applicable, before concentrations are calculated. The dilution model used
for estimating instream concentrations is as follows.
r _ L/OD v „„
,C- = - x CF rca \\
a FF + SF <• q' ;
where:
Q, = instream pollutant concentration (micrograms per liter [^g/L])
L = facility pollutant loading (pounds/year [Ibs/year])
OD = facility operation (days/year)
FF = facility flow (million gallons/day [gal/day])
SF = receiving stream flow (million gal/day)
CF = conversion factors for units
The facility-specific data (i.e., pollutant loading, operating days, facility flow, and stream flow) used
ittEq. 1 are derived from various sources as described in Section 3.1.1 of this report One of three receiving
stream flow conditions (1Q10 low flow, 7Q10 low flow, and harmonic mean flow) is used for the two
treatment levels; use depends on the type of criterion or toxic effect level intended for comparison. The 1Q10
and 7Q10 flows are the lowest 1-day and the lowest consecutive 7-day average flow during any 10-year
period, respectively, and are used to estimate potential acute and chronic aquatic life impacts, respectively, as
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recommended in the Technical Support Document for Water Quality-based Toxics Control (U.S. EPA,
1991a). The harmonic mean flow is defined as the inverse mean of reciprocal daily arithmetic mean flow
values and is used to estimate potential human health impacts. EPA recommends the long-term harmonic
' / •' - ' ' ' r - -
mean flow as the design flow for assessing potential human health impacts, because it provides a more
conservative estimate than the arithmetic mean flow. 7Q10 flows are not appropriate for assessing potential
human health impacts, because they have no consistent relationship with the long-term mean dilution.
For assessing impacts on aquatic life, the facility operating days are used to represent the exposure
duration; the calculated instream concentration is thus the average concentration on days the facility is
discharging -wastewater. For assuming long-term human health impacts, the operating days (exposure
duration) are set at 365 days; the calculated instream concentration is thus the average concentration on all
days of the year. Although this calculation for human health impacts leads to a lower calculated
concentration because of the additional dilution from days when the facility is not in operation, it is consistent
with the conservative assumption that the target population is present to consume drinking water and
contaminated fish every day for an entire lifetime.
~i •
Because stream flows are not available for hydrologically complex waters such as bays, estuaries,
and oceans, site-specific critical dilution factors (CDFs) or estuarine dissolved concentration potentials
(DCPs) are used to predict pollutant concentrations for facilities discharging to estuaries and bays, if
applicable, as follows: , >
CEq.2)
where:
Ca = ^estuary pollutant concentration
L = facility pollutant loading (Ibs/year)
OD = faculty operation (days/year)
FF = facility flow (million gal/day)
CDF = critical dilution factor =
CF = conversion factors for units
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C,, = L x DCP x CF (Eq. 3)
\vhcte:
Cw = estuary poUutant concentration (^g/L)
L = facility pollutant loading (Ibs/year)
DCP = dissolved concentration potential (milligrams per liter [mg/L])
i - . • • • i
CF = conversion factor for units
1 ' „ ' ' ' !
" ! ' ' j '
Site-specific critical dilution factors are obtained from a survey of States and Regions conducted by EPA's
Office of Pollution Prevention and Toxics (OPPT)M»«g Zone Dilution Factors for New Chemical
Exposure Assessments, Draft Report, (U.S. EPA, 1992a). Acute CDFs are used to evaluate acute aquatic life
effects; whereas, chronic CDFs are used to evaluate chronic aquatic life or adverse human health effects. It is
assumed that the drinking water intake and fishing location are at the edge of the chronic mixing zone.
• • | ' i
The Strategic Assessment Branch of the National Oceanic and Atmospheric Administration's
(NOAA) Ocean Assessments Division has developed DCPs based on freshwater inflow and salinity gradients
• '" ' " :':/'" \ I ' ' "' ' '' "I1 ' '' il' ;l'" ' . , ,'"!,"!"
to predict pollutant concentrations in each estuary in the National Estuarine Inventory (NEI) Data Atlas.
These DCPs are applied to predict concentrations. They also do not consider pollutant fate and are designed
strictly to simulate concentrations of nonreactive dissolved substances, In addition, the DCPs reflect the
predicted estuary-wide response and may not be indicative of site-specific locations.
Water quality excursions are determined by dividing the projected instream (Eq. 1) or estuary (Eq. 2
and Eq. 3) pollutant concentrations by EPA ambient water quality criteria or toxic effect levels. A value
greater than 1.0 indicates an excursion.
7.1.1.2 Indirect Discharging Facilities
Assessing the impacts of indirect discharging facilities is a two-stage process. First, water quality
impacts arc evaluated as described in Section (a) below. Next, impacts on POTWs are considered as
described in Section (b) that follows.
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(a) Water Quality Impacts
A stream dilution model is used to project receiving stream impacts resulting from releases by
indirect discharging facilities as shown in Eq. 4. For stream segments with multiple facilities, pollutant
loadings are summed, if applicable, before concentrations are calculated. The facility-specific data used in
Eq. 4 are derived from various sources as described in Section 3.1.1 of this report .Three receiving stream
flow conditions (1Q10 low flow, 7Q10 low flow, and harmonic mean flow) are used for the current and
proposed pretreatment options. Pollutant concentrations are predicted for POTWs located on bays and
estuaries using site-specific CDFs or NOAA's DCP calculations (Eq. 5 and Eq. 6).
. (T70D) x
where:
Q,
L
OD
TMT
-PF
SF
CF
instream pollutant concentration (/^g/L)
facility pollutant loading (Ibs/year)
facility operation (days/year)
POTW treatment removal efficiency
POTW flow (million gal/day)
receiving stream flow (million gal/day)
conversion factors for units
where:
L
OD
TMT
PF
CF / CDF
estuary pollutant concentration
facility pollutant loading (Ibs/year)
facility operation (days/year)
POTW treatment removal efficiency
POTW flow (million gal/day)
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CDF — critical dilution factor
CF — conversion factors for units . '
C^ = L x (1-TMT) x DCP x CF (Eq. 6)
. : I
where: "
CM = estuary pollutant concentration (ug/L)
L = facility pollutant loading (Ibs/year)
TMT, = POTW treatment removal efficiency
DCP = . dissolved concentration potential (mg/L)
CF = conversion factors for units
Potential impacts on freshwater quality are determined by comparing projected instream pollutant
concentrations (Eq. 4) at reported POTW flows and at 1Q10 low, 7Q10 low, and harmonic mean receiving
stream flows with EPA water quality criteria or toxic effect levels for the protection of aquatic life and human
health; projected estuary pollutant concentrations (Eq. 5 and Eq. 6), based on CDFs or DCPs, are compared
to EPA water quality criteria or toxic effect levels to determine impacts. Water quality criteria excursions are
determined by dividing the projected instream or estuary pollutant concentration by the EPA water quality
criteria or toxic effect levels. (See Section 7.1.1.1 for discussion of streamflow conditions, application of
CDFs or DCPs, assignment of exposure duration, and comparison with criteria or toxic effect levels. A value
greater than 1.0 indicates an excursion.
(b) Impacts on POTWs
Impacts on PQTW operations are calculated in terms of inhibition of POTW processes (i.e.,
inhibition of microbial degradation) and contamination of POTW sludges. Inhibition of POTW operations is
determined by dividing calculated POTW influent levels (Eq. 7) with chemical-specific inhibition threshold
levels. Excursions are indicated by a value greater than 1.0.
7-6
liLIS
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where: ,
Cpi = POTW influent concentration 0*g/L)
L = facility pollutant loading (Ibs/year)
OD = facility operation (days) ,
PF = POTW flow (nuffion gal/day)
CF = conversion factors for units
Contamination of sludge (thereby limiting its use for land application, etc.) is evaluated by dividing projected
pollutant concentrations in sludge (Eq. 8) by available EPA-developed criteria values for sludge. A value
greater than 1.0 indicates an excursion.
CSP = Cpi x TMT x PART x SGF (Eq. 8)
where:
Cjp = sludge pollutant concentration (milligrams per kilogram [mg/kg])
C^ = POTW influent concentration Cug/L)
TMT = POTW treatment removal efficiency
PART — chemical-specific sludge partition factor
SGF = sludge generation factor (5.96 parts per million [ppm])
Facility-specific data and information used to evaluate POTWs are derived from the sources
described in Sections 3J.. land 3.1.2. For facilities that discharge to the same POTW, their individual
loadings are summed, if applicable, before the POTW influent and sludge concentrations are calculated.
The partition factor is a measure of the tendency for the pollutant to partition in sludge when it is
removed from wastewater. For predicting sludge generation, the model assumes that 1,400 pounds of sludge
are generated for each million gallons of wastewater processed (Metcalf& Eddy, 1972). This results in a
7-7
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sludge generation factor of 5.96 mg/kg per //g/L (that is, for every 1 //g/L of pollutant removed from
wastewater and partitioned to sludge, the concentration in sludge is 5.96 mg/kg dry weigh!).
7.1.1.3 Assumptions and Caveats
The following major assumptions are used in this analysis:
Background concentrations of each pollutant, both in the receiving stream and in the POTW
influent, are equal to zero; therefore, only the impacts of discharging facilities are evaluated.
An exposure duration of 365 days is used to determine the likelihood of actual excursions of
human health criteria or toxic effect levels.
Complete mixing of discharge flow and stream flow occurs across the stream at the
discharge point This mixing results in the calculation of an "average stream" concentration,
even though the actual concentration may vary across the width and depth of the stream.
The process water at each facility and the water discharged to a POTW are obtained from a
source other than the receiving stream.
The pollutant load to the receiving stream is assumed to be continuous and is assumed to be
representative of long-term facility operations. These assumptions may overestimate risks
to human health and aquatic life, but may underestimate potential short-term effects.
1Q10 and 7Q10 receiving stream flow rates are used to estimate aquatic life impacts, and
harmonic mean flow rates are used to estimate human health impacts. 1Q10 low flows are
estimated using the results of a regression analysis conducted by Versar, Inc. for EPA's
Office of Pollution Prevention and Toxics (OPPT) of 1Q10 and 7Q10 flows from
representative U.S. rivers and streams taken from Upgrade of Flow Statistics Used to
Estimate Surface Water Chemical Concentrations for Aquatic and Human Exposure
Assessment (Versar, 1992). Harmonic mean flows are estimated from the mean and 7Q10
flows as recommended in the Technical Support Document for Water-Quality-based
Toxics Control (U.S. EPA, 1991a). These flows may not be the same as those used by
specific States to assess impacts.
Pollutant fate processes, such as sediment adsorption, volatilization, and hydrolysis, are not
considered. This may result in estimated instream concentrations that are environmentally
conservative (higher).
i, '' ' .
Pollutants without a specific POTW treatment removal efficiency provided by EPA or found
in th^e literature are assigned a removal efficiency of zero; pollutants without a specific
partition factor are assigned a value of zero.
7-8
lit III: nr ii, .' i,in , £ ;,i!!I
-------
Sludge criteria levels are only available for seven pollutants—arsenic, cadmium, copper, lead,
mercury, selenium, and zinc.
Water quality criteria or toxic effect levels developed for freshwater organisms are used in
the analysis of facilities discharging to estuaries or bays.
7.1.2 Estimation of Human Health Risks and Benefits
The potential benefits to human health are evaluated by estimating the risks (carcinogenic and
noncarcinogenic hazard [systemic]) associated with reducing pollutant levels in fish tissue and drinking water
from current to proposed treatment levels. Reduction in carcinogenic risks is monetized, if applicable, using
estimated willingness-to-pay values for avoiding premature mortality. The following three sections (i.e.,
Section 7.1.2.1 through Section 7.1.2.3) describe the methodology and assumptions used to evaluate the
human health risks and benefits from the consumption offish tissue and drinking water derived from
waterbodies impacted by direct and indirect discharging facilities.
7.1.2.1 Fish Tissue
To determine the potential benefits, in terms of reduced cancer cases, associated with reducing
pollutant levels in fish tissue, lifetime average daily doses (LADDs) and individual risk levels are estimated
for each pollutant discharged from a faculty based on the instream pollutant concentrations calculated at
current and proposed treatment levels in the site-specific stream dilution analysis. (See Section 7.1.1.)
Estimates are presented for sport anglers, subsistence anglers, and the general populatioa LADDs are
calculated as follows:
LADD = (C x IR x BCF x F x D ) / ( BW x LT ) (Eq. 9)
where:
LADD = potential lifetime average daily dose (milligrams per kilogram per day
• - [mg/kg/day])
- C = exposure concentration (mg/L)
IR = ingestion rate (See Section 7.1.2.3 -Assumptions)
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BCF = bioconcentration factor, (liters per kilogram [LAg] (whole body x 0.5)
F - frequency duration (365 days/year)
D = exposure duration (70 years)
BW = body weight (70 kg)
LT = lifetime (70 years x 365 days/year)
Individual risks are calculated as follows:
R = LADD x SF (Eq. 10)
•wfaere:
R - individual risk level '
LADD - potential lifetime average daily dose (mg/kg/day)
SF - potency slope factor (mg/kg-day)'1
The estimated individual pollutant risk levels are then applied to the potentially exposed populations
of sport anglers, subsistence anglers, and the general population to estimate the potential number of excess
annual cancer cases occurring over the life of the population. The number of excess cancer cases is then
summed on a pollutant, facility, and overall industry basis. The number of reduced cancer cases is assumed
to be the difference between the estimated risks at current and proposed treatment levels.
A monetary value of benefits to society from avoided cancer cases is estimated if current wastewater
discharges result in excess annual cancer cases greater than 0.5. The valuation of benefits is based on
estimates of society's willingness-to-pay to avoid the risk of cancer-related premature mortality. Although it
is not certain that all cancer cases will result in death, to develop a worst case estimate for this analysis,
avoided cancer cases ar^ valued on the basis of avoided mortality. To value mortality, a range of values
recommended by an J5PA, Office of Policy Analysis (OPA) review of studies quantifying individuals'
willingness-to-pay to avoid risks to life is used (Fisher, Chestnut, and Violette, 1989; and Violette and
Chestnut, 1986). The reviewed studies used hedonic wage and contingent valuation analyses in labor markets
to estimate the amounts that individuals are willing to pay to avoid slight increases in risk of mortality or will
need to be compensated to accept a slight increase in risk of mortality. The willingness-to-pay values
estimated in these studies are associated with small changes in the probability of mortality. To estimate a
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willingness-to-pay for avoiding certain or high probability mortality events, they are extrapolated to the value
for a 100 percent probability event2 The resulting estimates of the value of a "statistical life saved" are used
to value regulatory effects that are expected to reduce the incidence of mortality.
From this review of willingness-to-pay studies, OPA recommends a range of $ 1.6 to $8.5 million
(1986 dollars) for valuing an avoided event of premature mortality or a statistical life saved. A more recent
survey of value of life studies by Viscusi (1992) also supports this range with the finding that value of life
estimates are clustered in the range of $3 to $7 million (1990 dollars). For this analysis, the figures
recommended in the OPA study are adjusted to 1992 using the relative change in the Employment Cost Index
of Total Compensation for All Civilian Workers from 1986 to 1994 (38 percent). Basing the adjustment in
the willingness-to-pay values on change in nominal Gross Domestic Product (GDP) instead of change in
inflation, accounts for the expectation that willingness-to-pay to avoid risk is a normal economic good, and,
accordingly, society's willingness-to-pay to avoid risk will increase as national income increases. Updating
to 1994 yields arangeof $2.2 to $11.7 million.
Potential reductions in risks due to reproductive, developmental, or other chronic and subchronic
toxic effects are estimated by comparing the estimated lifetime average daily dose and the oral reference dose
(RfD) for a given chemical pollutant as follows:
HQ = ORI/RfD (Eq. 11)
where:
HQ = hazard quotient
OKI = oral intake (LADDxBW,mg/day)
RfD = reference dose (mg/day assuming a body weight of 70kg)
A hazard index (i.e., sum of individual pollutant hazard quotients) is then calculated for each faculty
or receiving stream. A hazard index greater than 1.0 indicates that toxic effects may occur in exposed
populations. The size of the subpopulations affected are summed and compared at the various treatment
levels to assess benefits in terms of reduced systemic toxicity. While a monetary value of benefits to society
2 These estimates, however, do not represent the willingness-to-pay to avoid the certainty of death.
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associated with a reduction in the number of individuals exposed to pollutant levels likely to result in
systemic health effects could not be estimated, any reduction in risk is expected to yield human health related
benefits. ,
7.1.2,2 Drinking Water
Potential benefits associated with reducing pollutant levels in drinking water are determined in a
similar manner. LADDs for drinking water consumption are calculated as follows:
LADD = (C x IR x F x D ) / ( BW x LT ) (Eq. 12)
where:
LADD = potential lifetime average daily dose (mg/kg/day)
C s exposure concentration (mg/L)
IR = ingestionrate(2L/day)
F = frequency duration (365 days/year)
D - exposure duration (70 years)
BW = body weight (70 kg)
LT = lifetime (70 years x 365 days/year)
Estimated individual pollutant risk levels greater than 10"6 (1E-6) are applied to the population served
downstream by any drinking water utilities within SO miles from each discharge site to determine the number
of excess annual cancer cases that may occur during the life of the population. Systemic toxicant effects are
evaluated by estimating the sizes of populations exposed to pollutants from a given facility, the sum of whose
individual hazard quotients yields a hazard index (HI) greater than 1.0. A monetary value of benefits to
society from avoided cancer cases is estimated, if applicable, as described in Section 7.1.2.1.
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7.1.2.3 Assumptions and Caveats ' „' ..
The following assumptions are used in the human health risks and benefits analyses:
A linear relationship is assumed between pollutant loading reductions and benefits attributed
to the cleanup of surface waters.
Synergistic effects of multiple chemicals on aquatic ecosystems are not assessed; therefore,
the total benefit of reducing toxics may be underestimated.
The total number of persons who might consume recreationally caught fish and the number
who rely upon fish on a subsistence basis in each State are estimated, in part, by assuming
that these anglers regularly share their catch with family members. Therefore, the number of
anglers in each State are multiplied by the average household size in each State. The
remainder of the population of these States is assumed to be the "general population"
consuming commercially caught fisk -
Five percent of the resident anglers in a given State are assumed to be subsistence anglers;
the other 95 percent are assumed to be sport anglers.
Commercially or recreationally valuable species are assumed to occur or to be taken in the
vicinity of the discharges included in the evaluation.
Ihgestion rates of 6.5 grams per day for the general population, 30 grams per day (30 years)
+ 6.5 grams per day (40 years) for sport anglers, and 140 grams per day for subsistence
anglers are used in the analysis offish tissue (Exposure Factors Handbook, U.S. EPA,
1989a)
v
All rivers or estuaries within a State are equally fished by any of that State's resident anglers,
• and the fish are consumed only by the population within that State.
Populations potentially exposed to discharges to rivers or estuaries that border more than
one State are estimated based only on populations within the State in which the facility is
located
The size of the population potentially exposed to fish caught in an impacted water body in a
given State is estimated based on the ratio of impacted river miles to total river miles in that
State or impacted estuary square miles to total estuary square miles in that State. The
number of miles potentially impacted by a facility's discharge is assumed to be 50 miles for
rivers and the total surface area of the various estuarine zones for estuaries.
Pollutant fate processes (e.g., sediment adsorption, volatilization, hydrolysis) are not
considered in estimating the concentration in drinking water or fish; consequently, estimated
concentrations are environmentally conservative (higher).
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7.13 Estimation of Ecological Benefits
The potential ecological benefits of the proposed regulation are evaluated by estimating
improvements in the recreational fishing habitats that are impacted by TEC wastewater discharges. Stream
segments are first identified for which the proposed regulation is expected to eliminate all occurrences of
pollutant concentrations in excess of both aquatic life and human health ambient water quality criteria
(AWQC) or toxic effect levels. (See Section 7.1.1.) The elimination of pollutant concentrations in excess of
AWQC is expected to result in significant improvements in aquatic habitats. These improvements in aquatic
habitats are then expected to improve the quality and value of recreational fishing opportunities. The
estimation of the monetary value to society of improved recreational fishing opportunities is based on the
concept of a "contaminant-free fishery" as presented by Lyke (1993).
11 ' ' '•','! I1
:; | •
Research by Lyke (1993) shows that anglers may place a significantly higher value on a
contaminant-free fishery than a fishery with some level of contamination. Specifically, Lyke estimates the
consumer surplus3 associated with Wisconsin's recreational Lake Michigan trout and salmon fishery, and the
additional value of the fishery if it was completely free of contaminants affecting aquatic life and human
health. Lyke's results are based on two analyses:
1. A multiple site, trip generation, travel cost model was used to estimate net benefits
associated with the fishery under baseline (i.e., contaminated) conditions.
. . ' . , j.
2. A contingent valuation model was used to estimate willingness-to-pay values for the fishery
if it was free of contaminants.
Both analyses used data collected from licensed anglers before the 1990 season. The estimated incremental
benefit values associated with freeing the fishery of contaminants range from 11.1 percent to 31.3 percent of
the value of the fishery under current conditions.
3 Consumer surplus is generally recognized as the best measure from a theoretical basis for valuing the net
economic welfare or benefit to consumers fromconsuming a particular good or service. An increase or decrease
in consumer surplus for particular goods or services as the result of regulation is a primary measure of the gain
or loss in consumer welfare resulting from the regulation.
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To estimate the gain in value of stream segments identified as showing improvements in aquatic
habitats as a result of the proposed regulation, the baseline recreational fishery value of the stream segments
are estimated on the basis of estimated annual person-days of fishing per segment and estimated values per
person-day of fishing. Annual person-days of fishing per segment are calculated using estimates of the
affected (exposed) recreational fishing populations. (See Section 7.1.2.) The number of anglers are
multiplied by estimates of the average number of fishing days per angler in each State to estimate the total
number of fishing days for each segment. The baseline value for each fishery is then calculated by
multiplying the estimated total number of fishing days by an estimate of the net benefit that anglers receive
from a day of fishing where net benefit represents the total value of the fishing day exclusive of any fishing-
related costs (license fee, travel costs, bait, etc,) incurred by the angler. In this analysis, a range of median
net benefit values for warm water and cold water fishing days, $29.47 and $37.32, respectively, in 1994
dollars is used. Summing over all benefiting stream segments provides a total baseline recreational fishing
value of TEC facility stream segments that are expected to benefit by elimination of pollutant concentrations
in excess of AWQC.
To estimate the increase in value resulting from elimination of pollutant concentrations in excess of
AWQC, the baseline value for benefiting stream segments are multiplied by the incremental gain in value
associated with achievement of the "contaminant-free" condition. As noted above, Lyke's estimate of the
increase in value ranged from 11.1 percent to 31.3 percent Multiplying by these values yields a range of
expected increase in value for the TEC facility stream segments expected to benefit by elimination of
pollutant concentrations in excess of AWQC.
7.1.3.1 Nonuse Benefits
Individuals who never visit or otherwise use a natural resource may nevertheless be affected by
changes in its status or quality. Empirical estimates indicate that such "nonuse value" can be substantial for
some resources. Most studies find nonuse values to exceed use Values. For example, based on a review of
recent contingent valuation studies in which both use and nonuse values were estimated, Bergstrom estimates
the relative magnitude of nonuse value to use value by estimating the ratio of the former to the latter. The 34
ratios estimated by Bergstrom range from 0.1 to 10, with the median ratio of 1.92. Because the nonuse value
is a sizable component of the total economic value of water resources, EPA estimated the change in nonuse
7^15
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values in proportion to recreational fishing benefits. For this analysis, EPA conservatively estimated that
nonuse benefits compose one-half of recreational fishing benefits.
7.1.3.2 Assumptions and Caveats
',',"' •!' • ' i
The following major assumptions are used in the ecological benefits analysis:
Background concentrations of the TEC pollutants of concern in the receiving stream are not
considered.
;,!•,' ' • i „ -
, • i • ' '• „ ' ' ' ' '' !
The estimated benefit of improved recreational fishing opportunities is only a limited
measure of the value to society of the improvements in aquatic habitats expected to result
from the proposed regulation; increased assimilation capacity of the receiving stream,
improvements in taste and odor, or improvements to other recreational activities, such as
swimming and wildlife observation, are not addressed.
Significant simplifications and uncertainties are included in the assessment This may
overestimate or underestimate the monetary value to society of improved recreational fishing
opportunities. (See Sections 7.1.1.3 and 7.1.2.3.)
Potential overlap in valuation of improved recreational fishing opportunities and avoided
cancer cases from fish consumption may exist This potential is considered to be minor in
terms of numerical significance.
7.1.4 Estimation of Economic Productivity Benefits
Potential economic productivity benefits are estimated based on reduced sewage sludge
contamination due to the proposed regulation. The treatment of wastewaters generated by TEC facilities
produces a sludge that contains pollutants removed from the wastewaters. As required by law, POTWs must
use environmentally sound practices in managing and disposing of this sludge. The proposed pretreatment
levels are expected to generate sewage sludges with reduced pollutant concentrations. As a result, the
POTWs may be able to use or dispose of the sewage sludges with reduced pollutant concentrations at lower
costs. .
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To determine the potential benefits, in terms of reduced sewage sludge disposal costs, sewage sludge
pollutant concentrations are calculated at current and proposed pretreatment levels. (See Section 7.1.1.2.)
Pollutant concentrations are then compared to sewage sludge pollutant limits for surface disposal and land
application (minimum ceiling limits and pollutant concentration limits). If, as a result of the proposed
pretreatment, a POTW meets all pollutant limits for a sewage sludge use or disposal practice, that POTW is
assumed to benefit from the increase in sewage sludge use or disposal options. The amount of the benefit
deriving from changes in sewage sludge use or disposal practices depends on the sewage sludge use or
disposal practices employed under current levels. This analysis assumes that POTWs choose the least
expensive sewage sludge use or disposal practice for which their sewage sludge meets pollutant limits.
POTWs with sewage sludge that qualifies for land application in the baseline are assumed to dispose of their
sewage sludge by land application; likewise, POTWs with sewage sludge that meets surface disposal limits
(but not land application ceiling or pollutant limits) are assumed to dispose of their sewage sludge at surface
disposal sites.
The economic benefit for POTWs receiving wastewater from a TEC facility is calculated by
multiplying the cost differential between baseline and post-compliance sludge use or disposal practices by the
quantity of sewage sludge that shifts into meeting land application (minimum ceiling limits and pollutant
concentration limits) or surface disposal limits. Using these cost differentials, reductions in sewage sludge
use or disposal costs are calculated for each POTW (Eq. 14):
SCR = PF x S x CD x PD x CF (Eq. 13)
where:
SCR = estimated POTW sewage sludge use or disposal cost reductions resulting from the
proposed regulation (1994 dollars)
PF = ~ POTW flow (million gal/year) ' ; ...
S = sewage sludge to wastewater ratio (1,400 Ibs (dry weight) per million gallons of
water)
CD = estimated cost differential between least c»stfy composite baseline use or disposal
method for which POTW qualifies and least costly use or disposal method for
which POTW qualifies post-compliance ($1994/dry metric ton)
PD = percent of sewage sludge disposed
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CF = conversion factor for units
I " ' ' • '• ! , .
7.L4.1 Assumptions and Caveats
The following major assumptions are used in the economic productivity benefits analysis:
13.4 percent of the POTW sewage sludge generated in the United States is generated at
PpTWs that are located too far from agricultural land and surface disposal sites for these
use or disposal practices to be economical. This percentage of sewage sludge is not
associated with benefits from shifts to surface disposal or land application.
Benefits expected from reduced record-keeping requirements and exemption from certain
sewage sludge management practices are not estimated.
„" ! ,IJ ' ' ... " .•,„ ."'''!
No definitive source of cost-saving differential exists. Analysis may overestimate or
underestimate the cost differentials.
Sewage sludge use or disposal costs vary by POTW. Actual costs incurred by POTWs
affected by the TEC regulation may differ from those estimates.
Due to the unavailability of such data, baseline pollutant loadings from all industrial sources
are not included in the analysis.
12 POLLUTANT FATE AND TOXICTTY
Human and ecological exposure and risk from environmental releases of toxic chemicals depend
largely on toxic potency, inter-media partitioning, and chemical persistence. These factors are dependant on
jf " • ' ' '
chemical-specific properties relating to lexicological effects on living organisms, physical state,
hydrophobicity/h'pophilicity, and reactivity, as well as the mechanism and media of release and site-specific
environmental conditions.
The methodology used in assessing the fate and toxicity of pollutants associated with TEC
wastewaters is comprised of three steps: (1) identification of pollutants of concern; (2) compilation of
physical-chemical and toxicity data; and (3) categorization assessment These steps are described in detail
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below. A summary of the major assumptions and limitations associated with this methodology is also
presented.
7.2.1 Pollutants of Concern Identification
From 1994 through 1996, EPA conducted 20 sampling episodes to determine the presence or
absence of priority, conventional, and nonconventional pollutants at TEC faculties located nationwide. EPA
visited seven truck faculties, five rail faculties, seven barge facilities, and one closed-top hopper barge
facility. There, EPA collected grab and composite samples of untreated process wastewater and treated final
effluent Most of these samples were analyzed for 478 anarytes to identify pollutants at these faculties.
Using these data, EPA applied three criteria to identify non-pesticide/herbicide pollutants effectively removed
(i.e., pollutants of concern) by technology options: (1) detected at least two times in the subcategory influent,
(2) average concentration of the pollutant in the influent greater than five times the detection limit, and (3)
effectively treated with a removal rate of 50 percent or more. EPA applied two criteria to identify
pesticide/herbicide pollutants effectively removed by technology options: (1) detected at least one time in
subcategory wastewater, and (2) treated with a removal rate greater than 0 percent
m the Barge Chemical and Petroleum subcategory, EPA detected 67 pollutants (25 priority
pollutants, three conventional pollutant parameters, and 39 nonconventional pollutants) in waste streams that
met the selection criteria. In the Rail Chemical subcategory, EPA detected 106 pollutants (23 priority
pollutants, two conventional pollutant parameters, and 8,1 nonconventional pollutants) in waste streams that
met the selection criteria. In the Truck Chemical subcategory, EPA detected 86 pollutants (25 priority
pollutants, three conventional pollutant parameters, and 58 nonconventional pollutants) in waste streams that
met the selection criteria.
These pollutants are identified as pollutants of concern and are evaluated to assess their potential fate
and toxicity based on known characteristics of each chemical. As many of these pollutants as possible are
modeled in the environmental assessment based on the availability of fate and toxicity information.
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7.2.2 Compilation of Physical-Chemical and Toxicity Data
The chemical specific data needed to conduct the fate and toxicity evaluation for this study include
aquatic life criteria or toxic effect data for native aquatic species, human health reference doses (RfDs) and
cancer potency slope factors (SFs), EPA maximum contaminant levels (MCLs) for drinking water
'• ,, "• :, : • j ,
protection, Henry's Law constants, soil/sediment adsorption coefficients (K^, bioconcentration factors
• ,„ • ' „ ii ,;„'•! ' ' . • '" :, '. i, , •
(BCFs) for native aquatic species, and aqueous aerobic biodegradation half-lives (BD).
Sources of the above data include EPA ambient water qualify criteria documents and updates, EPA's
Assessment Tools for the Evaluation of Risk (ASTER) and the associated AQUatic Information REtrieval
System (AQUIRE) and Environmental Research Laboratory-Duluth fathead minnow data base, EPA's
Integrated Risk Information System (JRIS), EPA's 1993-1995 Health Effects Assessment Summary Tables
(HEAST), EPA's 1991-1996 Superfund Chemical Data Matrix (SCDM), EPA's 1989 Toxic Chemical
Release Inventory Screening Guide, Syracuse Research Corporation's CHEMFATE data base, EPA and other
government reports, scientific literature, and other primary and secondary data sources. To ensure that the
examination is as comprehensive as possible, alternative measures are taken to compile data for chemicals for
which physical-chemical property and/or toxicity data are not presented in the sources listed above. To the
extent possible, values are estimated for the chemicals using the quantitative structure-activity relationship
,; i '.i . - i
(QS AR) model incorporated in ASTER, or for some physical-chemical properties, utilizing published linear
regression correlation equations.
(a) Aquatic Life Data
':'•' | ' ' j , . ' ' ' 1 i'
Ambient criteria or toxic effect concentration levels for the protection of aquatic life are obtained
primarily from EPA ambient water quality criteria documents and EPA's ASTER. For several pollutants,
EPA has, published ambient water quality criteria for the protection of freshwater aquatic life from acute
effects. The acute value represents a maximum allowable 1-hour average concentration of a pollutant at any
time that protects aquatic life from lethality. For pollutants for which no acute water quality criteria have
been developed by EPA, an acute value from published aquatic toxicity test data or an estimated acute value
from the ASTER QSAR model is used. In selecting values from the literature, measured concentrations from
flow-through studies under typical pH and temperature conditions are preferred In addition, the test
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organism must be a North American resident species offish or invertebrate. The hierarchy used to select the
appropriate acute value is listed below in descending order of priority.
• National acute freshwater quality criteria,
• Lowest reported acute test values (96-hour LCX for fish and 48-hour ECy/LCyy for
daphnids). -
• Lowest reported LCX test value of shorter duration, adjusted to estimate a 96-hour exposure
period.
• Lowest reported ICX test value of longer duration, up to a maximum of 2 weeks exposure.
• Estimated 96-hour LCjo from the ASTER QSAR model.
BCF data are available from numerous data sources, including EPA ambient water quality criteria
documents and EPA's ASTER. Because measured BCF values are not available for several chemicals,
methods are used to estimate this parameter based on the octanol/water partition coefficient or solubility of
the chemical. Such methods are detailed in Lymanetal. (1982). Multiple values are reviewed, and a
representative value is selected according to the following guidelines:
• Resident U.S. fish species are preferred over invertebrates or estimated values.
• Edible tissue or whole fish values are preferred over nonedible or viscera values.
• Estimates derived from octanol/water partition coefficients are preferred over estimates
based on solubility or other estimates, unless the estimate comes from EPA Criteria
Documents.
The most conservative value (i.e., the highest BCF) is selected among comparable candidate values.
(b) Human Health Data
Human health toxicity data include chemical-specific RED for noncarcinogenic effects and potency
SF for carcinogenic effects. RfDs and SFs are obtained first from EPA's IRIS, and secondarily from EPA's
HEAST. The RfD is an estimate of a daily exposure level for the human population, including sensitive
subpopulations, that is likely to be without an appreciable risk of deleterious noncarcinogenic health effects
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over a lifetime (U.S. EPA, 1989b). A chemical with a low RfD is more toxic than a chemical with a high
RED. Noncarcinogenic effects include systemic effects (e.g., reproductive, immunologicaL, neurological,
circulatory, or respiratory toxicity), organ-specific toxicity, developmental toxicity, mutagenesis, and
lethality. EPA recommends a threshold level assessment approach for these systemic and other effects,
because several protective mechanisms must be overcome prior to the appearance of an adverse
noncarcinogenic effect In contrast, EPA assumes that cancer growth can be initiated from a single cellular
event and, therefore, should not be subject to a threshold level assessment approach. The SF is an upper
bound estimate of the probability of cancer per unit intake of a chemical over a lifetime (U.S. EPA, 1989b).
A chemical with a large SF has greater potential to cause cancer than a chemical with a small SF.
Other chemical designations related to potential adverse human health effects include EPA
assignment of a concentration limit for protection of drinking water, and EPA designation as a priority
pollutant EPA establishes drinking water criteria and standards, such as the MCL, under authority of the
Safe Drinking Water Act (SDWA). Current MCLs are available from IRIS. EPA has designated 126
chemicals and compounds as priority- pollutants under the authority of the Clean Water Act (CWA).
(c) Physical-Chemical Property Data
Three measures of physical-chemical properties are used to evaluate environmental fate: Henry's
Law constant (HLC), an organic carbon-water partition coefficient (K^), and aqueous aerobic biodegradation
half-life (BD).
i
HLC is the ratio of vapor pressure to solubility and is indicative of the propensity of a chemical to
volatilize from surface water (Lyman et al., 1982). The larger the HLC, the more likely the chemical will
volatilize. Most HLCs,are obtained from EPA's Office of Toxic Substances' (OTS) 1989 Toxic Chemical
Release Inventory Screening Guide (U.S. EPA, 1989c), the Office of Solid Waste's (OSW) Superfund
Chemical Data Matrix (U.S. EPA, 1994a), or the quantitative structure-activity relationship (QSAR) system
(U.S. EPA, 1993a), maintained by EPA's Environmental Research Laboratory (ERL) in Duluth, Minnesota.
K,,,. is indicative of the propensity of an organic compound to adsorb to soil or sediment particles and,
therefore, partition to such media. The larger the K^, the more likely the chemical will adsorb to solid
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material. Most K^ are obtained from Syracuse Research Corporation's CHEMFATE data base and EPA's
1989 Toxic Chemical Release Inventory Screening Guide.
BD is an empirically-derived time period when half of the chemical amount in water is degraded by
microbial action in the presence of oxygen. BD is indicative of the environmental persistence of a chemical
released into the water column. Most BDs are obtained from Howard et al. (1991) and ERL-Duluth's QSAR,
7.23 Categorization Assessment
The objective of this generalized evaluation of fate and toxicity potential is to place chemicals into
groups with qualitative descriptors of potential environmental behavior and impact These groups are based
on categorization schemes derived for:
• Acute aquatic toxicity (high, moderate, or slight).
• Volatility from water (high, moderate, slight, or nonvolatile).
• Adsorption to soil/sediment (high, moderate, slight, or nonadsorptive).
• Bioaccumulation potential (high, moderate, slight, or nonbioaccinnulative).
• Biodegradation potential (fast, moderate, slow or resistant).
Using appropriate key parameters, and where sufficient data exist, these categorization schemes
identify the relative aquatic and human toxicity and bioaccumulation potential for each chemical associated
with TEC wastewater. In addition, the potential to partition to various media (air, sediment/sludge, or water)
and to persist in the environment is identified for each chemical. These schemes are intended for screening
purposes only and do not take the place of detailed pollutant assessments analyzing all fate and transport
mechanisms.
This evaluation also identifies chemicals that: (1) are known, probable, or possible human
carcinogens; (2) are systemic human health toxicants; (3) have EPA human health drinking water standards;
and (4) are designated as priority pollutants by EPA. The results of this analysis can provide a qualitative
7-23
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indication of potential risk posed by the release of these chemicals. Actual risk depends on the magnitude,
frequency, and duration of pollutant loading; site-specific environmental conditions; proximity and number of
human and ecological receptors; and relevant exposure pathways. The following discussion outlines the
categorization schemes. Ranges of parameter values defining the categories are also presented.
(a) Acute Aquatic Toxicify
Key Parameter: Acute aquatic life criteria/LCso or other benchmark
* Using acute criteria or lowest reported acute test results (generally 96-hour and 48-hour durations for
fish and invertebrates, respectively), chemicals are grouped according to their relative short-term effects on
aquatic life. •
1 : ' "',,,„. t
i , „ L
Categorization Scheme:
AT < 100 Highly toxic
1,000 > AT > 100 Moderately toxic
AT > 1,000 Slightly toxic
This scheme, used as a rule-of-thumb guidance by EPA's OPPT for Premanufacture Notice (PMN)
evaluations, is used to indicate chemicals that could potentially cause lethality to aquatic life downstream of
discharges.
(b) Volatility from Water
Key Parameter: Henry's Law constant (HLC) (atm-mVmol)
TTT ~ Vapor Pressure (atm)
HLC = — -—- rpr, \A\
Solubility (mol/m3) V H' '
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HLC is the measured or calculated ratio between vapor pressure and solubility at ambient conditions.
This parameter is used to indicate the potential for organic substances to partition to air in a two-phase (air
and water) system. A chemical's potential to volatilize from surface water can be inferred from HLC.
Categorization Scheme:
HLC>10-3 Highly volatile
10-3>HLC>10-5 Moderately volatile
10-*>HLC>3xlO-7 Slightly volatile
HLC<3xlO-7 -. Essentially nonvolatile
This scheme, adopted from Lyman et al. (1982), gives an indication of chemical potential to
volatilize from process wastewater and surface water, thereby reducing the threat to aquatic life and human
health via contaminated fish consumption and drinking water, yet potentially causing risk to exposed
populations via inhalation.
(c) Adsorption to Soil/Sediments
Key Parameter: Soil/sediment adsorption coeffici
K^. is a chemical-specific adsorption parameter for organic substances that is largely independent of
the properties of soil or sediment and can be used as a relative indicator of adsorption to such media. K^. is
highly inversely correlated with solubility, well correlated with octanol-water partition coefficient, and fairly
well correlated with BCJ.
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Categorization Scheme:
10,000 Highly adsorptive
10,000 >]£«>. 1,000 Moderately adsorptive
1,000>KOC>10 Slightly adsorptive
Koc<10 Essentially nonadsorptive
This scheme is devised to evaluate substances that may partition to solids and potentially
contaminate sediment underlying surface water or land receiving sewage sludge applications. Although a
high KB, value indicates that a chemical is more likely to partition to sediment, it also indicates that a chemical
may be less bioavailable.
(d) Bioaccumulation Potential
Key Parameter Bioconcentration Factor (BCF)
_ Equilibrium chemical concentration in organism (wet weight).
Mean chemical concentration in water "' '
BCF is a good indicator of potential to accumulate in aquatic biota through uptake across an external
surface membrane.
Categorization Scheme:
BCF > 500 ... High potential
500 > BCF > 50 Moderate potential
50>BCF>5 Slight potential
BCF < 5 Nonbioaccumulative
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This scheme is used to identify chemicals that may be present in fish or shellfish tissues at higher
levels than in surrounding water. These chemicals may accumulate in the food chain and increase exposure to
higher trophic level populations, including people consuming their sport catch or commercial seafood.
(e) Biodegradation Potential
Key Parameter: Aqueous Aerobic Biodegradation Half-life (BD) (days)
Biodegradation, photolysis, and hydrolysis are three potential mechanisms of organic chemical
transformation in the environment A BD is selected to represent chemical persistence because of its
importance and the abundance of measured or estimated data relative to other transformation mechanisms,
Categorization Scheme:
BDs 7 Fast
7
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7.2.4 Assumptions and Limitations
The major assumptions and limitations associated with the data compilation and categorization
schemes are summarized in the following two sections.
(a) Data Compilation
• If data are readily available from electronic data bases, other primary and secondary sources
are not searched.
• Much of the data are estimated and, therefore, can have a high degree of associated
uncertainty.
• For some chemicals, neither measured nor estimated data are available for key categorization
parameters. In addition, chemicals identified for this study do not represent a complete set
of wastewater constituents. As a result, this study does not completely assess TEC
wastewater.
(b) Categorization Schemes
Receiving waterbody characteristics, pollutant loading amounts, exposed populations, and
potential exposure routes are not considered.
Placement into groups is based on arbitrary order of magnitude data breaks for several
categorization schemes. Combined with data uncertainty, this may lead to an overstatement
or understatement of the characteristics of a chemical.
Data derived from laboratory tests may not accurately reflect conditions in the field.
Available aquatic toxicity and bioconcentration test data may not represent the most
sensitive species.
The biodegradation potential may not be a good indicator of persistence for organic
chemicals that rapidly photoxidize or hydrolyze, since these degradation mechanisms are not
considered.
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7.3 DOCUMENTED ENVIRONMENTAL IMPACTS
State and Regional environmental agencies ate contacted, and State 304(1) Short Lists, State Fishing
Advisories, and published literature are reviewed for evidence of documented environmental impacts on
aquatic life, human health, POTW operations, and the quality of receiving water due to discharges of
pollutants from TEC facilities. Reported impacts are compiled and summarized by study site and facility.
7.4 REFERENCES
Bergstrom, J.C., 1993. Benefits and Cost Transfer in Natural Resource Planning. Sixth Interim Report
Athens, GA: University of Georgia, Department of Agricultural and Applied Economics.
Fisher, A; L. Chestnut; and D. Violette. 1989. "The Value of Reducing Risks of Death: A Note on New
Evidence." Journal of Policy Analysis and Management, Vol. 8, No. 1.
Fisher, A., and R. Raucher, 1984. "Intrinsic benefits of improved water quality: Conceptual and empirical
perspectives." In V. Kerry Smith and Anne White, Editors. Advances in Applied Microeconomics. Vol. 3,
pp. 37-66. Greenwich, CT: JAI Press.
Harpman, D.A., M.P. Welsh, and R.C. Bishop, 1994. "Nonuse economic value: Emerging policy analysis
tool." Rivers. Vol. 4, No. 4.
Howard, P.H. Editor. 1991. Handbook of Environmental Degradatin Rates. Chelsea, MI: Lewis Publishers,
Inc.
Knight-Ridder Information. 1996. Knight-Ridder Information Database - DIALOG, Knight-Ridder
Information, Inc., Palo Alto, CA.
Lyke, A. 1993. "Discrete Choice Models to Value Changes in Environmental Quality: A Great Lakes Case
Study." Thesis submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy
(Agricultural Economics) at the University of Wisconsin-Madison.
Lyman, W.J.; W.F. Reehl; and D.H. Rosenblatt 1982. Handbook of Chemical Property Estimation Methods
- Environmental Behavior of Organic Compounds. New York, NY; McGraw-Hill Book Company.
Metcalf& Eddy, Inc. 1972. Wastewater Engineering. New York, NY: McGraw-Hill Book Company.
National Oceanic and Atmospheric Administration and U.S. Environmental Protection Agency. 1989a.
Strategic Assessment of Near Coastal Waters. "Susceptibility of East Coast Estuaries to Nutrient
Discharges: Albemarle/Pamlico Sound to Biscayne Bay." Rockville, MD: Strategic Assessment Branch.
NOAA.
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National Oceanic and Atmospheric Administration and U.S. Environmental Protection Agency. 1989b.
Strategic Assessment of Near Coastal Waters. "Susceptibility of East Coast Estuaries to Nutrient
Discharges: Passamaquoddy Bay to Chesapeake Bay." Rockville, MD: Strategic Assessment Branch.
NOAA.
National Oceanic and Atmospheric Administration and U.S. Environmental Protection Agency. 1989c.
Strategic Assessment of Near Coastal Waters. "Susceptibility and Status of Gulf of Mexico Estuaries to
Nutrient Discharges." Rockville, MD: Strategic Assessment Branch. NOAA.
:•. • ' , • •'":', ' • • 'i'. !' ,. I " •- •:''•, '" '' ; • '" :••':}' ',
National Oceanic and Atmospheric Administration and U.S. Environmental Protection Agency. 1991.
Strategic Assessment of Near Coastal Waters. "Susceptibility and Status of West Coast Estuaries to Nutrient
Discharges: San Diego Bay to Puget Sound" Rockville, MD: Strategic Assessment Branch. NOAA.
U.S. Bureau of the Census. 1995. Statistical Abstract of the United States: 199S. Washington, DC: U.S.
Bureau of the Census.
U.S. Environmental Protection Agency. 1980. Ambient Water Quality Criteria Documents. Washington, DC:
U.S. EPA, Office of Water. EPA 440/5-80 Series. [Also refers to any updated criteria documents (EPA
440/5-85 and EPA 440/5-87 Series)].
U.S. Environmental Protection Agency. 1982. Fate of Priority Pollutants in Publicly-Owned Treatment
Works "50 POTW Study." Washington, DC: U.S. EPA, Office of Water. EPA 440/1-2/303.
" ;' ' : ' I'.' . ' ' , ' '','•.'.: I
U.S. Environmental Protection Agency. 1986. Report to Congress on the Discharge of Hazardous Wastes to
Pubticty-Owned Treatment Works (Domestic Sewage Study). Washington, DC: U.S. EPA, Office of Water
Regulations and Standards.
U.S. Environmental Protection Agency. 1987. Guidance Manual for Preventing Interference at POTWs.
Washington,DC: U.S.EPA.
U.S. Environmental Protection Agency. 1989a. Exposure Factors Handbook. Washington, DC: U.S.EPA,
Office of Health and Environmental Assessment EPA/600/8-89/043.
U.S. Environmental Protection Agency. 1989b. Risk Assessment Guidance for Superfund (RAGS), Volume
I, Human Health Evaluation Manual (Part A). Washington, DC: U.S. EPA, Office of Emergency and
Remedial Response. EPA/540/1-89/002. Available from NTIS, Springfield, VA. PB-90-155581.
U.S. Environmental Protection Agency. 1989c. Toxic Chemical Release Inventory - Risk Screening Guide.
Washington, DC: U.SrEPA, Office of Pesticides and Toxic Substances. EPA/560/2-89-002.
US. Environmental Protection Agency. 1990a, CERCLA Site Discharges to POTWs: Guidance Manual.
Washington, DC: U.S. EPA, Office of Emergency and Remedial Response. EPA/540/G-90/005.
U.S. Environmental Protection Agency. 1990b. National Water Quality Inventory - Report to Congress.
Washington, DC: U.S. EPA, Office of Water.
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U.S. Environmental Protection Agency. 1991& Technical Support Document for Water Quality-Based
Toxics Control. Washington, DC: U.S. EPA, Office of Water. EPA/505/2-90-001. Available from MTIS
Springfield, VA. PB91-127415.
U.S. Environmental Protection Agency. 1991b. National 304(1) Short List Database. Compiled from Office
of Water Files dated April/May 1991. Washington, DC; U.S. EPA, Office of Water.
U.S. Environmental Protection Agency. 1992a. Mixing Zone Dilution Factors for New Chemical Exposure
Assessments, Draft Report, October 1992. Washington, DC: U.S. EPA, Contract No. 68-D9-0166 Task
No. 3-35. ,
U.S. Environmental Protection Agency. 1992b. Needs Survey. Washington, DC: U.S. EPA, Office of
Wastewater Enforcement and Compliance. . . .
U.S. Environmental Protection Agency. 1993a. QSAR. Duluth,MN: U.S. EPA, Environmental Research
Laboratory. •
U.S. Environmental Protection Agency. 1993b. Environmental Assessment of the Pesticide Manufacturing
Industry. Washington, DC: U.S. EPA, Office of Water.
f
U.S. Environmental Protection Agency. 1993-1996. Permit Compliance System. Washington, DC: U.S.
EPA, Office of Wastewater Enforcement and Compliance.
U.S. Environmental Protection Agency. 1994a. Superfund Chemical Data Matrix. Washington, DC: U.S.
EPA, Office of Solid Waste.
U.S. Environmental Protection Agency. 1994b. 1994 Detailed Questionnaire for the Transportation
Equipment Cleaning Industry. Washington, DC: U.S. EPA, Office of Water, Engineering and Analysis
Division. '
U.S. Environmental Protection Agency. 1994-1996a. Industrial Facilities Discharge (IFD) Fila Washington,
DC: U.S..EPA, Office of Wetlands, Oceans, and Watersheds.
U.S. Environmental Protection Agency. 1994-1996b. Gage File. Washington, DC: U.S. EPA, Office of
Wetlands, Oceans and Watersheds.
U.S. Environmental Protection Agency. 1995a. National Risk Management Research Laboratory Data Base.
Cincinnati, Ohio: U.S. EPA, Office of Research and Development
U.S. Environmental Protection Agency. 1995b. Environmental Assessment of the Proposed Effluent
Guidelines for the Metal Products and Machinery Industry (Phase I). Washington, DC: U.S. EPA, Office of
Water.
U.S. Environmental Protection Agency. 1995c. Environmental Assessment of Proposed Effluent Guidelines
for the Centralized Waste Treatment Industry. Washington, DC: U.S. EPA, Office of Water
EPA821-R-95-003.
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U.S. Environmental Protection Agency. 1995d Standards for the Use and Disposal of Sewage Sludge: Final
Rules. 40CFRPart257etseq. Washington, DC: Federal Register. October 1995.
U.S. Environmental Protection Agency; 1995e. Regulatory Impact Analysis of Proposed Effluent Limitations
Guidelines and Standards for the Metal Products and Machinery Industry (Phase I). Washington, DC: U.S.
EPA, Office of Water. EPA/821-R-95-023.
U.S. Environmental Protection Agency. 1995f. National Listing of Fish and Wildlife Consumption
Advisories. Washington, DC: U.S. EPA, Office of Water.
U.S. EnvironmentalProtection Agency. 1996a. PATHSCAN. Washington, DC: U.S. EPA, Office of Water
WQAB Interactive Procedure.
U.S. EnviromneBtal Protection Agency. 1996b. Drinking Water Supply (DWS) File. Washington, DC: U.S.
EPA, Office of Wetlands, Oceans and Watersheds.
U.S. Environmentai Protection Agency. 1996c. Federal Reporting Data System (FRDS). Washington, DC:
US, EPA, Office of Ground Water and Drinking Water.
U.S. Environmental Protection Agency. 1997. TEC Pollutant Loading Files. Washington, DC: U.S. EPA,
Office of Water, Engineering and Analysis Division.
U.S. Department of the Interior Fish and Wildlife Service. 1991. National Survey of Fishing, Hunting and
Wildlife Associated Recreation.
Versar, Inc. 1992. Upgrade of Flow Statistics Used to Estimate Surface Water Chemical Concentrations for
Aquatic and Human Exposure Assessment Report prepared by Versar Inc. for the U.S. EPA, Office of
Pollution Prevention and Toxics.
Violette, D., and L. Chestnut 1986. Valuing Risks: New Information on the Willingness to Pay for Changes
in Fatal Risks. Report to the U.S. EPA, Washington, DC. Contract No. 68-01-7047.
l
Viscusi,K 1992. Fatal Tradeoffs: Public & Private Responsibilities for Risk. New York, NY: Oxford
University Press.
Walsh, R.; D. Johnson; and J. McKean. 1990. Nonmarket Values from Two Decades of Research on
Recreational Demand. Advances in Applied Micro-Economics, Vol. 5.
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CHAPTERS
ENVmONMENTAL ASSESSMENT AND BENEFITS ANALYSIS
8.1 OVERVIEW
The environmental assessment quantifies the water quality-related benefits for TEC facilities based
on site-specific analyses of current conditions and the conditions that would be achieved by process changes
under proposed BAT (Best Available Technology) and PSES (Pretreatment Standards for Existing Sources)
controls. The U.S. EPA estimated in-stream pollutant concentrations for 157 priority and nonconventional
pollutants from three subcategories (Truck Chemical, Rail Chemical, Barge Chemical and Petroleum) of
direct and indirect discharges using stream dilution modeling. The potential impacts and benefits to aquatic
life are projected by comparing the modeled in-stream pollutant concentrations to published EPA aquatic life
criteria guidance or to toxic effect levels.
Potential adverse human health effects and benefits are projected by: 1) comparing estimated in-
stream concentrations to health-based water quality toxic effect levels or criteria (based on a target risk of
ID"6 for carcinogens), as discussed in Sections 8.2. and 8.3 of this chapter; and 2) estimating the potential
reduction of carcinogenic risk and noncarcinogenic hazard (systemic) from consuming contaminated fish or
drinking water, discussed in Section 8.4. Upper-bound individual cancer risks, population risks, and systemic
hazards are estimated using modeled in-stream pollutant concentrations and standard EPA assumptions.
Modeled pollutant concentrations in fish and drinking water are used to estimate cancer risk (based on a
target risk of 10*6 for carcinogens) and systemic hazards among the general population, sport anglers and
their families, and subsistence anglers and their families. .
EPA uses the findings from the analyses of reduced occurrence of in-stream pollutant concentrations
in excess of both aquatic life and human health ambient water quality criteria (AWQC) or toxic effect levels
to assess improvements in recreational fishing habitats that are impacted by TEC wastewater discharges
(ecological benefits). The elimination of pollutant concentrations in excess of AWQC is expected to result in
, significant improvements in aquatic habitats. EPA evaluates these recreational benefits by applying a model
that considers the increased value of a contaminant-free fishery. The monetary value of improved
8-1
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recreational fishing opportunity is estimated by first calculating the baseline value of the receiving stream
using a value per person day of recreational fishing, and the number of person-days fished on the receiving
stream. The value of improving water quality in this fishery, based on the increase in value to anglers of
achieving contaminant-free fishing, is then calculated.
In addition the Agency expects the proposed regulation would augment "nonuse" value (e.g. option,
existence, and bequest value) of the water resources affected by TEC discharges. Nonuse benefits are not
associated with current use of the affected ecosystem or habitat, but arise rather from 1) the realization of the
improvement in the affected ecosystem or habitat resulting from reduced effluent discharges, and 2) the value
that individuals place on ibs potential for use sometime in the future. This nonuse value is also included in
this analysis; it is calculated using a conservative ratio of use to nonuse values. Improvements in aquatic
habitats, discussed in Section 8.5, are then expected to improve the quality and value of recreational fishing
opportunities and nonuse values of the receiving streams.
Potential inhibition of operations at publicly owned treatment works (POTW) and sewage sludge
contamination (thereby limiting its use for land application) are also evaluated based on current and proposed
prctreatment levels. This discussion can be found in Section 8.6 of this chapter. Inhibition of POTW
operations is estimated by comparing modeled POTW influent concentrations to available inhibition levels;
contamination of sewage sludge is estimated by comparing projected pollutant concentrations in sewage
sludge to available EPA regulatory standards. Economic productivity benefits are estimated on the basis of
the incremental quantity of sludge that, as a result of reduced pollutant discharges to POTWs, meets criteria
for the generally less expensive disposal method, namely land application and surface disposal.
la addition, the potential fate and toxicity of pollutants of concern associated with TEC wastewater
are evaluated based on known characteristics of each chemical. See Section 8.7 for this discussion. Recent
literature and studies are also reviewed and State and Regional environmental agencies are contacted for
evidence of documented environmental impacts on aquatic life, human health, POTW operations, and on the
quality of receiving water. Reported impacts are summarized in Section 8.8 of this chapter.
These analyses are performed for discharges from representative sample sets of six direct Barge
Chemical and Petroleum facilities, 40 indirect Truck Chemical facilities, 12 indirect Rail Chemical facilities,
and one indirect Barge Chemical and Petroleum facility. Results are extrapolated to the national level based
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on the statistical methodology used for estimated costs, loads, and economic impacts. This chapter provides
the results of these analyses, organized by the type of discharge (direct and indirect) and type of facility
(Truck Chemical, Rail Chemical, and Barge Chemical and Petroleum). The methodology and data used in
these analyses are described in detail in the ET^viyonmsntflll Assessment of Proposed Effluent Guidelines for
the Transnortation Eauinment Cleaning Ihdustrv
8.2 WATER QUALITY IMPACTS: DIRECT DISCHARGERS
The water quality impacts of direct TEC discharges at current and proposed BAT treatment levels
are evaluated by comparing projected in-stream pollutant concentrations with aquatic life and human health
AWQC using stream modeling techniques. Human health criteria or toxic effect levels are developed in two
ways: 1) for consumption of both water and organisms, and 2) lor consumption of organisms only. The
following sections summarize potential human health and aquatic life impacts on receiving stream water
quality for direct Barge Chemical and Petroleum dischargers.
8.2.1 Sample Set for Barge Cliemical and Petroleum Facilities '
Water quality modeling is performed for a representative sample set of six direct Barge Chemical
and Petroleum facilities discharging 60 pollutants to six receiving streams. Under the proposed BAT
regulatory option, modeled pollutant loadings are reduced 95 percent
Human Health: At current discharge levels, in-stream concentrations of two pollutants are projected
to exceed the human health criteria or toxic effect levels developed for consumption of both water and
organisms in two of the_six receiving streams. The proposed BAT regulatory option will reduce excursions
of these criteria to one receiving stream. Excursions of human health criteria or toxic effect levels developed
for consumption of organisms only are projected in one of the six receiving streams due to the discharge of
these two pollutants. The proposed BAT regulatory option will eliminate excursions of these criteria or toxic
effect levels.
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Aquatic Life: At both current and proposed BAT discharge levels, in-stream concentrations are not
projected to exceed aquatic life criteria (acute or chronic) or toxic effect levels.
8.2.2 National Extrapolation for Barge Chemical and Petroleum Facilities
Modeling results of the sample set are extrapolated to 14 Barge Chemical and Petroleum facilities
discharging the same 60 pollutants to 14 receiving streams.
1 „«',:• . ! ,. * ,, „ ;
Human Health: Extrapolated in-stream concentrations of two pollutants are projected to exceed
human health criteria or toxic effect levels developed for water and organisms consumption in six of the 14
receiving streams at current discharge levels. A total of nine excursions is projected in these streams. The
proposed regulation, will reduce these excursions to two pollutants in three receiving streams. Total
excursions will be reduced from nine to six at proposed BAT discharge levels. In addition, six excursions of
hitman health criteria or toxic effect levels developed for organisms consumption only are projected in three
of the 14 receiving streams at current discharge levels. These excursions will be eliminated at proposed BAT
discharge levels.
Aquatic Life: At both current and proposed BAT discharge levels, in-stream concentrations are not
projected to exceed aquatic life criteria (acute or chronic) or toxic effect levels. Therefore, results are not
extrapolated to the national level.
8.3 WATER QUALITY IMPACTS AND POTW IMPACTS: INDIRECT DISCHARGES
: i ' ' ' ' , ' 'I
The water quality impacts of indirect TEC discharges at current and proposed PSES treatment levels
are evaluated by comparing projected in-stream pollutant concentrations with aquatic life and human health
AWQC using stream modeling techniques. Human health criteria or toxic effect levels are developed in two
ways: 1) for consumption of both water and organisms, and 2) for consumption of organisms only. The
following sections summarize potential human health and aquatic life impacts on POTW operations and their
receiving stream water quality for indirect Truck Chemical, Rail Chemical, and Barge Chemical and
Petroleum dischargers.
. ", , . • , :, 8-4 ' ', ' '"' ;
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8.3.1 Truck Chemical Facilities
8.3.1.1 Sample Set
Water quality modeling is performed for a representative sample set of 40 Truck Chemical facilities
which discharge 80 pollutants to 35 POTWs with outfalls on 35 receiving streams. Under the proposed
pretreatment regulatory option, modeled pollutant loadings are reduced 80 percent.
Human Health: In-stream concentrations of one pollutant are projected to exceed human health
criteria or toxic effect levels in two of the 35 receiving streams at current discharge levels. This result applies
to both the criteria developed for water and organisms consumption and the criteria developed for organisms
consumption only. The proposed pretreatment regulatory option eliminates excursions of human health
criteria or toxic effect levels.
Aquatic Life: In-stream pollutant concentrations are also projected to exceed chronic aquatic life
criteria or toxic effect levels for one pollutant in eight of the 35 receiving streams at current discharge levels.
Proposed pretreatment discharge levels reduce projected excursions to this one pollutant in six of the 35
receiving streams. No excursions of acute aquatic life criteria or toxic effect levels are projected.
POTW Operations: In addition, the potential impact of the 40 Truck Chemical facilities are
evaluated in terms of inhibition of POTW operation and contamination of sludge. No inhibition or sludge
contamination problems are projected at the 35 POTWs receiving wastewater discharges.
8.3.1.2 National Extrapolation
Modeling results of the sample set are extrapolated to 288 Truck Chemical faculties discharging the
same 80 pollutants to 264 POTWs located on 264 receiving streams.
Human Health: Extrapolated in-stream pollutant concentrations of one pollutant are projected to
exceed human health criteria or toxic effect levels in 14 of the 264 receiving streams at current discharge
\ ' "
levels. This result applies to both the criteria developed for water and organisms consumption and the
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criteria developed for organisms consumption only. Excursions of human health criteria or toxic effect
levels are eliminated at the proposed pretreatment regulatory option.
Aquatic Life: Extrapolated in-stream concentrations of one pollutant are also projected to exceed
chronic aquatic life criteria or toxic effect levels in 49 of the 264 receiving streams at current discharge levels.
Proposed pretreatment discharge levels reduce excursions to one pollutant in 37 of the 264 receiving streams.
A total of 49 excursions in 49 receiving streams at current conditions will be reduced to 37 excursions in 37
receiving streams at the proposed pretreatment regulatory option.
POTW Operations: Since no .impacts at POTWs are projected for the sample set, results are not
extrapolated to the national level.
833 Rail Chemical Facilities
8.3.2.1 Sample Set
Water quality modeling is performed for a representative sample set of 12 indirect Rail Chemical
facilities that discharge 103 pollutants to 11 POTWs with outfalls on 11 receiving streams. Under the
proposed pretreatment regulatory option, modeled pollutant loadings are reduced 42 percent
Human Health: At current discharge levels, in-stream concentrations of three pollutants are
projected to exceed human health criteria or toxic effect levels developed for water and organisms
consumption in five of the 11 receiving streams. At the proposed pretreatment discharge levels, one pollutant
is projected to exceed these criteria in the five receiving streams. Excursions of human health criteria or toxic
effect levels developed-for organisms consumption only are projected for one pollutant in two of the 11
receiving streams. The proposed pretreatment regulatory option will eliminate these excursions.
Aquatic Life: la-stream concentrations of four pollutants are also projected to exceed chronic
aquatic life criteria or toxic effect levels in two of the 11 receiving streams at current discharge levels.
Proposed pretreatment discharge levels reduce projected excursions to three pollutants in one of the 11
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receiving streams. The one excursion of acute aquatic life criteria or toxic effect levels is eliminated by the
proposed pretreatment regulatory option.
POTW Operations: In addition, the potential impact of the 12 Rail Chemical facilities, which
discharge to 11 POTWs, are evaluated in terms of inhibition of POTW operation and contamination of
sludge. At current discharge levels, inhibition problems from four pollutants are projected at six of the 11
POTWs receiving wastewater discharges. The proposed pretreatment regulatory option reduces inhibition
problems to four POTWs. No sludge contamination problems are projected at the 11 POTWs receiving
wastewater discharges. ,
8.3.2.2 National Extrapolation
Modeling results of the sample set are extrapolated to 38 Rail Chemical facilities discharging the
same 103 pollutants to 37 POTWs with outfalls on 37 receiving streams.
Human Health: Extrapolated in-stream pollutant concentrations are projected to exceed human
health criteria or toxic effect levels developed for water and organisms consumption in 16 of the 37 receiving
streams at both current and proposed pretreatment discharge levels. A total of 32 excursions due to the
discharge of three pollutants will be reduced to 16 excursions due to the discharge of one pollutant
Additionally, eight excursions of human health criteria or toxic effect levels developed for organisms
consumption only are projected in eight of the 37 receiving streams. These excursions will be eliminated by
the proposed pretreatment regulatory option.
Aquatic Life: Extrapolated in-stream pollutant concentrations are also projected to exceed chronic
aquatic life criteria or texic effect levels in eight of the 37 receiving streams at current discharge levels. A
total of four pollutants at current discharge levels are projected to exceed in-stream criteria or toxic effect
levels. Proposed pretreatment discharge levels will reduce projected excursions to three pollutants in six of
the 37 receiving streams. A total of 26 excursions at current conditions will be reduced to 17 excursions as a
result of the proposed pretreatment regulatory option. The six excursions of acute aquatic life criteria or
toxic effect levels projected in six receiving streams will be eliminated by the proposed pretreatment
regulatory option.
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POTW Operations: In addition, extrapolated inhibition problems are projected at 21 of the 37 of
the POTWs receiving wastewater discharges at current discharge levels. Proposed pretreatment discharge
levels will reduce projected problems to 13 of the 37 POTWs. A total of 42 inhibition problems at current
conditions will be reduced to 34 inhibition problems as a result of the proposed pretreatment There are no
sludge contamination problems projected at any of the 37 POTWs.
8.3.3 Barge Chemical and Petroleum Facilities
8.3.3.1 Sample Set
The one indirect Barge Chemical and Petroleum facility is not being proposed for pretreatment
M! , • ' " " !" ' ',,"',! , . ,t
standards. EPA did, however, evaluate the effects of the faculty's discharge on a POTW and its receiving
stream. Water quality modeling is performed for the one indirect Barge Chemical and Petroleum facility that
discharges 60 pollutants to one POTW with an outfall on one receiving stream. Under the proposed
pretreatment regulatory option, modeled pollutant loadings are reduced 54 percent
. l|"' !| ,., ,l! " :' i1 * • ' J
Human Health: At current and proposed pretreatment discharge levels, the in-stream
concentrations are not projected to exceed human health criteria or toxic effect levels. This result applies to
both the criteria developed for water and organisms consumption and the criteria developed for organisms
consumption only.
Aquatic Life: At both current and proposed pretreatment discharge levels, no in-stream pollutant
concentrations are expected to exceed aquatic life criteria (acute or chronic) or toxic effect levels.
POTW Operations: In addition, the potential impact of the one Barge Chemical and Petroleum
facility is evaluated in terms of inhibition of POTW operations and contamination of sludge. No inhibition or
sludge contamination problems are projected at the one POTW receiving wastewater.
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8,3.3.2 National Extrapolation
Since no excursions of aquatic life and human health AWQC or impacts at POTWs are projected for
the sample set, results ate not extrapolated to the national level. ,
8.4 HUMAN HEALTH RISKS AND BENEFITS
The results of this analysis indicate the potential benefits to human health by estimating the
(carcinogenic and systemic) associated with current and reduced pollutant levels in fish tissue and drinking
water. The following two sections summarize potential human health impacts from the consumption of fish
tissue and drinking water derived from water bodies impacted by direct and indirect TEC discharges.
8.4.1 Potential Reduction of Carcinogenic Risk
The excess annual cancer cases at current discharge levels and, therefore, at proposed BAT and
proposed pretreatment discharge levels are projected to be far less than 0.5 for all populations evaluated from
the ingestion of contaminated fish and drinking water for both direct and indirect TEC (Truck Chemical, Rail
Chemical, and Barge Chemical and Petroleum) wastewater discharges. A monetary value of this benefit to
society is, therefore, not projected.
8.4.2 Potential Reduction of Noncarcinogenic (Systemic) Hazard
Systemic'toxicant effects are projected from fish consumption only for indirect Truck Chemical
discharges. For Truck Chemical discharges (sample set), systemic effects are projected to result from the
discharge of one pollutant to seven receiving streams at current discharge levels. An estimated population of
4,284 subsistence anglers and their families are projected to be affected at current discharge levels. At
proposed pretreatment discharge levels, systemic effects are projected to result from the discharge of one
pollutant to three receiving streams. The affected population is reduced to 687 subsistence anglers and their
families. When results are extrapolated to the national level, an estimated population of 14,173 subsistence
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anglers and their families are projected to be affected from the discharge of one pollutant to 39 receiving
streams at current discharge levels. As a result of the proposed pretreatment regulatory option, the affected
population is reduced to 3,492 (on 16 receiving streams). Monetary values for the reduction of systemic
toxic effects cannot currently be estimated.
8.5 ECOLOGICAL BENEFITS
Potential ecological benefits of the proposed regulation, based on improvements in recreational
fishing habitats, are projected for only direct Barge Chemical and Petroleum wastewater discharges and
indirect Truck Chemical wastewater discharges. The proposed regulation is not projected to completely
eliminate in-stream concentrations in excess of aquatic life and human health AWQC in any stream receiving
wastewater discharges from indirect Barge Chemical and Petroleum and indirect Rail Chemical facilities.
Results of the analysis, including non-monetizable benefits are presented in the following sections.
8.5.1 Direct Barge Chemical and Petroleum Discharges
For the direct Barge Chemical and Petroleum sample set, concentrations in excess of AWQC are
projected to be eliminated at one receiving stream as a result of the proposed BAf regulatory option. The
resulting estimate of the increase in value of recreational fishing to anglers on the improved receiving stream
is $54,400 to $194,000 (1994 dollars). Based on extrapolated data to the national level, the proposed
regulation is projected to completely eliminate in-stream concentrations in excess of AWQC at three
receiving streams. The resulting estimate of the increase in value of recreational fishing to anglers ranges
from $157,000 to $562,000.
Individuals who never visit or otherwise use a natural resource might nevertheless be affected by
changes in its status or quality. For this analysis, EPA conservatively estimated that nonuse benefits
compose one-half of recreational fishing benefits. The resulting estimate of the nonuse value of the proposed
BAT regulatory option on the improved receiving stream is $27,200 to $97,000 (1994 dollars). Based on
extrapolated data to the national level, the resulting increase in nonuse value ranges from $78,500 to
$281,000 (1994 dollars).
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8.5.2 Indirect Truck Chemical Discharges
For the indirect Truck Chemical sample set, concentrations in excess of AWQC are projected to be
eliminated at two receiving streams as a result of the proposed pretreatment regulatory option. The resulting
estimate of the increase in value of recreational fishing to anglers on the improved receiving streams is
$248,000 to $886,000 (1994 dollars). Based on extrapolated data to the national level, the proposed
regulation is projected to completely eliminate in-stream concentrations in excess of AWQC at 12 receiving
streams. The resulting estimate of the increase in value of recreational fishing to anglers ranges from
$1,494,000 to $5,334,000.
Individuals who never visit or, otherwise use a natural resource might nevertheless be affected by
changes in its status or quality. For this analysis, EPA conservatively estimated that nonuse benefits
compose one-half of recreational fishing benefits. The resulting estimate of the nonuse value of the proposed
PSES regulatory option on the improved receiving streams is $124,000 to $443,000 (1994 dollars). Based
on extrapolated data to the national level, the resulting increase in nonuse value ranges from $747,000 to
$2,667,000 (1994 dollars).
8.5.3 Non-monetizable Benefits
The estimated benefit of improved recreational fishery opportunities is only a limited measure of the
value to society of the improvements in aquatic habitats expected to result from the proposed regulation.
Additional benefits, which could not be quantified in this assessment, include increased assimilation capacity
of the receiving stream, protection of terrestrial wildlife and birds that consume aquatic organisms,
maintenance of an aesthetically pleasing environment, and improvements to other recreational activities such
as swimming, water siding, boating, and wildlife observation. Such activities contribute to the support of
local and State economies.
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8.6 ECONOMIC PRODUCTIVITY BENEFITS
Potential economic productivity benefits, based on reduced sewage sludge contamination and sewage
sludge disposal costs, are evaluated at POTWs receiving the wastewater discharges from indirect TEC
i
facilities. No sludge contamination problems are projected at the 35 POTWs receiving wastewater from 40
Truck Chemical facilities, at the 11 POTWs receiving wastewater from 12 Rail Chemical facilities, or at the
one POTW receiving wastewater from the one Barge Chemical and Petroleum facility. Therefore, no
economic productivity' benefits are projected as a result of the proposed regulation.
8.7 POLLUTANT FATE AND TOXKTTY
Human exposure, ecological exposure, and risks from environmental releases of toxic chemicals
depend largely on toxic potency, inter-media partitioning, and chemical persistence. These factors are
dependent on chemical-specific properties relating to physical state, hydrophobicity/lipophilicity, reactivity,
and lexicological effects on living organisms. For example, volatile pollutants potentially cause risk to
exposed populations via inhalation, and pollutants with high potential to bioaccumulate in aquatic biota
potentially accumulate in the food chain and can cause increased risk to higher trophic level organisms and to
exposed human populations via consumption offish and shellfish. They are also dependent on the media of
release and site-specific environmental conditions. The following sections present the potential fate and
toxicity of pollutants discharged by Truck Chemical, Rail Chemical, and Barge Chemical and Petroleum
facilities, as well as a discussion on pollutants not evaluated in the environmental assessment •
8.7.1 Truck Chemical Discharges
EPA identified 86 pollutants of concern (priority, nonconventional, and conventional) in waste
streams from Truck Chemical facilities. Most of the 86 pollutants have at least one known toxic effect
Based on available physical-chemical properties and aquatic life and human health toxicity data for these
pollutants, 32 exhibit moderate to high toxicity to aquatic life; 52 are human systemic toxicants; 19 are
classified as known or probable carcinogens; 29 have drinking water values; and 25 are designated by EPA as
priority pollutants. In terms of projected environmental partitioning among media, 28 of the evaluated
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pollutants are moderately to highly volatile; 46 have a moderate to high potential to bioaccumulate in aquatic
biota; 29 are moderately to highly adsorptive to solids; and 21 are resistant to biodegradation, or are slowly
biodegraded.
8.7.2 Rail Chemical Discharges
EPA identified 106 pollutants of concern (priority, nonconventional, and conventional) in waste
streams from Rail Chemical facilities. Most of the 106 pollutants have at least one known toxic effect.
Based on available physical-chemical properties and aquatic life and human health toxicity data for these
pollutants, 55 exhibit moderate to high toxicity to aquatic life; 62 are human systemic toxicants; 28 are
classified as known or probable carcinogens; 22 have drinking water values; and 23 are designated by EPA as
priority pollutants. In terms of projected environmental partitioning among media, 22 of the evaluated
pollutants are moderately to highly volatile; 64 have a moderate to high potential to bioaccumulate in aquatic
biota; 48 are moderately to highly adsorptive to solids; and 43 are resistant to biodegradation, or are slowly
biodegraded.
8.7.3 Barge Chemical and Petroleum Discharges
. \
/ '
EPA identified 67 pollutants of concern (priority, nonconventional, and conventional) in waste
streams from Barge Chemical and Petroleum facilities. Most of the 67 pollutants have at least one known
toxic effect Based on available physical-chemical properties and aquatic life and human health toxicity data
for these pollutants, 20 exhibit moderate to high toxicity to aquatic life; 10 are classified as known or
probable human carcinogens; 33 are human systemic toxicants; 23 have drinking water values; and 25 are
designated by EPA as priority pollutants. In terms of projected partitioning, 27 of the evaluated pollutants
are moderately to highly volatile; 29 have a moderate to high potential to bioaccumulate in aquatic biota; 24
are moderately to highly adsorptive to solids; and eight are resistant to biodegradation, or are slowly
biodegraded.
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8.7.4 Pollutants Not Included in the Environmental Modeling
The impacts of three conventional and four nonconventional pollutants are not evaluated when
modeling the effect of the proposed regulation, on receiving stream water quality and POTW operations or
when evaluating the potential fate and toxicity of discharged pollutants. These pollutants are total suspended
solids (TSS), 5-day biological oxygen demand (BOD5), total recoverable oil and grease, chemical oxygen
demand (COD), total dissolved solids (TDS), total organic carbon (TOC), and total petroleum hydrocarbons.
The discharge of these pollutants can have adverse effects on human health and the environment For
example, habitat degradation, can result from increased suspended paniculate matter that reduces light
penetration, and thus primary productivity, or from accumulation of sludge particles that alter benthic
spawning grounds and feeding habitats. Oil and grease can have lethal effects on fish, by coating surface of
gills causing asphyxia, by depleting oxygen levels due to excessive biological oxygen demand, or by reducing
stream, reaeration because of surface film Oil and grease can also have detrimental effects on water fowl by
destroying the buoyancy and insulation of their feathers. Bioaccumulation of oil substances can cause human
health problems including tainting offish and bioaccumulation of carcinogenic polycyclic aromatic
compounds. High COD and BOD5 levels can deplete oxygen concentrations, which can result in mortality or
other adverse effects on fish. High TOC levels may interfere with water quality by causing taste and odor
problems and mortality in fish.
8.8 DOCUMENTED ENVIRONMENTAL IMPACTS
Documented environmental impacts on aquatic life, human health, POTW operations, and receiving
stream water quality are also summarized in this assessment The summaries are based on a review of
published literature abstracts, State 304(1) Short Lists, State Fishing Advisories, and contact with State and
Regional environmental agencies. Five POTWs receiving the discharge from four Truck Chemical facilities
and one Rail Chemical facility are identified by States as being point sources causing water quality problems
and are included on their 304(1) Short List All POTWs listed currently report no problems with TEC
wastewater discharges. Past and potential problems are reported by the POTWs for oil and grease, pH, TSS,
surfactants, gfycol ethers, pesticides and mercury. Several POTW contacts stated the need for a national
effluent guidelines for the TEC industry.
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Current and past problems (violation of effluent limits, POTW pass-through and interference
problems, POTW sludge contamination, etc.) caused by direct and indirect discharges from all three
subcategories of TEC facilities (Truck Chemical, Rail Chemical and Barge Chemical and Petroleum) are also
reported by State and Regional contacts in seven regions. Pollutants causing the problems include BOD,
cyanide, hydrocarbons, metals (copper, chromium, silver, zinc), oil and grease, pesticides, pH, phosphorus,
styrene, surfactants, and TSS. In addition, one Barge Chemical and Petroleum facility and 19 POTWs
receiving wastewater discharges of 20 Truck Chemical and two Rail Chemical facilities are located on water
bodies with State-issued fish consumption advisories. However, the vast majority of advisories are based on
chemicals that are not pollutants of concern for the TEC industry.
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CHAPTER9
COSTS AND BENEFITS OF THE TEC INDUSTRY PROPOSED RULE
9.1 INTRODUCTION
9.1.1 Requirements of Executive Order 12366
This chapter has been prepared to comply with Executive Order 12866, which requires federal
agencies to assess the costs and benefits of each significant rule they propose or promulgate. A significant
rule is one that has an associated annual cost of at least $ 100 million. The proposed option does not meet the
definition of a significant rule; however, EPA is responsive to the requirements of Executive Order 12866
and prepared an assessment of the social costs and benefits of the proposed option.
The Executive Order principally requires that EPA identify the need for the rule, compare the
benefits of the regulation to the costs of the regulation, and analyze alternative approaches to the rule.
Wherever possible, the costs and benefits of the rule are to be expressed in monetary terms. To address the
analytical requirements specified by the Executive Order, Section 9.2 discusses the social costs of the rule
and Section 9.3 compares cost and benefits. Chapter 8 discusses the benefits associated with the proposed
TEC industry effluent limitations guidelines, Chapter 2 profiles the industry; Chapter 4 presents technology
options and regulatory alternatives; and Chapter 5 discusses the impacts of the rule and its alternatives.
Section 9.1,2, below, presents the need for the regulation.
9.1.2 Need for the Regulation
Executive Order 12866 requires that EPA identify the need for the regulation being proposed The
discharge of pollutants into effluent and ultimately into surface water pose a threat to human health and the
environment. Risks from these discharges include the potential for cancer and other adverse noncancer health
effects and degradation of the environment These discharges may also cause inhibition problems at POTWs.
This section discusses: 1) the reasons the marketplace does not provide for adequate pollution control absent
appropriate incentives or standards, 2) the environmental factors that indicate the need for additional
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pollution controls for this source category, and 3) the legal requirements that dictate the necessity for and
timing of this regulation.
The need fat effluent limitations guidelines for this source category arises from the failure of the
marketplace to provide the optimal level of pollution control desired by society. Correction of such a market
failure can require federal regulation. The Office of Management and Budget (OMB) defines market failure
as the presence of externalities, natural monopolies, and inadequate information (Katzen, 1996). This section
addresses the category of externalities, which is the category of market failure most relevant to the general
case of environmental pollution.
The concept of externalities partially explains the discrepancy between the supply of pollution
control provided by owners and operators of pollution sources and the level of environmental quality desired
by society. The case of environmental pollution can be classified as a negative externality because it is an
unintended byproduct of production that creates undesirable effects on human health and the environment
In making production decisions, owners and operators will consider only those costs and benefits that
accrue to their business (i.e., internalized cost and benefits); however, the cost of environmental pollution is
not assumed solely by the creators of the pollution. All individuals in the polluted area share the social cost of
exposure to the pollution. Although owners and operators might be the creators of pollution, they do not
exclusively bear the full costs of the pollution. Government regulation is an attempt to internalize the costs of
pollution.
> •
If those affected by a particular pollution source could negotiate with the those responsible for that
source, the two parties could negotiate among themselves to reach an economically efficient solution. The
solution would be efficient because it would involve only those who are affected by the pollution, m effect,
the solution would involve the trading of pollution and compensation among the owner or operator and those
affected by that pollution.
Individual negotiation often does not occur in an unregulated market because of high transaction
costs, even if trade among the affected parties would be beneficial to all parties involved. For the majority of
environmental pollution cases, the costs of identifying all the affected individuals and negotiating an
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agreement among those individuals is prohibitively high. Another obstacle preventing negotiations from
taking place is that our current market system does not clearly define liability for the effects of pollution.
/
In the case of environmental quality, an additional problem is the public nature of this "good."
Environmental quality is a public good because it is predominantly nonexcludable and nonrival. Individuals
/ •
who willingly pay for reduced pollution cannot exclude others who have not paid from also enjoying the
benefits of a less polluted environment Because many environmental amenities are nonexcludable,
individuals utilize but do not assume ownership of these goods, and therefore will not invest adequate
resources in their protection. In the absence of government intervention, the free market will not provide .
public goods, such as a clean environment, at the optimal quantity and quality desired by the general public.
In the TEC industry, the result of the market's failure to promote water pollution control is that
pollution of the nation's surface waters and ground waters is not controlled to the optimal level. Certain
subcategories within this industry release significant amounts of pollutants to surface waters and wastewater
treatment sludges through wastewater treatment plants. Despite state and local regulatory programs, many
areas are still adversely affected by pollutant discharges by this industry.
The regulation is proposed under the authorities of Sections 301,304,306,307, and 501 of the
Clean Water Act (the Federal Water Pollution Control Act Amendment of 1972,33 U.S.C. 1251 et seq., as
amended by the Clean Water Act of 1987, Pub. L. 100-4, also referred to as the CWA or the Act).
SOCIAL COSTS OF THE RULE
In the Development Document (U.S. EPA, 1998), EPA developed annual costs of the rule based on
the costs of labor, equipment, material, and other resources needed for regulatory compliance. Although
these costs are a major portion of the costs to society of the proposed regulation, they are not the only costs.
The costs investigated earlier in this document reflect the costs from the perspective of the regulated
community, not from the perspective of the whole society. In this section, EPA estimates the social cost of
the regulation, including the costs to society for the resources needed to comply with the proposed regulation,
and other significant cost categories, described brieffy below.
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9.2.1 Cost Categories
Social costs of a regulation comprise costs that go beyond compliance costs, the costs of purchasing,
installing., and operating pollution control equipment Some of these additional costs are monetary, but many
are nonmonetary. Additional monetary costs include the costs of administering a regulation and the costs of
administering unemployment benefits (unemployment benefits themselves are transfer payments, not a cost)
including the cost of relocating displaced workers. Additional nonmonetary costs include the inconvenience,
discomfort, and time loss associated with unemployment, possible losses in consumer and producer
surpluses, and possible slowdown in the rate of innovation. This section discusses in more detail the types of
costs that may be components of a social cost estimate. Section 9.2.2 presents the estimates for the cost
categories to which EPA could assign monetary values.
9.2.1.1 Compliance Costs
The largest component of social cost is the cost to the TEC industry of complying with the
regulation. These costs have been discussed in Chapter 5 and reflect the cost of upgrading all facilities to
meet effluent limitations guidelines. Chapter 5 includes post-tax and pre-tax annualized costs. Post-tax costs
measure the costs to industry after compliance costs have been expensed or depreciated for tax purposes and
income taxes have been paid on earnings. Post-tax costs reflect the tax shield on compliance costs and reflect
the costs the industry would incur to respond to the rule. The tax shield is the cost to the state and federal
governments of subsidizing, in effect, the cost of the regulation. Tax shields are also a cost to society and
must be included in the estimate of social costs. Pre-tax costs, then, are an appropriate measure for
„ ' '..if'",'1 ' ' ' "i, I1 • :•,, ,,•,•'. i ' ' i : . " i ' • , i
estimating the social costs. In addition, because the costs to society are being calculated in this section, EPA
uses the social discount rate of 7 percent, as recommended by OMB (Katzen, 1996) rather than the private
discount rate (although the average private rate is almost identical to the social discount rate in this instance).1
1 The annualized costs presented in Table 5-1 were calculated using the facility specific discount, not
the social discount rate.
9-4
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9.2.1.2 Administrative Costs
Implementing the proposed TEC industry effluent limitations guidelines and standards \villrequke
permitting authorities incur costs for -writing, monitoring, and enforcing permits under the regulation. These
s • ' ' .
administrative costs add to the resource cost of regulatory compliance and are part of the total social cost of
the regulation. Sections 9.2.2.2 and 9.2.2.3 present the methodology and estimates for administrative costs of
the proposed rule.
9.2.1.3 Worker Dislocation and Benefit Administration Costs
Because no faculties are projected to close as a result of the costs of the proposed regulation, neither
worker dislocation nor unemployment benefit administrative costs associated with facility closures have to be
considered. Secondary impacts analysis projects that the change TEC industry employment ranges from a
gain of 85 employees to a loss of 447 (Section 5.5). The unemployment administrative cost associated with
this impact is simply the cost of processing unemployment claims multiplied by the number of unemployed
workers. As mentioned earlier, the unemployment benefits themselves are a transfer payment, not a net loss
to society.
EPA believes the total pre-tax annualized cost of the regulation, annualized at the social rate of
return, provides the best measure for the social cost of the regulation, which can be estimated as the loss in
consumer and producer surplus plus the social cost of worker dislocation (U.S. EPA, 1995). Figure 9-1
illustrates the regulatory impact on the market supply of tank cleanings. The total loss in consumer and
producer surplus is represented by the rectangle (P1 minus P2) times Q1 (areas a and b) plus the triangle
represented by areas c and d. Total pre-tax annualized costs are represented by the larger rectangle (P1 minus
P2) times Q* (sum of areas a through f), thus pre-tax costs overstate the loss in consumer and producer
surplus by the area of triangles e and f.
> '
Note, however, that the loss in consumer and producer surplus is measured by changes in market
transactions. The TEC industry contains a significant number of in-house facilities that do not participate in
the commercial TEC market. The outsourcing component of the market model projects no output loss in the
in-house sector (Section 5.2). If the imposition of regulatory control costs (i.e., a decrease in supply) causes
9-5
-------
Price
SI
} per unit compliance costs
S
Ql Q*
Tanks Cleaned
Figure 9-1
Total Pre-tax Annualized Compliance Costs
9-6
-------
no change in output, the implicit supply curve for in-house facilities is perfectly inelastic. Pre-tax annualized
costs for in-house facilities are then identical to their loss in producer surplus. There is no loss in consumer
surplus layoffs, so no worker dislocation costs exist Furthermore, the loss in producer surplus is not a net
loss to society, but a transfer from the TEC industry to the producers of wastewater treatment systems.
In the commercial market, the social cost of worker dislocation is not easily measured. An initial
attempt was made by Anderson and Chandran (1987). This study is flawed by its reliance on measures of
workers' willingness to pay to avoid a small increase in the probability of unemployment. When this measure
is extrapolated out to estimate willingness to pay to avoid 100 percent probability of unemployment, the
conclusion is reached that workers are willing to pay up to three times their annual salary in order to avoid
100 percent probability of job loss. Logic suggests that workers' willingness to pay to avoid job loss should
be a fraction of their annual salary rather than a multiple of it Workers may be willing to accept a lower
wage in order to avoid losing their job, but they would not be willing to pay their employer to allow them to
work
The pre-tax social cost of the regulation contains components that may be used as proxies for the
social cost of worker dislocation. In Figure 9-1, the pre-tax social cost of the regulation is measured by the
rectangle (P1 minus P2) times Q*; as discussed above, the loss in consumer and producer surplus is
overestimated by the triangle above the demand curve (area e) and the triangle below the supply curve (area
f). At least some of the worker dislocation costs are accounted for by these two triangles. In addition, the
rectangle (P1 minus P2) times Q1 (areas a and b) represent the increase in demand for wastewater treatment
capital equipment, maintenance, and operating materials. Thus, the social dislocation of TEC workers is at
least partially offset by the benefits accruing to newly employed workers in other industries not accounted for
by this measure of the social cost of the regulation. ,
In summary: •
• Because there is no change in in-house facility output:
The pre-tax annualized social cost of the regulation is identical to the loss in producer
surplus. ,
There are zero worker dislocation costs.
9-7
-------
The loss in producer surplus is a transfer payment to other industries, not a net loss to
society.
The existing methodology for calculating the social dislocation cost of worker
unemployment is seriously flawed.
In the commercial sector, the pretax annualized social cost of the regulation overestimates
the loss in producer and consumer surplus, thus providing a proxy for some social
dislocation cost of worker unemployment
The pre-tax annualized social cost of the regulation takes no account of the benefits of
offsetting output and employment gains in industries providing wastewater treatment
services and equipment
EPA believes that the pre-tax social cost of the regulation is the best proxy for the social cost of the
regulation.
9.2.1.4 Nonmonetary Costs
The cost estimate section does not disciiss the cost associated with a slowdown in the rate of
innovation. Monetizing the loss associated with a slowdown in the rate of innovation is a very difficult task
This industry, however, does not have a high rate of innovation. Much of the technology currently in use is
Very old, and there has not been a major trend toward innovative technology. In addition, most likely,
facilities with in-house TEC operations would focus on innovations in their primary business rather than TEC
operations; nevertheless, the rule might have some, although slight, impact on the rate of innovation. The
industry might invest in newer technologies if it does not have to allocate resources to meeting the
requirements of the proposed TEC standards.
9-8
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9.2.2 Estimate of Social Costs
9.2.2.1 Costs of Compliance
\
Table 9-1 presents the capital and annual costs for the proposed option for each regulated
subcategory. As described above, an OMB-recommended 7 percent real discount rate is used to annualize the
costs. 'The proposed rule has a pre-tax aromatized compliance cost of $34 million.
9.2.2.2 Administrative Costs
EPA used the methodology developed for the Metal Products and Machinery (MP&M) effluent
guideline to estimate administrative costs of the proposed rule (U.S. EPA, 1995). EPA estimated the
incremental administrative costs of administering the regulation for these facilities in the following five
categories:
• Permit application and issuance (developing and issuing either concentration-based or mass-
based permits, providing technical guidance, conducting public hearings, and conducting
evidentiary hearings)
• Inspection (conducted for initial permit development or subsequent inspection)
• Monitoring (sampling and analyzing permittee's effluent; reviewing and recording
permittee's compliance self-monitoring reports; receiving, processing, and acting on a
permittee's non-compliance reports; and reviewing a permittee's compliance schedule report
for a permittee in compliance and a permittee not in compliance)
• Repermitting ,
» Enforcement
Although other administrative costs (e.g., identifying facilities to be permitted, providing technical guidance
to permittees in years other than the first year of the permit, and repennitting a facility in significant
noncompliance) might be incurred infrequently by some POTWs, EPA believes the above five categories
captures the bulk of the administrative burden of the proposed rule.
9-9
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TABLE 9-1
SOCIAL COST OF COMPLIANCE
Proposed
Subcategory Option
Tank Truck 2
Chemical
RailTank 1
Chemical
Tank Barge 1
Chemical
Sum
Costs ($1994)
Captial
$53,634,936
$4,400,575
$3,181,339
$61,216,850
O&M
$24,733,050
$1,362,020 .
$1,893,814
$27,988,884
Annualized
$30,358,466
$1,824,977
$2,226,582
$34,410,025
9-10
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Table 9-2 lists permitting activities and their associated costs and assumptions: The proposed rule
incorporates mass-based permits and the costs reflect this basis for the permit EPA adjusted the costs from-;
1989 dollars, as presented in U.S. EPA, 1995, to 1994 dollars by using the change in the Producer Price
Index (CEA, 1997). ,
The administrative cost estimate assumptions specific to the proposed TEC rule include:
EPA does not expect the administrative costs associated with the NPDES industrial permit
program to increase as a result of the proposed TEC rule. All faculties in the Tank Barge
Chemical and Petroleum subcategory are direct dischargers; therefore, there are no
incremental administrative costs exist for this subcategory. Administrative costs for this
subcategory may decrease because the technical guidance provided by EPA as a component
of the rule may provide information to the permitting authorities that is likely to reduce the
research required to develop permits. These cost savings have not been estimated and are
not included in the administrative costs of the rule.
All 326 estimated facilities in the Rail Chemical and Truck Chemical subcategories are
assumed to bear the costs of issuing a mass-based permit to a previously unpermitted
facility. This is conservative because approximately 22 of the 38 Rail Chemical and 180 of
the 288 Truck Chemical facilities have some type of wastewater permit These permits may
vary widely in form and function, but it is assumed that they are generally not of the scope
mandated by the federal pretreatment standard permit system.
All 326 estimated facilities are assumed to incur permitting costs in the first year. This is a
conservative assumption. Spreading the one-time costs of initial permits over a multi-year
compliance schedule would lower the annualized costs.
The frequency and percent of facilities associated with certain permitting activities varies by the amount of
wastewater generated (see U.S. EPA, 1995 for details). Table 9-3 summarizes the facility counts by flow
category.
Table 9-4 summarizes the number of facilities incurring costs by activity for a 16-year period
following promulgation of the rule. The 16-year period is consistent with the period used in the cost
annualization model for the compliance costs. The only change is the use of the 7 percent real social discount
rate for calculating the present value and annualized cost EPA used the information in Tables 9-2 and 9-4 to
calculate low, average, and high estimates for administrative costs of the proposed rule. The estimated
average annualized cost of $569,512 is used in the social cost (Table 9-5). Even with the conservative
9-11
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TABLE 9-2
ADMINISTRATIVE COST COMPONENTS AND FREQUENCY
PER FACILITY
Percent of Facilities
for Which Activity
Activity
Develop and issue a mass-based
permit at a. previously
unpennitted facility
Provide technical guidance
Conduct a public bearing
Conduct an evidentiary hearing
Permittee Inspection
Flow<= 1 milliongal/yr
Flow> 1 million gal/yr
Sample and Analyze Permittee's Effluent
Flow<= 1 million gal/yr
Flow> 1 million gal/yr
Review and Data Entry of Permittee's
Self-monitoring Reports
Flow<= 1 million gal/yr
Flow> 1 million gal/yr
Receive, Process, and Act on a
Permittee's Non-compliance Reports
Flow < 6.25 million gal/yr
Flow = > 6.25 million gal/yr
Review a Compliance Report for a
Permittee Meeting Milestones
Flow < 6.25 million gal/yr
Flow= > 6.25 million gal/yr
Review a Compliance Schedule Report
Permittee Not Meeting Milestones
Minor Enforcement Action, e.g.,
Issue an Administrative Order
Minor Enforcement Action, e.g.,
Impose an Adminstrative Fine
Repermit
Frequency
1 time
1 time
1 time
Itime
every 5 years
annual
every 5 years
annual
every 5 years
annual
annual
1.5 reports
a year
1.5 reports
a year
annual
annual
every 5 years
is Required
100%
100%
5%
5%
100%
100%
100%
10%
30%
1
90%
95%
20%
10%
5%
100%
Cost Estimates ($1994)
Low
$345
$40
$1,182
$9,851
' $55
$320
$30
$118
$8
$118
$315
$3,152
$40
Average
$966
$197
$1,576
$13,792
$500
$766
$40
$138
$10
$158
$631
$4,728
$296
High
$1,576
$355
$1,970
$17,731
$946
$1,476
$50
$158
$12
$197
$946
$6,305
$551
Sources: EPA, 1995, AppendixE and CEA, 1997, TableB-63.
9-12
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TABLE 9-3
FACILITY COUNTS BY FLOW CATEGORY
Flow
Number of Facilities [1]
Rail Tank Tank Truck
Chemical Chemical
Total
Less than 1 million.
gallons per year
Between 1 and 6.25
million gallons per year
At least 6.25
million gallons per year
Total
16
15
38
66
194
29
288
82
208
36
326
Numbers may not sum to total due to rounding.
[1] Based on detailed questionnaire data.
9-13
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9-14
-------
TABLE 9-5
ADMINISTRATIVE COST OF THE REGULATION
Estimate
Annualized Administrative
Cost of the Proposed Rule
($1994)
Low
Average
High
$225,189
$569,512
$988,566
9-15
-------
assumptions used in the analysis, administrative costs ate less than 2 percent of the estimated compliance
costs. " .... • • . i • .
9.2.2.3 Cost of Administering Unemployment Benefits
Based on data from the Interstate Conference of Employment Security Agencies, the average
administrative cost per worker of processing unemployment claims was $93.25 in 1989. This cost reflects
only the administrative cost of processing claims; unemployment benefits are not included because they are a
transfer payment, not a net cost The cost per unemployment claim was inflated to $109.78 in 1994 dollars
using the GDP deflator. This figure is multiplied by the number of unemployed workers and the resulting
cost is annualized at the 3 percent opportunity cost of deferred consumption over the 16 years of the project
life (U.S. EPA, 1995). Total annualized costs of administering unemployment benefits range
from$0-$5,231.2
93 COMPARISON OF ESTIMATED COSTS AND BENEFITS
Table 9-6 presents the social costs and benefits of the proposed rule. As the table shows, the
proposed TEC industry options are associated with costs totaling $35 million, with total benefits ranging
from $2.5 million to $8.8 million. The benefits estimate does not include the dollar value of many important
benefits for which monetized estimates could not be developed. Examples of nonmonetized benefit
categories include: Noncancer related health benefits, reduced POTW maintenance, reduced costs for POTWs
to write individual permits, enhanced diversionary uses, improved aesthetic water quality near discharge
outfalls, enhanced water-dependent recreation other than fishing, benefits to wildlife or endangered species,
tourism benefits, and biodiversity benefits.
2 Because other costs and benefits are estimated to the nearest $100,000, the entry for Table 9-6 for
the Total Social Cost of the regulation is unchanged.
9-16
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TABLE9-6
TOTAL COSTS AND BENEFITS OF THE PROPOSED TEC RULE
(Millions $1994)
Type of Cost or Benefit
Compliance Costs
Administrative Costs
Administrative Costs of Unemployment
Total Social Costs
Total Social Costs or Benefits
$34.4
$0.6
$0.0 -$0.005
$35.0
f f *
' ,, <.'"•', '•
Human Health Benefits
Recreational Benefits1
Truck-Chemical
Barge-Chemical
Nonuse Benefits
Truck-Chemical
Barge-Chemical
Total Benefits
$1.5 -$5.3
$0.2 -$0.6
$0.7-$2.7
$0.1 -$0.3
$2.5 - $8.8
Numbers may not sum to totals due to rounding.
Source: Briefing Package
^proved recreational value for Rail-Chemical cited only for Option 3 (not selected).
9-17
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9.4 REFERENCES
Anderson and Chandran. 1987. Anderson, D. W. and R. V. Chandran. Market estimates of worker
dislocation costs. Economics Letters. 24:381-384.
CEA. 1997. Economic report to the president Table B-63. Washington, DC: Council of Economic
Advisors. February.
Katzen. 1996. Katzen, Sally. Economic analysis of federal regulations under Executive Order No. 12866.
Memorandum from Sally Katzen, OMB, to members of the regulatory working group. Washington, DC:
Office of Management and Budget January 11.
U.S. EPA. 1995. Regulatory impact analysis of proposed effluent limitations guidelines and standards for
the metal products and machinery industry (phase I). Appendix E. EPA 821-R-95-023. Washington, DC:
U.S. Environmental Protection Agency, Office of Water. April.
U.S. EPA. 1998. Development document for the proposed effluent limitations guidelines and standards for
the transportation equipment cleaning industry. EPA-821-B-98-011. Washington, DC: U.S. Environmental
Protection Agency, Office of Water. May.
9-18
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CHAPTER 10
UNFUNDED MANDATESREFORM ACT
Title H of the Unfunded Mandates Reform Act of 1995 (Public Law 104-4; UMRA) establishes
requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal
governments as well as the private sector. Under Section 202(a)(l) of UMRA, EPA must generally prepare a
written statement, including a cost-benefit analysis, for proposed and final regulations that "includes any
Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate or
by the private sector" of annual costs in excess of $100 million.1 As a general matter, a federal mandate
includes Federal Regulations that impose enforceable duties on State, local, and tribal governments, or on the
private sector (Katzen, 1995). Significant regulatory actions require Office of Management and Budget
review and the preparation of a Regulatory Impact Assessment that compares the costs and benefits of the
action.
The proposed TEC industry effluent limitations guidelines are not an unfunded mandate on state,
local, or tribal governments because the cost of the regulation is borne by industry. .The proposed rule does
not impose total costs in excess of $100 million/year. EPA, however, is responsive to all required provisions
of UMRA. In particular, the Economic Analysis (EA) addresses:
• Section 202(a)(l)—authorizing legislation (see EA Chapter 1 and the preamble to the rule);
• Section 202(a)(2)—a qualitative and quantitative assessment of the anticipated costs and
benefits of the regulation, including administration costs to state and local governments (see
EA Chapters 5 and 8);
• Section 202(a)(3XA)—accurate estimates of future compliance costs (as reasonably
feasible; see EA Chapter 5);
• Section 202(a)(3)(B>—disproportionate effects on particular regions or segments of the
private sector. No TEC faculties are projected to close as a result of the costs of the
proposed option (see EA Chapter 5); therefore there are no disproportionate effects on
particular regions or segments of the private sector;
1 The $100 million in annual costs is the same threshold that identifies a "significant regulatory action"
hi Executive Order 12866.
10-1
-------
• Section 202(aX3)(B)—-disproportionate effects on local communities (see EA Chapter 6).
No TEC facilities are projected to close as a result of the costs of the proposed option (see
Chapter 5); therefore there are no disproportionate effects on local governments;
• Section 202(a)(4)—estimated effects on the national economy (see EA Chapter 5);
• Section 205(a)—least burdensome option or explanation required (this chapter).
The preamble to the proposed rule summarizes the extent of EPA's consultation with stakeholders including
industry, environmental groups, states, and local governments (UMRA, sections 202(a)(5) and 204).
Because this rule does not "significantly or uniquely" affect small governments, section 203 of UMRA does
not apply.
Pursuant to section 205(aXl)-(2), EPA has selected the "least costly, most cost-effective or least
', . " i'!'1)1 , f I1 :• .;, •••• . •' .: ; •••'.• . ',: • . .
burdensome alternative" consistent with, the requirements of the CWA for the reasons discussed in the
preamble to the rule. Under the CWA, EPA is required under Best Available Technology Economically
Achievable (BAT) and Pretreatment Standards for Existing Sources (PSES) to require effluent limitations
guidelines and standards based on BAT considering factors listed in section 304 of the CWA and under
NSPS and PSNS based on Best Available Demonstrated Technology considering factors listed in section 306
of the CWA. EPA determined that the rule constitutes the least burdensome alternative consistent with the
CWA.
10.1 REFERENCES
Katzen. 1995. Guidance for implementing Title n of S.L, Memorandum for the Heads of Executive
Departments and Agencies from Sally Katzen, Ad, OKA. March 31,1995.
10-2
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APPENDIXA
COST ANNUALIZATION MODEL
Figure A-l provides an overview of the cost annualization model. Inputs to the model come from
three sources: 1) the capital and annual costs for incremental pollution control developed by EPA, 2) financial
assumptions based on secondary sources, and 3) financial data taken from the 1994 Detailed Questionnaire
for the Transportation Equipment Cleaning Industry (1994 Questionnaire; U.S. EPA, 1995). The cost
annualization model calculates four types of compliance costs for a facility:
• Present value of expenditures—before-tax basis
• Present value of expenditures—after-tax basis
• Annualized cost—before-tax basis
• Annualized cost—after-tax basis
There are two, key reasons why the capital and annual costs should be annualized. First, the initial
capital outlay should not be compared against a facility's income in the first year because the capital cost is
incurred only once in the equipment's lifetime. That initial investment should be spread over the equipment's
life. Second, money has a time value. A dollar today is worth more than a dollar in the future; expenditures
incurred 15 years from now do not have the same value to the firm as the same dollar expenditure incurred
tomorrow.
The cost annualization model is defined in terms of 1994 dollars because 1994 is the most recent
year for which financial data are available from the survey. Pollution control capital and operating and
maintenance costs are estimated in 1994 dollars and used to project cash outflows. The cash outflows are
then discounted to calculate the present value of future cash outflows in terms of 1994 dollars. This
methodology evaluates what a business would pay in constant dollars for all initial and future expenditures.
Finally, the model calculates the annualized cost for the cash outflow as an annuity that has the same present
value of the cash outflows and includes the cost of money or interest The annualized cost is analogous to a
mortgage payment that spreads the one-time investment of a home into a defined series of monthly payments.
A-l
-------
Data Sources
Inputs
Outputs
Engineering
Incremental
Pollution Control
Costs
Secondary
Sources
Capital Costs
Annual Costs
Cost Deflator to
$1994
Depreciation
Method (MACRS)
Federal Tax Rate
State Tax Rate
Questionnaire Discount Rate
Present Value
of
Expenditures
Cost
Annualization
Model
Tax Status
tr
.
Figure A-l
Cost Annualization Model
A-2
-------
Section A. 1 discusses the data sources for inputs to the cost annualization model. Section A.2
summarizes the financial assumptions in the model. Section A.3 presents all steps of the model with a
sample calculatioa Section A 4 compares the cost annualization model with the Total Cost Assessment
(TCA) approach.
A.1 INPUT DATA SOURCES
Table A-l illustrates the cost annualization model using fictitious data. The inputs and assumptions
for the analysis are listed in the spreadsheet's top portion. The first input is the survey identification number
for the facility analyzed. The second line is the number of the regulatory option or alternative for which the
costs are calculated.
The capital and operating and maintenance (O&M) costs used in the cost arni^^liyation model are
developed by the firm's engineering staff. The capital cost is the initial investment needed to purchase and
install the equipment; it is a one-time cost The O&M cost is the annual cost of operating and maintaining
the equipment O&M costs are incurred every year of the equipment's operation.
The depreciable life of the asset is based on information in the 1994 Questionnaire and the Internal
Revenue Code (see Section A.2.3).
The discount/interest rate is the either the discount rate or the interest rate that a facility supplied in
the 1994 Questionnaire (as long as it falls between 3 and 19 percent)—whichever is higher. It is used to
calculate the present value of the cash flows. The discount rate represents an estimate of a facility's marginal
cost of capital, i.e. what it will cost the facility to raise additional money for capital expenditure whether ,
through debt (a loan), equity (sale of stock), or working capital (opportunity cost). For companies that do not
use a discount rate, or provide a discount rate less than 3 percent or greater than 19 percent, the interest rate is
used in the calculations. Where facility-specific data are available and fall between 3 and 19 percent, the
facility-specific data are used in the cost annualization model (see Section A.2.5).1
1 For example, if a facility provides a discount rate greater than 19 percent and an interest rate less than
19 percent, the interest rate is used in the cost annualization model. If both the discount rate and the interest
(continued...)
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Since the cost annualization model is developed in terms of constant 1994 dollars, the
discount/interest rate must be adjusted for inflation before used in the model. Table A-2 lists the average
inflation rate from 1984 to 1994 as measured by the Consumer Price Index. The 10-year average inflation
rate of 3.6 percent is used in the cost annualization model as the expected average inflation rate over the
15-year life of the project to convert the nominal discount rate to a real discount rate. The nominal discount
rate is deflated to the real discount rate using the following formula (OMB, 1992):
Real DiBcouut Rate = <* * Nominal P***** Rate> - l
[(1 + Expected Inflation Rate) J
The nominal industry average discount rate of 10.4 percent is equivalent to a real discount rate of 6.6 percent
using this formula.
The next two lines in Table A-l are the flag identifying corporate structure and the taxable income.
The flag identifies whether the facility pays taxes at the 1) corporate or 2) individual rate. The amount of
taxable income identifies the tax bracket of the facility; the tax bracket is determined by the taxable income of
the parent business entity, not the facility. ,
Table A-3 lists each state's top corporate .and individual tax rates and calculates national average
state tax rates (CCH, 1994a). The cost annualization model uses the average state tax rate because of the
complexities of the industry; for example, a facility could be located in one state, while its corporate
headquarters are located in a second state. Given the uncertainty over which state tax rate applies to a given
facility's revenues, the average state tax rate is used in the cost annualization model 'for all facilities.
, The cost annualization model incorporates variable tax rates according to the type of business entity
and level of income to address differences between small and large businesses. For example, a large business
'(...continued)
rate are less than 19 percent, the higher of the two rates is used. If both rates are greater than 19 percent, the
industry average discount rate of 10.4 percent is used. A rate less than 3 percent is suspiciously low given
that, in 1994, banks charged a prime rate of 7.15 percent, and the discount rate at the Federal Reserve Bank
of New York was 3.6 percent (CEA, 1995). A rate greater than 19 percent is more likely to be an internal
"hurdle" rate-Hhe rate of return desired in a project before it will be undertaken. Ninety percent of facilities
provided a discount rate that fell into the accepted range.
A-5
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TABLE A-2
INFLATION RATE 1984-1994
Year
Consumer
Price
index
Change
1984 103.9
1985 107.6
1986 109.6
1987 113.6
1988 118.3
1989 124.0
1990 130.7
1991 136.2
1992 140.3
1993 144.5
1994 148.2
Average Inflation Rate
3.6%
1.9%
3.6%
4.1%
4.8%
5.4%
4,2%
3.0%
3.0%
2.6%
3.6%
Source: CEA, 1995, Table B-59.
A-6
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TABLE A-3
STATE INCOME TAX RATES
Corporate Income
State Tax Rate
Alabama 5.00%
Alaska 9.40%
Arizona 9.00%
Arkansas 6.50%
California 9.30%
Colorado 5.00%
Connecticut 11.50%
Delaware . 8.70%
Florida 5.50%
Georgia 6.00%
Hawaii 6.40%
Idaho 8.00%
Illinois 4.80%
Indiana 3.40%
Iowa 12.00%
Kansas 4.00%
Kentucky 8.25%
Louisiana 8.00%
Maine 8.93%
Maryland 7.00%
Massachusetts 9.50%
Michigan 2.30%
Minnesota 9.80%
Mississippi 5.00%
Missouri 6.25%
Montana 6.75%
Nebraska 7.81%
Nevada 0.00%
New Hampshire 7.00%
New Jersey 7.25%
New Mexico 7.60%
New York 9.00%
North Carolina 7.75%
North Dakota 10.50%
Ohio 8.90%
Oklahoma 6.00%
Oregon 6.60%
Pennsylvania 9.90%
Rhode Island * 9.00%
South Carolina 5.00%
South Dakota 0.00%
Tennesee 6.00%
Texas ' , 0.00%
Utah 5.00%
Vermont * 8.25%
Virginia 6.00%
Washington 0.00%
West Virginia 9.00%
Wisconsin 7.90%
Wyoming 0.00% '
Average: 6.61%
Basis for States
Basis for States
With Graduated Personal Income Tax With Graduated
Tax Tables
-:V $90,000+
$100,000+
• • -
$100,000+
$250,000+
$50,000+
$250,000+
$200,000+
$250,000+
$10,000+
$50,000+
$1 Million*
$50,000+
Based on Stock Value
1997 and thereafter
$250,000+
,
Upper Rate
5.00%
0,00%
6.90%
7.00%
11.00%
5.00%
4.50%
7.70%
0.00% '
6.00%
10.00%
8.20%
3.00%
3.40%
9.98%
7.75%
6.00%
6.00%
8.50%
6.00%
5.95%
4.40%
8.50%
5.00%
6.00%
11.00%
6.99%
0.00%
0.00%
6.65%
8.50%
7.88%
7.75%
12.00%
7.50%
7.00%
9.00%
2.80%
10.40%
7.00%
0.00%
0.00%
0.00%
7.20%
9.45%
5.75%
0.00%
6.50%
6.93%
0.00%
5.84%
Tax Tables
$3,000+
$150,000+
$25,000+
$215,000+
$40,000+
$7,000+
$21,000+
$20,000+
$47,000+
$30,000+
$8,000+
$50,000+
$33,000+
$100,000+
$50,000+
$10,000+
$9,000+
$63,000+
$27,000+
$75,000+
$42,000+
$13,000+
$60,000+
$50,000+
$200,000+
$10,000+
$5,000+
$250,000+
$11,000+
$4,000+
$250,000+
$17,000+
$60,000+
$20,000+
Notes: Basis for rates is reported to nearest $1 ,000.
Personal income tax rates for Rhode Island and Vermont based on federal tax (not taxable income).
Tax rates given here are equivalents for highest personal federal tax rate.
Source: , CCH, 1994b; CCH, 1995.
A-7
-------
might have a combined tax rate of 40.6 percent (34 percent Federal plus 6.6 percent State). After tax shields,
the business would pay 59.4 cents for every dollar of incremental pollution control costs. A small business,
say a small sole proprietorship, might be in the 20.8 percent tax bracket (15 percent Federal plus 5.8 percent
State). Alter tax shields, the small business would pay 79.2 cents for every dollar of incremental pollution
control. The net present value of after-tax cost is used in the closure analysis because it reflects the impact
the business would actually see in its net income.
KOSANCIAL ASSUMPTIONS
',.
-------
The Modified Accelerated Cost Recovery System (MACRS) applies to assets put into service after
December 31,1986. MACRS allows businesses to depreciate a higher percentage of an investment in the
early years, and a lower percentage in the later years. la contrast, straight-line depreciation writes off a
constant percentage of the investment each year. MACRS offers companies a financial advantage over the
straight-line method because a company's taxable income may be reduced under MACRS by a greater amount
in the early years when the time value of money is greater.
Table A-4 illustrates the effects of the difference in depreciation timing oh a $100,000 capital
investment The absolute amount depreciated over the 16-year period is the same—$ 100,000 for both
depreciation methods. The sum of the tax shields is also the same for both methods—$100,000 times 40.6
percent or $40,600. The difference in timing, however, means that MACRS provides a $1,664 benefit over
straight-line depreciation (i.e., the difference between the present values of the tax shields).
*• • > • .
Section 169 of the Internal Revenue Code provides an option to amortize pollution control equipment
over a 5-year period (U.S. IRS, 1995). Under this provision, 75 percent of the investment could be rapidly
amortized in a 5-year period using a straight-line method The 75 percent figure is based on the ratio of
allowable lifetime (15 years) to the estimated usable lifetime (20 years) as specified in Section 169,
Subsection (f). Although the tax provision enables the facility to expense the investment over a shorter time
period, the advantage is substantially reduced because only 75 percent of the capital investment can be
recovered.
Table A-5 illustrates the Section 169 tax provision using hypothetical costs. In comparison with
MACRS, the present value of the tax shield from depreciation increases slightly, from $24,126 (Table A-l)
to $24,716 (Table A-5). Because the benefit of the provision is slight and facilities might not get the required
certification to take advantage of it, the provision was not included in the cost annualization model. Its
exclusion results in a more conservative (i.e., higher) estimate of the after-tax annualized compliance cost for
the facility. MACRS is the depreciation method used in the cost annualization model.
A-9
-------
1": jilj,!
'•' II
TABLEAU
DEPRECIATION METHODS
COMPARISON OF STRAIGHT LINE VS. MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Inputs:
CapftalCost($):
Discount Rate :
Depreciable Lifetime (yrs):
Starting Convention:
Marignal Tax Rates:
Federal
State
Overall
$100,000
13.0%
15
mid-year
34.0%
6.6%
40.6%
Straight-Line
Depreciation Depreciation
Year
1
2
3
4
•. ' " 5
6
'. , , 7
8
9
10
11
12"
13
14
15
16
Rate
3.33%
6.67%
6.67%
6.67%
6.67%
6.67%
6.67%
6.66%
6.67%
6.66%
6.67%
6.66%
6.67%
6.66%
6.67%
3.33%
Sum 100.00%
Present Value
Net Benefit of Using MACRS
for Year
$3,330
$6,670
$6,670
$6,670
$6,670
$6,670
$6,670
$6,660
$6,670
$6,660
$6,670
$6,660
$6,670
$6,660
$6,670
$3,330
$100,000
$45,888
Tax-Shield
$1,352
$2,708
$2,708
$2.708
$2,708
$2,708
$2,708
$2,704
$2,708
$2,704
$2,708
$2,704
$2,708
$2,704
$2,708
$1,352
$40,600
$18,630
MACRS
Depreciation Depreciation
Rate
5.00%
9.50%
8.55%
7.70%
6.93%
6.23%
5.90%
5.90%
5.91%
5.90%
5.91%
5.90%
5.91%
5.90%
5.91%
2.95%
100.00%
for Year.
$5,000
$9,500
$8,550
$7,700
$6,930
$6,230
$5,900
$5,900
$5,910
$5,900
$5,910
$5,900
$5,910
$5,900
$5,910
$2,950
$100,000
$49,987
over Straight-Line Method (Year 1 dollars)
Tax-Shield
, $2,030
$3,857
$3,471
$3,126
$2,814
$2,529
$2,395
$2,395
$2,399
$2,395
$2,399
$2,395
$2,399
$2,395
$2,399
$1,198
$40,600
$20,295
$1,664
A-10
-------
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A-ll
-------
ion is
ilization model may result in
EPA also considered the Internal Revenue Code Section 179 provision to elect to expense up to
$17,500 the year the investment is placed into service (U.S. IRS, 1995).2 EPA assumes that this provisi
applied to other investments for the business entity. Its absence in the cost annua
a slightly higher estimate of the after-tax annualized cost for the faculty.
Timing Between Initial Investment and Operation
A business cannot begin to depreciate a capital investment before it goes into operation. A mid-year
depreciation convention may be used for equipment that is placed in service at any point within the year
(CCH, 1994b). EPA chose to use a mid-year convention in the cost annualization model because of its
flexibility and the likelihood that the equipment considered for pollution control could be built and installed
within a year of initial investment Because a half-year of depreciation is taken in the first year, a half-year
needs to be taken in the 16th year of operation. Consequently cost annualization model spans a 16-year time
period (see Table A-l).
AJ.3 Depreciable Lifetime for the Equipment
An asset's depreciable life can differ from its actual service lifetime. The Internal Revenue Code
Section 168 classifies an investment as 15-year property if it has a class life of 20 years or more but less than
25 years. Section 168(e)(3)(E) lists a municipal wastewater treatment plant as an example of 15-year
property (U.S. IRS, 1995). The average estimated service life for existing wastewater treatment equipment
i
as reported by TEC facilities hi the 1994 Questionnaire is 20 years. The cost annualization model, therefore,
incorporates a 15-year depreciable lifetime.
2 This assumes that the investment costs do not exceed $200,000 (Internal Revenue Code, Section
!79
-------
A2.4 Tai Shields on Interest Payments
The cost annualization model does not consider tax shields on interest paid to finance new pollution
control equipment A facility could finance the investment through a bank loan (debt), from working capital,
issuance of a corporate bond, or selling additional stock (equity shares). The cost annualization model
assumes a cost to the facility to use the money (the discount/interest rate), whether the money is paid as
interest or is the opportunity cost of internal funding. According to current tax law, if a facility finances the
investment using debt, the associated interest expenses can be deducted, thereby reducing taxable income
(CCH, 1994b). The tax shield on the interest payments, therefore, would reduce the after-tax annualized
cost
It is not known what mix of debt and capital a facility will use to finance the cost of pollution control
equipment Table A-6 illustrates the effects of 100-percent debt financing on after-tax annualized cost
After-tax annualized cost would decrease by approximately 3 percent due to tax shields on the interest
payments for a facility in the highest corporate tax bracket paying a nominal 13 percent interest rate. If the
facility financed the entire investment out of working capital, there would be no associated tax benefit and the
after-tax cost should be calculated without interest tax shields. To maintain a conservative estimate of the
after-tax annualized cost, tax shields on interest payments are not included in the cost annualization model.
A.2.5 Discount Rates
A company can use either internal financing (e.g. retained earnings, working capital), external
financing (e.g. debt, external equity), or some combination of both to raise the capital for upgrading its
wastewater treatment system. Facilities provided their discount rate (defined as the weighted average
marginal cost of capital given their mix of debt and equity) in the 1994 Questionnaire. The discount rate is
assumed unaffected by the need to finance the purchase of pollution control equipment in order to comply
with the regulation; in other words, the capital structure of the firm is* assumed to be unchanged by the
regulation (Brigham, 1997).
The EPA uses either the interest rate or the discount rate—whichever is higher—provided by the
facility in its cost annualization model. This decision assigns the higher rate to the opportunity cost for
•. *•
A-13
-------
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A-14
-------
internal financing. The decision generates the appropriate ahmialiVfld cost if the capital needed for the
pollution control upgrades is raised by: '
• Internal funding only ,
• A mix of internal funding, debt, and equity as long as the mix reflects the capital structure
used to calculate the discount rate
• A mix of debt and equity as long as the mix reflects the capital structure used to calculate the
discount rate
- • ., ' • •.•/.'
The decision will lead to a slightly higher annualized cost if only debt or a mix of debt and internal funding is
used to raise the capital. The decision, however, will not underestimate industry compliance costs or impacts.
SAMPLE COST ANNUALIZATION SPREADSHEET
In Table A-l, the spreadsheet contains numbered columns ithat calculate the before- and after-tax
annualized cost of the investment to the facility. The first column lists each year of the equipment's life span,
from its installation through its 15-year depreciable lifetime.
Column 2 of Table A-l represents the percentage of the capital costs that can be written off or
depreciated each year. These rates are based on the MACRS and are taken from CCH, 1994b. Multiplying
these depreciation rates by the capital cost gives the annual amount the facility may depreciate, which is listed
in Column 3. Depreciation expense is used to offset annual income for tax purposes; Column 4 shows the
tax shield provided from the depreciation expense— the overall tax rate times the depreciation amount for the
year.
Column 5 of Table A-l is the annual O&M expense. Year 1 and Year 16 show only six months of
O&M expenses because of the mid-year convention assumption for depreciation. For Years 2 through 15,
O&M is a constant amount Column 6 is the tax shield or benefit provided from expensing the O&M costs.
A-15
-------
Column 7 lists a facility's annual cash outflow or total expenses associated with the additional
pollution control equipment Total expenses include capital costs, assumed to be incurred during the first
year when the equipment is installed, plus each year's O&M expense.
r 'in. ' ' ", ! " " i ' ' ' ' !'
,' • ':[ '.''' '''..'. 'l|1'" • ' / I ' .
Column 8 lists the annual cash outflow less the tax shields from the O&M expenses and
depreciation; a facility will recover these costs in the form of reduced income taxes. The sum of the 16 years
of after-tax expenses is $148,500 (1994 dollars). The present value of these payments is $125,711. The
present value calculation takes into account the time value of money and is calculated as:
* cash outflow, year.
Present Value of Cash Outflows =
i-i (1 + real discount rate)'"1
The exponent in the denominator is i-1 because the real discount rate is not applied to the cash outflow in
Year 1. The present value of the after-tax cash outflow is used in the closure analysis to calculate the post-
regulatory present value of future earnings for a faculty (Appendix C).
The present value of the cash outflow is transformed into a constant annual payment for use as the
tfhnnaligftd facility compliance cost The ammaliggd cost is calculated as a 16-year annuity that has the same
present value as the total cash outflow in Column 8. The annualized cost represents the annual payment
required to finance the cash outflow after tax shields. Li essence, paying the annnalized cost each year and
paying the amounts listed in Column 8 for each year are equivalent The annualized cost is calculated as:
Annualized Cost = Present value of cash outflows * IBal discount
1 - (real discount rate + l)'tt
f ,
where n is the number of payment periods. In this example, based on the capital investment of $100,000,
O&M costs of $10,000 per year, a tax rate of 40.6 percent, and a nominal discount rate of 13 percent, the
facility's annualized cost is $22,223 on a pre-tax basis and $15,192 on a post-tax basis.3
3 Note that post-tax annualized cost can be calculated in two ways. The first way is to calculate the
anniis1J7cd cost as the difference between the annuity value of the cash flows (Column 7) and the tax shields
(Columns 4 and 6). The second way is to calculate the annuity value of the cash flows after tax shields
(continued...)
A-16
-------
The pre-tax anmialized cost is used in calculating the cost of the regulati
U.S. EPA, 1992 describes the Total Cost Assessment (TCA) approach for evaluating pollution
prevention alternatives. TCA is comprehensive financial analysis of the life cycle costs and savings of a
pollution prevention project A TCA approach includes:
Internal allocation of environmental costs to product lines or processes through full cost
.accounting;
Financial analysis of direct and indirect costs, short- and long-term costs, liability costs, and
less tangible benefits of an investment;
Evaluation of project costs and savings over a long-time horizon, e.g., 10 to 15 years;
Measures of profitability that capture the long-term profitability of the project, e.g., net
present value and internal rate of return.
TCA approaches are being developed as alternatives to traditional financial analysis methods in order to
capture and properly evaluate the long-term costs and savings inherent in pollution prevention activities.
3(...continued)
(ColumnS). Bom methods yield the same result
A-17
-------
The cost annualization model incorporates several features of a total cost assessment analysis,
including:
• Long-time horizon (the annualization model uses a 15-year time frame)
• Short- and long-term costs
• Cost savings due to reduced chemical usage, etc., which are included in the cost estimates
prepared by the EPA engineers (see Development Document)
• Depreciation, taxes, inflation, and discount rate
In addition, the output of the cost annualization model is used in the closure analysis (Appendix C), which:
• Uses the net present value of the investment calculated in the .cost annualization model to
evaluate the long-term impacts on profitability
The economic analysis differs from the TCA approach in that it does not include a "liability avoided"
component or an evaluation of the less tangible benefits of the regulation. There are insufficient data to
estimate potential fixture liability costs for each facility. The exclusion of this parameter results in a more
conservative analysis where potential impacts are not offset by avoiding future liability costs.
REFERENCES
Brigham. 1997. Brigham, Eugene, F and Louis C. Gapenski. Financial management: theory and practice.
Stheditioa Chicago, IL: The Dryden Press.
CEA. 1995. Council of Economic Advisors. Economic report of the president Washington, DC. Tables
B-59andB-72.
CCH. 1994a, Commerce Clearing House, Inc. State tax handbook Chicago, IL.
CCH. 1994b. Commerce Clearing House, Inc. 1995 U.S. master tax guide. Chicago, IL.
CCH. 1995. Commerce Clearing House, me. Conversations with Maureen F.Kaplan, Eastern Research
Group, Inc. to resolve discrepancies on tax rates for Missouri and Rhode Island. March 30.
ENR. 1995. Engineering News Record Construction cost index.
A-18
-------
U.S. EPA. 1992. Total cost assessment Accelerating mdustrialpoUution through
financial analysis. Washington, DC: U.S. Environmental Protection Agency, Office of Pollution Prevention
and Toxics.
U.S. EPA. 1995. 1994 Detailed questionnaire far tits transportation equipment cleaning industry. OMB No.
2040-0179. Washington, DC: U.S. Environmental Protection Agency, Office of Water.
IRS. 1995. The Research Institute of America, Inc. The complete internal revenue code. New York, NY.
January 1995 edition.
OMB. 1992. Guidelines and discount rates for benefit-cost analysis of federal programs. Appendix A.
Revised circular No. A-94. Washington, DC: Office of Management and Budget October 29.
A-19
-------
A-20
-------
APPENDIX B
MARKET METHODOLOGY
The economic impact analysis of the effluent limitations guideline for the TEC industry examines
the potential changes in price and production level for TEC services induced by the cost of increased
pollution control. A market model consisting of two components, the commercial component and the
outsourcing component, was used to analyze supply and demand within the TEC industry. A market
analysis is appropriate only for TEC facilities that offer commercial services because market interactions
can o;nly be analyzed where'prices and quantities are observable. Questionnaire data, however, indicates
that a large proportion of facilities are not commercial TEC facilities (see Section Two, Industry Profile).
These noncommercial facilities, called in-house facilities, perform TEC for themselves and claim another
business operation as their primary focus; in-house facilities thus perform most, and perhaps all, of their
cleanings without a market transaction. These facilities can choose to meet their TEC needs by
outsourcing their cleanings to a commercial facility; this would impact the market analysis. The market
model therefore incorporates these in-house, noncommercial facilities through an outsourcing component.
The outsourcing component investigates the quantity of cleanings that could shift from in-house
provision to the purchase of TEC services from the commercial market as a result of increased pollution
* *
control costs. At the current market price, a decision to outsource TEC services shifts the market demand
curve, changing market price. The change hi price will cause in-house providers to reevaluate their
decision to outsource. If any in-house providers 'change their behavior in light of the new market price,
the demand curve will again shift. The commercial and outsourcing components iterate until no one has
incentive to change their TEC decision, i.e., the model reaches a new, long-run equilibrium for
commercial cleaning price and quantity.
Output from the market model includes:
An estimated pre- and post-regulatory commercial price and quantity for each market
group
A percentage cost pass-through for each commercial market group to be used La the
closure analysis
B-l
-------
• The estimated magnitude of line closures within in-house facilities deciding to outsource
• Revised estimates of total annualized costs for in-house facilities deciding to outsource for
use in the closure analysis
Noncommercial, in-house facilities are analyzed to the extent that they may enter the commercial market;
the calculations of the market model encompass only the commercial portion of the industry.
This, appendix begins by presenting a graphical overview of the changes caused in a commercial
i,':u ^ '' : . .'. :»,;i. . " , ' 'I- • '•' ". "' ''" '" '<'•>..'•: "' > ' ;' " , • •':' ' "^ • - ' >'
market by the imposition of increased pollution control costs. Second, a description is provided of the
1111.71 n . "" ,.» • , ,,,[.,, in , '.:,'" i n> i , ' i ,• ',:' • "• , • • , .1 • " '.:',, ! • • , •
methodology used to obtain each variable in the supply and demand equations and the steps in which die
model was operationalized. The model is based primarily on questionnaire data because of the limited
amount of time-series data available from industry and publicly-available sources. Once the commercial
demand and supply system is explained, the shifts in supply and demand are discussed hi detail. Finally,
the market model's iteration process with the outsourcing component is traced both graphically and with
equations.
B JL GRAPHICAL ANALYSIS OVERVIEW OF COMMERCIAL MARKET CHANGES
The market impacts of the effluent limitations guideline on the TEC industry will depend on the
extent to which cost increases 1) cause a decline in the quantity of tank cleanings performed, and 2) can be
passed on to consumers through higher prices. Since tank cleanings are inputs into the service of
transportation and since transportation is an input into the final product delivered, the demand for cleaning
ultimately depends on the demand for the final products delivered by the transportation industry.
Figure B-l illustrates a commercial market for TEC. Preregulatory conditions are shown by S1
(supply), D1 (demand), and equilibrium (their intersection) at F™ and Q*™ (price and quantity). Imposing
the effluent limitations guideline causes an increase hi the cost of providing TEC services. This changes
the commercial TEC supply curve, shifting it upward (to the left); the supply shift is shown as Xs in Figure
B-l. At the same time, the cost of in-house cleaning, a substitute service, increases. Therefore, die
potential exists for faculties to switch from providing the service for themselves to outsourcing their TEC
needs into the commercial market. If in-house facilities do shift to commercial providers, the demand
B-2
-------
TEC COMMERCIAL MARKET GROUP g
ppost
ppre
Qpost Qpre
S1
Increase in quantity
demanded from
outsourcing component
Q
g
D1, S1 = preregulatory market conditions
D2, S2 = postregulatory market conditions
Qpre = pre-requlatory equilibrium price and quantity
t> Qpost - post-requlatory equilibrium price and quantity
= supply shift = weighted average increase in marginal cost from regulation
= demand shift = change in price due to change in quantity demanded
Figure B-l
Impact of the Effluent Guideline on a Commercial Market With Outsourcing
B-3
-------
function in die commercial TEC market groups shifts upward (to the right). This demand shift is derived
from the outsourcing component of the model. The change in price due to this
shown as A,D.
outsourced quantity is
At toe intersection of the new supply and demand curves, S2 and D2, Figure B-l shows me
postregulatory equilibrium at a higher price and lower quantity, P*0" and Q""", man the preregulatory
equilibrium of P*1* and (y™. Because the regulation would change both the supply and demand for
commercial services, the change in quantity cannot be predicted; the only predictable movement is an
increase in price. Figure B-l can be redrawn to show an increased or an equivalent postregulatory
quantity compared to the preregulatory environment The actual result would depend on the relative
• »ii, i' „ , . ' !. I'lBlliH i : , , :• i" i I ', " '.,.•: ,.,„"! I'
magnitudes of the supply and demand function shifts. In other words, it is feasible mat the market analysis
will show an overall increase in the amount of business realized by commercial TEC facilities. This will
occur if the amount of cleanings outsourced to the commercial market (the change in demand) exceeds the.
decline in cleanings due to increases in price (the change in supply).
B.2 ESTIMATING PREREGULATORY COMMERCIAL MARKET CONDITIONS
The demand and supply curves need to be estimated prior to the imposition of regulatory costs in
order to estimate baseline industry conditions. The change from the baseline is a measure of the impacts
caused by increased pollution control costs. Both die commercial supply and demand equations can be
estimated with information from the detailed questionnaire and other sources. Commercial TEC supply is
a function of the price of commercial TEC service and the regulatory compliance cost (which is zero under
preregulatory conditions). Commercial TEC demand is a function of the price of commercial TEC
services and the cost and availability of substitute services (e.g., in-house provision). In addition to these
variables, die supply and demand equations are both functions of other exogenous variables such as the
price of inputs to provide TEC, the frequency of required tank inspections, and die commodities
transported. These variables are assumed to be unaffected by die regulation and are, therefore, considered
exogenous; exogenous variables enter die market model tiirough die constant terms in the demand and
supply equations.
B-4
-------
The demand and supply curves are based on two equations solved for quantity; Q, as an
exponential function of price, P, for each market group, g. The demand curve is specified as:
where:
Qg = quantity demanded in market group g
Pgd = price at which quantity is
ag = demand constant
TI = price elasticity' of demand
J5 s
and the supply curve is:
Q; - Pg(pg*)
where:
Qg* = quantity supplied in market group g
Pg = price at which quantity is supplied
P_ = supply constant
o ' ' i ' ,.
eg = price elasticity of supply
This particular specification of supply and demand has the property that the price elasticity of supply and
demand, the percentage change in quantity supplied or demanded caused by a 1 percent change in price, is
constant at all points along me respective curves.
B-5
-------
Setting quantity demanded equal to quantity supplied in die above equations and solving yields the
following solution for the preregulatory equilibrium commercial price, P,1:
0°(".> - "(P.))
Substituting P,1 into the demand equation (or, equivalently, the supply equation) results in the
corresponding preregulatory equilibrium commercial quantity, Q,1:
• Q.1
Figure B-2 presents a flow diagram of the steps necessary to obtain quantitative estimates of the
supply and demand for commercial facilities using the above equations. The process begins by identifying
commercial facilities and weighting questionnaire data from the facility level to the market level. The
process continues with grouping data by mode of equipment cleaned, and estimating the supply and
demand elasticities. .
B.2.1 Identifying Commercial Cleaners
Facilities that perform transportation equipment cleaning (TEC) fell into two categories:
IMiause fadM.es
The in-house category has two subcategories—facilities with mixed activities and facilities
with only TEC activities. Faculties with mixed activities perform TEC as part of other
business activities. They primarily perform cleaning for themselves (i.e., on an in-house
basis), although they may do a small amount of cleaning on a commercial basis for others.
These facilities have the option of outsourcing TEC to a commercial facility while
(xmtinuing to operate their primary business. The decision to outsource TEC activities at
in-house facilities that perform only TEC results in the closure of these facilities but may
have minimal effect on the larger business entity. In the questionnaire database are 447
in-house facilities that perform mixed activities and nine in-house facilities mat only
perform TEC activities.
B-6
-------
Commercial Facilities
t
Total Number of
Tanks Cleaned per
Facility
(Q?)
Typical Cleaning
Price per Tank for
Each Facility
(Pi) ,
Weight Each Facility's Price
and Quantity
Categorize Facilities
Into Market Groups
Aggregate
Number of
Cleanings for
Each Market
Group
(Qg)
Take Natural Logs of Price
(Pg) and Quantity (QgPj)
Linear Regression of
Quantity and Price
Interpret Supply Elasticity
for Each Group
Estabfsh Basefine
Price for Each
Market Group
Estimate of Supply
Shift From Poflufon
Control Costs
Demand and
Supply Equations
TEC Cost Share of
Overall Transportation
Costs for Carriers for
Each Market Group
Demand Elasticity of
Transportation for
Each Market Group
Elasticity of
Substitution
Between TEC and
Other Inputs to
Transportation
Derived Demand
Equation
Demand Elasticity
for Each TEC
Market Group
(ns)
Calculate Demand
Constant Using
Pg.Qgartdna
New Price and
Quantity for Each
Commercial Market
Group g
Commercial Price
for Outsourcing
Component
(Pg)
*v39vfK"
Figure B-2
Commercial Component for TEC Market Model
B-7
-------
• Commercial facilities
These facilities perform the majority of tank cleanings for commercial clients. One
hundred fourteen commercial facilities perform only TEC operations; one hundred twenty
two facilities perform a mix of operations. These facilities must upgrade their wastewater
treatment systems to meet effluent guidelines. If unable to doso, a facility must close.
Facilities were separated into these two categories using Part B, Question 17 of the Detailed TEC
Industry Questionnaire (U.S. EPA, 1995). This question asked what percentage of cleanings are done on a
commercial basis, Table B-l shows the range of facility responses mat are skewed toward both tails,
supporting the concept of differentiating between in-house and commercial faculties. For the purposes of
i '. »I " ' " ' • • ''...LilhiM ' . ' »" ,i ' i , I1' II1' » .. I, ' • , '"i • Hll ' ' nil "' , I.,.1" , „ ' • , , '.' .1 • • . , , *
the analysis, facilities responding that 50 percent or more of their cleanings were commercial are
categorized as commercial; those responding mat less man SO percent of their cleanings were commercial
are categorized as in-house faculties.
B.2.2 Weighting Questionnaire Responses to Estimate Market Information From Survey
Information
The detailed questionnaire was sent to a sample of all TEC faculties. Faculty-level statistical
weights are used to adjust the price and quantity data to national estimates prior to performing the market
analysis (see equations below). The demand and supply equations are built from weighted observations,
not by weighting the final results.
B.2.3 Categorizing Facilities by Market Groups/Transportation Modes
The market methodology does not assess potential shifts between transportation modes. Each
market group exists and operates independently of the others. (See Section B.2.7.4 for substitutability
assumptions between modes.) Roth (1991) indicates mat truck and rail modes are competitive only within
a narrow range of weight and distance and mat they compete for freight at the limit of their inherent
advantages. The effluent guideline might cause a shift between modes, but only if 1) increased pollution
control costs fall disproportionately on the different modes and 2) these cost increases lead to a significant
change in overall transportation costs for mat mode. These two conditions can be examined outside of the
market and outsourcing components.
, " . ' B-8
-------
TABLEB-1
FACILITIES CATEGORIZED BY PERCENT OF COMMERCIAL CLEANINGS
Percent
Commercial
Cleanings
0%
1-10%
11-20%
21-30%
31-40%
41-50%
51-60%
61-70%
71-80%
81-90%
91-99%
100%
Number of Facilities
in Range1
310
102
8
9
0
24
0
5
7
10
2
/
214
Percent of Facilities
in Range
44.9%
14.7%
1.2%
1.3%
0,0%
3.5%
0.0%
0.7%
1.0%
1.5%
0.3%
31.0%
Numbers may not sum to total due to rounding.
'Based on detailed questionnaire data.
B-9
-------
Facilities are separated into subcategories based on commodities carried and tank types cleaned.
In general, the commodity transported affects the types of pollutants to be found in the wastewater stream.
The three major commodities for TEC industry are chemical products, petroleum products and food
products; hoppers tend to carry distinct products such as pelletized plastic. The mode of transportation
affects the volume of wastewater produced. Rail tank cars are larger than tank trucks and tank barges are
larger man bom. Larger tanks produce larger volumes of wastewater.
The key features of the industry mat determined the subcategorization of the industry also are
significant in determining the division into market groups for the market analysis. Transportation modes
are competitive only over certain distances and load weights. Tanks tend to be used to transport narrow
ranges of commodities. For example, the Sanitary Food Transportation Act of 1990 (P.L. 101-500)
requires the permanent marking of food grade tanks and restricts the use of these tanks to food grade and
acceptable nonfood grade products. Thus, dividing the industry into subcategories based on transportation
mode and commodity carried provides a natural division into market groups for the economic analysis.
Facilities may clean a mixture of tank types; each tank type may have a different cleaning cost that
can potentially affect the average cost-per-tank-cleaned. In practice, however, mis effect is relatively
minor. The percentage of tank trucks cleaned hi rail facilities and vice versa is small relative to "own"
tanks cleaned (see Table 2-4, Chapter 2 Industry Profile for details). The market model is designed to
permit the use of a weighting scheme mat converts various tank types into "tank-equivalents," but the
subcategorization by tank type and commodity obviated the need to invoke mis model feature.
B.2.4 Calculating the Quantity of Tanks Cleaned, Q,1
The aggregate preregulatory quantity of tanks cleaned will be calculated as the average annual
number of tanks cleaned within each group. In order to smooth fluctuations and present a picture of each
facility's market situation over an extended period, the facility data were averaged over the number of
years of operation between 1992 and 1994 and for which questionnaire data are available. The following
equation was used:
o1 -
- *=
B-10
-------
where:
Q^ = average annual preregulatory cleanings by facility i, market group g
Q^y = preregulatoiy facility cleanings by facility for year y (Question 23)
w£ = facility-specific weight for facility i
wt = weight by tank type (i.e., tank-equivalents)
% commercial = percentage of commercial, cleanings by facility i (Question 17)
~ number of years in operation and for which data is available
Second, the preregulatory quantity for each market group is calculated as the aggregate of all the
average weighted annual quantities for each facility in group g:
B.2.5 Calculating Preregulatory Commercial Price Per Facility, P^1
This part of the model calculates a preregulatory commercial price by facility and adjusts it to
1994 dollars. First, the average facility price for each year is calculated by averaging the facility price for
each tank type cleaned. The price per tank type is estimated by dividing the TEC revenues for mat tank
type by the number of the tanks cleaned:
i _ Y^ Revenues, year y * Percent revenues, tank type t, year y * PPL
v Number of cleanings, tank type t, year y
or, using the questionnaire data:
B-ll
-------
Question 34y * Question 35^ * PPI
Question 23^
where:
f-y = commercial price per cleaning, facility i, year y
t = tank type
y = year (1992, 1993, or 1994)
= producer price index, year y
In order to smooth price variations, the final facility price is the average price per tank cleaning
foe the number of years in which the facility was hi operation (1992 to 1994) and for which data are
available:1
B.2.6 Estimating Price Elasticity of Supply, e,
A separate price elasticity of supply is estimated for each market group. Since the TEC industry is
not a well-defined industry based on SIC codes, mere are no published time series data available from
which to estimate supply and demand relationships. Instead, a supply curve is constructed from detailed
: „, ^ , ' ; , , \ . „ ' ; ; ' , ' • / : „ , ,; , ' ,
questionnaire data and the price elasticity of supply is estimated econometrically.
1 Ihe decision to upgrade wastewater treatment at a facility is assumed to have a multi-year effect. EPA
assumes that the facility owner would make a decision with a multi-year effect based on multiple years of data.
B-12
-------
Figure B-3 illustrates the derivation of a supply curve from a hypothetical market group consisting
of five facilities. The five facilities are first ordered from lowest to highest price. The price for each
facility is then plotted with a quantity equal to the cleanings offered by that facility plus die total cleanings
offered by all facilities with lower prices. Accordingly, in Figure B-3, Facility 2 is plotted with its cleaning
price and die quantity QgP21; die difference between Q^1 and Q^1 is equal the number of cleanings
performed by Facility 2 alone at its own price, while the sum of Q^1 and Q^1 is equal to the total number
of cleanings offered at that price or below. The quantity Q,1, therefore, is equal to the total number of
cleanings offered by all facilities in mis market group.2 The baseline-preregulatory price Pg1, the
preregulatory market equilibrium price, is the highest facility price, P^1, hi each market group prior to. die
regulation. P/ and Q/ are illustrated in Figure B-3. This is die operationaHzation of the textbook
definition of a market supply curve with the implicit assumption that each facility is operating on its
marginal cost CUTVe. >
Next, natural logariduns are taken of prices and tiieir corresponding quantities. Ordinary least
squares regression is tiien used to estimate die following equation:
where die quantity Op^1 is die weighted aggregate of all facility cleanings offered at die particular marginal
price.3 The estimated coefficient on the log of price, e, in the log-linear supply equation, is the price
elasticity of supply.
Following die derivation of die equilibrium price and quantity and die price elasticity of supply
through regression analysis, die constant hi die supply equation remains to be calculated. The regression
analysis used to calculate die supply elasticity also estimates a constant term based on die available data.
Due to wide variations hi the data, however, die line defined by die regression does not necessarily
intersect die equilibrium point that we had defined, i.e., P,1 and Q,1. The constant, therefore is calculated
2 Note that hi die actual estimation procedure, dte weighted quantity of cleanings for each facility in die
market group will be used.
3 This estimation procedure is adapted and revised from die coke oven charging RIA (U.S. EPA, 1992).
B-13
-------
p1
r a
a
S |
Facility #2's
quantify
Qi
gP2
Q;
Best-fit line
(regression)
Q,
P a = Baseline price for commercial market g
Q g = Baseline aggregate quantity for commercial market g
a = a* = y-intercept of supply (i.e., the constant in the linear equation)
b = 6g = price elasticity of supply (i.e., the slope in the linear equation)
Figure B-3
Estimating Price Elasticity of Supply, eg
B-14
-------
separately by substituting the defined equilibrium price and quantity and the estimated price elasticity into
die original supply equation and solving for p. The supply curve is then "forced" to pass through die
equilibrium point calculated using questionnaire data as shown in Figure B-3.
B.2.7 Estimating Price Elasticity of Demand, TI,
The price elasticity of demand for TEC is estimated using the derived-demand relationship that
exists between TEC and transportation output as a whole. The price elasticity of demand for TEC services
depends on the price elasticity of demand for transportation output and on die share hi die cost of
transportation services accounted for by TEC services. These characteristics can be numerically
calculated using data from current literature, questionnaire data, and die following relationship:
* S + 9 * S )
a*tK 8 from'
where:
TI = demand elasticity of TEC services in market g
'S , J • ' • • ' •*
= demand elasticity of transportation services in market g
< , * • - • ' •
Sg = share of cleaning costs in total transportation costs for market g
6 = elasticity of substitution between TEC and other transportation inputs in market g
S = cost share of all inputs to transportation other than TEC for market g
o
B-15
-------
B.2.7.1 Transportation Demand Elasticity
The price elasticity of demand for each transportation market group (TI ) is obtained from
oThnr
transportation literature. Transportation services are themselves inputs into production of other services
and goods. Demand for transportation is a derived demand depending on the demand for goods to be
transported. The price elasticity of demand for transportation is related to the price elasticity of demand
foe the product being shipped and the importance of transportation costs hi the total cost of the final
product (i.e., the share of transportation in the total cost of the products). If transportation costs comprise
a relatively small share of the total product cost, producers have little incentive to find ways of avoiding
transportation costs if the price of transportation rises; the demand for transportation will be price inelastic.
The price elasticity of demand for transportation, therefore, is a smaller value man the price elasticity of
demand for the final market product. By the same reasoning, the price elasticity of TEC demand will be
an even smaller value than the price elasticity of demand for transportation.
Literature Review of Demand Elasticity Estimates for Transportation Modes
Price elasticities of demand were estimated from a literature review of previously published
studies of transportation demand elasticities. This search was conducted through several databases. One
literature search used CD-ROM databases that search for journal articles using key words, subjects, or
authors. SilverPlaJteris the database searched for government publications; mere were no relevant articles
or citations that would yield elasticity estimates. American Business Information (ABI) provided several
articles from major economics journals such as Review of Economics and Statistics and Bell Journal of
Economics. However, the majority of "hits" were for public transportation elasticities. These articles
considered methodologies and estimates for car, bus, rail, and public transit elasticities. In addition to CD-
ROM sources, the Boston Library Consortium (consisting of all Boston libraries) provides access to a
database mat provides bibliographic citations and abstracts for over 10,000 journals published since 1988.
This resource provided several articles relevant to freight transportation but, again, the majority of "hits"
were for passenger transportation.
B-16
-------
Following this library search, an on-line search was conducted teougb a service known as
DIALOG/Knight Rider Information Services. The following'databases were searched through this service:
• Current Contents Search (Institute for Scientific Information-File 440). Provides
bibliographic citations from current issues of leading journals in the sciences,
social sciences, and arts and humanities. ,
• Economic Ltierantre Index (Tte American Ecomnuc Association-File 139). An index of
journal articles and book reviews from 260 economic journals and approximately 200
monographs.
• Dissertation Abstracts Online (UMI-File 35). Contains abstracts and citations for
aU American dissertations accepted at accredited institutions since 1861.
• TRIS (U.S. Department of Transportation and Transportation Research Board NAS/NRC-
File 63). Contains transportation research information on air, highway, rail, and maritime
transport, mass transit, and other transportation modes.
Searches were done in the first three databases by keyword searches of demand?, elastic?, and trans?
(The question mark designates a wild character mat represents any words that begin with the letters up to
the question mark.) From these three databases 14 "bits" were made. The final database searched, TRIS,
was a much better source; 268 articles match from a search of demand and elastic? Again, the large
majority of titles related to passenger demand elasticities. From these various exhaustive searches, 26
articles and two books were deemed relevant to freight transportation demand elasticities; these sources
were collected, reviewed, and evaluated.
Observations Regarding Elasticities of Demand
Table B-2 summarizes the findings relevant to the TEC market groups for rail and trucks. Table
' - - '
B-3 summarizes the findings relevant to the TEC market groups for waterways (bom barge and ocean/sea
tanker). Bom Tables B-2 and B-3 also summarize any substitution elasticities or cross-price elasticities mat
authors included in these studies. Table B-4 briefly lists the reasons some articles were excluded from
further consideration.
B-17
-------
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B-19
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B-23
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B-24
-------
TABLEB-4
REFERENCES OBTAINED, REVIEWED, BUT NOT USED TO DEVELOP ESTIMATES
Author(s) •
(year of
publication)
Reason for Exclusion
Abdelwahab
and Sargious
(1992)
Presented a simultaneous demand model for freight transportation that combines
mode choice and shipment size decisions. Because the dependent variable is the
probability of mode choice, no traditional demand elasticities are estimated.
Call an and
Thomas
(1992)
Studied the household goods carrier market, therefore was not relevant to our tank
transportation market groups.
Damns (1984)
Developed methodology to examine Ramsey Pricing alternatives in the deregulatoiy
environment.
Estimated nothing •with actual data, only theories are developed.
Friedlaender
and Wang
Chiang (1983)
Estimated productivity using railroad firm level data for 1965-1973.
Estimates of demand elasticity are not available from the cost functions developed.
Published cost elasticities.
Friedlaender et
al.(1993)
Estimated only cost models of specific railroad companies.
Included no demand elasticity estimates.
Concluded that capital is not variable enough, therefore there is still a dead weight
loss even though some deregulation has occurred.
Gemmell,
Ufam, and
Shaw (1983)
Estimates empirical measurements of the economies of scale,of Canadian water
carrier on the Great Lakes and the St Lawrence River. Specifies cost per ton-mile by
various size factors such as: revenue per ton-mile, fleet size, vessel size, shipment
size, and length of haul. Although a table of cost elasticities is published, these
elasticities have a different interpretation than demand elasticities. (The cost
elasticity would be interpreted as the percentage change in average costs for a one
percent change in a characteristic such as size of fleet) '..; •
Hale and
Vanags(1989)
Derived a model of the relationship between spot and period rates for the dry-bulk
market The results do not include demand elasticity estimates.
Jara-Diaz,
Donoso, and
Araneda
(1992)
Estimated marginal transportation costs for a highway in Chile, therefore was not
relevant to our tank transportation market groups.
Lackman
(1980)
Obtained counter-intuitive results (i.e., positive demand elasticities).
Concluded that better data, more explanatory variables, and a better service index was
required for future studies. •
B-25
-------
TABLE B-4 (continued)
REFERENCES OBTAINED, REVIEWED, BUT NOT USED TO DEVELOP ESTIMATES
ii'ii <
t't
(if i ;
: f'li
Authors)
(year of
publication)
Lewis and
Widup(1982)
Westbrook and
Buckley
(1990)
Winston
(1981)
Reason for Exclusion
Calculated the demand elasticities of rail and truck services for transporting
assembled automobiles. Used methodologies and data that are good for only this
commodity group. No detailed data on other commodities exist The rail elasticity
for assembled automobiles is -0.94. The author states that Oum (1979) has a
comparable 1970 estimate of Canada's metallic products of-1.18. The truck
elasticity for assembled automobiles is -0.62. Author states that Oum (1979) has a
comparable 1970 estimate of Canada's metallic products of-0.33.
However, assembled automobiles are not relevant to our tank transport market
groups.
Calculated estimates of substitution and demand elasticities for the transportation of
fresh fruits and vegetables in order to analyze the impacts of deregulation. Rail
demand elasticity estimates ranged from -0.06 to -0.55 and truck elasticities ranged
from-0.11 to-0.59.
However, transportation of fresh fruits and vegetables is not relevant to our tank
transport market groups.
Establishes that there are barriers to entering the ocean sea shipping business due to
the large capital requirements.
Estimated a disaggregated freight demand model based on data from American
Pacific Container Line.
Obtained 110 observations of origin and destination pairs located on the West Coast
Used a probit model to estimate shares of the rail and truck surface modes and then
enters the choice of ocean sea shipping to determine the potential share it can gain.
Predicts that ocean sea shipping could gain about 10% of the surface mode traffic.
No demand elasticities are included, because container shipping data are not
available.
B-26
-------
The majority of articles address rail elasticity demand estimates. Several studies estimated the
demand elasticity of truck transportation. No U.S. estimates of barge demand elasticity were found, but
one estimate of Canadian barge demand elasticity was obtained. No studies were found mat estimate the
demand elasticity of ocean/sea tanker. The major reason for such limited studies of truck and waterway
modes is the very limited transportation data available. A second reason for the more numerous studies of
rail elasticity is that policy analysts have had reason to study rail transportation; deregulation of the
railroad industry, which occurred in the early 1980s, prompted the need for analysts to estimate demand
elasticities in order to assess the welfare impacts of deregulation.
Rail Service Demand Elasticity
f ^ •
' '• •> • -
Fourteen studies reviewed published rail elasticity estimates. Three of these studies used Canadian
data to estimate elasticities. The demand elasticity estimates range from very inelastic (-0.06) to elastic
(-3.547). The studies use different methodologies, aggregate rail services in. different ways, and use
various years and time periods of data. Because of the large range of estimates, it was not appropriate to
Use the average or median value of all estimates. Instead, elasticities were categorized by a number of
criteria and me most relevant were used to determine an estimate for use in me market model.
In general, the studies based on regulatory data feat were pre-1980 yielded less elastic demand
elasticities. Studies based on deregulated data that were post-1980 yielded estimates closer to unity or
larger. The most recently published study by Hsing (1994) confirms mis observation. Hsing estimated
elasticities annually from 1961 to 1990. The elasticities were very inelastic in 1961 (-0.066) and 1980
(-0.295). After deregulation the estimates were larger in absolute value. For 1990, the most recent year
Hsing had data, the estimate was very close to unity (-1.057).
\ ' . -
Table B-2 also displays elasticity estimates by commodity groups when the author(s) used
desegregated data. Analyzing these elasticities, it is observed that the more desegregated the date, the
more varied the estimates. Intuitively, mis makes sense. Individual commodity estimates will vary
: • * °
because of the wide range of product elasticities for the commodities in question. In addition, for some
commodities, transportation is a larger cost share of the overall product man for other commodities.
B-27
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Placing more weight on more recent estimates and on more aggregated estimates, a qualitative
approximation based on me literature reviewed is -1.0 (unit elasticity). This estimation relies primarily on
Hang (1994) and Oiim et al. (1992), which are the two most recent attempts to study aggregate rail
Services. Quantitatively, the average of all point estimates and of the range averages is -1.01, which is
Vfery close to the qualitative estimate of unity. ,
Land/Highway Demand Elasticity
Nine studies estimated demand elasticities for tire trucking industry, two of which are based on
Canadian data. Authors who estimated bom truck and rail elasticities have generally concluded that the
demand for truck services is generally more elastic than for rail services. On average, truck estimates are
24 percent larger in absolute value; the median difference is 37 percent. All truck estimates date from me
1960s through the early 1980s, and provide point estimates ranging from -0.587 to -2.023. Given me large
range of the estimates and the age of the data used in the studies, the historical relationship between truck
and rail established by these nine studies was benchmarked to die rail elasticity estimate of -1.0 that is
based on more recent estimates. Therefore, the truck demand elasticity estimate used hi the model is
-1.3 (30% more than the rail estimate).
Barge and Ocean/Sea Tanker Demand Elasticity
Table B-3 presents the information from the two articles we found containing water carrier
elasticity estimates. The only study to address ocean/sea tanker services demand is an analysis of the
world tanker market by Beenstock and Vergottis (1989). This study assumes mat demand is completely
inelastic (i.e., no matter what price, the same quantity is demanded), but because the facilities responding
to the questionnaire reported zero ocean/sea tankers cleaned, mis study is irrelevant. The single estimate
of demand elasticity for barge travel is based on Canadian data for grain transportation from Thunder Bay,
through the Great Lakes and the St Lawrence Seaway, to me east coast ports. Oum (1989) used this data
to approximate all inland waterway traffic. The demand elasticity estimates ranged from -0.738 to -0.750.
Since mis is the best information available, the market model will assume a barge elasticity of -0.7.
B-28
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Summary of Demand Elasticities ..-•'••
Table B-5 summarizes title assumptions for demand elasticities used for die market groups.
B.2.7.2 Cost Share
The second piece of information necessary to estimate the price elasticity of demand for TEC is
me cost share of transportation output accounted for by TEC services (^g7K)- This can be estimated using
the detailed questionnaire data from carriers. For each carrier, cost share is calculated by taking an
average of TEC costs as a percentage of its overall operating costs for the years 1992, 1993, and 1994.
For each transportation mode, cost share is calculated as the average of the cost share for each carrier
within that mode. .
Table B-6 summarizes the results for each transportation mode calculated on the basis of data at
the facility level, me business entity level, and a composite of the two. The most relevant estimate of cost
share is the business entity level; mere is no reason to expect the cost share of TEC services at any one
facility to reflect the overall TEC cost share for a multi-facility business. The detailed questionnaire,
however, is structured in such a way that single facility businesses are grouped with faculties that have a
larger corporate parent. The composite construction ensures mat the cost share for single facility
businesses is included in the estimate for the business entity level. Finally, the estimate for railroad
carriers is based on only one facility; this estimate cannot be disclosed because it is based on confidential
business information.
As can be seen in Table B-6, TEC costs make up a relatively small share of overall transportation
costs. For both truck and water transportation, whether estimated at the facility, business entity or
composite level, the estimates are significantly less than 10 percent.4
4 The cost shares used to calculate the derived price elasticity of demand for TEC services in the market
model were set at 10 percent for water and rail, and IS percent for land. The smaller the cost share, the less
elastic is the demand for TEC services. When demand curves become less elastic, all other things equal, the
impact on output becomes smaller and the impact on price and cost pass through becomes larger. Setting the
cost shares at 10 and IS percent provides more conservative (i.e., larger) estimates of impacts on output, and
B-29
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TABLE B-S
SUMMARY OF DEMAND ELASTICITIES
Market Group
Truck
Rail
Barge
Transportation Services
Demand Elasticity Estimate
-1.3 (elastic)
-1.0 (unitary elastic)
-0.7 (inelastic)
B-30
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TABLEB-6
WEIGHTED AVERAGE OF TEC COST SHARE (%)
Transportation Mode
Land
Rail
Water
Facility
7.19
ND
5.38
Business Entity
5.38
ND
0.46
Composite
4.75
ND
0.46
ND: Not disclosed due to business confidentiality.
B-31
-------
Additional evidence that the cost share of TEC services is small can be observed hi comments
made on fee detailed questionnaire. One company specifically slated mat it estimates Its TEC costs as less
man 1 percent of total company costs. Out of roughly 50 other carriers hi the sample, another half dozen
stated that they do not track, or "break out," TEC costs from other costs. One interpretation of such
comments is mat TEC costs are so small that firms simply are not mat concerned about them. The
primary impact of these small estimates of TEC cost share is mat estimates of the derived demand for TEC
services will tend toibe very inelastic.
B.2.7.3 Substitutability
The third element needed to estimate the demand elasticity of TEC is the degree of substitutability
between TEC services and alternatives for this service within a market group's
demand for transportation
services (6,). Price elasticity of demand varies with the degree of substitutability between TEC and
alternative inputs that may fulfill the same need. If good substitutes for TEC services are readily
available, snippers have incentive to avoid the expense of an increase hi TEC costs by substituting now
relatively cheaper alternatives mat provide die same service. An increase hi the price of TEC services
would lead to a large decrease hi quantity demanded; demand would be price elastic.
1 ' '.,„
One substitute for TEC is the elimination of the need to clean tanks. This is not a major
consideration for several reasons. Most cleanings are required to main^in the integrity of the commodity
transported, to permit repair, or to maintain cargo capacity (i.e., unavoidable needs). Cargo integrity is
particularly important for food-grade commodities. The largest documented outbreak of single-source
food poisoning (an estimated 224,000 cases) has been attributed to the absence or improper cleaning of
food-grade tanker trucks (Gibson, 1994; Hennessy, et. al., 1996).
The use of dedicated tanks mat do not need to be cleaned between each shipment is one way to
reduce the number of cleanings required. Even dedicated tanks, however, need to be cleaned periodically,
so dedicated tanks are not perfect substitutes. Dedicated tanks are not widely used by the market because
of the initial investment for the tank and the need to let it sit unused between shipments of the specific
facility closures (Appendix C).
B-32
-------
cargo. Most firms find it more economical to clean the tanks between shipments and to maximize die time
die tanks are in use. Another possible substitute is die use of disposable tank liners, but mis method is new
and does not have a major share of die market (Modern Bulk Transporter, 1994). The model therefore
assumes substitutability will have a minimal Impact and does not incorporate it (by assumption, 6g = 0).
Another substitute for commercial cleaning is in-house cleaning. While die outsourcing
component estimates die portion of TEC demand shifting to die commercial market, the possible shift from
commercial to in-house services would be very difficult to model; Facilities mat outsource all their TEC
needs are not included in die screener or detailed surveys because diey do not currently discharge any TEC
effluent. Switching from commercial to in-house cleaning is not likely because capital start-up costs pose a
barrier. Under these circumstances, EPA assumes die switch from commercial to in-house TEC services
would be insignificant.
B.2.7.4 Observations on Substitution and Cross-Price Elasticities
Seven articles estimated cross-price elasticities (see Tables B-2 and B-3). One estimate included
rail, barge, and truck cross-price elasticities and die others estimated just rail and truck cross-price
elasticities. Overall, die almost completely unified conclusion is tiiat modes of transportation services
operate independently of each other; die cross-price elasticities of demand are essentially zero. One
exception is the estimate between barge and rail traffic of corn tiirough die Midwest by Fitzsimmons
(1981); a second study, Morton (1969), was inconclusive. The model assumes transportation modes work
independently of each other and, overall, the literature reviewed to date supports that assumption.
£.2.7.5 Final Demand Elasticity Equation ,
Since die elasticity of substitution, 6C, is assumed to approach zero (i.e., no TEC input substitution
is available), die equation for price elasticity of demand becomes:
T» = —n * S_
' 'ft*. , Snsc
B-33
-------
This formula is used to estimate the price elasticity of demand for TEC services in each market group.
B.3 ESTIMATING THE SHIFT IN THE SUPPLY FUNCTION FROM COMPLIANCE
COSTS, X^
After the effluent guideline goes into effect, the supply function will shift because of die increase
"•I"' ', ,„" .i» |n|1 !: 'i'itJ ! . ' ..' "i: ' ',:i'"i!11! i' r i.. i '' ,.' ' ',!'i.!' ., : : ' ":.•,' ",.'„' ', '"" • , «," ' Ji!r ! I, ' '• ' .1,
fa pollution control costs. Potentially, the per unit cost increase will be different for each firm and may
not be correlated with firm size or price. To calculate me shift in the supply function, EPA uses the
expected value of the change in marginal cost for the given market group. The expected shift of the supply
function is equal to a weighted average of the facility-specific pollution control costs per unit of output.
rtji in 'i ; ," if ijl il ; , • •' '" •," ,• ' f . '• "' '"' ,• i '! " • i, »' ,• .1! '• • ,, • ", • ''i1 r,'i ' • I .
This shifts the entire supply curve upward (i.e., to the left), parallel to the preregulatory supply curve, by
the average per unit pollution control cost. The equation for mis shift factor is:
where:
A* = weighted average pollution control cost per unit of output in market g
J£ = average annual weighted quantity, facility i, market g
= total pre-tax annualized compliance costs, facility i, market g
The facility-specific pre-tax annualized cost of complying with pollution control requirements are
calculated separately in the Cost Annualization Model (see Appendix A for details).
In order to maintain the constant elasticity property of the supply curve, me shift due to regulatory
controls is expressed as the percentage shift hi supply price evaluated at the preregulatory equilibrium
B-34
-------
quantity, relative to the preregulatory equilibrium price. The posttegulatory supply curve is now written as:
where k is equal to Ag/P1 (i.e. the per unit pollution control costs divided by equilibrium price).
Setting the above supply equation equal to die original demand equation and solving for price
results hi:
t
Each of the parameters on the right are known; their derivations are described hi Section B.2. The
variable k will change when different regulatory options are considered, changing posttegulatory
equilibrium price and quantity.
The new equilibrium price, P2, can now be substituted into demand equation to solve for the new
\ - .' ' , ' '
equilibrium quantity, Q2:
This new equilibrium quantity and price are best thought of as an intermediate solution. It is an
equilibrium; quantity supplied equals quantity demanded by those currently participating hi the commercial
market at the going market price P2. It is an interim equilibrium in the sense mat in-house providers of
TEC services may now have incentive to outsource their TEC needs. If any of these facilities do choose to
enter the commercial market, the demand curve will shift and the market will move to a new equilibrium
point The market will not be hi final equilibrium until all demanders and suppliers of TEC services, both
B-35
-------
commercial and in-house, no longer have any incentive to change (heir behavior at the existing market
price.
Finally, a cost pass-through percentage (CPT) is calculated for use in the closure model. CPTis
the difference between me baseline and postregulatoty prices as a proportion of me average pollution
control cost per unit. CPT estimates me relative burden of the cost of me regulation borne by the
producers and consumers of TEC services by determining what percentage of pollution control costs is
" 'J'.ill ,;!', ,;, ! , , , i'J'SI, '. , ' " i I .' ' ' • , '' "|. ,v. ! ,• : ; !.: ' ' ..I'.' ".'•'' '
actually paid by the facility, and what percentage of those costs may be recovered by passing mem along to
consumers ha the form of higher prices. Each market group will have a different cost CPT as calculated in
the following equation:
CPT
e
where:
CPT == cost pass-through, market g
P* s postregulatory commercial equilibrium price, market g
Pg = preregulatory commercial equilibrium price, market g
weighted average pollution control cost per unit of output, TEC facilities only, market g
In order to estimate CPT, the weighted average pollution control cost is adjusted to include only
affected facilities in the market group, not zero discharge (ZDT) facilities. It is important to include ZDT
facilities when estimating A, because ZDT facilities put downward pressure on market price. They do not
incur regulatory control costs and, therefore, do not have to raise the price of TEC services they offer to
customers as a result of the rule. Because of ZDT facilities, affected facilities are unable to increase the
price they offer customers as much as they would in the absence of ZDT competitors. Excluding ZDTs
from the calculation of Af would overestimate the decrease in market supply caused by the regulation;
however, Ag is a weighted average of two distinct groups of facilities: one group that incurs no regulatory
B-36
-------
costs and a second feat incurs all the regulatory costs. The average compliance costs are overestimates
for the ZDT group of facilities and underestimates for the affected group of faculties. Because A.g is
smaller man A^EC, estimating CPT for affected facilities only using A,c overestimates the percentage of
costs that are passed through to consumers. EPA therefore uses A.^^. to estimate CPT.
B.3.1 Shift in Demand From Outsourcing Component
-. / • -
B.3.1.1 Description of Outsourcing Component .
Figure B-4 illustrates the logic flow for the outsourcing component. The outsourcing module
calculates the relative increase in cleaning cost for in-house facilities, compares it to Ihe facility's
willingness to switch to commercial cleaning (obtained from questionnaire data), calculates the cost of
having the same cleaning performed commercially, and determines whether or not the facility should
outsource its cleaning. This section provides a detailed description of the subcomponents shown in
Figure B-4.
B.3.1.2 Incremental Pollution Control Costs
' The cost annualization model calculates the annualized incremental pollution control costs for each.
facility (Appendix A). These are inputs to the outsourcing component of the market model illustrated hi .
Figure B-4. The outsourcing component uses pre-tax annualized costs for two reasons: -
The facilities themselves will probably use the pre-tax cost when making this evaluation.
Only large, multi-facility organizations are likely to have the 'accounting specialization
required to perform the analysis on an after-tax basis. •
All other costs and revenues in the model are taken from the questionnaire on a pre-tax
basis.
B-37
-------
Calculate incremental
Pollution Control Costs
Pre-tax
Annualized
[From Cost
Amualization
Model]
Identify Facilities With In-House Operations
Identify Commercial Cleaners
Calculate Pre-Regulatory Cost
Pre-tax Annualized
Calculate Percent Cost Increase
Cleaning Basis,
NotWastewater
Treatment Basis
Compare Against Data
(Question #16) Questionnaire
[From
Commercial
Percent Increase
Exceeds Switching
Point
Percent Increase Is
Less Than Switching
Point
Commercial
Price per
Tank
_CIeanwig__
Would Not Switch
[Cloiure
'Anofytit]
[ClotureAnofytii]
{Get Q", the
Quantity
That Will
Switch to
Commercial]
Figure B-4
Outsourcing Component of TEC Market Model
B-38
-------
B.3.1.3 Preregulatory In-House Cleaning Cost Calculation
The right side of Figure B-4 illustrates the logic path for facilities that have the option of
outsourcing their TEC needs. In-house cleaning costs have capital and annual components; EPA will use
depreciation and amortization to represent the portion of the capital cost paid each year by the facility,
inflated to 1994 dollars:5 .- '
Capital^ = depreciation and amortization, facility i, year y *PPIy
or, using the questionnaire data:
Capitalil992 = Question 39 for
Capitaltl993 = Question 43 for
= Question 47 for
The annual costs, also known as variable costs, are the portion of operating and maintenance (O&M) and
sales, general, and administrative (SG&A) costs assigned to TEC operations by facility i, inflated to 1994
dollars:
VariableU992 = (Question 37c for TEC + Question 38 for
Variableil993 = (Question 41c for TEC + Question 42 for
Variableil994 = (Question 45c for TEC + Question 46 for TEC)i*PPIig94
The, facility's average preregulatory cost:
~~ - VariableJil
5 The depreciation and amortization taken on the equipment and the loans used to finance their purchase
reflect one year's, share of the capital investment for mis analysis.
B-39
-------
is used to smooth year-to-year variations in cost for those years in which the facility was in operation and
for which data are available.
B.3.1.4 Comparison With Respondents'Decision Point
The model then calculates the facility's increase hi cleaning costs due to additional wastewater
- ', .: .!•'*. ' •'",.. ',, \, .'• .."/ . . • . ,. • ••.,;. .(." \ *
pollution control, as a percentage of average preregulatory cleaning costs:
(total anmialJ3!ed COSt)-
C(pie)i
The logic flow then compares nils percentage increase in cost to Has response given to Question 16 hi the
detailed questionnaire; this question asks respondents to identify the percent increase hi cleaning costs at
which they would consider outsourcing tank cleaning to a commercial facility. As indicated by the trio of
boxes hi the middle of Figure B-4, a facility is assumed to upgrade its wastewater treatment if the increase
in cost is less than the switching point identified hi Question 16, or if the respondent would not switch to a
commercial cleaning service.6
For a few faculties, the pre-regulatory calculations might indicate that it is less expensive to use a
commercial cleaning service rather than perform cleanings on an in-house basis. EPA assumes that the
respondent has evaluated the commercial cleaning option and retained control over tank cleaning for
reasons other than cost, e.g., liability concerns. The model does not switch these facilities hi the pre-
regulatory calculation; rather, they appear as "incremental" switches at the point where the percentage
pollution control cost increases are greater than the switching point given hi the questionnaire.
6 Question 16 identifies the switching point for each tank type that a facility cleans. If the facility indicates
that they would NOT switch for any of the tanks, then the model does not switch mem (i.e., they are analyzed
as if wastewater treatment upgrade is made); if they indicated different switching points, then the minimum
switching percentage is used. The model does not, however, switch anyone unless the commercial costs
calculated hi the next section are less than then* in-house costs.
B-40
-------
B.3.L5 Estimation of Total Cost of Commercial Services to Facility
If the percentage cost increase exceeds die switching point, EPA assumes that the facility would
investigate the costs associated with outsourcing TEC needs to a commercial cleaner. The facility must
consider the total commercial cost—not only the commercial price of cleaning, but also the cost associated
with getting the tank to and from the cleaner. EPA calculates the total commercial cost in four stages.
First, using questionnaire data, the model calculates the average annual cleanings by tank type for
years hi which the facility was in operation and for which data are available:
y _ Sy (Question 23^wt
Second, the model calculates the average annual cleaning cost for the facility by multiplying its
average number of tanks cleaned by the postregulatory commercial cleaning price
for its market group:
Cleaning cost, = NJ*Pg
Third, the model calculates the transportation costs associated with sending the tanks to a
commercial facility:
Transport costj = NJ*( Question 25*2 )£*C
; where:
B-41
-------
i ai !"!?; >•: f'..ff •:fir. Tf<>ff |.;;'-;,;"i •; fi; '•;'!'T;;•'\";• t ;;';v;' .»y"T;?l:">";l :"'! '?.••''• 'P'?:!: •' ;''
Nj = average annual number of tanks cleaned, facility i
(Question 25 * 2). = round-trip distance to nearest commercial cleaner, facility i
Cg = estimated cost per mile, market group g
Question 25 provides the one-way distance to ihe nearest commercial cleaner from the in-house facility;.
therefore, a factor of 2 is used to calculate the cost of a round-trip to the nearest cleaning faculty.7
i , , , " " ' ' i
Finally, the total cost to a facility of outsourcing TEC seeds to a commercial cleaner is die sum of
cleaning costs over all tank types and transportation costs over all transport modes:
H"! : , , " ,.'.,.., . ' • ,'" i,
:i, "' , •:'". "« " ' •. ' • , , . I •
Total commercial costj = Cleaning costj + Transport costj
B.3.L6 Comparison of Total Commercial and In-House Cleaning Costs
Whether to outsource TEC or not depends on a comparison of the total commercial cost and the
postregulatory in-house cleaning cost (the sum of the preregulatory cost and the incremental pollution
control cost):
, ' ' ' ' ' ,','!. i
[Total commercial cost] vs. [C(pre) + Annualized cost]
7 Estimates of cost per mile were obtained from me Private Fleet Benchmarks of Quality and Productivity
(PFMI, 1996) for trucks, and the Uniform Railroad Costing System Phase 3 (Association of American
Railroads, 1996) for rail tank cars; estimates of cost per ton mile were obtained from the U.S. Maritime
Administration (1996) for tank barges. Due to uncertainty in the cost per mile figures, sensitivity analyses
were performed setting transportation costs to zero; if a facility does not switch when transportation costs are
zero, it will not switch when they are positive.
B-42
-------
Three outcomes from mis comparison are possible:
• There is no commercial facility available (the respondent cannot provide an answer to
Question 25); EPA assumes the facility will upgrade, its wastewater treatment.
• The total commercial cost is greater man the postregulatory in-house cleaning cost. EPA
assumes the facility will not switch and will have to upgrade its wastewater treatment even
though the cost increase may exceed me switching point identified in Question 16.
' • The total commercial cost is lower man the postregulatory in-house cleaning cost; EPA
assumes me facility will outsource its TEC needs.
The model assumes mat facilities indicating mat they either would not switch or would consider
switching, but only at a percentage cost increase larger man the regulation created, would all upgrade their
wastewater treatment.
B.3.2 Implications of Outsourcing Component Results
B.3.2.1 Industry Compliance Cost
In previous effluent guidelines, EPA calculated the total annual and capital costs associated with
the regulatory options by totaling all such costs over all faculties or, hi the case of a sample, weighting the
costs then totaling mem. For this industry, however, if a facility decides to outsource its TEC needs, it
will not incur either the capital costs of the additional pollution control equipment nor the incremental
annual costs of operating mat equipment. These costs, therefore, will be excluded when calculating the
total industry compliance cost. . ,
B.3.2.2 Costs Used in Closure Analysis
The cost borne by a facility mat decides to outsource its TEC needs rather man upgrade its
wastewater treatment system is the total commercial cost of TEC less the average preregulatory variable
cost of in-house TEC:
B-43
-------
^ - ~ i - , (H Variable^
Outsourcing costSj = Total commercial costj - ^ Z-L
If the facility decides to outsource its TEC, it will no longer incur die annual cost of labor and chemicals
from performing TEC itself; these cost savings are'Subtracted from outsourcing costs. EPA assumes mat
there are no capital cost savings from outsourcing because the cost of removing the equipment already in
place is equal to die salvage value of the equipment This net outsourcing cost of switching to a
commercial TEC facility is used in the facility and business entity closure analyses.
B.3.2.3 Impacts Quantified by Outsourcing Component
The outsourcing component identifies faculties that would begin using commercial facilities for
tank cleaning. The switch, however, results in employment losses at those faculties because the personnel
who performed the in-house cleaning are no longer needed. The effects of the switch can be interpreted in
„',:: i' , , , ' " ' ,|', :\ . ' „„ ' , " '<" i1" ' . ' ,. ' " . ' !„
two ways:
• Closure for in-house faculties dedicated to TEC operations.
" TEC Una closure for in-house faculties with mixed activities. The analogy is shutting
down a product line in a manufacturing faculty while the rest of the plant continues
operations.
Should outsourcing be projected, EPA calculates employment losses from line closures as full-
time-equivalent job losses using the assumption that 40 hours per week (2,080 hours per year) is full-time
employment:
' , , Question 53b (total number of TEC employee hours).
Job losses, = •• 3__i 2
1 2,080
B-44
-------
For dedicated facility closures, EPA calculates the employment losses on the basis of total facility
employment (Question 53a). The results of the outsourcing component and closure model are cross-
checked to avoid double-counting TEC employment losses. This could occur if a facility decides to
outsource its TEC needs, leading to TEC employee job losses in the market model, but incremental costs
force the entire facility into closure, leading to total employment loss including TEC employees in the
closure model.
B.3.3 Incorporating the Outsourcing Change in Demand and Iterating the Model
After the first pass-through, the commercial component is made and a new commercial price is
projected, the outsourcing component of the model is used. The outsourcing component estimates the
number of in-house facilities mat will switch to using commercial facilities for their TEC needs. This
creates additional demand for the commercial facilities in the appropriate market group. Unlike most
effluent guideline market analyses, the position of the demand curve is not constant The process for
integrating the outsourcing and commercial components is ghnunariMd in Figure B-5 and illustrated in
Figure B-6. The preregulatory equilibrium is shown as Point A on Figure B-6. Increased pollution
control costs are then added; Point B at P2, Q2, marks the initial solution from the commercial component.
The demand curve shifts right; the magnitude of the shift is Q,*1, which is the weighted quantity of
cleanings that in-house facilities now outsource. A new demand curve is created (D,2 in Figure B-6) by
adding quantity Qg'1 to Q/at price P/.
The market is now at P,2 and Q/ +Q,'1 (Point C hi Figure B-6); however, the market is not hi
equilibrium because more facilities are requesting cleanings than commercial facilities are willing to
provide at the going price. This excess demand would lead to an increase hi the price of commercial
cleanings. To calculate the new increased price, the market model is run with the new higher demand
curve, Dg2, and the same supply curve as hi the first iteration, S(2. The only complication at mis step is
that hi the case of the supply curve, the vertical shift, the per unit pollution control cost, was known; hi the
case of the demand curve, the horizontal shift is known and the vertical shift must be calculated from it.
The logic of transforming the measured horizontal shift in the demand curve to the vertical shift
necessary to. solve the model relies on the fact that the price elasticity of demand is constant along each
B-45 •'.'...'
-------
Initial Market
Conditions
(Point A on Rg. B-6)
Run Commercial
Component
Obtain Preliminary
Post-regulatory Price
and Quantity
£-X-^nMvv:<:OvC>X-Kwfr>Xf>:
^[Holding
*'Demand
Constant]
Move to P2 and Q2 1
(Point B in Rg. B-6)
,. ,M
Calculate New 1
CofnrriBfcifll Price
^-wvvTOCTVVVrfifgvv>6f^vv«iW»W9W«OJ^tf&9M
T
Run Out&ourcAg
Component with
New Price
Obtain QS1 tha
In-House Demand
that Win Now Switch
to Commercial
Cleaners
™~Jj™—^
Demand Shifts
Outward by Q3'
^^^^^«m«^«^
Move to P2 and 1
Q2+QS1 (point C •„
Rg. B-6) |
[
-*-
I
I
Whim QS1 nr OS2
approaches Zero,
Final Equilibrium is
Reached and the
Model Has Stabilized
/Poinf P in Pin R_fi\
«35J!35!?!??S??!SJS5!SBS8HSJJ!?J5??S
-
[Figun B-6 illustrates a
singlt iteration]
/
Recalibrate Market
Model to Obtain New
Equilibrium Price
and Quantity (P**,
QP°* in Rg. B-6)
,»»~_P_^
Demand Shifts |
Inward By Q82 I
*™™™™"™™™"jr
T
Obtain Q82, the
Quantity of Facilities
that Decide to Not
Switch at Higher Price
——j^™—*
Rerun Outsourcing \
Model with Higher
Price |
¥
Calculate the Higher I
Commercial Price \
Cleaning Supply
Shortage
I
Recalibrate Market
Model to Obtain
Market Equflibrium
Move to P3 and Q3
(Point D in Rg. B-6)
Figure B-S
Steps for Int^radng die Outsourcing and Commercial Components
B-46
-------
TEC COMMERCIAL MARKET GROUP g
S1
[Quantity Shifting to Commercial
Market from In-Housc Facilities]
[Quantify that Will Not Switch After
ncrease]
D2
D1
D3
Q2
Q3Q1(Q2
A = Q1, P1 = before regulation equilibrium
B = Q2, P2 = post-regulation equilibrium prior to inclusion of increased outsourcing demand
C = Q2 + QS1, P2 = increased demand at P2
D = Q3, P3 = intermediate equilibrium before outsourcing facilities adjust
E = QP084, PP054 = final equilibrium after several iterations (only one is illustrated)
Xs = supply shift = weighted average increase in marginal cost from regulation
XD = demand shift = change in price due to change in quantity demanded
Figure B-6
Graphical Analysis of the Integration of the
Outsourcing and Commercial Components of die Market Model
B-47
-------
demand curve and equal for both demand curves. If die number of cleanings outsourced under a given
option is equal to Q,"1, men the total number of cleanings demanded at price P,2 is now equal to (Q/ +
Q,^). By solving for the price, P,'1, at which (Q/ + Q,'1) wiU be demanded on the original demand
ciirve, the percentage change in price, (P,2 - P,'1)/?,'1, required to cause a (^/(Q,2 -4- Q,*1) percentage
change in quantity demanded can be calculated. Because bom demand curves have identical constant price
elasticities of demand, if the (percentage) horizontal distance between the two curves is Qg*V(Qg2 + Qg'1),
the (percentage) vertical distance between the two curves must be (P,2 - P,*1)/?,*1.
...... . . !JI 'i !' .. . , ; • i, ' ' I
The percentage shift hi the demand curve, m, is calculated as:
. (p.2
where P,2 is as calculated above and P/1 is solved for by:
ln(at) -
In order to maintain the constant price elasticity of die new demand curve, the shift must enter the
demand equation in a manner exactly analogous to the supply curve. Thus, the new market price, Pg3, is
calculated by setting the new demand curve:
equal to the postregulatory supply curve and solving for price. The resulting price is:
B-48
-------
8) - In(p8) + egln(l+k) - T|sln(l-nn)
Once the new equilibrium price, Pg3, has been calculated, die new equilibrium quantity at that
price can be solved for^ as before, by substituting that price into the demand equation:
Economic reasoning determines lhat Pg3 is higher than price P,2; however, Q,3 may be higher, lower, or
remain the same as die preregulatory quantity in each market group.8 The new equilibrium is shown as
Point D in Figure B-6. Because P,3 is higher than die price expected by die managers of die in-house
facilities, P,2, these facilities will reconsider tiieir decision to outsource at this new, higher price. The
initial decision to outsource was based on a specific expected commercial price; however, that decision led
to a change La die key variable on which die decision was based.
The next step is to rerun die outsourcing component witii die new price.' At die new, higher price,
die cost of outsourcing will be greater; die result may be fewer facilities deciding to outsource; therefore,
Qj"2, die new quantity dial switches at die new price of P,3, is lower titan Q,'1. Thus, die demand curve
decreases by die difference between Q/2 and Q,*1, die weighted quantity of cleanings performed by die
facilities that now do not switch.
The market model is again rerun with this third, lower demand curve, Dg3 to find die new
equilibrium price and quantity, P* and Q/; the resulting price will be smaller than Pg3. This price is run
through die outsourcing component to estimate die revised quantity of cleanings tiiat now will shift into die
commercial market, Qg*3. The process will iterate between die market model and outsourcing component
8 It is possible, albeit unlikely, that die final cost pass-through percentage in die commercial market could
be more than 100 percent, if die increased demand from outsourcing drives up price enough in me short-run.
B-49
-------
until the changes in price become so small that facilities no longer have incentive to change their decision.
The final market equilibrium (Point E in Figure B-6) will stabilize at a price somewhere between P/ and
P,3 and a quantity between Q/ and Q,3. The final price will not only be higher man the preregulatory
picice, P,1, it must also be higher man. Pg2 as well because market demand can not fall below D1.9 It is
impossible to predict theoretically the relationship between the final quantity and the preregulatory
quantity, Qlf; Figure B-6 illustrates a scenario with a lower postregulatory quantity.
Abdelwahab, W. and M. Sargious. 1992. Modelling the demand for freight transport: a new approach.
Journal of Transport Economics and Policy. January:49-70.
Association of American Railroads. 1996. Uniform railroad costing system phase 3 1994 movement
costs. Facsimile from Paul Posey, Association of American Railroads, to Calvin Franz, Eastern Research
Group, IDC. May 6.
•M ,i '•'••.•' •' • !'•»! •'••'. • ••;•'' :,' ;;•' .'i • v:,: • • " ••',.••.. • • ' ,, i ««'"•' .. | ,: :, , •
Babcock, M.W. and H.W. German. 1989. Transportation policy impacts on railroad and motor carrier
market shares. Journal of Transportation Research Forum. 30(1): 112-120.
Beenstock, M. and A. Vergottis. 1989. An econometric model of the world tanker market. Journal of
Transport Economics and Policy. September:263-280.
Borger, B. and W. Nonneman. 1981. Statistical cost functions for dry bulk carriers. Journal of
Transport Economics and Policy. May: 155-165.
Braeutigam, R.R. and R.G. Noll. 1984. The regulation of surface freight transportation: The welfare
effects revisited. Review of Economics and Statistics. 66(l):80-87.
Callan, S. J. and J.M. Thomas. 1992. Cost differentials among household goods carriers. Journal of
Transport Economics and Policy. January: 19-34.
Damus, S. 1984. Ramsey pricing by U.S. railroads. Journal of Transport Economics and Policy.
January:51-61.
Fitzsimmons, E.L. 1981. A statistical sketch of the demand for rail transport of grain and soybeans.
Transportation Journal. 20(3):59-65.
9 Demand can fall lower than D1 only if initial clients of commercial facilities choose to leave the market
and create their own in-house facility; as noted earlier, it is assumed that start-up costs are sufficiently large
to discourage that behavior.
B-50
-------
Friedlaender, A.F. and S.J. Wang Chiang. 1983. Productivity growth in the regulated trucking industry.
in: Research in transportation economics: a research annual, edited by T.E. Keeler. Greenwich, CT:
JAI Press Inc. Volume 1:149-184.
Friedlaender, A.F. and R.H. Spady. 1981. Freight transportation regulation: Equity, efficiency, and
competition in the rail and trucking industries. Cambridge, MA: MFT Press.
Friedlaender, A.F. and R.H. Spady. 1980. A derived demand function for freight transportation.
Review of Economics and Statistics. 62(3):432-441.
Friedlaender, A.F. et al. 1993. Rail costs and capital adjustments in a quasi-regulated environment.
Journal of Transport Economics and Policy. May: 131-152.
Gemmell, A.W., I.H. Uhm, and G.C. Shaw. 1983. Economics of Canadian water carriers on die Great
Lakes and St. Lawrence seaway system. Journal of Transport Economics and Policy. May: 191-209.
Gibson, R. 1994. Dirty trucks may have hurt ice cream mix. Wall Street Journal. October 31 :B1.
Hale, C. and A. Vanags. 1989. Spot and period rates in the dry bulk market: Some tests for the period
1980-1986. Journal of Transport Economics and Policy. September:281-291.
Hennessy, T. W., et. al. 1996. A national outbreak of Salmonella enteritidis infections from ice cream.
The New England Journal of Medicine. May 16:1281-1286.
Hsing, Y. 1994. Estimating the impact of deregulation on the elasticity of demand for railroad services.
International Journal of Transport Economics. 21(3):301-311.
Jara-Diaz, S.R., P.P. Donoso, and J.A. Araneda. 1992. Estimation of marginal transportation costs.
Journal of Transport Economics and Policy. January:35-48.
Lackman, C.L. 1980. The elasticity of demand for rail freight Transportation Planning and
Technology. 6:1-8.
Levin. R.C. 1981. Railroad rates, profitability, and welfare under deregulation. Bell Journal of
Economics. 12(1): 1-26.
Lewis, K.A. and D.P. Widup. 1982. Deregulation and rail-truck competition: Evidence from a translog
transport demand model for assembled automobiles. Journal of Transport Economics and Policy.
16(2): 139-149. .
Morton, A.L. .1969. A statistical sketch of intercity freight demand. Highway Research Record.
296:47-65.
Modern Bulk Transporter. 1994. Environmental Linings, Inc. provides disposable tank liners. Modern
Bulk Transporter. May:154.
Oum, T.H. 1979. Derived demand for freight transport and inter-modal competition in Canada. Journal
of Transport Economics and Policy. 13(2): 149-168.
B-51 ;
-------
Oum, T.H. 1989. Alternative demand models and their elasticity estimates. Journal of Transport
Economics and Policy. 23(2): 163-187.
bum, T.H..W.G. Waters, and J.Yong. 1992. Concepts of price elasticities of transport demand and
recent empirical estimates: An interpretative survey. Journal of Transport Economics and Policy.
26(2):139-154.
PFML 1996. Private Fleet benchmarks of quality and productivity, vol. 7. Alexandria, VA: Private
Fleet Management Institute.
Rao, P.S. 1978. Demand for railway freight services. Journal of Transport Economics and Policy.
January:7-26.
Rom R.D. 1991. America's private carriers: Who are these guys: A graphical profile of the private
carrier segment of the trucking industry. Fredericksburg, VA: Transportation Technical Services.
Tye W.B. and H.B. Leonard. 1983. On the problems of applying ramsey pricing tome railroad industry
with uncertain demand elasticities. Transportation Research: Part A. 17A(6):439-450.
i'l't'l1 •• . ' ; -iliij • • i1 . '."i, ' i111 , ' i'• : • i..;r;:'! i, i'»i ', . •'.•'. i, ••'''' i'Th> •,•!.:.
U.S. EPA. 1992. Regulatory impact analysis of national emissions standards for hazardous air pollutants
for by product coke oven, charging, door leaks, and topside leaks. EPA 453/D-92-014. Research Triangle
Park, NC: U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards.
U.S. Maritime Administration. 1996. Cost per ton-mileof freight transported for tank barges. Phone
call from Calvin. Franz, Eastern Research Group, Inc., to Rob Sienklewicz, U.S. Maritime
Administration. May 10.
Westbrook, M.D. and P.A. Buckley. 1990. Flexible functional forms and regularity: Assessing the
competitive relationship between truck and rail transportation. Review of Economics and Statistics.
72(4):623-630.
Wilson, G. 1978. Notes on the elasticity of demand for freight transportation. Transportation Journal.
17(3):5-15.
Winston, C. 1981. A multinomial probit prediction of the demand for domestic ocean container service.
Journal of Transport Economics and Policy. 15(3):243-252.
B-52
-------
APPENDIX C
CLOSURE MODEL
C.1 BACKGROUND
EPA developed a financial model to estimate whether the additional costs of complying with the
proposed regulation rendered a TEC facility unprofitable. If so, the facility is projected to close as a result of
the regulation, leading to facility-level impacts such as losses in employment and revenue. The model is
based on facility-specific data from the detailed questionnaire (U.S. EPA, 1995) because such data are not
available elsewhere. -
In terms of perspective, the outsourcing module of the market model (Appendix B) focuses on TEC
operations within a facility. The closure model focuses on die entire facility (Appendix C); and the financial
distress model evaluates whether a company could afford to upgrade all of its facilities (Appendix D).
Although there are points of interaction, e.g., the market model estimates the industry proportion of costs that
a TEC provider passes through to its customers through increased price, each model provides a different
perspective on the industry and the impacts potentially caused by the effluent limitations guidelines
requirements.
A , ' • ' .
The closure decision is modeled as: .
Post-regulatory status = Present value of future earnings
(Present value of after-tax incremental pollution control costs
* (1-percent cost pass-through))
Salvage value
The model calculates the long-term effects on earnings reduced by the added pollution control costs, and then
compares it to the liquidation value of the facility. If the post-regulatory status is less than zero, it does not
make economic sense for the facility owner to upgrade the facility. Under these circumstances, the facility is
C-l
-------
projected to close.1 Section C.2 describes the methods used to estimate the present value of future earnings.
The cost annualization model (Appendix A) calculates the present value of after-tax incremental pollution
control costs. The market model (Appendix B) calculates the industrywide cost pass-through (CPT). Section
C.3 describes the how EPA adjusts the CPT from an industrywide value to the facility-specific value in the
closure model. Section C.4 describes the options investigated for salvage value. Section C.5 presents EPA's
methodology for determining facility closure when evaluating multiple approaches for estimating future
earnings and salvage value. Section C.6 illustrates sample closure analyses. Section C.7 describes the
business entity level analysis, which is performed when insufficient information is available at the facility
level.
C2 PlffiSENTVALTJOEOFFliniiffiEARNmGS
C.2.1 Basis for Projections
EPA examined two alternatives far estimating the present value of future plant operations:
• Net income from all operations, calculated as revenues less operating costs; selling, general,
and administrative expenses; depreciation; interest; and taxes (as these items are recorded on
the faculty's income statement).
• Cash flow, which equals net income plus depreciation.
Depreciation reflects previous, rather than current, spending and does not actually absorb incoming revenues.
Transportation equipment cleaning is an industry that does not show continuing capital investment for
increased efficiency and expansion. For this reason, cash flow is more likely to indicate the funds available
for operation than net income. EPA, therefore, selected cash flow as the basis for measuring the present value
of future facility operations in the closure analysis.
1 When a facility is liquidated, EPA assumes mat it no longer operates and closure-related impacts
result. In contrast, facilities that are sold because a new owner presumably can generate a greater return
are considered transfers. Transfers cause no closure-related impacts, even if the transfer was prompted by
increased regulatory costs. Transfers are not estimated hi mis analysis.
C-2
-------
C.2,1.1 Adjusting Earnings to an After-Tax Basis
Depending on the corporate hierarchy for the faciHty, the eaniings reported in the questioimake may
have to be adjusted for taxes. A facility may fall into one of three categories:
• It is part of a multi-facility corporation. Facility earnings before interest and taxes (EBIT)
are adjusted to an after-tax basis according to the taxable income of the business entity using
the appropriate corporate tax rate.
i ' . • • '
• It is part of a multi-facility organization whose income is taxed at the rate for individuals
(e.g., Subchapter S corporations, partnerships, sole proprietorships, etc.). Facility earnings
before interest and taxes (EBU) are adjusted to an after-tax basis according to the taxable
income of the business entity using the appropriate individual tax rate.
• The facility is the business entity; therefore, the complete income statement data is supplied
for the facility. (These facilities have corporate hierarchy type "E".) Because net income is
presented on an after-tax basis, no adjustments need to be made.
C.2.1.2 Adjusting After-Tax Earnings to Cash Flow
For first two categories (multiple facilities under the same ownership), cash flow is calculated as:
Cash Flow = [(EBIT) * (1 - (federal + state tax rates)] + depreciation
where the federal and state tax rates are dependent on corporation type and income at the business entity
level, see Section A. 1 for more details. Table C-1 lists the components used in the cash flow calculations,
their location in the questionnaire, and the data element name.
For the third category—single facility businesses, cash flow is calculated as:
Gash flow = net income + depreciation
The capital expenditures associated with additional pollution control for the transportation
equipment cleaning industry are depreciated over a 16-year period in the cost annualization model (see
Appendix A). The same time frame is used for the present value analysis. To maintain consistency with the
cost annualization model, the first year of cash flow is not discounted.
C-3
-------
TABLE C-l
COMPONENTS FOR CALCULATING FACILITY CASH FLOW
Parameter
Revenues-Costs
Net Income
Depreciation
1992
1993
1994
1992
1993
1994
1992
1993
1994
Tax status variable
Corporate hierarchy
Corporate type
Business entity
1994 Earnings before interest
and taxes
1994 Interest
Location in Part B
of Questionnaire
(Question No.)
49e
49e
49e
50e
50e
50e
39
43
47
7
8
84a
84b
Data Element
Dictionary
Field Name
B49E92
B49E93
B49E94
B50E 92
B50E 93
B50E 94
B39 92F
B43 93F
B47 94F
B07
BOS
B84A94
B84B94
i ft.
C-4
-------
C22 Forecasting Methods for Future Cash Flow
FaciUty cash flow miist be forecast over the 16-year project lifetime. AU forecasting methods
examined for and used in the closure analysis incorporate the following assumptions and procedures:
• No growth in real terms.
• Constant 1994 dollars. Data from 1992 and 1993 are inflated using the change in the
Consumer Price Index (CEA, 1995). -
The "no growth" assumption is made so that a facility is not assumed to grow its way out of an economic
impact associated with additional pollution control costs; essentially, facilities are assumed to be running at
or near capacity and significant growth is assumed to be unlikely without a major capacity addition.
Although the, financial health of the TEC industry is expected to follow that of the transportation
sector in the general economy, an examination of the pretest survey data indicated that cash flow for a facility
sometimes showed pronounced year-to-year variations. EPA examined five different forecasting methods in
order to address facility-specific variations:
• Most recent year (1994 data) as best indicator of future cash flow.
• Three-year average (1992 to 1994 data after inflation to 1994 dollars).
\ ;-
• Time-varying cash flow optional
Cash flow follows a three-year pattern:
1994 = 1994 cash flow
1995 = 1993 cash flow
1996 = 1992 cash flow
1997 = 1993 cash flow
1998 = 1994 cashflow (pattern begins again)
1999 = 1993 cash flow, and so forth
If the facility had a good/bad year in 1993, the result is a good/bad year every two years.
• Time-varying cash flow option #2 '
Cash flow follows a three-year pattern: '
1994 =1994 cash flow
1995 = 1994 cash flow
1996 = 1993 cash flow
1997 =1992 cash flow
C-5
-------
1998 = 1992 cash flow
1999 =1993 cashflow
2000 =1994 cash flow (pattern begins again)
201)1 = 1994 cashflow, and so forth
If the facility had a good/bad year in 1993, the result is a good/bad year every three years.
• Time-varying cash flow option #3
Cash flow follows a three-year pattern:
If H= 1994 cash flow
1^95-1992 cashflow
1996 =1993 cash flow
1^97 = 1994 cashflow
•'.;, , ,. ' ' . 1$98=' 1993cashflow , ; , , |
1999 = 1992 cash flow (pattern begins again)
2060 = 1993 cash flow, and so forth
Ifthe facility had a good/bad year in 1993, the result is a good/bad year every two years, but
the timing of that good year differs from that in Optional.
Table C-2 uses data representative of that seen in the pretest survey. The single year option generates a
present value of estimated cash flow about half that of the other options.2 For new or newly-acquired
facilities, however, one year of data may be all that is available for analysis. For facilities with a trend in
income, the most recent year may be the best estimate for future cash flow.
The three-year average and Option #2 have similar results. Both would have one good year every
three years and the smoothing effect of the average does not have a large impact on the present value.
Option # land Option #3 have similar results. The present values are higher than those seen for
Option #2/three-year average results because a good/bad year is assumed to occur every two years. Timing
t .
considerations on when the good/bad year happens has less an effect on the present value than the assumed
frequency of a good/bad year.
Forecasted earnings estimates depend on the estimation methods used and the quality of the available
data. To address uncertainties in the long-term estimates from these factors, EPA chose to incorporated more
2 EPA requested three years of data in the questionnaire to mitigate die uncertainty hi the analysis resulting
ftpm a single datum point (i.e., one year of data) illustrated in diis example.
C-6
-------
TABLE C-2 .
FORECASTINGMETHOD ALTERNATIVES
PRESENT VALUE:
REAL DISCOUNT RATE
PAST CASH FLOW ($1994):
10%
Inflate Cash Flow to 1994 Dollars
1
Cash Flow
Cash Flow
Cash Flow
FORECASTED CASH FLOW:
' " 1
2
3
4
5
6
7
8
9
10
11
12
13.
14
15
16
1992
1993
1994
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Currents
12,500
60,000
15,000
1994
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$1994
$13,271
$61,794
$15,000
Forecasting Methods
C
Average Variation 1
$30,022
$30,022
$30,022
$30,022
$30,022
-• $30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$61,794
$13,271
$61,794
$15,000
$61,794
$13,271
$61,794
$15,000
$61,794
$15,000
$61,794
$13,271
$61,794
$15,000
$61,794
$13,271
Consumer Price
1992
1993
1994
Variation 2
$15,000
$61,794
$13,271
$13,271
$61,794
$15,000
$15,000
$61,794
$13,271
$13,271
$61,794
$15,000
$15,000
$61,794
$13,271
$13,271
Index for Trai
126.5
130.4
134.3
Variations
$13,271
$61,794
$15,000
$61,794
$13,271
$61,794
$15,000
$61,794
$13,271
$61,794
$15,000
$61,794
$13,271
$61,794
$15,000
$61,794
BASELINE PRESENT VALUE
$129,091
$258,370 $336372 ,$254,064 $316,593
- C-7
-------
than one forecasting method when evaluating closure (see Section C.S). Based on the information in Table
j , f-
C-2, three methods appeared sufficient to address a range in the estimated present value of future cash flow.
The closure model incorporates the:
• Most recent year
» Three-year average, and
• Option #1
methods for forecasting future cash flow.
C.2J3 Discount Rate
The final step in estimating each facility's preregulatory present value is to discount the cash flow
stream back to the first year in the time series. This step does not adjust the stream for inflation because the
projections are in constant dollars. Thus, the discount rate used for discounting must be a real discount rate,
obtained by adjusting the nominal discount rate for the expected annual rate of inflation (see Appendix A).
As in the cost annuali/ation model, the facility-specific nominal discount rate must lie between 3 and 19
percent to be used in the model; otherwise, the industry average nominal rate is used instead. That is, the
same facility-specific real discount rate is used in both the cost annualization and closure models.
C.2.4 Summary of Forecasted Cash Flow
EPA examined the present value of future cash flow calculated by the three forecasting methods for
the 681 facilities that provided sufficient information hi the questionnaire. Table C-3 summarizes the results.
The three forecasting methods produce average present values of future cash flow that are within 27 percent
of each other. For specific facilities, the estimates may show a wider variatioa A facility closure may depend
on the forecasting method. For this reason, the closure analysis incorporates multiple forecasting methods in
the evaluation of facility closure.
C-8
-------
TABLE C-3
SUMMARY OF CASH FLOW FORECAST RESULTS
(681 of 692 Potentially Affected Facilities)
Method
1994
Average
Variation #1
Percent Value of
Forecasted Cash Flow
Average
$10,346,050
$14,126,591
$14,184,920
Total
$7,042,294,436
$9,615,613,039
$9,655,316,244
Percent of
Time Method
Produced
Highest
Estimate
50.6%
11.5%
389%
Source: Closure model and detailed questionnaire data.
C-9
-------
C3 FACILITY-SPECIFIC COST PASS-THROUGH FACTOR
The market model estimates the percentage of incremental pollution control costs that are passed to
tbe consumer through higher prices. The price increase applies only to TEC services; although most facilities
earn revenues from non-TEC operations as well. For in-house faculties, in particular, TEC services form
only a small fraction of overall revenues. The price increase does not apply to these non-TEC operations, hi
order not to overestimate the increase in facility revenues due to higher prices for TEC services (and therefore
underestimate the impacts of the rule), EPA adjusted the industrywide cost pass-through factor (CPT) by the
facility-specific ratio of TEC revenues to total revenues. The result is a facility-specific cost pass-through
factor, also called the effective cost pass-through.
For example, suppose a facility earns total revenues of $1 million, of which 25 percent ($250
thousand) is attributable to tank cleaning. A 20 percent increase in the price of tank cleanings (cost pass-
through) will increase the facility's revenues by $50 thousand ($1 million x .2 x .25), not $200 thousand ($1
million x.2). Table C-4 presents the average effective CPT by subcategory. Because commercial
facilities—as a group—earn a higher percentage of revenues from TEC operations, the average effective CPT
for commercial facilities is substantially higher than for in-house facilities.
C.4 SALVAGE VALUE
C4.1 Service Industries, Manufacturing Industries, and Salvage Value
Service industries frequently require little capital investment relative to manufacturing industries.
The value of a service industry facility may be more closely related to its customer list, location (potential
service area), and existing cash flow rather than to the value of its assets. In effect, for a service industry, the
year-long performance shown by a faculty's income statement may be more important than the snapshot
provided by the balance sheet Under these circumstances, the salvage value based on assets is effectively
zero. Because a manufacturing facility produces products, fixed assets—such as buildings and
equipment—may play a more important role in estimating its liquidation or salvage value.
C-10
-------
TABLE C-4
AVERAGE EFFECTIVE COST PASS-THROUGH BY SUBCATEGORY
Subcategory
TT/CHEM
RT/CHEM
TB/CHEM
TT/FOOD
RT/FOOD
TB/FOOD
TT/PETR
RT/PETR
TH/HOPPER
RH/HOPPER
BH/HOPPER
All Facilities
Commercial
Facilities
63.6%
60.3%
48.0%
61.1%
ND
ND
0.2%
ND
. 3.4%
ND
5.1%
55.7%
In-house
Facilities
7.5%
16.4%
19.5%
0.2%
ND
ND
0.2%
ND
0.0%
ND
0.0%
3.7%
All
Facilities
32.4%
37.7%
42.5%
15.1%
ND
ND
0.2%
ND
1.1%
ND
2.3%
21.6%
Source: Market model, closure model and questionnaire data.
ND: Not disclosed due to business confidentiality.
C-ll
-------
The industry regulated in the TEC effluent limitations guidelines, however, consists of facilities in
both service and manufacturing industries. Even within a subcategory, there may be a mix of commercial
providers of TEC services and in-house operations that ate part of manufacturing facilities. EPA examined
each subcategoty and determined that a zero salvage value was appropriate for all but one subcategory
(Denning, 1996). Under this approach, the closure decision described in Section C. 1 simplifies to whether
the facility retains a positive long-term cash flow after responding to the regulation.
The remaining subcategory is the Rail Chemical subcategory. In the subcategories for which effluent
limitations guidelines are proposed, the 1994 book value of fixed assets was $5.2 million for the Rail
Chemical facilities compared to $2.3 million for Truck Chemical and Barge Chemical and Petroleum
facilities; 80 percent of Rail Chemical facilities have fixed assets greater than the median value for the
.iiiiii , i-" „ •'.'•', . • liijiiifi , ' '„, ' " 'Y ,', \! ( '• I '; '" -! ''ii,, ,' :••: .", " ' I";1: i ;•.'(. ,:• ':':' ' i;1!;,- '] ••••.!'
industry. In addition, Rail Chemical facilities hold a much smaller percentage of total assets in the form of
current assets; on average Rail Chemical faculties hold 38 percent of total assets in the form of current assets
compared to 52 percent for the industry. EPA determined that it was appropriate to develop salvage value
estimates for this subcategory based on the value of current and long-term assets (see Section C.2).
C.4.2 Salvage Value Estimates
1 ' " ' t
Salvage value is calculated assuming the facility will be closed and not transferred. Thus, assets are
evaluated based not on their potential contributions to operations, but only on their market value in a
liquidation sale of plant and equipment Salvage value is estimated assuming that all cash transactions are
realized in the current year and that discounting is not required. The most recent data in the survey (1994) is
used in the salvage value calculation.
Salvage value includes the value of short-term (or current) assets and long-term assets. Short-term
assets are defined as those assets not expected to be held beyond a year. Long-term assets include financial
instruments expected to be held beyond a year and fixed assets of plant, equipment, and land. All assets,
both short-term and long-term, that are held on facility balance sheets are included in the closure analysis
(a company has the option of recording all assets at the business entity or company level and not recording
assets at the facility level.). EPA developed two methods of valuing long-term assets, ie., there are two
estimates for salvage value (Figure C-l). Table C-5 lists the components used in the cash flow calculations,
'" ' •• • • • "''»" " " • ' ; • '•'' •'" ' • *; i
""' ' ' ' ' ' '" " ! C-12 ! "' '' ; '
I*J|i(' ,!• i Mi';, "I' fii ;• i •, 1,3,1,t „;';.'.,. , ;\! '"g;;":; '.", Hiii „;; 1 ;... ;,-„', , i - ' ,'j; i i, /,'.,.,; :.rt.i:, it'i,.Jiw :; w •! i" '••. i'v i»xa.i:riil JKwii'i ,' Iliii iv .,,ii•.'
-------
Current Assets
(Non-Inventory)
Book Value of Land,
Buildings, and
Equipment Less
Depreciation
Assessed/Appraised
Value of Land,
Buildings, and
Equipment
Salvage Value
(Book Value Method)
Salvage Value
(Tax Assessment
Method)
Figure C-l
Salvage Value Estimation
C-13
-------
TABLEC-5
Description
1994 Book value of current assets
1994 Book value of inventories
1994 Book value of land
1994 Book value of buildings
1994 Book value of equipment
1994 Book value of other non-current assets
1994 Cumulative depreciation
1994 Assessed value of fixed assets
1994 Percent of market value
Location in
Questionnaire
(Question No.)
32a
32b
32c '
32d
32c
32f
32*
51d
52
Data Element
Dictionary
Field Name
B32A94F
B32B94F
B32C94F
B32D94F
B32E94F
B32F94F
B32G94F
B51D94
B52
C-14
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their location in the questionnaire, and the data element name. Individual components in the salvage value
estimate are discussed in more detail below.
C.4.2.1 Valuing Current Assets
Current assets are divided into two categories: inventories and all other current assets. Current assets
other than inventories include cash, near-cash financial assets—such as certificates of deposit and other short-
term, investments, and accounts receivable. EPA assumes that cash and near-cash assets would maintain their
book value in the event of an auction and would be recovered at face value. Some items, such as certificates
of deposit and other short-term investments, may appreciate in value compared to their book value. Accounts
receivable, however, could be worth less than their book value, depending on each facility's accounting
practices for recognizing bad accounts. Overall, EPA assumes that the book value of these current assets
accurately reflects their actual market value and they are valued at 100 percent in the salvage value
calculations.
Inventories are not as marketable as the rest of current assets because of their unique or specialized
purposes. In the event of liquidation, a facilitywould have to sell its inventories at a fraction of their recorded
book value. For this reason, the analysis values inventories by applying a recovery factor that represents the
portion of book value expected to be recouped in a sale. A 40 percent recovery factor is used to calculate the
salvage value of inventories.3
C.4.2.2 Valuing Faced Assets
Two approaches are used to estimate the value of the fixed or long-term assets at each faculty: tax
assessment value and book value of fixed assets.
3 Companies might maintain their inventories under a First In First Out (FIFO) approach or under the
Last In First Out (LJFO) approach. During inflationary periods, LIFO will tend to undervalue inventories,
generally as a means of limiting tax liability. The survey did not ask the respondent to identify the
inventory accounting system used; however, the system used is unlikely to create a significant difference in
die analysis.
C-15
-------
Tax Assessment
Most of the facilities pay local property taxes based on the assessed value of the facility's fixed
assets. Questionnaire responses provide information about the 1993 and 1994 assessed value of each
facility's land, buildings, and equipment the questionnaire also provides the percent of market value on
which the tax assessment was based. Each facility's market value is calculated as the facility's 1994 assessed
value divided by the percent of market value rate. A 20 percent recovery factor is applied to the result to
reflect the fact that the assets would be liquidated at a fraction of their value.
Not all facilities could provide both tax assessments and percentage of market value; questionnaire
responses indicate the following reasons:
/ • 'Si ' " •• •' .v ' ""'" . • ' . • • . p \•• '•.! '
• Some facilities were not assessed for tax purposes.
• Some assessments bear no relationship to current market value of the assets.
Book Value
An alternative approach for estimating the salvage value of each facility's fixed assets is based on the
book value of its fixed assets. The questionnaire requested 1994 balance sheet data that show the original
cost basis for fixed assets, including the faculty's land, buildings and improvements, equipment and
machinery, and cumulative depreciation. The book value of fixed assets is equal to the original cost less
accumulated depreciation. Similar to the tax assessment approach, a 20 percent recovery factor is applied to
the book value of the fixed assets to reflect the liquidation value of those assets.
There are potential difficulties with using the book value of assets to estimate the salvage value of a
facility. The book value understates the true value of some assets while overstating the value of others. For
instance, a faculty's land could have been purchased long ago and has since appreciated in value
tremendously. Other assets, however, such as a cement settling tank, might have no market value, but could
continue to cany a book value if they have not yet been completely depreciated.
C-16
-------
C.4.2.3 Summary of Salvage Value Estimates
In summaiy, the closure model relies on two estimates of salvage value TOT each facility:
• Tax assessment value of fixed assets plus inventories and other current assets
• Book value of fixed assets plus inventories and other current assets
The values of fixed assets and inventories are reduced by recovery factors to reflect liquidation values.
Facility closure costs, which reduce the overall salvage value of the facility, are difficult to estimate even by
facility executives. These costs can include pension administration, payout costs, and site cleanup prior to
sale. These costs are not included in the salvage value calculation. As a result, the estimated salvage value
could be high, which would mate the facility more likely to be projected to close in the analysis. This
approach leads to a conservative estimate of the number of facility closures. Table C-6 presents a
comparison of the salvage value calculation under both the tax assessment and book value methods for the
Rail Chemical subcategory.
. '"""^ • ( - ' •
OS PROJECTING FACILITY CLOSURES AS A RESULT OF THE RULE
C5.1 Scoring Methodology
With three forecasting methods and two salvage value estimates, there are six ways to evaluate a
facility's status. If a facility's post-regulatory status is less than zero, the facility is assigned a score of "1"
for that forecasting method/salvage value estimate comparison. A facility, then, may have a score ranging
fromOto6.4 •'.',-'.'-'.'
\ • .
Closure is the most severe impact that can occur at the facility level and represents a final,
irreversible decision in the analysis. The decision to close a facility is not made lightly; the business is aware
4Inorder touse the same methodology and models for all subcategories, bom the book and tax assessment
estimates are set to zero for all subcategories but Rail Chemical. These facilities, men, may have scores of
0,2,4, or 6. ' - '
C-17
-------
TABLE C-6
SUMMARY OF TECHNIQUES FOR DETERMINING SALVAGE VALUE
RAIL CHEMICAL SUBCATEGORY (28 of 38 Facilities)
Basis
Tax assessment
Book value
Salvage Value
Average
$1,063,538
$1,512,067
Total
$30,063,060
$42,741,660
Percent of Time
Basis Produced
Greater Value
24.8%
75.2%
Source: Closure model and detailed questionnaire data.
C-18
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of and concerned •with the turmoil introduced into its workers' lives, community impacts, and how the action
might be interpreted by stockholders. The business will likely investigate several business forecasts and
several methods of valuing their assets. Not only all data, assumptions, and projections of future market
behavior would be weighed in the corporate decision to close a facility, but also the uncertainties associated
with the projections. When examining the results of several analyses, the results are likely to be mixed.
Some indicators may be negative while others indicate mat the facility can weather the current difficult
situation. A decision to close a facility is likely to be made only when the weight of evidence indicates that
this is the appropriate path for the company to take.
EPA emulated corporate decision-making patterns when determining when a facility would close. A
score of 3 means that half of the comparisons indicate a financially viable concern. A business is unlikely to
close a facility when the uncertainty in the data means there is a 50-50 chance of it being viable. EPA
selected a score of 4 or higher to indicate closure because it meant that the majority of the comparisons (i.e.,
at least 4 of 6) now indicate poor financial health. EPA believes that this scoring approach represents a
reasonable and conservative method for determining closure.
C5.2 Pre-Regulatory Conditions
The closure analysis begins with an evaluation of the pre-regulatory status of each facility. Several
conditions may lead to a facility having a score of 4 or greater under pre-regulatory conditions:
The company does not record sufficient information at the facility-level tor the closure
analysis to be performed.
The company does not assign costs and revenues that do not reflect the true financial health
of the facility. Two important examples are cost centers and captive facilities, which exist
primarily to serve other faculties under the same ownership. Captive faculties may show
revenues, but the revenues are set approximately equal to the costs of the operation. (Cost
centers have no revenues assigned to them).
The faculty appears to be in financial trouble prior to the implementation of the rule.
C-19
-------
Under the first two conditions, the impacts analysis defaults to the company level because that is the decision-
making level. For example, assets are held at the company level, not the facility level or the company has
intentionally established facilities that will not show a profit but exist to serve the larger organization.
The third condition also indicates a facility for which the impacts of the regulation cannot be
analyzed at the facility level The facility was in operation during the period included in the industry survey
and is, therefore, part of the market model. Because accounting practices allow a company flexibility on
whether it keeps records at the facility level at all, how it allocates corporate expenses to a company, and
other factors, the survey data may not indicate the reasons why the company operated what appears to be an
unprofitable facility. On the other hand, the facility may be unprofitable. In this case, the company may
decide to sell or close the facility. The closure of a facility that is unprofitable prior to a regulatory action
should not be attributed to the regulation. In either case, EPA does not have sufficient information to
evaluate impacts at the facility level as a result of the rule.
,,,,,, „ * *
Table C-7 summarizes the pre-regulatory status by subcategory. The facility-level closure analysis
can be pre of 4 or higher after incumng the costs to respond to the regdation. That is, the facility
is profitable before the regulation, but not after.
C6 SAMPLE CLOSURE ANALYSES
1 "• ! , ,i. i :. ''ii'i ""' i • ' " • " • ... i " • , ' ii i1 .
The calculations are more complex for the case where salvage value is estimated with the book or tax
assessment value of fixed assets. This case is presented in Section C.6.1. The calculations are simpler for
C-20
-------
TABLE C-7
PRE-REGULATORY STATUS BY SUBCATEGORY
Subcategory
TT/CHEM
RT/CHEM
TB/CHEM
TT/FOOD
RT/FOOD
TB/FOOD
Tr/PETR
RT/PETR
TH/HOPPER
RH/HOPPER
BH/HOPPER
Total
Cost
Centers*
0
10
1
0
0
0
9
0
5
0
0
26
Insufficient
Information
at Facility
Level*
0
9
0
0
0
2
0
0
9
0
0
20
Facilities
withPre-
regulatory
Scores 4 or
Higher
14
10
4
8
0
0
0
0
5
5
0
48
•
Total
X
14
30
6
8
0
2
9
0
20
5
0
94
Total
Potentially
Affected
Faculties in
Subcategory1
288
38
15
173
86
2
34
3
34
5
12
692
Source: Closure model and detailed questionnaire data.
Numbers may not sum to total due to rounding.
RT/CHEM estimated on a salvage value basis; all others estimated on a cash flow basis.
*Analysis performed at me business entity level, not the facility level.
1Based on detailed questionnaire data.
C-21
-------
the subcategories where salvage value is set to zero (also called cash flow approach, see Section C.4.1). This
case is presented in Section C.6.2.
C.6.1 Sample Closure Analysis Using Salvage Value
Tables C-8A and C-8B are annotated printouts of the closure model based on salvage value using
hypothetical data. When actually used, the closure model output closely resembles Tables C-8A and C-8B,
but contains facility-specific confidential informatioa
In Table C-8A, panel A contains input variables for the calculation. The estimated inflation rate of
3.6 percent is based on the change in the Consun^Priw Index from 1984 to 1994 (Table A-2). Thefacility-
specific discount rate is taken from survey data. The industry average nominal discount rate of 10.4 percent
is calculated from, all admissible facility-specific discount rates contained in the survey database. The
company-specific discount fell between 3 and 19 percent for 622 of 692 affected facilities. The next line
shows the nominal discount rate used in the present value calculations. The real discount rate is calculated as
the nominal discount rate adjusted for inflation. Recovery factors for inventories and fixed assets are given as
40 and 20 percent, respectively.
Salvage values for the facility are calculated in panel B of Table C-8A. The salvage value of currents
assets is: $10,000+ ($100x40%) = $10,040. Under tb£ tax assessment method, the facility's salvage value
for its fixed assets is $100,000, which is 20 percent of its $500,000 market value. The book value of the
faculty is the sum of the book value for the individual components minus the cumulative depreciation ($0 +
$0 + $600,000 + $1,000 - $140,000 = $461,000). Liquidation value is 20 percent of the book value:
$92,200. The total salvage value for the facility is:
• Tax assessment=$10,040+ $100,000 = $110,040
» Book value = $10,040 + $92,200 = $102,040
ii •,!!' ' ',i ; ' , ' • . ,'''"• ' I ' ' . '
Cash flow are forecasted in panel C of Table C-8B. The first three lines list the cash flow as
calculated from the survey data. The data for 1992 and 1993 are inflated to 1994 dollars using the Consumer
C-22
-------
TABLE C-8A
FACILITY CLOSURE MODEL - HYPOTHETICAL INPUTS AND SALVAGE VALUES
CLOSURE MODEL Survey ID*
, ALL FIGURES IN DOLLARS
1234 Class:
run date: 11-May-SS
INPUT VARIABLES
Inflation Rate (1995-2010):
Co.-Specific Discount Rate (Norn.):
Avg. Discount Rate (Nominal):
Nominal Discount Rate:
Real Discount Rate:
Inventory Recovery Factor
Fixed Asset Recovery Factor
3.6%
13.6%
10.4%
13.6%
10.0%
40.0%
20.0%
B
SALVAGE VALUE
CURRENT ASSETS:
1994 Cash:
1994 Inventories:
Total:
$10.000
$100
$10,040
FIXED ASSETS
t
Tax Assessed Value:
Total:
Book Value:
1994 Land:
1994 Buildings:
1994 Equipment
1994 Other Noncurrent Assets
Less Cum. Deprec.:'
Total:
Recoverable Value:
Value
$500,000
$0
$0
$600,000
$1,000
$140,000
$461,000
$92,200
int
Rate
100%
Market Recoverable
Value Value
$500.000 $100,000
TOTAL SALVAGE VALUE OF MILL
Using Tax Assessments:
Using Book Value:
$110,040
$102,240
C-23
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ParJ^B: Financial and Economic Information—Part B Specific Instructions
PART B SPECIFIC INSTRUCTIONS (continued)
8. Include financial statements. With your completed questionnaire include financial statements
(i.e., balance sheet, income statement, and accompanying notes) for 1992, 1993, and 1994 for
the facility (if available), for the business entity that owns this facility (if requested), and, if
applicable, the corporate parent. The statements need not be audited but should conform to
generally accepted accounting principles (GAAP). You may submit annual reports if they
contain the relevant information.
9. Sign and return to EPA the Questionnaire Certification Form for Part B (blue pages B-11
and B-12). Include the Certification Form with the completed questionnaire.
10. If you separated "Part B: Financial and Economic Information" of the questionnaire from
Part A, please return both Part A and Part B together. Return the entire questionnaire to:
Mr. David Hoad'ley
Document Control Officer
U.S. Environmental Protection Agency
Transportation Equipment Cleaning Questionnaire
Room E913C (4303)
401 M Street, SW
Washington, DC 20460
11. Call in questions. If you have any questions about Part B, please telephone the Financial
and Economic Information Helpline, operated by Eastern Research Group, Inc. (ERG), EPA's
economics contractor, at i-800-945-9545. The helpline is in operation Monday through Friday
from 9:00 AM until 5:00 PM, Eastern Standard Time.
Page B-6 F-10
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Part 8: Financial and Economic information—Definitions of Key Terms
DEFINITIONS OF KEY TERMS
Appraised or
assessed value
Business entity
Closed-Top Hopper
Rail Tank Cars
Closed-Top Hopper
Tank Trucks
Closed-Top Inland
Hopper Tank Barges
An official or formal estimated value of real or personal property.
"Appraised" is generally used when referring to a value estimated for
insurance purposes. "Assessed" is generally used when referring to the
value estimated for tax purposes.
The proprietorship, partnership, corporation, or other legal entity that
directly owns this facility. A business entity is distinguished by being able
to provide complete financial statements through net income, and may
own more than one facility. If the facility has no other ownership and has
complete financial statements, there is no business entity.
A completely enclosed storage vessel pulled by a locomotive that is used
to transport dry bulk commodities or cargos over railway access lines.
Closed-top hopper rail cars are not designed or contracted to carry liquid
commodities or cargos and are typically used to transport grain,
soybeans, soy meal, soda ash, fertilizer, plastic.pellets, flour, sugar, and
other similar commodities or cargos. The commodities or cargos
transported come in direct contact with the tank interior. Closed-top
hopper rail cars are typically divided into three compartments, carry the
same commodity or cargo in each compartment, and are generally top
loaded and bottom unloaded. The hatch covers on closed-top hopper
rail cars are typically longitudinal hatch covers or round manhole covers.
A motor-driven vehicle with a completely enclosed storage vessel used to
transport dry bulk commodities or cargos over roads and highways.
Closed-top hopper tank trucks are not designed or constructed to carry
liquid commodities or cargos and are typically used to transport grain,
soybeans, soy meal, soda ash, fertilizer, plastic pellets, flour, sugar, and
other similar commodities or cargos. The commodities or cargos
transported come in direct contact with the tank interior. Closed-top
hopper tank trucks are typically divided into three compartments, carry
the same commodity or cargo in each compartment, and are generally
top loaded and bottom unloaded. The hatch covers used on closed-top
hopper tank trucks are typically longitudinal hatch covers or round
manhole covers. Closed-top hopper tank trucks are also commonly
referred to as dry bulk cargo tanks.
A self- or non-self-propelled vessel constructed or adapted primarily to
carry dry commodities orr cargos in bulk through inland rivers and
waterways, and may occasionally carry commodities or cargos through
oceans and seas when in transit from one inland waterway to another.
Closed-top inland hopper barges are not designed to carry liquid
commodities or cargos and are typically used to transport corn, wheat,
soy beans, oats, soy meal, animal pellets, and other similar commodities
or cargos. The commodities or cargos transported come in direct
contact with the tank interior. The basic types of tops on closed-top
inland hopper barges are telescoping rolls, steel lift covers, and fiberglass
lift covers.
F-ll
Page B-7
-------
. nil
I"!1 if
Part B: Financial and Economic Information—Definitions of Key Terms
DEFINITIONS OF KEY TERMS (continued)
Commercial TEC
Operations
Commodity or Cargo
Corporate Parent
Discount Rate
Extraordinary revenues
or costs
Facility
Financial statements
Heel
In-house TEC
Operations
Inland Tank Barge
Cleaning activities performed on a fee basis for clients. Cleaning is the
sole focus of the transaction; it is not offered as part of a larger service
to the client (Larger services include services such as leasing, repairing,
transporting/hauling, etc.) Commercial TEC operations bring revenue
into the company that offers the cleaning.
Any chemical, material, or substance transported in a tank truck, closed-
top hopper tank truck, intermediate bulk container (IBC) or tote,
jntenppdal tank container, rail tank car, closed-top hopper rail tank car,
inland tank barge, closed-top inland hopper barge, ocean/sea tanker, or
other similar tank that comes in direct contact with the chemical, material,
or substance. A commodity may also be referred to as a cargo.
II '» ... I ,!' " ' " I-, '' '' In '!, . ".,:.• 'I'liii" h '.' i ,: ? ' •' '!" ' ' ' " J1 „ , " ' • |.,'l |! ' 'I .' i ,
The proprietorship, partnership, corporation, or other legal entity that is at
the top of the chain of corporate ownership of the business entity.
The rate,your facility would pay to raise money for capital investments,
given the facility's mix of debt and equity. The discount rate is also
known as marginal weighted average cost of capital.
Extraordinary revenues or costs include items that caused total revenues
or total costs to deviate significantly from historical trends. Extraordinary
revenues might include revenues from selling land or other significant
assets. Extraordinary costs might include capital expenditures needed to
repair damage from fire, flood, or some other extraordinary event.
Physical location corresponding to the site listed on the facility
identification label (affixed to the cover page of each part of this
questionnaire) where industrial and nonindustrial activities are conducted.
The activities conducted include, but are not limited to: transportation
equipment cleaning, manufacturing, rebuilding, repair, maintenance,
painting, and associated office operations, cafeteria operations, or
sanitary/shower facilities.
Balance sheet and income statement that were derived from accounting
records according to generally accepted accounting principles (GAAP).
Any material remaining in a tank or container foljowing unloading,
delivery, or discharge of the transported commodity or cargo. Heels may
also be referred to as residual materials or residuals.
',„:,, /
Cleaning activities that take place at a facility in order to maintain or
operate other business activities. The equipment may or may not belong
to the facility. For example, a trucking company may clean its own tank
trucks between shipments or a milk processor may rinse out tank trucks
(not owned by them) after a shipment is delivered.
A self- or non-self-propelled vessel constructed or adapted primarily to
carry commodities or cargos in bulk in cargo spaces (or tanks) through
rivers and inland waterways, and may occasionally carry commodities or
cargos through oceans and seas when in transit from one inland
waterway to another, the commodities or cargos transported are in
direct contact with the tank interior. There are no maximum or minimum
vessel or tank volumes.
Page B-8
F-12
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Part B: Financial and Economic Information—Definitions of Key Terms
DEFINITIONS OF KEY TERMS (continued)
Intermediate Bulk
Container (IBC) or Tote
Intermodal Tank
Container (ITC)
Ocean/Sea Tanker
Rail Tank Car
Standard Industrial
Classification (SIC)
Tank
Tank truck
A completely enclosed storage vessel used to hold liquid, solid, or
gaseous commodities or cargos that are in direct contact with the tank
interior. Intermediate bulk containers may be loaded onto flat beds for
either truck or rail transport or onto ship decks for water transport. There
are no maximum or minimum values for intermediate bulk container
volumes, although larger containers are generally considered to be
intermodal tank containers. IBCs also are commonly referred to as totes
ortote bins. • s
A completely enclosed storage vessel used to hold liquid, solid, or
gaseous commodities that are in direct contact with the tank interior.
Intermodal tank containers may be loaded onto flat beds for either truck
or rail transport or onto ship decks for water transport. There are no
maximum or minimum values for intermodal tank containers, although
smaller containers are generally considered to be intermediate bulk
containers or totes.
A self-.or non-self-propelled vessel constructed or adapted to transport
commodities in bulk in cargo spaces (or tanks) through oceans and
seas, where the commodity or cargo earned comes in direct contact with
the tank interior. There are no maximum or minimum vessel or tank
volumes.
A completely enclosed storage vessel pulled by a locomotive and used to
transport liquid, solid, or gaseous commodities or cargos over railway
access lines. A rail tank car storage vessel may have one or more
storage compartments and the stored commodities come in contact with
the tank interior. There are no maximum or minimum vessel or tank
volumes.
The four-digit industry-classification assigned to this facility by the federal
government The SIC number is used when reporting financial and other
information to the U,S. Department of Commerce and other federal
agencies. Facilities are assigned both primary and secondary SICs.
A generic term used to describe any closed container used to transport
commodities or cargos. The commodities or cargos transported come in
direct contact with the container interior, which is cleaned by TEC
facilities. Examples of containers that are considered tanks include: tank
trucks, closed-top hopper tank trucks, intermediate bulk containers,
intermodal tank containers, rail tank cars, closed-top hopper rail tank
cars, inland tank barges, closed-top inland hopper barges, ocean/sea
tankers, and other similar tanks (excluding drums). Containers used to
transport pre-packaged materials are not considered tanks.
A motor-driven vehicle with a completely enclosed storage vessel used to
transport liquid, solid, or gaseous materials over roads and highways.
The storage vessel or tank may be detachable, as with tank trailers, or
permanently attached. The commodities or cargos transported come in
direct contact with the tank interior. A tank truck may have one or more
storage compartments. There are no maximum or minimum vessel or
tank volumes. Tank trucks are also commonly referred to as cargo ten/cs.
F-13
Page B-9
-------
Part B: Financial and Economic Information—Definitions of Key Terms
Totes or Tote Bins
Transportation
Cleaning Equipment
(TEC) operations
DEFINITIONS OF KEY TERMS (continued)
A completely enclosed storage vessel used to hold liquid, solid, or
gaseous commodities or cargos which come in direct contact with the
tank interior. Totes may be loaded onto flat beds for either truck or
rail transport, or onto ship decks for water transport. There are no
maximum or minimum vessel for tote volumes, although larger
containers are generally considered to be intermodal tank containers.
fote^ or tote bins are also referred to as intermediate bulk containers
or/fiCs.
TEC operations include cleaning the interiors of tanks. The tank
interiors cleaned include but are not limited to: tank trucks, closed-top
hopper tank trucks, intermediate bulk containers (IBCs), intermodal
tank containers (ITCs), rail tank cars, closed-top hopper rail tank cars,
inland tank barges, closed-top inland hopper barges, ocean/sea
tankers, and/or other similar tanks.
F-14
Page B-10
-------
Part B: Financial and Economic Information—Checklist and Certification -•'.,.•''• •
CHECKLIST AND CERTIFICATION
CHECKLIST
Be sure that the following additional information is included with the completed questionnaire, unless
instructed otherwise:
Q Questions 54, 86, and 92: Supply 1992, 1993, and 1994 financial statements,
including income statements, balance sheets, and accompanying notes, (as
appropriate.)
QUESTIONNAIRE CERTIFICATION
When Part B: Financial and Economic Information of the questionnaire has been completed and all
additional requested information has been assembled, the individual responsible for directing or
supervising the preparation of Part B must read and sign the certification statement listed below. The
certifying official must be a responsible corporate official or a duly authorized representative.
I certify under penalty of law that the attached Part B of the questionnaire (Financial and Economic
Information) was prepared under my direction or supervision in accordance with a system designed to
assure that qualified personnel properly gather and evaluate the information submitted. Based on my
inquiry of the person or persons who manage the system, or those persons directly responsible for
gathering the information, the information submitted is, to the best of my knowledge and belief, true,
accurate and complete. I am aware that there are significant penalties for submitting false information,
including the possibility of fine and imprisonment.
Signature of Certifying Official for Financial and Economic Information Date
Printed Name of Certifying Official
Title of Certifying Official
F-15
Page B-11
-------
Part B: Financial and Economic Information—Checklist and Certification
CHECKLIST AND CERTIFICATION (continued)
SPECIAL CASES
If you use contract personnel to perform TEC operations or operate a mobile facility as described
l|nder Special Cases on page B-2, AND are unable to complete any section of this questionnaire,
because only the contract company or mobile facility has access to the information, in the space
b§low provide: the name, company name, and phone number of the person who should be contacted
to supply the missing information. In addition, list the question numbers or sections you were unable
to complete and expect the contact person to complete.
Name of Contact Person
Company Name
Telephone Number
Mailing Address
City State Zip Code
Question Numbers or Sections Not Completed
F-16
Page B-12
-------
SECTION 1: FACILITY IDENTIFICATION
PART B INFORMATION CONTACT AND FACILITY IDENTIFICATION
1.
. ATTACH
IABELHERE
If the mailing address shown on the label above is correct, check the box in 1a. If the
information is not correct, check the box in 1b, and enter the correct information in the spaces
below.
a. Yes, the mailing address above is correct D
b. No, the mailing address is not correct (Please correct below) . n
Name of facility ; . :
Mailing address or P.O. box
pity. _ _ •.
State
Zip
If the street (i.e., physical) address of the facility is different from the mailing address given in
Question 1, provide the street address in the spaces below. If the street address is the same
as the mailing address check the box in 2a.
a.
b.
The street address for this facility is the same as the mailing address
The street address for this facility is not the same as the mailing
address. List the correct address below ..... ....... ................... Q
Name of facility
Street address _
City '
State
Zip
Indicate the county in which your facility is located. (For Alaskan facilities only, please indicate
the borough. For facilities in Louisiana, please indicate the parish.)
F-17
Page B-13
-------
Part B, Section 1: Facility Identification
4. Please list the street names at the intersection closest to your facility.
,. ;. •; . a. „ : t { ,, :i
":"'l! "b. ' __! ' ' _
c.
d.
(For example, if two streets: a. Elm Street; b. Maple Street.)
5. Provide the name, title, and telephone number of the individual who can answer questions
Y*« n concerning information provided in Part B: Economic and Financial Information.
Mo n
a. Contact name
b. Contact title
c. Telephone number ( )
d. When is the most convenient day and time to call?
(Circle best days) Mon. Tues. Wed. Thurs. Fri. Any day
_ AM/PM (local time)
6, Confirm the type of transportation equipment cleaning (TEC) activities performed at this facility.
Y«* a Check all that apply.
.NO', a ';„;,; ' ,;,; ; ' ,„ „ ' . . . , ......
a. Tank Trucks n
b. Closed-Top Hopper Tank Trucks D
c. Intermodal Tank Containers (ITCs) n
• ' ' • " • • / • ',,,,•,' ... , , , , i , i ^ ,
d. Intermediate Bulk Containers (IBCs) and Totes . '. D
e. Rail Tank Cars n
f, Closed-Top Hopper Rail Tank Cars '.". '. . . Q
g. Inland Tank Barges n
h. Closed-Top Inland Hopper Tank Barges Q
i. Ocean/Sea Tankers n
j. Other Container - please describe Q
k. None of the above (see below) D
IF NONE OF THE ABOVE OR IF YOU BELIEVE THAT YOU HAVE RECEIVED THIS
QUESTIONNAIRE IN ERROR, CALL THE FINANCIAL INFORMATION HELPLINE AT
1-800-945-9545.
F-18
Page B-14
-------
Part B, Section 1: Facility Identification
Y«» n
NO n
CORPORATE HIERARCHY
7. Please review the corporate hierarchy chart below. Which example describes the chain of
ownership for this facility?
a. Example A . '. '.. ... ,. £}
b, Example B D
c. Example C , Q
d. Example D '..... n
e. Example E Q
CORPORATE HIERARCHY
Level in Hierarchy
Corporate
Parent
(Section 4
Information)
Business Entity
(Section 3
Information)
Business
Entity
l
r
Facility
e
o
Business
Entity
i
f
Facility
Facility
(Section 2
Information)
Financial Statements requested at this level in the corporate hierarchy
F-19
Page B-15
-------
Part B, Section 1: Facility Identification
All respondents must complete Section 2 with information for the facility. If your corporate
hierarchy best resembles Examples A, B, C, or D, you also need to complete Section 3 with
information for the business entity. If your corporate hierarchy best resembles Examples A or
B{ you also need to complete Section 4 with information for the corporate parent.
Financial statements are balance sheets, income statements, and accompanying notes
prepared according to generally accepted accounting principles (GAAP). Respondents must
supply financial statements according to corporate hierarchy:
Corporate Hierarchy
Example A
Example B
Example C
Example D
Example E
Complete Section(s)
2,3,4
2,3,4
2,3
2,3
Supply Financial
Statements for
Corporate Parent
Corporate Parent
Business Entity
Business Entity and Facility
Facility
As appropriate, Questions 54, 86, and 92 will ask you to submit financial statements.
C0n '''I I ' , ," "' , | '„
co«fid«nti»i 9. If you checked D or E in Question 7, is the facility:
Y«« a
NO a a. Checked A, B, or C in Question 7 Q
b. Publicly held d
c. Privately held Q
Page B-16
F-20
-------
SECTION TWO: FACILITY AND TEC FINANCIAL INFORMATION
Section 2 asks questions about the finances of this facility for fiscal years 1392,1993,
and 1994. Please answer all questions unless directed to skip certain questions ("SKIP1}.
Please:note any special assumptions made or calculations performed in answering a given
question in the Comments section beginning on Page £37. Any other comments or
explanations should be noted in the Comments section as well. Reference each comment
with thie relevant question and page number. -
Definitions are provided on Page 8-7. Call the helpline at 1-800-945-9545 If you have any
questions or comments concerning the questionnaire or your response to a specific
question. The helpline operates between 9:00 AM and 5:00 PM Eastern Standard Time,
Monday through Friday. * ,
Pay dose attention to the units requested for each question. Financial questions request
data in whole dollars.
BACKGROUND INFORMATION
confidential 10. List the primary and secondary 4-digit Standard Industrial Classification (SIC) codes assigned
Y«S a to this facility. (See definitions beginning on Page B-7.)
No
a. Primary SIC code ...
b. Secondary SIC codes
Yes n
NO n
11. What is the first month of this facility's fiscal year? Enter 01 for January, 02 for February, 03
for March, etc.
First month of fiscal year
IN-HOUSE TEC OPERATIONS
confidential 12. Are TEC operations the only activity at this facility? Please check a or b as appropriate.
Yes D ' ••-.---
NO n a. TEC operations are the only activity at this facility. .. ..
b.
Other, non-TEC activitie^ also occur at this facility. D
F-21
Page B-17
-------
Part B, Section 2: Facility and TEC Financial Information
co«fici«o««i 13. Sequentially rank the top three activities at this facility and check whether the activities
Y«« o generate revenue. The activity with rank #1 generates the most revenue. If this facility
NO o generates no revenue, rank the three activities most performed by this facility.
Rank
#1
#2
#3
Activity
Revenue-Generating?
Yes
No
con*W«rti*i 14. Does this facility perform TEC operations to maintain or operate other parts of your business?
Y«« p (For example, your facility paints or repairs transportation equipment, but must first wash them
NO b In order to So so.)
a.
b.
Yes
No
n
n
coofid«oti*J 15. Sequentially rank the reasons why this facility maintains in-house TEC operations. Rank the
Y« a most important reason with 1, the second most important reason with 2, and so on. A reason
NO n that is not considered at all should be ranked with a zero (0).
Rank
_ ••... . .• '. ' ' •..''.!.!. •.•'..-• '•.• ': .:,. :',;••: ".'''i . ,•;.••''• '..' .-': :; '..'... ».'•':'.• • .;; '••••'::;'
-Reason-". . •;.. f-- -. •; " • •••• ••/ • ;, •.. - • '•.. V/" •. '•".•.
We are a commercial cleaning facility (leave all other reasons unranked)
Quality
Liability
Cost
Convenience
Other (please describe)
F-22
Page B-18
-------
Part S, Section 2: Facility and TEC Financial Information
confidential 16. Indicate the cost increase that would lead you to use a commercial tank cleaning service
Yas o rather than performing the service for yourself on an in-house basis. Indicate "Not Applicable"
NO n if your facility does not clean the specified type of tank. If you are a commercial tank cleaning
service, indicate "Would Not Switch" for the tank types you clean.
Tank Type
Tank Trucks
Closed-Top Hopper
Tank Trucks
Intermodal Tank
Containers (ITCs)
Intermediate Bulk
Containers (IBCs)
and Totes
Rail Tank Cars
Closed-Top Hopper
Rail Cars
Inland Tank Barges
Closed-Top Inland
Hopper Tank Barges
Ocean/Sea Tankers
Other Containers
Percentage Cost Increase That Would
Lead To Using Commercial Tank Cleaning
Service .
Less
than
10%
—
Between
10%
to
20%
___
20%
to
30%
___
30%
to
40%
' --.-.T- -.'-.... '
40%
to
50%
Over
50%
^__
Would
Not
Switch
- _..__. ....
Not
Applicable
___ -'
COMMERCIAL TEC OPERATIONS
confidential 17. What percent of transportation equipment cleanings are for clients other than yourself? (Enter
Yes n zero if you have no commercial clients.)
NO n ; • -•'.'••-•
Percent commercial TEC cleanings . . . _._ %
F-23
Page B-19
-------
Part B, Section 2: Facility and TEC Financial Information
Y«> a
NO a
18. How does your facility recover TEC costs from clients that you service? Please check the
appropriate answer.
a. No commercial clients serviced Q
,b. Separate bill to client Q
c. Separate line item in total bill to client D
d. Included in total bill to client but not broken out specifically , n
e. Other (please describe) D
Y«* o
No a
19. Sequentially rank the reasons why clients use your tEC services. Rank the most important
reason with 1, the second most important reason with 2, and so on. A reason that is not
considered at all should be ranked with a zero (0).
Rank
Reason . '• • "" ..,''•'•.•• / /; .. :•..-. ;.:;'•-
No commercial clients (leave all other reasons unranked)
Cleaning services provided to client only as a part of other
services
Proximity
Price
Quality
Liability
Contract agreements between client and this facility to receive
repairs or other services at same site
Other (please describe)
co»tfW«o
-------
Part B, Section 2: Facility and TEC Financial Information
confidential 21. Who accepts the TEC jobs listed in Question 20 that you reject? Check the most appropriate
Yes
No
answer.
a. Not applicable, checked Question 20b Q
b. Unknown ». D
c. TEC facilities with more advanced TEC equipment Q
d. TEC facilities with better wastewater treatment D
TEC facilities located in regions with less stringent regulatory requirements Q
Hauler of cargo • d
.Producer of cargo O
Other (please describe) Q
e.
f.
g.
h.
confidential 22. The table below lists factors that may affect which cleaning process this facility chooses for a
Yes n tank (e.g., hot water rinse, caustic, detergent, etc.). Sequentially rank the following factors in
NO n order of importance in determining the cleaning process performed. Rank the most important
reason with 1, the second most important reason with 2, and so on. A reason that is not
.considered at all should be ranked with a zero (0).
Rank
••' -S^S
Reason ;-:./ -• '-V1 •. " ' .. • • ' .-'• -•••'
Previous load's contents
Next load's contents
Client policy on cleaning ,
Other (please describe)
F-25
Page B-21
-------
Part B, Section 2: Facility and TEC Financial Information
23. In the tabfe below, list the total number of units cleaned by the facility in 1992, 1993, and
Y«* a 1994.
No O
23.
Type of Units
Tank Trucks
Closed-Top Hopper
Tank Trucks
ITCs
IBCs and Totes
Rail Tank Cars
Closed-Top Hopper
Rail Tank Cars
Inland Tank Barges
Closed-Top Inland
Hopper Tank Barges
Ocean/Sea Tankers
Other Containers
Number of Units Cleaned ; : :
' 1992
Total
__ i ____
. i
i
i
,
1993
Total
_ i .
____ i
j
._i^_ * ^^m^*m
,
1994
Total
____ _T i .. _^^
t
i
-
,
No b
MARKET INFORMATION
24. Did the 1993 flooding affect the levels of TEC revenues and costs at this facility?
a. Yes, fluctuations in business occurred because of floods
b. No, the floods created no business changes
cooSd«*i«i 25. What is the distance, in miles, to the nearest commercial TEC facility offering similar services?
Y«« a
NO p Distance (miles) ;
F-26
Page B-22
-------
Part B, Section 2: Facility and TEC Financial Information
confidential 26. How sensitive are your customers to price increases for each of the following types of tank
Yes
No
cleaning?
Make two assumptions:
(1) there would be no change in the price of cleaning other tank types, and
(2) competitor prices remain unchanged.
Indicate 'Very sensitive" for those items where a 10 percent price increase would lead to
more than a 10 percent loss in business for cleaning that type of tank.
Indicate "moderately sensitive" for these items where a 10 percent price increase would
cause less than a 10 percent loss in business for cleaning that type of tank.
Indicate "not sensitive" for those items where a 10 percent price increase would cause little, if
any, decrease in the volume of business at the facility.
Indicate "hot applicable" if the facility does not clean the specified type of tank.
Tank Type
Tank Trucks
Closed-Top Hopper Tank
Trucks
Intermodal Tank
Containers (ITCs)
Intermediate Bulk ,
Containers (IBCs) and
Totes
Rail Tank Cars
Closed-Top Hopper Rail
Cars
Inland Tank Barges
Closed-Top Inland Hopper
Tank Barges
Ocean/Sea Tankers
Other Containers
Price Sensitivity
Very
Sensitive
-
Moderately
Sensitive
Not
Sensitive
Not
Applicable
,
No
Commercial
Clients
••
F-27
Page B-23
-------
V '!' '•• ill"!1!ill!I.1
Part B, Section 2: Facility and TEC Financial Information
DISCOUNT RATE
27. If you borrow money to finance capital improvements, such as wastewater treatment
Y«« n equipment, what interest rate would you pay on such loans?
NO n
Interest rate
coo«d«ntkj 28. |n the event that you do not borrow money to finance capital improvements, what discount
Y«« a rate would you use? The discount rate is the minimum rate of return on capital required to
NO a compensate debt holders and equity owners for bearing risk. If you borrow to finance capital
improvements, the discount rate is equivalent to the interest rate paid on those loans.
Discount rate
29. Are separate financial records maintained for TEC operations at this facility?
Y«* n
NO a a. Yes
b. No
(If no, TEC-specific financial questions should be answered to the best of your ability and
marked as "Best Estimate" where appropriate.)
. - F-28
::: , Pag© B-24
-------
Part 6, Section 2: Facility and TEC Financial Information
BALANCE SHEET INFORMATION
•;;.' For Questions;30;^^ for this
;•:•;.* facilitytestbi^-pperatio Provide>i992:iriformation in
; Question :30!0:Prwide;.:|g«93:;infonTiatic)ni in :Questibn:3.1^ andiJprovide 1994::;information in
: Question 32.. Current assets:include cash and other assets: that could be reasonably
• converted to cash, sold, or consumed^accounts receivable;; and prepaid expenses such as
rent: Inventories include raw material^supplies, and fuel. N^ physical
.; items such as property, plant and equipment, long-term investments, and intangibles. If the
facility was hot in operation for a particular yearv check the box for that year and leave the
^appropriate columns^ this,facility and its TEC
'':':
Confidential.
Yes O~'
No O "
30.
Balance Sheet
Information — Assets
1992 ($)
Not In Operatlon.......n
(leave columns blank)
Facility
(All Operations)
TEC
Operations
Current Assets ' -
a. Value of all current
assets excluding
inventories
b. Value of inventories
;:i 'Noncurrerit Assets
c. Land (original cost)
d. Buildings (original cost)
e. Equipment (original cost)
f. Other noncurrent assets
g. Cumulative depreciation
Total Assets
h. Total assets (sum of a
through f minus g)
$ ,
$,'•',
$ , •'',•"•'• ,
$,-.,-
$ , , ',._'•'
$,..', ,
$•,"',•
$ , . , '
$ i i ?
$ , ,
~
$ ,
$ ,
$ , . .
$ ,
•$,-',
; ' - 'i-""
$ i i i
Check box if data for TEC operations are best estimates
D
F-29
Page B-25
-------
Part B, Section 2: Facility and TEC Financial Information
ConttdcntkJ
Y«* D
No D
31.
Balance Sheet
Information — Assets
1993 ($)
Not in Operation Q
(leave columns blank)
Facility
(All Operations)
TEC
Operations
Current Assets
a. Value of all current
assets excluding
inventories
b. Value of inventories
Noncurrent Assets
c. Land (original cost}
d. Buildings (original cost)
e. Equipment (original cost)
f. Other noncurrent assets
g. Cumulative depreciation
Total Assets
h. Total assets (sum of a
through f minus g)
$ ,
$ ,
• '• -, ' ;:,, .
$ ,
$ ,
$ ,
$ ,
$ ,
$ ,
$ , , ,
$ , ,
V:>" '•'•'"..'•• '••'.;
$ ,
$ ,
$ ,
$ ,
$ ,
•'.'•';-'"yy..'^'-\^'-':-" '••«'•••
$ ,
Check box if data for TEC operations are best estimates
F-30
Page B-26
-------
TABLE C-8B
FACIUTY CLOSURE MODEL - HYPOTHETICAL INPUTS. FORECASTED CASH FLOW, AND CLOSURE SCORES
PRESENT VALUE
C PAST CASH FLOW ($1994):
Cash Flow
Cash Flow
Cash Flow
FORECASTED CASH FLOW
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
BASELINE PRESENT VALUE
1992
1993
1994
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005 ,
2006
2007
2008
2009
2010
Current $
12,500
60,000
15,000
1994
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000
$15,000 '
$15,000
$15,000
$15,000
$15,000
$1994
$13.271
$61,794
$15,000
Average
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30,022
$30.022
$30,022
$30,022
$30,022
$30,022
$30.022
'
Variation
$61.794
$13,271
$61.794
$15,000
$61,794
$13,271
.$61,794
$15,000
$61,794
$15,000
$61,794
$13,271
$61,794
$15,000
$61,794
$13,271
Inflate Cash Flow to 1994 dollars
Consumer Price Index for transportation
1992 126.5
1993 130.4
1994 134.3
$129,091 $258,370 $336,372
D SUMMARY:
Cost Pass-Through
-
Regulatory Option
Baseline
Option 1
Option 2
Option 3
Option 4
Option 5
Option 6
Option?
Option 8
Option 9
Option 10
Option 11
. Option 12
10%
PVof '
Incremental
Reg. Costs
$0
• $10,000
$20,000
$29,700
$75,000
$100,000
$125,000
$150,000
-$175,000
$200,000
$300.000
$400,000
$500,000
Adj. PVof
Incremental
Reg. Costs
$9,000
$18,000
$26,730
$67,500
$90,000
$112,500
$135,000
$157,500
$180,000
$270,000
$360,000
$450,000
Salvage Value
Assessment
1994
$129.091
0
. 0
0
1
1
1
1
1
1
1
1
1
1
$110.040
Present Value
Average
$258,370
0
0
0
0
0
0
0
0
1
1
1
1
1
Variation
$336,372
0
0
0
0
0
0
0
0
0
0
1
1
1
Book:
1994
$129,091
0
• 0
0
0
1
1
1
1
1
1
1
1
1
$102,240
Present Value
Average
$258,370
0
0
0
0
0
0
, 0
0
1
1
1
1
1
Variation
$336,372
0
0
0
0
• 0
0
0
0
, 0
0
1
1
1
Closures
0
0
0
1
• 2
2
2
2
A
4
B
6
6
C-24
-------
Price Index for transportation (CEA, 1995). The cadi flow are forecasted for 1995-2010 with the three
methods discussed in Section C.2.
Panel D of Table C-8B summarizes the results of the closure analysis. The first row is the pre-
regulatory status evaluation (called "Baseline" for brevity). Each subsequent row represents a regulatory
alternative or option. The present value of the incremental regulatory cost for each option is calculated with
the cost annualization model (Appendix A). The after-tax value is used in the closure analysis because it
accurately reflects the costs that the facility would incur. The present value of incremental pollution control
cost is scaled bythecost pass-through derived from the market model (ApjKodixB) to estiniate the cost
borne by the facility.
The post-regulatory cash flow are calculated by subtracting the adjusted present value of incremental
regulatory costs from the present value of projected cash flow. For example, under Option 3 in Table C-8B,
the present value of the post-regulatory earning is $129,091 minus $26,730 equals $102,361 forthe 1994
method of projecting cash flow. This value is lower than the salvage value as calculated by the tax
assessment method ($110,040) but higher than the salvage value as calculated by book value ($ 102,240).
In the example, the facility begins to experience adverse finandal impacts beguining with Option 3,
but is not considered a closure until Option 8.
C.&2 Sample Closure Analysis using Cash Flow
Tables C-9A and C-9B are annotated printouts of the closure model based on cash flow using
hypothetical data. As discussed above, estimating closures on a cash flow basis is simply a special case of
the general closure model with salvage value set to zero (compare panel B in Tables C-8A and C-9A). The
forecasting method for future cash flow is identical to that in the previous example (compare panel C in
Tables C-8B and C-9B). Finally, in panel D, the adjusted present value of compliance costs are compared
with the salvage value of zero. In other words, as long as post-compliance cash flow is greater than zero, the
facility is presumed to remain open; if post-compliance cash flow is negative, the facility is presumed to
close. In, fable C-9B, the facility experiences adverse financial impacts beginning with Option 7, but is not
considered a closure until Option 10.
• •••• ' ' ' • •'• C-25 ' '.. ' '
-------
TABLE C-M
FACILITY CLOSURE MODEL - HYPOTHETICAL INPUTS AND SALVAGE VALUES
A
CLOSURE MODEL SwveylD* 1234 dan: run d«t»: 05-Jun-98
ALL FIGURES IN DOLLARS
INPUT VARIABLES:
Inflation Rate (1995-2010): 3.6%
(^.-Specific Discount Rate (Norn.): 13.6%
Avg. Discount Rate (Nominal): , 10.4%
Nominal Discount Rate: 13.6%
Real Discount Rate: 10.0%
Inventory Recovery Factor. 40.0%
Fixed AssetRecovary Factor 20.0%
BsALVAGEVALUE
CURRENT ASSETS:
1994 Ctsh: $0
1994 Inventories: ' SO
Total: $0
FTXEDASSETS:
TaxAssMMdValue:
Assessed AowinMnt Markat Racowabla
Valu* Rate Vakw Valu*
Total: 50 100% JO SO
BookValue:
1994 Und: SO
1994 Buildings: . SO
1994Equipm«it , SO
1994 Other Noncumwt Assets SO
Less Cum. Deprec.: JO
Total: , $0
Recoverable Valu*: SO
TOTAL SALVAGE VALUE OF MILL
Using Tax Acucsmenta: SO
Using Book Value: SO
C-26
-------
FACILITY Ct
0SUR3 MObe. - HYKTHETWM. INPUTS, FORECASTED CASH FLOW. AND CLOSURE SCORES
PRESEMTVALUE:
C PAST CASH FLOW ($1394):
Cash Flow
Cash Flow
Cash Flow
1992
1393
1994
Currants
12,500
60.000
15.000
$1994
$13^71
$81,794
$15,000
MM* Cash Flow to 1994 doKani
Consumer Price Index for transportation
1992 126.5
1993 130.4
1994 134.3
FORECASTED CASH FLOW
•"• • 2
"• I 3
'.'. 4
5
e
7
&
9
10
11
12
13
14'
15
16
BASeUNG PRESENT VALUE
YMT
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
1994
$15,000
$15,000
$15.000
$15.000
$15,000
$15,000
$15.000
$15.000
$15,000
$15,000
$15,000
$15.000 .
$15.000
$15,000
$15,000
$15.000
Average
$30,022
$30,022
$30.022
$30,022
$30.022
$30,022
$30,022
$30,022
$30.022
$30,022
$30,022
$30,022
,$30.022
$30,022
$30,022
$30,022
Variation
$61,794
$13571
$61,794
$15.000
$61.704
$13,271
$61,794
$15.000
$81,794
$15,000
$61.794
$13571
$81.794
$15,000
$61.794
$13571
$129,091 $256.370 $336,372
D SUMMARY:
Cost Pate-Through
• • . " ''i
Rooufakxy Option
DateBne
Option 1
Option 2
Options
Option 4
Options
Options
Option?
Options
Options
Option 10
Option 11
Option 12
flW
PVof
Incremental
Refl. Costs
$0
$10,000
$20,000
$29,700
$75.000
$100,000
$125,000
$150,000
$175.000
$200.000
$300.000
$400,000
$500.000
• :• '
Adj. PVof
Incremental
Reg. Costs
$9,000
$18,000
$28,730
$67.500
$90.000
$112,500
$135.000
$157.500
$180.000
$270.000
$360,000
$450,000
Assessment
1994
$129.091
0
0
0
0
0
0
0
1
$0
Present Vttua
Avenge
$258.370
0
0
0
0
0
0,
0
0
0
0
1
1
1
SafcagaVakw
Variation
$338,372
0
0
0
0
0
0
0
0
0
0
0
1
1
Book:
1994
$129.091
0
0
0
0
0
0
0
SO
Present Value
Avenge
$258,370
0
0
0
0
0
0
0
0
0
0
1
1
1
Variatior
$336,372
o
0
0
0
0
0
0
0
o
0
0
1
1
Closures
o
0'
0
0
0
0
0
2
2
2
4
6
6
C-27
-------
C.7 BUSINESS ENTITY LEVEL ANALYSIS
The closure analysis is performed at the business entity level for two groups of facilities: cost centers
and facilities that provided insufficient information to be analyzed at the faculty level. The closure analysis at
the business entity level is performed the same as the facility level analysis; however, the key variables used
in the analysis represent the entire business entity, not just the facility.
The business entity closure analysis is performed on a cash flow basis. At the business entity level
cash flow is calculated as:
Cash flow = net income + depreciation
Business entity data on net income and depreciation are taken directly from the questionnaire; see Table C-10
for the list of elements. The present value of cash flow is projected over the project life using the forecasting
techniques described in Section C.2.2. The business entity discount rate specified in the questionnaire is used
to calculate the present value of cash flow when this rate lies between 3 percent and 19 percent; if the
discount rate does not lie within this range, the industry average discount rate is used (Section A. 1).
Many business entities own multiple facilities that perform TEC operations. The closure model must
project impacts for the business entity based on the total compliance costs it is likely to incur in upgrading the
wastewater treatment plants of all TEC facilities that it owns, not just the faculties that received '
questionnaires. Business entity compliance costs are estimated by scaling up faculty compliance costs using
the ratio of faculty TEC costs to business entity TEC costs. Because statistically reliable weights cannot be
developed for the parent business entities, impacts are attributed to the facilities that are owned by them. See
Section D.I for further details. .
Cost pass-through is a function of the price elasticities of supply and demand and of the facility;
specific ratio of TEC revenues to facility revenues (Section B.3 and Section C.3). Business entities
sometimes own faculties in more than one subcategory; they also may own a mix of commercial and in-house
faculties. This information cannot be reliably determined for faculties that did not receive a questionnaire;
therefore, the EPA assumes cost pass-though is equal to zero at the business entity level in order to provide a
conservative projection of impacts.
C-28
-------
TABLE C-10
COMPONENTS FOR CALCULATING BUSINESS ENTITY CASH FLOW
Parameter
Net Income
Depreciation
1992
1993
1994
1992
1993
1994
Location in Part B
of Questionnaire
(Question No.)
84e
84e
84e
74
78
82
Data Element
Dictionary
Field Name
B84E 92
B84E 93
B84E 94
B74 92B
B78 93B
B82 94B
C-29
-------
C.8 , REFERENCES
CEA. 1995. Council of Economic Advisors. Economic report of the president Washington, DC.
TableB-59.
Denning. 1996. Cash flow vs. salvage value: Phone call from George Denning, EPA, WAM, to Calvin
Franz, ERG. Memo to TECI Project File. October 18.
U.S. EPA. 1995. 1994 Detailed questionnaire for the transportation equipment cleaning industry. OMB No.
2040-0179. Washington, DC: U.S. Environmental Protection Agency, Office of Water.
C-30
-------
_..,;,, ; APPENDIX D ,
IlNkNClAL RATIO ANALYSIS
Financial ratio analysis examines whether a company could afford the cost of upgrading all the TEC
( ' • . " " '' II HliT'l1 ' .. . . S "I I . |, . ',j I1', ,;';..,_. , I, >"*. •', ', ,1,:.V"I „• ' .11, ,' ; '
facilities that it owns.1 Particularly for companies that own more than one TEC facility, although upgrading
is economically desirable, the company may not be able to pay the total cost of upgrading all the facilities that
it owns. Many banks use financial ratio analysis to assess the credit worthiness of a potential borrower. If
the incurrcnce of regulatory costs cause a company's financial ratios to move into an unfavorable range, the
company will find it more difficult to borrow money. Under these conditions, EPA considers the company
and each facility that it owns to incur "financial distress short of closure."
Financial ratios are calculated at the business entity' level because:
Accounting procedures maintain complete financial statements
statement) at the business entity or
The survey data indicate that many companies do not keep complete
the facility level.
: corporate level, but not necessarily at the faculty level
Significant financial decisions, such as expansion of a facility's capacity, are typically made
or approved at the corporate level.
'Wl ' ' „" „ '• • ,' : " • *, ' i !' •! „ , ,'•„ '•,:' ' 'iV'" " i1 '!"l ' ' , , , '•' ''• ' "•' ' '.• 'i* •'
The business entity (or corporate parent) is the legal entity responsible for repayment of a
loan. The lending institution evaluates the credit worthiness of the business entity, not the
facility.
(balance sheet and income
ty at the faculty level.
financial statements at
Section 3 of the detailed questionnaire collected business entity financial information (U.S. EPA, 1995a).
The questionnaire was sent to a sample, not a census, of TEC facilities. EPA calculates national estimates
with statistical weights for each facility in the sample. Because the sampling frame was developed on the
basis of facility attributes, it is not possible to develop statistical weights for business entity results (Denning,
1997). This, in turn, means that the number of financially distressed business entities cannot be estimated.
Tnstfffld, the impacts are passed to the facility level through the facility-level weights. For example, say a
1 The closure model discussed in Appendix C examines whether it makes economic sense to
upgrade a given facility (e.g., the facility could absorb the additional costs and still remain profitable). It
does not examine whether the company can raise the capital to make mat investment.
D-l
-------
company owns one TEC facility, which has a weight of seven, and the regulatory costs place the company in
financial distress. The analysis woiud describe the impact as these seven facilities are owned by corporate
parents that show financial distress, not seven individual businesses snowing financial distress.2
Section D. 1 discusses the aggregation of facility-level regulatory cost data required to perform the
ratio analysis at the business entity level. Section D.2 presents the Altman Z"-score, a weighted average of
financial ratios used to assess financial distress. Section D.3 presents the current ratio and the times interest
earned ratio, which EPA examined as alternatives to the Altman Z" for measures of financial distress.
D.1 AGGREGATION OF FACILITY-LEVEL REGULATORY COST DATA
EPA estimated costs on a facility basis. EPA aggregated facility-level regulatory costs to the
business entity level in order to assess the impact of Hie total costs incurred by the entity. As mentioned
above, the TEC data represent a sample and not a census. Some business entities in the survey own TEC
facilities that were not sampled. In order to avoid underestimating the impact on these firms' financial ratios,
compliance costs must be estimated for those TEC facilities not in the sample. The 93 affected facilities that
received detailed questionnaires fall into one of three groups:
• Forty-four facilities (304 weighted facilities) are the only TEC facility owned by the
company C'SF'or single facility firms).
• Fourteen facilities (175 weighted facilities) are owned by parent companies that own other
TEC facilities; the facility, however, is the only facility owned by the parent company that
received a questionnaire ("SQ" or single questionnaire firms).
• Thirty-five facilities (213 weighted facilities) are owned by parent companies that own other
TEC facilities; each parent company owns more than one facility that received a
questionnaire. The parent company, however, owns other TEC facilities that did not receive
questionnaires ("MQ" or multiple questionnaire firms). '
2 This is analogous to the application of the small business entity definition to the facility level.
The definition of small entity must be determined by the revenues of the parent firm, not the facility. The
impacts are men defined in terms of small business-owned facilities. Thus, it is accurate to state, for
example, mat seven facilities are owned by small business entities, but it is inaccurate to state mat mere are
seven small business entities.
D-2
-------
For the SF group of facilities, the facility compliance costs are equal to the business entity
compliance costs. For the SQ and MQ groups, EPA scaled the costs for the TEC facilities in the survey to
___ ' • • ' ! *
the costs for all TEC facilities owned by the business entity. The factor used to scale up facility compliance
costs is calculated from the ratio of facility TEC operating costs to business entity TEC operating costs. The
inverse of this ratio is used as the scaling factor,3
TEC costs were chosen to calculate the scaling factor because this ratio captures the size of facility
TEC operations relative to parent business entity TEC operations better than other alternative measures.
•ini'M ' ,! n| • ;!'"i , , uiiP'i , I'i"'' "!" /.I"!.1 '"':,;';,: • "i'. ,'i";i r i'1'1 'i'" •!'•' •.,' '"';i »':,, . "':".:!,:'"'li:'' .' '• • "• 'm1.,1!. ,•" i '.!!"•!'•' I •• , < •• •'.•
EPA also examined: 1) the ratio of facility TEC revenues to total business TEC revenues, 2) subcategory
median cost, and 3) subcategory average cost The first alternative was rejected because of two reasons: the
large number of in-house facilities in the industry, and differences in the unknown, variable markup of price
over cost between commercial firms. EPA rejected the second and third alternatives because of the range in
size of TEC facilities both between firms and within firms. Also, EPA may not be able to identify the
subcategory for each facility not in the database.4
For the SQ group, the ratio of facility TEC costs to business entity TEC costs is calculated directly.
If, for example, a single facility in the SQ group accounts for 20 percent of business TEC costs, then facility
compliance costs are multiplied by five to estimate business compliance costs.
....•I i, i ;i ' '' !' 'i '•; >' ' ' ' ,,' ; ', -'',,. i
For the MQ group, the cost of each facility's TEC operations is totaled over all facilities in the
database that are owned by the same parent business and then the ratio of facility TEC costs to business TEC
costs is calculated. For example, suppose a business entity owns several TEC facilities, two of which are in
the database. If the sum of TEC costs for these two facilities equals one third of the business entity TEC
costs, then the scaUng factor is equal to three. Each facility has its compliance costs multiplied by three and
added together to estimate total compliance costs for the business entity.
3 Total facility costs for TEC operations is question B48_94T hi the detailed questionnaire; total
business entity costs for TEC operations is question B83_94T in die detailed questionnaire.
Some business entities in the database own both in-house and commercial facilities; facilities also
may differ greatly in size. Suppose, for example, one firm owns two TEC faculties, only one of which is
in the database. One facility accounts for 90 percent of TEC operations and performs commercial
cleanings, while the second accounts for 10 percent of TEC operations and performs only in-house
cleanings. The selected approach provides a more accurate estimate of the costs borne by die business
entity, than does the revenue ratio scale or median/average subcategory compliance costs approach.
. • • " • ' • • ' • • D-3 " "" :
-------
B.2 ALTMANZ"-SCORE
D.2.1 Description
EPA selected a weighted-average of financial ratios, called the Altaian Z"-score, to characterize the
baseline and post-regulation financial conditions of potentially affected firms. The Altaian Z"-score is a
multidiscriminant function, originally developed to assess bankruptcy potential (Altaian, 1993).* The Z"-
score has advantages over consideration of an individual ratio or a collection of individual financial ratios:
• It is a simultaneous consideration of liquidity, leverage, profitability., and asset management
It addresses the problem on how to interpret the data when some financial ratios look "good"
while other ratios look "bad."
• There are defined threshold or cut-off values for classifying firms in good, indeterminate,
and poor financial health. "Rules of thumb" are available for some financial ratios, such as
current ratio and times interest earned, but these frequently vary with the industry (U.S.
EPA,1995b).
• The Altaian Z"-score is a well accepted standard technique of financial analysis (see Brealy
and Meyers, 1996, and Brigham and Gapenski, 1997). - v
Altaian (1993) developed several variations on the multidiscriminanl function. EPA selected the Z"-
score because it was developed to evaluate public and private nonmanufacturing firms. Altaian (1993) notes
that "this particular model is also useful within an industry where the type of financing of assets differs
greatly among firms and important adjustments, like lease capitalization, are not made." That is, the Z"-score
model is the most appropriate model for the TEC industry.
The model is: '
5 EPA uses the Altaian Z"-score as an indication of financial distress, but not necessarily
bankruptcy. A Z"-score below the "bankruptcy likely* is a warning sign, not a determination of immediate
bankruptcy. There is a time lag between a warning (i.e., low Z"-score) and actual bankruptcy. A
company has me opportunity to change its behavior during mis warning period to avoid me projected
bankruptcy. The Chrysler Corporation is an example; Altaian, 1993 cites other examples. If a business
entity's Z"-scpre falls below the 'bankruptcy likely" cutoff as a result of me rule, EPA considered the
option to have caused financial distress. The company will likely have to change the way it does business
to respond to the regulation.
D-4 ,
-------
ZT - 6.56X! + 3.26X2 + 6.72X3 + 1-
where the pre-compliance components are:
2?' — overall index
X] = working capital/total assets
X2 = retained earnings/total assets
X3 = earnings before interest and taxes (EBIT)/total assets
X4 = book value of equity/book value of total liabilities
For this analysis, retained earnings are taken from the financial statements submitted along with the
questionnaire. Working capital is equal to current assets less current liabilities. Book value of total liabilities
is equal to total liabilities less owner equity. Where retained earnings are not identified in these statements,
owner equity is used as a proxy.
Taken individually, each of the ratios given above (Xt through XJ is higher for firms in good
_ ' ! i
financial condition and lower for firms in poor financial condition. Consequently, the greater a firm's
bankruptcy potential, the lower its discriminant score. An Altaian Z"-score below 1.1 indicates that
bankruptcy is likely; a score above 2.6 indicates that bankruptcy is unlikely. Z"-scores between 1.1 and 2.6
are indeterminate. Pre-regulatory scores are calculated from survey data. Table D-l summarizes the
questionnaire data used in the AltmanZ" analysis.
EPA estimates financial distress short of closure based on changes in the Altaian's Z"-score as a
result of pollution control costs. Capital costs are those developed by the engineering staff for use in the cost
actualization model. The anrmalired pollution control costs for each option were calculated from the
engineering estimates of capital and operating and maintenance costs in the cost annualization model (see
Appendix A). The estimates of post-compliance scores are calculated as follows:
27' — overall index
X| = working capital/(total assets + capital costs)
Xj - retained earnings/(total assets + capital costs)
Xj - (EBIT - pre-tax annuali/ed compliance costs)/(total assets + capital costs)
'" : • : D-5 " •
-------
o
63
f
V
=
!
e
•fr
a
!
2
5
•<
t
1 Corporate Hierar
•w
Data Elemen
Dictionary
Field Name
«o
fis ** o
a *S ^
.® § ^
m
Data Element
Dictionary
Field Name
Location in
Questionnaire
(Question No.)
• . ^
i
1
, 1
B32A94F
«N
en
1
vo
CQ
«
VO
vo
w
I
S3
i
1
1
B32H94F
es
1
NO
r2
S
1
'" *
I
B33A94
at
en
en
B67A94
S
s
, .5
1
B
i
. 's
§
I Bookval
en
S
en
en
1
s
vo
£
1
^3
1
1
:'l.-
s
s
o
en
en
CQ
1
1
-1
1
1
2
,1
^
' 1
CQ
*
,
"I
1
••'1
B50A94
0
B84A94
_
OS
53
e
i
T>
S
fe
"S
1
1
D-6
-------
Xx = bode value of equity/(book value of total liabilities + capital costs)
The approach, therefore, assumes that the firm would incur debt in some form for the capital cost; an
alternative approach assumes that the equipment could be purchased out of working capital The first
approach, is more likely.
D.2.2 Evaluation of Altaian Z" Results
EPA calculates the pre-regulatory condition of the industry in order to evaluate the post-regulatory
impacts on an incremental basis. Given the number of and wide range in industries, company types, and
* i
company sizes represented in the TEC database, it would be unusual not to have any business entities with
Z"-scores below the "bankruptcy likely" cutoff Table D-2 summarizes the number of unweighted business
entities in each of the "bankruptcy likely," "indeterminate," and "bankruptcy likely" categories before the
incurrence ofregulatory costs. While this does not mean that EPA necessarily expects the firms in the last
category to go bankrupt, it does mean that the pre-existing financial condition of the business does not make
it possible for EPA to separate impacts of the regulation from the pre-existing condition.
Post-regulatory financial stress, therefore., is evaluated and reported on an incremental basis (Section
5.4.2). Facilities are described as incurring financial stress short of closure when their parent firm has a pre-
re|uiatoryAltmanZ"-score greater than 1.1 (the upper bound of the bankruptcy likely range) and a post-
regulatory score less than 1.1. The financial distress is "short of closure" because facilities estimated to be
incremental closures in the closure model are removed from the analysis. A facility cannot be both an
incremental closure and incur incremental financial distress. The results of the closure model take precedence
because a company is more likely to close a facility than jeopardize the financial health of the entire business
with the facility's upgrade. Facilities that are estimated to remain open are then examined for financial
distress using financial ratio analysis.
D-7
-------
TABUJD-2
PRE-REGULATORY ALTMAN Z" SCORES
Category
Unweighted
Business
Entities
Bankruptcy Unlikely
Indeterminate
Bankruptcy Likely
37
16
18
For 3 unweighted business entities analysis was not
conducted because insufficient data were provided.
D-8
-------
11,1":;!]:' ir , r, „ :
D.3 CTJRRENT RATIO AND TIMES INTEREST EARNED RATIO
EPA also examined the current and times interest earned (TIE) ratios as alternative measures to the
Altaian 2T ratio to characterize the baseline and post-regulation financial conditions of potentially affected
firms. Both the current ratio and TIE ratio are standard financial ratios, two among many, used by lending
institutions and firms to judge the credit-worthiness of a firm (Breary and Myers, 1996).
The current ratio is a liquidity ratio; that is, it is one measure of how much cash and other liquid
assets a firm has on hand to repay debt Current assets may be a better measure of a firm's ability to repay
cash. In the baseline, the current ratio is calculated as:
current assets
current ratio =
current liabilities
The post-regulatory current ratio is calculated as:
current ratio - curren^ assets - pre-tax annualized compliance costs
'•, M /;•;; ' • • • ' ,'' ,' " i:1' 'Current liabilities
The TIE ratio is a leverage ratio. It examines if a firm has sufficient income to meet interest payment
obligations on outstanding debt; regular interest payments must be made in order for a firm to avoid default
In the baseline, TEE is:
TIE ratio - EBIT + depreciation
interest payments
where EBIT is earnings before interest and taxes. Post-regulatory TIE is:
TIE ratio = EBrT + depreciation - pre-tax ann^aiigmd compliance costs
interest payments
Table D-3 summarizes the detailed questionnaire data used in the current and TIE ratios.
D-9
-------
2
w
I-
1
S3
Corporate
chy A through D
5
1.
I
Data Element
Dictionary
Field Name
•li?
•ill
-ll
Data Element
Dictionary
Field Name
•sll
Location
Questionn
(Question
1-1
1
u
I
B32A94F
A
CS
m
B66A94
03
i
1
. i
B33A94
at
co
B67A94
5"
• 1
ra
\
i
B50A94
3
B84A94
OS
§
i
i
1
1
1
•\
. ^
09
a'
'. s
g
1
1
I
1
«
jj
B84B94
, 00
I
I
D-10
-------
Unlike the Altaian Z" ratio, there are not well-defined thresholds far the current and TIE ratios with
\vhichtojudgethefinancialhealthofafirm. Financial analysts tend to vvatch the trend in ratios overtime,
Mini!' -J; • : i,i. L „-:„,' ; ijii •1»,;li , ,;, v, ;;,,vi;, IT !, (• ' I'. ',., |i.? .i'.,t ••.,'>•• ,. '(r.:.'••; ; ,,,;•'; «', '| ,.'.••
especially in relation to industry trends (Breafy and Myers, 1996). However, it is clear that a firm cannot
remain financially healthy in the long run if its current liabilities exceed current assets. Thus, if in the
baseline a business entity has a current ratio exceeding one, and compliance costs cause the ratio to fall below
one, then that business entity is projected to incur incremental financial distress. Similarly, if a firm's TIE
ratio falls below one, then its interest payments exceed its current earnings. There is no clear standard for
how much current earnings should exceed interest payments for financial health; the threshold for times
iiif!, , !, ,;,. ';i' ' I'm ,„ .'•. '. :•' • "Til IIP " \ *'„•'',,' t'~ ' ,•!« ',•'.• \, '.•"!. •• J !• i", : ',.'': '• f1 •• ,'»:•; .'!.•. ,
interest earned is set at three. If a business entity has a baseline TIE ratio exceeding three, and compliance
costs cause the ratio to fall below three, then that business entity is projected to incur incremental financial
distress. Table D-4 presents the number of unweighted business entities with baseline current and TIE ratios
above and below the "financially healthy" thresholds.
In general, similar magnitudes of impacts are observed under the three financial ratios examined
(Section 5.4.2). Because the Altman Z" score examines a weighted average of four different ratios, because it
has well-defined thresholds for determining financial health of a business entity, and because it answers the
question of what to do when some ratios look "good" and some ratios look "bad," the Altman Z" results were
emphasized ui determining financial ratio impacts. The current ratio and TIE ratio provide corroborating
evidence for the Altman Z" results.
D.4 REFERENCES
Altman. 1993. Edward Altman. Corporate financial distress and bankruptcy. New York: John Wiley
aid Sons.
Breaty and Meyers. 1996. Breaty, Richard A. and Stewart C. Myers. Principles of corporate finance
(5th ed). New York: The McGraw-Hill Companies, Inc.
BpghaniandGapenski. 1997. Brigham, Eugene F. and Louis C.Gapenski. Financial management: theory
, and practice (8th ed.J. Fort Worth: The Dryden Press.
Denning. 1997. Business entity weights: Phone call from George Denning> EPA, WAM, to Calvin Franz,
'Epr. Memo to TEC|Prpject File. April 22.
D-ll
-------
TABLED-4
PKE-KEGtJLATORY CURRENT AND TIE RATIOS
Unweighted
Business
Category Entities
Current ratio greater than 1.0 39
*
Current ratio less than 1.0 31
TIE ratio greater than 3.0 39
TIE ratio less than 3.0 17
For 4 unweighted business entities current ratio analysis was not conducted
because insufficient data were provided.
For 7 unweighted business entities TIE ratio analysis was not conducted
because insufficient data were provided.
For 11 unweighted business entities interest payments were zero.
D-12
-------
U.S. EPA. 1995a. 1994 detailed questionnaire far the transportation equipment cleaning industry. OMB
Number 2040-0179. Washington, DC: U.S. Environmental Protection Agency, Office of Water.
U.S. EPA. 1995b. Interim economic guidance for water quah'ty standards: workbook. EPA-823-B-95-002.
Washington, DC: U.S. Environmental Protection Agency, Office of Water.
D-13
-------
D-14
-------
APPENDIX E
SECONDARY IMPACTS
The impacts to national and regional output and employment in non-TEC industries caused by the
regulation of the TEC industry are called secondary impacts. The secondary impact analysis assesses those
impacts. Compliance costs decrease the output of the TEC industry, which may cause a loss in TEC
employment1 The decrease in TEC output decreases the demand for products in the industries that supply
inputs to the TEC industry. As a result, these industries may suffer reduced output and employment as well;
however, the need to manufacture, install, operate and maintain the pollution control equipment may generate
increased economic activity in other industries. Ibis increase in economic activity resulting from compliance
with the regulation can result in output and employment gains that offset the losses caused by the regulation.
The analysis in this section provides a range of estimated secondary impacts caused by the TEC
regulation. Section E. 1 describes the input-output (IO) methodology used to estimate secondary impacts and
the application of this methodology to the TEC industry. Section E.2 presents the procedure used to estimate
jjfiiiiilli, ,i :,'i, ""'i fiiiiii!! ' .I," '•• '•'.(',' .. '."" ! ...':,.: '.' . I;11'-"1 •:• • " r"\ '•.•:, '• i •',',,,'.'. «,' ' ,i i
offsetting gams from purchasing wastewater treatment systems. Section E.3 analyzes regional impacts
caused by the TEC regulation.
E.1 METHODOLOGYFORESTIMATINGNATIONALEMPLOYMENT AND OUTPUT
IMPACTS
National output and employment impact estimates are generated through the use of output and
employment multipliers derived from the National Input-Output (IO) tables compiled by the Bureau of
Economic Analysis (BEA [U.S. Department of Commerce, 1997]). IO multipliers estimate the total impact
on the national economy of a change in the quantity purchased of a single industry's output Impacts include
the change in the industry's purchased output (direct effects), the impact on the industry's suppliers (indirect
1 This loss in employment may be comprised of actual job losses or may be reflected in a decrease in the
number of hours worked by several employees even though all employees retain their jobs. For this reason
employment impacts are measured as "full-time equivalents" (FIE), where one FTE equals 2,080 labor hours
or one person-year of employment
::.. • . ':, ' " , • : , . 1Srl
i it i;,:, i; i,',. ii!' • i •, /,.,'Vv. .iLk'tVim.!;]:; >: ,ja,!,r,«i,,! ;«'• k;i, iuiiuLt.'i,;:,,;1' is/jiatsiii;;,; *•:; ",„* ,&; i: £ a.im'fr^.'i'.'.- li! .,.!.
-------
effects), and the impacts caused by the change in expenditures by employees of all impacted industries due to
their changed income (induced effects). Multipliers vary between industries because of differences in their
upstream effects (how significant the industry is as a user of other industries' production as inputs) and
downstream effects (how significant the industry is as a supplier of inputs into other industries).2
For example, a decrease in tank cleanings by the TEC industry caused by the regulation will decrease
the demand for tank cleaning solvents. This may cause the suppliers of tank cleaning solvents to decrease
their production of solvents, .impacting those industries that supply them with the inputs required to
manufacture the solvents. In addition, the employees of each industry will experience a decrease in income;
this will affect their purchases of other products as well. The final demand multiplier estimates the total
dollar value of output lost due to the decreased demand for other products caused by the decreased supply of
tank cleaning services.
E.I.I Input-Output Multiplier Methodology
To use the final demand output multiplier, the loss in industry output caused by the decrease in
supply must be estimated. This lost output is expressed in terms of decreased industry revenues (i.e., the
dollar value of lost output). Figure E-l illustrates the change in industry revenues caused by the regulation.
The rectangle bounded by P*Q* represents total pre-compliance industry revenues while the rectangle
bounded by P2^ represents post-compliance industry revenues attributable to tank cleaning services; the
2Note mat an implicit simplifying assumption of IO analysis is that the production of goods requires the use
of inputs in fixed proportions. The tnagmfrifte of change in each link of impacts is determined by these fixed
coefficients. In reality, however, each link in the chain of impacts represents the supply and demand for a product
or service. The decrease in output causes a decrease in the demand for each input This change in demand for
inputs may change the price of the input Because profit-maximizing firms have incentive to vary the use of
inputs to minimize the costs of production in response to changes in input prices, the coefficients in the IO tables
are not, in reality, constant Adjustments in the use of inputs tend to mitigate the impacts of the decreased
demand; therefore, impacts estimated using IO multipliers can be considered conservative estimates in the sense
that they tend to overestimate impacts. In an industry like the TEC industry, which neither uses a significant
share of another industry's product nor provides a significant cost share in the output of user industries, these
mitigating effects are likely to be slight
.•' • ' ' E-2
-------
Price
SI
} per unit compliance costs
S
Ql Q*
Tanks Cleaned
Figure E-l
Lost Output and Transfer Payments
for Calculation of Secondary Impacts
E-3
-------
difference between the two rectangles represents the value of output lost due to the regulation.3 Next,
estimated output loss in the regulated industry is multiplied by the final demand output multiplier for the
industry to calculate the decrease in total national output caused by the regulation:
-.••'"' • " . .
output loss x final demand output multiplier = total.national output loss
This includes the lost output in the regulated industry as well as indirect and induced losses in industries that
provide inputs to the industry and final consumption goods.
This does not account for all regulatory impacts. Compliance costs are passed through to customer
industries in the form of increased prices; this price change increases the customer industries' costs of
operation (a decrease in suppfy), which will reduce the quantify of output they provide and generate
secondary impacts for their suppliers as well. On Figure E-l the cost passed through is represented by the
increase in equilibrium price from P* to P1 multiplied by the number of tanks cleaned at that price, Q1.
Multiplying the value of output represented by (Pl-P*) x Q1 by the final demand multiplier for the customer ,
industries accounts for secondary impacts generated by the compliance costs that are avoided by the regulated
industry by passing them through to their customers. '
EPA uses the final demand employment multiplier and the direct effect employment multiplier to
estimate national employment impacts. The final demand employment multiplier uses data on the labor input
required per dollar of output in each industry to estimate the direct, indirect, and induced changes in national
employment (measured in FTEs) caused by the initial change in the regulated industry's output:
' l
output loss x final demand employment multiplier =. total national employment loss
This final demand employment multiplier essentially estimates the total number of employees in all industries
required to produce $1 million of the regulated industry's output
3 Although the post regulatory price paid by the customer equals P1, the facility only receives price P2 for the
tank cleaning service itself; the difference between P1 and P2 represents the payment for the incremental
wastewater treatment component of tank cleaning services. The revenues represented by the area (P1- P*) x Q1
(ie., area a) reflect losses due to the decrease in the number of tanks cleaned caused by the regulation. The area
(P* - P2) x Q1 (i.e,, area b) represents revenues lost due to the decrease in the post-regulatory price received by
facilities on the remaining number of tank cleanings.
..• ' E-4
-------
The final demand employment multiplier is estimated for each industry by the Bureau of Economic
Analysis (BEA) from its IO tables. This multiplier's effects are based on the direct change in industry
output, which is calculated in the same manner as described above. Because this multiplier is based on 1992
data, the estimated dollar value of lost output must be deflated to 1992 dollars before calculating, otherwise
employment losses will be overestimated due to inflation.4
EPA also makes use of the direct employment multiplier in estimating impacts. Typically, regulated
industry unemployment is estimated directly from incremental facility closures; however, there are no
incremental facility closures projected under the proposed options for the TEC industry. The post-
compliance decrease in tank cleanings projected by the TEC market model infers employment impacts. The
direct effect employment multiplier can be used to estiniate the urtemployment impacts in the regulated
industry.
TTy» Icgy to cstinirfng gmplnymgnt impacts fa thg regulated industry from the direct effect
enjoyment multiplier is the relationship between that multiplier and the final demand employment
multiplier. The final demand employment multiplier described above estimates total national employment
impacts based on the change in output in the regulated industry. The direct effect employment multiplier also
estimates total national employment impacts; this estimate is based on the change in employment in the
regulated industry:
industry employment loss x direct effect employment multiplier = national employment loss
Because both multipliers are derived from the same underlying relationships in the production process, the
national impacts estimated from changes in employment should be consistent •with national impacts estimated
from changes in output EPA can directly estimate output losses in the regulated industry and use the final
demand employment multiplier to estimate national employment impacts. National employment impacts can
then be divided by the direct effect employment multiplier to estimate the loss in industry employment:
4 The final demand employment multiplier estimates the total number of employees required to produce $ 1
million, of the primary industry's output in 1992; inflation between 1992 and 1994 means that the nominal value
of that output would be greater in 1994 than in 1992 even though the same physical quantity of output had been
produced. Estimating employment impacts based on 1994 value of output would overestimate employment
impacts because it would overestimate the value of output lost
E-5
-------
national employment loss -=- direct effect employment multiplier = industry employment loss
This estimate is valid because all three multipliers are derived from the same underlying relationships
estimated in the IO tables.
E.1.2 Application of Input-Output Methodology to the TEC industry
Kl.2.1 Issues in Applying IO Multipliers to the TEC Industry
Although the application of IO multipliers to estimate impacts is straightforward in theory, practical
application of these multipliers to the TEC industry is difficult for two reasons. First, BEA does not provide
IO multipliers for the TEC industry. The value of the multiplier would be a weighted average of other
multipliers that seem to most closely fit the facilities involved. This weighted average would be comprised of
the multipliers for such activities as truck trailer manufacturing, ship building and repair, railroads and related
services, motor freight transportation, water transportation, and automotive repair shops and services.5 Each
of these categories describes the primary activity of some segment of the facilities that comprise the TEC
industry.
f ' ' .'
Rather than attempting to calculate a weighted average of the IO multiplier that most closely matches
each individual faculty's primary activity, EPA applied the 10 multipliers for, transportation services
according to the transportation mode of the subcategory (e.g., facilities in the Barge Chemical and Petroleum
subcategory are assigned the IO multiplier for water transportation services, IO category 65.04). Each of the
activities performed by faculties that provide TEC services (such as the building or repair of tank containers,
terminal operations by shippers and carriers, or TEC services alone) are performed solely for the purpose of
providing freight transportation services. All these activities are inputs into the transportation service
5 SIC code 7699 is the code reported by commercialTEC facilities. This SIC code is contained in IO industry
73.0101: Miscellaneous Repair Shops. Other services contained in this industry code include welding, armature
rewinding, musical instrument repair, beer pump coil cleaning and repair, rebabbitting, cesspool cleaning,
taxidermists, window shade repair, farriers, and mattress renovating. This partial list illustrates why EPA did not
use the IO multiplier for SIC code 7699 to estimate secondary impacts; mis list also illustrates why EPA did not
attempt to use published data for primary information on the TEC industry.
.'' ' E-6
-------
industry. Any regulatory impact to the TEC industry affects the national economy through its impact on
transportation services.
Second, lost industry output is difficult to estimate because a significant proportion of tank cleanings
occur with no market transaction (i.e., in-house cleanings). Estimating the decrease in in-house tank
cleanings and attributing a dollar value to them requires making a number of implicit and explicit
assumptions. EPA chose to value in-house cleanings at the preregulatory market equilibrium price for
commercial cleanings.
'";'' " •" •' • '';$] ; • " .' ;:' : ; '• ' '• ••''''••' ',.''' .•• ' ;, •, ' ' 'i ' ') ' ;
Under perfect competition, the price of a good or service is equal to the marginal cost of supplying it.
The cost of using a resource in production reflects the foregone opportunity to use it for an alternative
' !;p";'!!! '' i''' 'I,'' •' • i1:"'1, "•' i! 'if;,11!' ' ' ii'l"' ' : " :„'" •i,"|illl,"" "' 'l!'" ?° ''!" '':' ''"," 'ii!'",'1' •!' •'''' • •• '•- •'.' '""''' "' ''"' :!"'1"'"1 i' ••' 'l' '• •' r-,1.1'!"''' '•, '' ' • '.' '' "
purpose. Thus, the equilibrium price under perfect competition reflects the value society places on that good
or service. If, for example, the price of a good is less than the cost of providing it, then society values that
good less than the other goods that could be made with the same resources. Conversely, if the price is greater
: '"' 'I ''J!'! !" '! !,!' 'li, : : ,|!!|' • '; '" ,,; ",, "HI !'"»!,!• !• ,' ir' ../i » , r ! i!' 'i'i,"i i '," •' ' ", ''i:'"', ' . !,"," V',"1' :",.'"•'' "'!,'', '' ., '.i'1' •• ii!''!"'™!i "'!''",'' '!l"|i • i •
titan marginal cost, society values the good more than the resources used in producing it; society would
benefit from having more of the good produced.
EPA assumes that the value of tank cleaning to society is reflected in the price of providing that
service. In-house facilities may provide tank cleaning services at a cost greater than market price. This
implies that some individuals are willing to pay a price premium for tank cleaning services over and above the
value society places on those services.6 For the purpose of estimating the impact to society, the relevant value
is the one society places on the good. It is irrelevant for this purpose that some in-house consumers of tank
cleaning services are willing to^pay more than the market price just as it is equally irrelevant that many
purchasers of commercial tank cleaning services are willing to pay more than the market price for those
services.
An additional complexity in accounting for the value of in-house tank cleanings concerns evaluating
the reaction of in-house faculties to regulatory compliance costs. The market model evaluated the
outsourcing decision faced by in-house facilities; no in-house facilities were projected to outsource their tank
6 This premium may reflect the additional value an individual places on attributes of the service such as
convenience or guarantee of quality.
":: ' ' : '" '• " ' , E-7
-------
cleanings in die subcategories affected by the proposed regulation. Although none of these faculties chose to
close the TEC line in their facility, they still face incentive to reduce compliance costs by reducing the number
of tank cleanings performed whenever possible. EPA assumes that users of in-house tank cleaning faculties
behave in essentially a similar manner as users of commercial facilities. The price elasticity of demand for
commercial services, which in a sense quantifies the key variables that determine the consumption of tank
cleaning services, applies equally to in-house customers as commercial customers.
Although calculating the value of lost output is more complex for the TEC industry than for more
/ • ' .
typical (i.e., better defined, small in-house production) industries, estimating costs passed through to
customer industries is less complex for the TEC industry. Typically industries have many customers for their
product The final demand multiplier for the passed-through costs should, in theory, be a weighted average of
the final demand multipliers for the customer industries; the weights for the average can be derived from the
IO direct requirements table. One customer exists for TEC services: transportation services. Consequently,
passed-through costs for the TEC industry will be multiplied by the same industry multipliers that are used,
for lack of a better alternative, for the direct loss in TEC output
KL2.2 Application of IO Multipliers to the TEC industry
Due to the uncertainties in applying IO multipliers to the TEC industry, EPA provides a range of
secondary impact estimates. Because of the in-house provision of TEC services, EPA cannot directly
estimate the total value of lost output from the market model; however, the value of lost output can be
indirectly estimated by using price elasticities of supply and demand. EPA uses the price elasticities of
demand for each subcategory specified in the market model; the range of impact estimates will be generated
by varying the price elasticity of supply.
The value of lost output is estimated by using the price elasticities of supply and demand to estimate
the increase in tank cleaning price caused by the proposed regulation.7 Given this figure, the decrease in
tanks cleaned can be derived from the definition of the price elasticity of demand. Combining these two
7 The price increase estimated by the market model cannot be used for this purpose because it only includes
commercial tank cleanings and commercial facility compliance costs.
'• ' k . E-8 • . • ' • • ' '
-------
figures with the compliance costs per tank cleaned, the value of lost output can be calculated (Figure E-l).
The percentage change in price caused by a given percentage change in supply is estimated as (Franz, 1996):
dP
where:
/V .''.'•. ;: ...... .' .' . '• : . ' . f "'!' ' \ '••-•'• , •;', ' !
'" ' , ' ,':";": dP '
^— - = percentage change in equilibrium price
:'ifi • „ , •Jl,!1! • •;. ,' ..... ."?, . i : . , ••"? , ' . , ' '.' ' ' i . . •:' • , I
e = price elasticity of supply
i * !"] '" " "ij1 " , „ I' "• ..... ' i _ '!'•,, '' ' "'',',•"' " ' " • • ',!'' ' !
T| = price elasticity of demand
A = pie-tax annually^ compliance cost per unit
: ' " ..... ' "i • ' " ..... : i i , •' ' . • ....... •'••••.' •••. ••• •'. • i ..... .-•••. ' <••„ • i
P = preregulatory equilibrium price
The percentage change in supply is equal to total amqmliygd comph'ance costs divided by total subcategory
revenues, including those imputed to in-house cleanings.8 After the percentage change in equilibrium price is
calculated, the percentage change in quantity demanded can be calculated by rearranging the definition of
price elasticity' of demand:
percentage change in quantity demanded = i\ * percentage change in price
The range of secondary impacts is calculated using extreme values of the price elasticity of supply.
If the price elasticity of supply is equal to zero, then the supply curve is vertical (Figure E-2). The regulatory
costs shift the supply curve upward, but there is no change in either equilibrium price or equilibrium number
of tank cleanings performed (ie., post regulatory price, P1, is equal to the preregulatory price P*, and post
regulatory tank cleanings, Q1, are equal to preregulatory tank cleanings Q*); however, suppliers, after paying
for wastewater treatment, receive onfy P2 per tank cleaned to provide the same services for which they used to
"This is precisely how the supply shift is estimated in the market model The only difference is that in the
secondary impact analysis total revenues include in-house cleanings valued at the equilibrium market price and
total compliance costs include costs for all facilities, not just commercial facilities (Appendix B).
E-9
-------
Price
P* = P1
P2
S = S1
} per tmit compliance costs
Tanks Cleaned
Figure E-2
Lost Output and Transfer Payments
for Calculation of Secondary Impacts
Perfectly Inelastic Supply Curve
E-10
-------
receive price P*. The decrease in industry revenues is, therefore, equal to total pre-tax animaliTgd compliance
costs. .... . _
Figure E-3 illustrates the opposite extreme, where the price elasticity of supply equals °°, which
corresponds to a horizontal supply curve. In this case the imposition of regulatory costs results in the largest
possible percentage decrease in tank cleanings. The value of lost output is equal to the decrease in the
number of tank cleanings performed (Q* - Q1) valued at the original equilibrium price P*. In all likelihood,
the true long run price elasticity of supply for TEC services is more similar to the perfectly elastic case than
the perfectly inelastic case. In general, economic theory infers that long run price elasticities of supply will
exceed one. If inputs into the production process are not very specialized and readily available, and if labor
docs not require a high degree of expensive specialized training relative to other jobs, then the long run price
elasticity of supply can be expected to be much greater than one.
Estimating a range of secondary impacts based on the extreme values of a perfectly inelastic and a
perfectly elastic supply curve provides a lower and upper bound for total impacts. The true price elasticity of
liliHi1"1,1 ii' ,. ""• „ ., , I. nikMi. • , ;• , i', I'i',, ,' 'ii '• ,n, '« I , J iinliii ii.i!,i'i< ' :.• . i",.1 ,' •: I . I i,1,.:. '.T'iftiiTji, . , i |, • ' • , r • „ •'-.,,
supptylies between these two extreme values and impacts should lie within the estimated range. Beyond
cvaluatingthe range of estimated impacts, asignificant differeiM» exists in who bears the burden of the
regulation under the two scenarios. If supply is perfectly inelastic, all direct impacts are incurred by the TEC
industry alone, and all secondary impacts are caused by the decrease in value of TEC output, illustrated by the
difference .between !;a|ea (P* x Q*) and (P2 x Q1) in Figure E-2. If supply is perfectly elastic, only part of the
impacts are borne directly by the TEC industry (the difierence between area (P* x Q*) and (P2 x Q1) in Figure
E-3) and indirectly by its suppliers. The remaining impacts fall directly on TEC customers and indirectly on
the customers' suppliers; this is illustrated by area (P1 - P*) x Q1 in Figure E-3.9
Table E-1 presents the values of all key variables used in estimating secondary impact losses. The
precompliaace equilibrium price, quantity of commercial cleanings, and quantity of in-house cleanings are
••"nil i * i11 '!• ,i«,' •, • ."• i .1111!1'11 '! . >i "".:,' •" in ,! . "i/i'i" '.i1',' '»" . ,', Jii .i.'1"1 i1". ''•! '.";i|i •.;:• •. .'"'|i'. n'1 :'"'." •' TI! .!•: "•' i • \.
estimated by the market model. IO multipliers are for IO industry codes 65.01 (railroads and related
services), 65.03 (motor freight transportation and warehousing), and 65.04 (water transportation).
9 This can be observed in the estimate of TEC employment losses. TEC employment losses are calculated
from the loss in TEC output Thus, while the national impacts are greater under the assumption of perfectly
clastic supply, the loss in TEC employment is smaller because most of the regulatory costs and impacts are
passed through to the customer industries.
E-ll
-------
Price
PI
P* = P2
Qi
_ SI
} per unit compliance costs
- S
D
Tanks Cleaned
Figure E-3
Lost Output and Transfer Payments
for Calculation of Secondary Impacts
Perfectly Elastic Supply Curve
E-12
-------
IK iiiiiii i 1 1 ...... m ; ...... a"
! '" ssi |; ('- ....... "'i ......... :*: F .• 'i^ " •"; ...... s "" t:> ':• •;« ' ••:* "T*1 i*.'1.", !;"' " ;i '"'.•• ' ..... •"•'•'$• ' • f. ^;: " • 'i Sir: v ; 1 "
TABLE E-l
PARAMETERS FOR NEGATIVE SECONDARY IMPACT
ESTIMATES
Parameter
Preregulatory equilibrium price
Commercial cleanings
In-house cleanings
Price elasticity of demand
IO industry code for multipliers
Final demand output multiplier
Final demand employment multiplier
Dkect effect employment multiplier
Subcategory
Truck Chemical
$279.39
769,668
555,126
-0.195
65.03
2.997
39.2979
2.6519
Rail Chemical
$781.07
32,915
25,558
-0.10
65.01
2.7859
27.0791
4.2135
Barge Chemical
$6,447.75
12,078
1,874
-0.07
65.04
3.0285
29.697
4.5543
Sources: Price, price elasticity of demand, and cleanings: TEC industry market model;
''
IO industry:
65.03: Motor freight transportation and warehousing
65.01: Railroads and related services
65.04: Water transportation
E-13
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ESTIMATION OF OUTPUT AND EMPLOYMENT GAINS
E.2.1 Negative and Positive Impacts on Output and Employment
Negative impacts to output and employment caused by the regulation, however, may be offset by
positive impacts to industries and individuals that provide wastewater treatment services. In Figure E-1 the
cost of wastewater treatment per tank cleaned is equal to the difference between P1 and P2.10 While
compliance costs represent a loss in revenues to providers and customers of TEC services, they also represent
income to the providers of wastewater treatment services. Compliance costs, from society's viewpoint are
not a net loss, but a transfer of income from one industry to others. Thus, compliance costs represent an
increase in the demand for wastewater treatment systems, the construction services to install the system,
chemicals and parts to operate and maintain the treatment system, and labor services to run the system. The
increase in demand for each of these components causes increased demand in those industries that supply
them with inputs; therefore, compliance costs cause positive secondary impacts that are also estimated
through IO output and employment multipliers.
In general, the gains in output and employment are estimated in the same manner as the losses: The
increase in. demand for an industry's output is multiplied by the industry specific final demand output
multiplier to estimate the total increase in national output from direct, indirect, and induced effects caused by
the original change in demand. Similarly, the final tfemand employment and direct requirements employment
multipliers can be used to estimate impacts on national and industry employment respectively.
E.2.2 Estimation Procedure for Output and Employment Gains in the TEC Industry
Application of 10 multiplier methodology to estimate output and employment gains due to regulation
of the TEC industry is much more straightforward than the application to estimate losses. Total annualized
compliance costs represent the gain in output to suppliers of wastewater treatment systems to which the final
demand output and employment multipliers are applied. The primary modification required is that different
components of compliance costs represent an increase in demand to different industries, which have different
10 Total compliance costs are equal to (P1 - P2) x Q1, see Figure E-l.
' E-14
-------
multipliers. Accordingly, annualized compliance costs must be disaggregated before IO multipliers can be
applied.
First, capital costs can be divided into costs of the treatment system and costs for installin
treatment system. The multipliers specified for construction (i.e., installation) are significantly different from
those for the industries that manufacture the equipment itself; therefore, in estimating gains from the
regulation, EPA distinguishes capital costs from installation costs. Second, both capital equipment and
installation are onetime expenditures. EPA uses annualized capital and installation costs in order to compare
the gains from the anmiali/ed equivalent of a onetime expenditure with the lost output estimated to occur
annually for the sixteen year project lifetime.11
Operating and maintenance costs can be divided into the labor needed to operate and maintain the
equipment, the cost of materials such as chemicals and filters used in the system, energy requirements to run
the system, monitoring of wastewater to ensure compliance, and disposal of the wastes removed by the
treatment system. Chemical, energy, monitoring, and waste disposal costs require no special treatment
beyond identifying the most appropriate multipliers to use. These costs are incurred annually so the gains
from these expenditures are dkectly comparable to the losses.12
'Ill,,'1 I . i ' ' . .1 ,''.'i, ' "Ml]J , " " , , ' in, • ii ' ' ' " '!' '!„ ': ,, i " •"' 'i, : " ! ' ', i
The increase in TEC labor hours caused by the need to operate and maintain tfu? wastewater
treatment system cannot be handled in the same manner as most direct employment increases in IO analysis.13
11 EPA used a weighted average of IO industries 40.06 (fabricated plate work—70 percent), 42.08 (pipes,
valves, and pipe fittings—20 percent), and 49.01(pumps and compressors—10 percent) to estimate the
multipliers fix- the wastewater treatment equipment the multipliers for IO industry 11.0000 (construction—new
and maintenance and repair) were used for installation. Cantor and DeClaire, 1997a, 1997b, and 1997c provide
the breakdown of capital costs into equipment and installation.
,,h!l!l'. ' !' 'i • ,: HI ! 11 ,11 ,i ' • , ,, «•;, ,i; i ,,, , "" .,,!|;;v " | ,j,|j , |r,," , /, , ,: ,„,),'; , ,;; «; , • , ,i i, „,, .,, , ,,';;'," ',,,,, 'i ,'• |
12 IO multipliers for industry 27.0406 (chemical and chemical preparation, not elsewhere classified) were used
for opetatlogmaterials, and multipliers for industry 68.01 (electric services) were used for energy expenditures.
Monitoring costs incurred for the testing of effluent samples use the multipliers for industry 73.0105
(management and consulting services, testing and research labs) and waste disposal costs are accounted for under
industry 68.0302 (sankary services). Cantor and DeClaire, 1997a, 1997b, and 1997c provide the breakdown of
operating and maintenance costs into these components.
13 While this increase in labor hours is described for convenience as FTE labor gains that offset the job losses
caused by the negative impacts, in all likelihood these new operating and maintenance tasks will be assigned to
(continued...)
: . . ' .,;;, . .... , . . E-IS
-------
In general, when an industry increases its demand for labor hours, it is done to increase production. The
increased production causes secondary impacts that increase national employment by a multiple of the
original increase in employment
The increased labor required by the TEC industry to operate and maintain the wastewater treatment
system, however, does not increase its productive capacity. Additional labor is required to enable the industry
to provide approximately the same quantity of services it provided prior to the regulation. Because this labor
is not associated with increased production, it does not generate further employment or output through
indirect effects. While the additional labor required by the TEC industry is counted as a gain in employment
caused by the regulation to offset negative impacts, it has no multiplier effect to generate additional
employment in other industries.14 Similarly, the wages paid for these labor services represent a direct
increase in purchases of consumer goods, but because the increased employment does not cause indirect gains
in employment, no indirect increases in the
-------
The following compliance costs multiplied by the appropriate industry final demand output
multipliers to determine total direct, indirect, and induced gains attributable to the
regulation:
— anmialiaed capital costs, disaggregated into capital and installation components.
— annual operating and maintenance costs attributable to monitoring, waste disposal,
materials and energy use.
Plus annual expenditure on operating and maintenance labor services are added to the
estimated increase in total national output (i.e., the multiplier is set equal to one).
Total secondary employment gains from tits regulation are measured as the sum of:
The following compliance costs multiplied by the appropriate industry final employment
multipliers to determine total direct, indirect, and induced gains attributable to the
regulation:
— annnalJTed capital costs, disaggregated into capital and installation components.
— annual operating and maintenance costs attributable to monitoring, waste disposal,
materials and energy use.
Plus annual expenditure on operating and maintenance labor services converted to FTE
employment (i.e., the multiplier is set equal to one).
All multipliers used to estimate secondary impact gains are listed in Table E-2.
E3
Because ithe TEC industry detailed questionnaire was sent to a sample of TEC facilities stratified by
type of tank cleaned and certain financial characteristics, EPA cannot determine the geographical distribution
of TEC facilities with any degree of statistical confidence. In addition, the closure model projects no facility
closures under the preferred options,16 and market model projections of impacts provide no means of
16 la previous EAs, projected facility closures with known addresses have been used to estimate regional and
community impacts.
E-17
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TABLE E-2
PARAMETERS FOR POSITIVE SECONDARY IMPACT ESTIMATES
Annualized Cost Component
Capital equipment
Installation
Annual monitoring
Annual energy
Annual materials
Annual labor
Annual waste disposal
IO Industry Code
for Multipliers
40.06 (70%)
42.08 (20%)
49.01 (10%)
11.0000
73.0105
68.0100
27.0406
N.A.'
68.0302
- Final Demand
Output Multiplier
3.0152
3.1957
3.4139
2.237
2.9083
l.OO1
3.3582
Final Demand
Employment
Multiplier
31.3721
38.6754
44.1564
15.7616
23.7101
19.50382
35.4602
1 Assumed to be equal to one.
^1 million in 1992 labor expenses divided by 1992 labor cost per hour ($24.65) to estimate labor hours,
divided by 2,080 hours to estimate FTE per year.
Sources: RIMS H multipliers: DOC, 1996.
IO industry: 11.0000: New construction, maintenance and repair
27.0406: Chemicals and chemical preparations not elsewhere classified
40:0600: Fabricated plate work (toiler shops)
42.0800: Pipes, valves, and pipe fittings
49.0100: Pumps and compressors
68.0100: Electric services (utilities)
68.0302: Sanitary services, steam supply, and irrigation systems
73.0105: Management and consulting services, testing and research labs
E-18
-------
ascertaining how these aggregate impacts are distributed across facilities. Because of these reasons, it is
impossible for EPA to accurately project impacts to say particular geographical region.
E.4 REFERENCES
Cantor and DeClaire. 1997a. Version Srldraft capital and annual cost detail estimates for the TEC industry
truck/chemical indirect discharge subcategory. Memorandum from Melissa Cantor and Michelle DeClaire,
Eastern Research Group, lac. (Chantilly) to Cal Franz, Eastern Research Group, Inc. (Lexington).
October 13.
Cantor and DeClaire. 1997b. Version 5 draft capital and annual cost detail estimates for PSES for the
rail/chemical subcategory. Memorandum from Melissa Cantor and Michelle DeClaire, Eastern Research
Group, Inc. (Chantilry) to Cal Franz, Eastern Research Group, Inc. (Lexington). October 14.
Cantor and DeClaire. 1997c. Version 5.1 draft capital and annual cost detail estimates for BPT/BAT/BCT
for the TECI barge/chemical subcategory. Memorandum from Melissa Cantor and Michelle DeClaire,
Eastern Research Group, Inc. (Chantilly) to Cal Franz, Eastern Research Group, Inc. (Lexington).
October 15.
Franz. 1996. Method for calculating the percentage increase in price due to pollution control requirements
for pulp and paper. Memo from Calvin Franz, ERG, to Matt Clark, EPA March 21.
U.S. Department of Commerce. 1997. Regional multipliers: A user handbook for the regional input-output
modeling system (RIMS D). Washington, DC: U.S. Government Printing Office. March.
E-19
-------
E-20
-------
APPENDIX F
OMB No. 2040-0179
Expires 3/31/98
ATTACH FACILITY ADDRESS
LABEL HERE
U.S. ENVIRONMENTAL PROTECTION AQENCY
1994 DETAILED QUESTIONNAIRE FOR THE
TRANSPORTATION EQUIPMENT CLEANING INDUSTRY
'.I! •'
PART B - FINANCIAL AND ECONOMIC INFORMATION
APRIL 1995
The public reporting burden- for this information collection is estimated to be 65 to 339 hours per
response, depending upon the size of the facility. The reporting burden includes time for reviewing
instructions, gathering data, and completing and reviewing the questionnaire. Please return the question-
naire to EPA within 60 calendar days of receipt. Late filing or failure to comply with these instructions
may result in criminal fines, civil penalties, and other sanctions as provided by law. If you have any ques-
tions regarding the burden estimate or any other aspect of this data collection, including suggestions for
reducing the burden, please send them to:
Chief, Information Policy Branch
U.S. Environmental Protection Agency
401 M Street, S.W. (Mail Code 2136)
Washington, DC 20460
and
Office of Management and Budget,
Paperwork Reduction Project (2040-0146)
Washington, DC 20503
F-l
Printed on Recycled Paper
-------
F-2
-------
U.S. ENVIRONMENTAL PROTECTION AGENCY
1994 DETAILED QUESTIONNAIRE FOR THE
TRANSPORTATION EQUIPMENT CLEANING INDUSTRY
PART B: FINANCIAL AND ECONOMIC INFORMATION
TABLE OF CONTENTS
Page
GENEfWl INSTRUCTIONS B-1
Introduction .... B-1
Authority . '. B-1
Overview of the Questionnaire B-1
Respondents to the Questionnaire . B-2
Helpline B-3
Return of the Questionnaire , B-3
Provisions Regarding Data Confidentiality B-4
PART B SPECIFIC INSTRUCTIONS B-5
DEFINITION OF KEYTERMS . . ........ J....................... B-7
CHECKLIST AND CERTIFICATION B-11
Checklist B-11
Questionnaire Certification B-11
Special Cases B-12
Section 1 FACILITY IDENTIFICATION . V. B-13
Information Contact and Facility Identification B-13
Corporate Hierarchy B-15
Section 2 FACILITY AND TEC FINANCIAL INFORMATION .. . . . B-17
Background Information B-17
In-house TEC Operations B-17
Commercial TEC Operations B-19
Markft Information I B-22
Discount Rate B-24
Balance Sheet Information B-25
TEC Revenue Information B-29
TEC fcost Information B-30
Facility income Statement Information B-33
Assessed Value B-35
Employment B-35
Facility Financial Statements B-36
Section 2 Comments B-37
Section 3 BUSINESS ENTITY FINANCIAL INFORMATION B-39
Business Entity General Information • B-39
Discount Rate B-42
Balance Sheet Information . B-43
TEC Revenue Information B-45
F-3
-------
TABLE OF CONTENTS (continued)
Page
&
TEC Cost Information ;. . .' B-46
Financial Statement Information , . B-49
Employment B-50
Business Entity Rnancial Statement B-50
Section 3 Comments . . . . • B-51
Section 4 CORPORATE PARENT RNANCIAL INFORMATION . B-53
Corporate Parent General Information ^ ......... B-53
Corporate Parent Financial Statements .......:...... B-54
Section 4 Comments 4 . .' B-55
F-4
-------
Part B: Financial and Economic Information—General Instructions
U.S. ENVIRONMENTAL PROTECTION AGENCY
1994 DETAILED QUESTIONNAIRE FOR THE
TRANSPORTAT ION EQUIPMENT CLEANING INDUSTRY
GENERAL INSTRUCTIONS
INTRODUCTION
The U.S. Environmental Protection Agency (EPA) is developing effluent limitations guidelines and
standards for the Transportation Equipment Cleaning (TEC) Industry which consists of facilities that
perform interior cleaning of tank trucks, closed-top hopper tank trucks, intermodal tank containers,
Intermediate bulk containerst>(IBCs and totes), rail tank cars, closed-top hopper rail tank cars, inland
tank barges, closed-top inland hopper barges, ocean/sea tankers, and other similar tanks (excluding
drums) This questionnaire requests detailed information concerning operation of tank interior
cleaning facilities. Your facility has been selected to receive this detailed questionnaire based on a
stratified statistical random sampling of facilities identified as performing transportation equipment
cleaning operations in a screener questionnaire administered in early 1994.
This detailed questionnaire is divided into two sections: Part A: Technical Information, and Part B:
Financial and Economic'Information. The data collected in "Part A: Technical Information" of this
questionnaire will be used to characterize the operations and wastewater generation, treatment, and
discharges of tank interior cleaning facilities; to evaluate the performance of the wastewater treatment
technologies currently in use at tank interior cleaning facilities; and to develop potential wastewater
discharge regulations for the TEC industry. The data collected in "Part B: Financial and Economic
Information" of this questionnaire will be used to characterize the economics of the transportation
equipment cleaning industry and to evaluate the possible economic impacts of wastewater regulations.
AUTHORITY
This questionnaire is conducted under the authority of Section 308 of the Clean Water Act (the Federal
Water Pollution Control Act as amended, 33 U.S.C. Section 1318), Section 114 of the Clean Air Act (as
amended, 42 U.S.C. Section 7414), and Section 3007 of the Resource Conservation and Recovery Act
(42 U.S.C. Section 6927). All facilities that receive this questionnaire must respond. PLEASE
RETURN THE QUESTIONNAIRE TO EPA WITHIN 60 CALENDAR DAYS OF RECEIVING IT. Late
filing or failure to comply with these instructions may result in criminal fines, civil penalties, and
other sanctions as provided by law.
OVERVIEW OF THE QUESTIONNAIRE
As stated above, this questionnaire is divided into two parts: Part A: Technical Information and Part B:
Financial and Economic Information. Different types of information are requested in Part A and Part B;
therefore, these two sections may be completed by separate individuals. However, EPA recommends
that all perspnnel who assist in completing the questionnaire be provided with a full copy of the
questionnaire, that each individual read the entire questionnaire before answering, and that Part A and
Part B respondents coordinate their efforts as needed. Both sections must be completed and the blue
Certification Forms for both Part A and Part B must be completed, signed, and returned to EPA with
the questionnaire. The Certification Form located in Section 6 in Part A and on page B-11 in Part B
must be completed by the individual or individuals (no more than two—i.e., one for Part A and one for
Part B) responsible for supervising the completion of the questionnaire. The same official may certify
for both Parts A and B. Please note that verifying the accuracy of the information provided in each
p_5 Page B-1
-------
Part 3: Financial and Economic information—General Instructions
GENERAL INSTRUCTIONS (continued)
OVERVIEW OF THE QUESTIONNAIRE (continued)
part of the questionnaire and signing the Questionnaire Certification is the responsibility of a single
individual who signs that Part's Certification Form.
EPA has prepared this questionnaire for use by a variety of transportation equipment cleaning
facilities.. Therefore, not all of the questions may apply to this facility. Uniess instructed otherwise, you
are expected to make an effort to complete every questionnaire item. You are not required, however,
to perform nonroutine tests or measurements solely for the purpose of responding to this
questionnaire. If exact data are not available but can be estimated, please provide estimates. Note on
the Comments page at the end of each section any question for which your answer is an estimate,
and provide the method(s) used to make the estimation.
Type or clearly write all responses in dark ink. Report items as whole numbers, except when
instructed otherwise. Use the Cpmment Section to elaborate on your responses or to provide further
information. Reference each comment with the corresponding question number. Some tables may
require multiple responses; please photocopy the tables as needed before writing on them.
RESPONDENTS TO QUESTIONNAIRE
All recipients of the questionnaire must complete the questionnaire, even if TEC operations are not a
primary line of business (e.g., your facility's primary line of business is manufacturing or transportation
equipment repair or maintenance). ' :.
Special Cases
Completion of this questionnaire is required of the facility that has ultimate responsibility for disposal
and/or discharge of wastewater generated from TEC operations conducted by the facility. Additional
guidance is provided below for two special cases of TEC facility operations:
• Mobile TEC facilities; and
• Facilities that use contract or other non-facility personnel to perform TEC operations.
Mobile TEC facilities perform TEC operations at the client or customer site. Non-mobile TEC facilities
require the client or customer to bring the tank to be cleaned to the TEC facility site. The majority of
TEC facilities are non-mobile TEC facilities. All non-mobile TEC, facilities which receive this
questionnaire are required to coordinate and obtain all information necessary to complete this
questionnaire.
1) IF YOU OPERATE A MOBILE TEC FACILITY, and wastewater generated from TEC operations is
handled using any of the following methods, you are required to coordinate and obtain all information
necessary to complete this questionnaire: (1) collection and discharge or disposal of wastewater is
arranged for, provided by, or paid for by the mobile TEC facility; (2) the permit under which the
mobile TEC facility wastewater is disposed and/or discharged is in the mobile TEC facility's name; or
(3) the mobile TEC facility bills the customer or client for whom TEC operations were performed for
wastewater discharge and/or disposal.
PageB-2 F-6
-------
Part B: Financial and Economic Information—General Instructions
GENERAL INSTRUCTIONS (continued)
Special Cases (continued)
2) IF YOUR FACILITY USES CONTRACT OR OTHER NON-FACILITY PERSONNEL TO PERFORM TEC
OPERATIONS, OR YOUR FACILITY CONTRACTS A MOBILE FACILITY TO PERFORM TEC
OPERATIONS, but disposal and/or discharge of the wastewater generated from TEC operations is
arranged for, provided by, or paid directly by your facility, or the permit under which your facility's TEC
waltewater is disposed and/or discharged is in your facility's name, you are required to coordinate
and obtain all information necessary to complete this questionnaire.
3) IF YOU SUPPLY CONTRACT PERSONNEL TO PERFORM TEC OPERATIONS FOR ANOTHER
FACILITY, and wastewater generated from TEC operations is handled using any of the following
methods, you are required to coordinate and obtain all information necessary to complete this
questionnaire: (1) collection and discharge or disposal of wastewater is arranged for, provided by, or
paid for by the contract facility; (2) the permit under which the TEC facility wastewater is disposed
aria/or discharged is in the contract facility's name; or (3) the contract facility bills the customer or
client for whom TEC operations were performed for wastewater discharge and/or disposal.
Note that additional guidance for mobile TEC facilities and contract TEC operations is provided on
pa|e B-12 If you are still unclear as to your responsibility in completing this detailed questionnaire,
contact the Technical Information Help-line at 1-800-275-1308.
HELPLINE
Toll-free helplines are available to respond to questions you may have on any section of this
questionnaire. The helpline toll-free numbers are:
Part A: Technical Information 1-800-275-1308 operated by Radian Corp.
Part B: Financial and Economic Information 1-800-945-9545 operated by ERG, Inc.
The helplines operate Monday through Friday between 9:00 AM and 5:00 PM Eastern Standard Time.
NOTE: Part A Helpline is only available untilJune 30, 1995.
RETURN OF THE QUESTIONNAIRE
Your response must be postmarked no" later than 60 calendar days after receipt of this questionnaire.
After completing the entire questionnaire (Parts A and B) and signing both blue Certification Forms,
use the enclosed label and mail the package to:
Mr. David Hoadley
Document Control Officer
U.S. Environmental Protection Agency
Transportation Equipment Cleaning Questionnaire
Room E913C(4303)
401 M Street, SW
Washington^ DC 20460
Please retain a copy of the completed questionnaire, including attachments. EPA will review the
information submitted and may request your cooperation in answering follow-up questions, if
necessary, to complete analyses.
''' . ' "'I ",' , '. " ''""' ' ''"; '":"'V" '' :" ''" ' ' PageB-3
-------
Part B; Financial and Economic Information—General Instructions
GENERAL INSTRUCTIONS (continued)
PROVISIONS REGARDING DATA CONFIDENTIALITY
Regulations governing the confidentiality of business information are contained in 40 CFR Part 2,
Subpart B. You may assert a business confidentiality claim covering part or all of the information you
submit, other than effluent data or air emissions data, as described in 40 CFR 2.2.03(b):
"(b) Method and time of asserting business confidentiality claim. A business which is
submitting information to EPA may assert a business confidentiality claim covering the
information by placing on (or attaching to) the information, at the time ft is submitted to EPA, a
cover sheet, stamped or typed legend, or other suitable .form of not;- 3 employing.language
such as 'trade secret,' 'proprietary,' or 'company confidential.' Allegedly confidential portions
of otherwise non-confidential documents should be clearly identified by the business and may
be submitted separately to facilitate identification and handling by EPA. If the business desires
confidential treatment only until a certain date or until the occurrence of a certain event, the
notice should so state."
If no business confidentiality claim accompanies the information when it is received by EPA, EPA
may make the information available to the public without further notice.
You may claim confidentiality by checking the appropriate box next to each question number for which
responses contain confidential business information (CBI). Effluent data are not eligible for
confidential treatment, pursuant to Section 308(b) of the Clean Water Act. Any response where "yes*
is not checked will be considered non-confidential.
Information covered by a claim of confidentiality will be disclosed by EPA only to the extent, and by
means of the procedures set forth in 40 CFR Part 2, Subpart B. In general, submitted information
protected by a business confidentiality claim may be disclosed to other employees, officers, or
authorized representatives of the United States concerned with carrying out the Clean Water Act or
Clean Air Act.
The information submitted will be made available to EPA contractors for carrying out work required by
their contracts with EPA. All EPA contracts provide that contractor employees shall use the
information only for the purpose of carrying out the work required by their contract and shall refrain
from disclosing any CBI to anyone other than EPA without the prior written approval of each affected
business or of the EPA legal office. The contractors and subcontractors that will be providing support
to EPA during the development of these regulations include: Radian Corporation, Herndon, VA; ABB
Environmental Services, Arlington, VA; ViGYAN Inc., Falls Church, VA; Information Systems Solutions
International Inc., Vienna, VA; Viar and Co., Alexandria, VA; Eastern Research Group, Inc. (ERG),
Lexington, MA; Science Applications International Corporation, McLean, VA; Highland Data Services,
Bliiegrass, VA; Software Technology Group, Fairfax, VA; Tetra Tech Inc., Fairfax, VA; and Versar Inc.,
Springfield, VA
Any comments you may/wish to make on this issue must be submitted in writing at the time of
submitting your response. Please direct any questions regarding CBI in Part A of the questionnaire to
the Technical Information Helpline, operated by Radian Corp., EPA's technical contractor, at 1-800-
275-1308. Please direct any questions regarding CBI in Part B of the questionnaire to the Financial
and Economic Information Helpline, operated by Eastern Research Group, Inc. (ERG), EPA's
economic contractor, at 1-800-945-9545.
PageB-4 F"8
-------
Part B: Financial and Economic Information—Part B Specific Instructions
PART B SPECIFIC INSTRUCTIONS
1. Read all definitions. Read all definitions beginning on Page B-7 carefully before completing
Part B of the questionnaire. The individual who responds to each section must be familiar with
the pertinent economic and financial aspects of the facility's transportation equipment cleaning
and related activities.
,' . ) , . : . •
2. Mark responses for each question. Fill in the appropriate response(s) legibly for each
question. Complete all questions that require written responses by printing or typing in the
spaces provided. If the space allowed for the answer to any question is inadequate for your
complete response, please continue the response in the Comments area at the end of each
section of the questionnaire, referencing the appropriate question number. If additional
attachments are used to clarify a response, please make certain that the code number for this
questionnaire, which appears at the top of each page, is also placed at the top right hand
comer of each page of the attachments.
3. Pay close attention to the units in each question. All financial questions ask you to report
answers in whole dollars.
4, Answer i|J items unless instructed otherwise. The purpose of this questionnaire is to gather
all available economic and financial information pertinent to transportation equipment cleaning
operations. If a question is not applicable, indicate so by writing NA. If, after conscientious
attempts to obtain requested information, an item remains unknown and cannot be estimated,
write UNKand explain in the Comments area at the end of the appropriate section why such
InfpfTnatioQ is unknown. If an item seems ambiguous, please call the Part B Helpline,
operated by Eastern Research Group, Inc. (ERG), EPA's economic contractor, at 1-800-945-
9545 for clarification. State all assumptions made in answering questions in the Comments
section, and reference all explanations and assumptions to the appropriate questions. If actual
data are not available to answer a question, please estimate and indicate that you have done
' t so in the Comments Section.
„"! ',i ' ",,'., ' -r"! : n ' i ' '"' :,„ - "» ,-,,:,>,' ' , ' , , j,, [ •,
5. Enter zero (0) where appropriate. Leave entry blank only if instructed to do so (e.g., if the
answer is zero, enter a zero (0)).
6. indicate information that should be treated as confidential. Please follow the instructions
given in the "Provisions Regarding Data Confidentiality" section on Page B-3. If information for
a given question is considered confidential business information, indicate this by checking the
box next to each question as desired. Any response where "yes" is not checked will be
considered non-confidential.
7. Retain a copy of the completed questionnaire. EPA will review the information submitted
and may request, if necessary, your cooperation in answering follow-up clarification questions
to complete the data collection effort. Please retain a copy of the completed questionnaire,
including attachments, in case EPA must contact you to verify your responses. Also, please
maintain a record of sources used to complete the financial section.
Page B-5
-------
Part B, Section 2: Facility and TEC Financial Information
Confidential
Y«s D
No n .
32.
Balance Sheet
Information — Assets
1994 (S)
Not in Operation n
(leave columns blank)
Facility
(All Operations)
TEC
Operations
:VCurrent Assets ••'.'•'.' op.;;,.
a. Value of all current
assets excluding
inventories
b. Value of inventories
Noncurrent Assets
c. Land (original cost)
d. Buildings (original cost)
e. Equipment (original cost)
f. Other noncurrent assets
g. Cumulative depreciation
Total Assets
h. Total assets (sum of a
through f minus g)
$ , , ' ,
$ , , '••• , ,
i ' • • . ', . • •.
$ , ,
$ ,
$ , ,
$ ',
$ , , ,
* i i i
$,... ,• • •
$ , ,
-'. ' -?l't": ;.-v:.'::> •^.-oV; !:.^M
$ ,
$ ,
$ , ,
$ ,
'$• ,
, ' '
$-,'"•' ,
Check box if data for TEC operations are best estimates
F-31
Page B-27
-------
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1.
tlance Sheet Information— Liabilities
5*£ com
•
-
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1
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Current liabilities. What were current
liabilities including accounts payable,
accrued expenses and taxes, and the
current portion of long-term debt?
03
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F-32
-------
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Question 35 Question 36
- Confidential Confidential
Y«S a Y« . a
NO a NO n
S3 ,
Sinn
^ .g LJLJ
i 1 S o
00 £ Z
«»
. -
.f»
1
i»
: were the net sales/revenues from
operations at this facility? If no
ne from TEC operations, enter zero
Do not include revenues from sale
sidual materials (see Question 36).
«o o . Z
f£ co"-S
1 1 1 1 1 1 1 1 1 1
1 1 1 1 II M II
1 1 i ! 1 1 1 1 1 1
f
^H^HVMTM
1 II 1 1 1 1 1 1 1
1 1 M M M M
YiYiYiYiYi
II 1 1 1 1 1 1 1 1
III II 1 II 1 1
.« I
c t5
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a 1 | -.1
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in
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-
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.
J
t were the revenues generated from
ale of residual materials (i.e., heels)
cted during TEC operations?
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F-33
-------
Part B, Section 2: Facility and TEC Financial Information
TEC COST INFORMATION
Questions 37 through 48 requesfinformation oVl992,1993, and 1994 costs for this facility's
total operations and for its TEC operations. If the facility was not in operation in a'particular
year, check the box for that year and leave the appropriate columns blank. Report amounts
in whole dollars. : ' ,:
Queeilon3? Que«ilon38 Guaet!on39 Question 40
Confidential Confidential Confidential Confidential
Ye« O Ye* D Yes Q Yes Q
No CJ No D No D NoQ
Cost Information
37. Operating
#
1992 ($)
Not in Operation Q
(leave columns blank)
Facility
(All Operations)
TEC Operations
and Maintenance (O&M) Costs
a. Payroll
b. AH Other O&M Costs
c. Total O&M Costs (sum
of a and b)
38. Sales, General, and Administrative
Costs
39. Depreciation and Amortization
40. Total Costs and Expenses (sum of
Question 37c through Question 39) •
$_, , ,
$ ,
$ , -
$ ,
$ ,
$ ,
$_, ._, ,
$ ,
$ ,
$ ,
$ ,
$ ,
Check box if data for TEC operations are best estimates [~|
F-34
Page B-30
-------
Part B, Section 2: Facility and TEC Financial information
Question 41 Question 42 Question 43 Question 44
Confidential Confidential Confidential Confidential
Yes D Yes D Yes D Yes Q
No Q No O No D No D
Cost Information
41. Operating
1993 ($)
Not In Operation Q
(leave columns blank)
Facility
(All Operations)
TEC Operations
and Maintenance (O&M) Costs
a. Payroll
b. All Other O&M Costs
c. Total O&M Costs (sum
of a and b)
42, Sales, General, and Administrative
Costs ,
43. Depreciation and Amortization
44. Total Costs and Expenses (sum of
Question 41 c through Question 43)
$ ,
$ ,
$ , , ,
$_, ;__, :_,
$ , ,
$ , ,
$ ,
$ , -,'","
$ , , , '
$_,_ , ,
$ ,
$ , , , '
Check box if data for TEC operations are best estimates D
F-35
Page B-31.
-------
Part B, Section 2: Facility and TEC Financial Information
Qu»»tl
-------
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Question 49
Confidential
Yes D
No D
49.
Facility Incpme State
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section beginning on Page B-37.
CD
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F-38
-------
Part B, Section 2: Facility and TEC Financial Information
ASSESSED VALUE
confidential 51. What was the property tax assessment or appraised value for land, buildings, and equipment
Yes n at this facility? *
'
No
Assessed Value
a. Land
b. Buildings
c. Equipment and Machinery
d. Total Value (sum of items
a through c)
1993
$ ' -,
.'$,.,
$ • ,
$ , ,
1994
$''•-,
$ ,
$
$ ,
confidential 52. On what percentage of market value is the tax assessment or appraised value based?
NO n Percentage of market value %
EMPLOYMENT
confidential 53. Please list the average number of employees (full- and part-time) and the total number of labor
Yes D . hours worked at this facility in each of the following labor categories for fiscal year
No n 1994. To estimate the total labor hours include overtime, vacation, and paid holidays, but do
not include overtime as time-and-a half. Estimates to the nearest 1,000 hours are acceptable.
Employment Type
a. Total facility employment
(part-time and full-time)
(all operations)
b. Employment engaged in
TEC operations (part-
time and full-time)
Average
Number of Employees
»
i
Total
Number of Employee Hours
F-39
Page B-35
-------
Part B, Section 2: Facility and TEC Financial Information
p
D
FACILITY FINANCIAL STATEMENTS
54. |f you checked hierarchy type D or E for Question 7 (Page B-15), include copies of this
facility's end-of-year financial statements for 1992,1993, and 1994 with your completed
questionnaire. These may be accountant reports, annual reports, and/or 10-K forms, and
MUST include both an income statement and balance sheets for this facility. These
statements heed not be audited, but should conform to generally accepted accounting
principles (GAAP). In all cases, INCLUDE THE NOTES TO THE FINANCIAL STATEMENTS.
In the table below, please indicate with a check the type of statement included.
1992
•
1993
•
1994
•
.•„'.. j
Financial Statement
Accountant Report
Annual Report
10-K Form
Other (please describe)
•
IF YOU CHECKED A, B, C, OR D IN QUESTION 7 (Page B-15), PLEASE PROCEED TO
SECTIONS. , . . -
IF YOU CHECKED E IN QUESTION 7 (Page B-15), YOU HAVE COMPLETED PART B OF
THE QUESTIONNAIRE. DO NOT PROCEED TO SECTION 3. MAKE SURE YOU HAVE
COMPLETED AND SIGNED THE CERTIFICATION FORM (Page B-11) AND RETURN THIS
QUESTIONNAIRE AND ALL ADDITIONAL INFORMATION TO EPA.
Page B-36
F-40
-------
Part B, Section 2: Facility and TEC Financial Information
SECTION 2 COMMENTS
'
Question
Number
I
f
Confidential
D Yes
n NO
D Yes
n NO
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes .
n NO
D Yes
D No
D Yes
D No
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
> ',",•'-
•"' f % ! ''-'" ^
; Comment
:
^
,'
' ' " ' ' ' . ' '
- •
F-41
Page B-37
-------
Part B, Section 2: Facility and TEC Financial Information
Question
Number
Confidential
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
Q Yes
n NO
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
n NO
D Yes
D No
D Yes
D No
D Yes
D No
V , V, ** , , -t '
> •/ < *(<
' Comment (continued)
»
Page B-38
F-42
-------
SECTION THREE: BUSINESS ENTITY FINANCIAL INFORMATION
The purpose of Section 3 |s. to collect financial information about ih'e business entity that
owns this facility, (Refer lo the Corporate Hierarchy Chart or» Page Br15,}' - ,;
s f *-.,;; '' _,""•£
Answer the questions at sequence, and do not leave any blank entiles unless instructed "-''\'
otherwise. Pay close aitention to the specific instructions accompanying each question, "*"
and be sure that your answers are given in the appropriate unfts. Definitions are provided
beginning on Page 8-7. Use the Comments section on Page B-51 to record any
assumptions or explanations needed to understand your answer. Reference each
comment with the appropriate question and page number,
;•'
Call the helpline at i-800-945-9545 if you have any questions or comments. The helpline
operates between 9:00 AM and 5:00 PM (Eastern Standard Time), Monday through Friday,
BUSINESS ENTITY GENERAL INFORMATION
confidential 55. What is the name and mailing address of the business entity that owns this facility?
NO n a. Name of business entity . ; ; '.
b. Mailing address or P.O. box ;
c. City _ _ __ : State _ Zip _
confidential 56. List the primary and secondary 4-digit Standard Industrial Classification (SIC) codes assigned
Y«S n to the business entity. (See definitions beginning on Page B-7.)
NO n
a. Primary SIC code .....; ;........
b.
Secondary SIC codes
F-43
Page B-39
-------
Part B, Section 3: Business Entity Financial Information
con««n«!«i 57. Check the organization type that best describes the business entity. The corporate hierarchy
Y« p chart on Page B-15 shows business entities on the second row.
a. Corporation (C Corporation) ' Q
b. Subchapter S corporation Q
c. Limited partnership n
d. General partnership ; n
e. Sole proprietor Q
f. Other (please describe) n
conftdtntu 58. Is the business entity privately or publicly held?
Yte" D
No Q a. Private . .. ... . Q
b. Public D
con&)*ntk! 59. If this business entity owned more than one facility that conducted TEC operations (counting
Y«* D this facility as one) in fiscal year 1994, provide the name and address of all other facilities
No a owned by the business entity conducting TEC operations in the table on the following page.
a. This is the only facility owned by the business
entity that conducts TEC operations D
b. This business entity owns more than one facility
thai ponducts TEC operations D
F-44
Page B-40
-------
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F-45
-------
,r 'i1.;1; "" ," ;" ..'in;'1!*;:1!! I
Part B, Section 3: Business Entity Financial Information
confid«nu«J 61. In what year did the business entity purchase, construct, or otherwise gain control of this
Y«* a facility?
NO p
Year ... ...... ... ____ . ____ ... ____ '.'.' ...... ......... ....... . 19 _
62. What is the first month of the business entity's fiscal year? Enter 01 for January, 02 for
Y«« Q February, 03 for March, etc.
No a
First month of fiscal year ............... . ........... . ............
•: M ?!;. :" ,-. • , . • ...... £1! ,. .' . .. • •; '' I ' . •. ,.„••*• '•„, ';v ,, ;, ••. , , ;, :;" . ]• . • •. .,' '
confWwtw 63. Ust the top three revenue-generating activities for the business entity in rank order. The
Y«« a activity with rank-#1 generates the most revenue.
No o
a. Rank #1 Activity - ',
b. Rank #2 Activity
c. Rank #3 Activity
DISCOUNT RATE
64. If the business entity borrows money to finance capital improvements, such as wastewater
Y« p treatment equipment, what interest rate would it pay on such loans?
lit:.;' "Mo /cj ' ' " " ' '
Interest rate
>».! - ' l-.'Ji
65. In the event the business entity does not borrow money to finance capital improvements, what
Y« p discount rate would it use? The discount rate is the minimum rate of return on capital required
NO p to compensate debt holders and equity owners for bearing risk. If the business entity borrows
to finance capital improvements, the discount rate is equivalent to the interest rate paid on
those loans.
Discount rate - %.
PageB-42
-------
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Confidential
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66.
Balance Sheet Information— Aa
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current liabilities including
accounts payable, accrued
expenses and taxes, and the
current portion of long-term
debt?
a
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F-48
-------
T3
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18 Question 69 Question 70 Question 71
il Confidential Confidential Confidential
Yes D Yes O Yw Q
No D No D No D
i =
11
3 O So
00 > 2
•
f»
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.
1
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What were the net sales/revenues from TEC
operations at this business entity? If no
income from TEC operations, enter zero (0).
so '
(0
1 1 i 1 1 II II
1 1 1 1 MM I
II II M 1 1 1
TiTiTmV
II 1 II 1 1 II
1 1 II 1 II II
YiYriYYTM
1 II 1 1 1 1 1 II
1 .1 II II II 1 1
'
sj 1
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>ther sources? Include interest earnings.
t. w
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il revenues. What were total revenues?
i value should equal the sum of Question
md Question 70.
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F-49
-------
Part B, Section 3: Business Entity Financial Information
TEC COST INFORMATION
Questions 72 through 83 request information on 1992,1993, and 1994 costs for the business
entity's total operations and for its TEC operations. If the business entity was not in operation
in a particular year, check the box for that year and leave the appropriate columns blank.
Report amounts In whole dollars. " •
1-11 " ' « - ^ = -
QUMtt!on72 Question 73 Question 74 Question 75
C
-------
Part B, Section 3: Business Entity Financial Information
Question 76 Question 77 Question 78 Question 79
Confidential - Confidential . Confidential Confidential
Yes O Yes D Yes O Yes Q
NO o NO n NO n NO n
Cost information
1993 ($)
Not In Operation — n
(leave columns blank)
Business Entity
(All Operations)
TEC Operations
76. Operating and Maintenance (O&M) Costs
a. Payroll
b. All Other O&M Costs
c. Total O&M Costs (sum of a and
b> ,
77. Sales, General, and Administrative Costs
78. Depreciation and Amortization
79. Total Costs and Expenses (sum of
Question 76c through Question 78)
$ ' , ,-.'"-,•
$ ,
$ ' , , ,
$ , ,
$ ,
*_,___,___,___
$ ,
$ , ,
$_.
$ ,
$ , ,-',•••
.$_, . •', ' ,
Check box if data for TEC operations are best estimates
F-51
Page B-47
-------
Part B, Section 3: Business Entity Financial Information
Qu*«tion80 Qu»«tlon81 Question 82 Question 83
Confktaitiri Confidential Confidential Confidential
Y«* D Y«» D Yes D Yes D
No O No D No D No D
Cost Information
1994 ($)
Not in Operation.... D
(leave columns blank)
Business Entity
(All Operations)
TEC Operations
80. Operating and Maintenance (O&M) Costs
a. Payroll
b. All Other O&M Costs
c. Total O&M Costs (sum of a and
b)
81. Sales, General, and Administrative Costs
82. Depreciation and Amortization
83. Total Costs and Expenses (sum of
Question 80c through Question 82)
$ ,
$ ,
$ ,
$ , • ,
$ ,
$ ,
$ ',
$ ,
$ ,
$ ,
$ ,
$. ,
Check box if data for TEC operations are best estimates Q
F-52
Page B-48
-------
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Yes D
No D
84.
Financial Statement Item
:
••; ;:;
>zr
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-
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4»
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ifl-
-
*
a. Earnings before interest and taxes
What were earnings before interes
and taxes? This should equal
Question 71 minus Question 75,
Question 79, or Question 83.
»r
b. Interest expenses. What were
•
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I.d. Extraordinary items. Describe In
Comments section on Page B-.51
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F-53
-------
Part B, Section 3: Business Entity Financial Information
Y*« D
No O
EMPLOYMENT
85. Please list the average number of employees (full- and part-time) and the total number of labor
hours worked at this business entity in each of the following labor categories for fiscal
year 1994. To estimate the total labor hours include overtime, vacation, and paid holidays,
but do not include overtime as time-and-a half. Estimates to the nearest 1,000 hours are
acceptable.
Employment Type
a. Total business entity
employment (part-time
and full-time)
b. Employment engaged in
TEC operations (part-
time and full-time)
Average
Number of Employees
Total
Number of Employee Hours
i » .
* f _„_
p
BUSINESS ENTITY FINANCIAL STATEMENTS
., si I"*.,, •' , ; • ....... •. 'i/ij • ••"; ,>.; ''.'.v. 5* •:;"£ „; •:•;• , '•••':.".'.•,''";••'}' > '" :: ::{>':• '•."• $'• '.j.
86. If you checked hierarchy type C or type D for Question 7 (Page B-15), include copies
of this business entity's end-of-year financial statements for 1992, 1993, and 1994 with your
completed questionnaire. These may be accountant reports, annual reports, and/or 10-K
forms, and MUST include both an income statement and balance sheets for the business
entity. These statements need not be audited but should conform to generally accepted
accounting principles (GAAP). In all cases, INCLUDE THE NOTES TO THE FINANCIAL
STATEMENTS.
1992
•
1993
•
1994
•
Financial Statement
Accountant Report
Annual Report
10-K Form
Other (please describe)
IF YOU CHECKED A OR B IN QUESTION 7 (Page B-15), PROCEED TO SECTION 4.
IF YOU CHECKED C OR D IN QUESTION 7 (Page B-15), YOU HAVE COMPLETED PART B
OF THE QUESTIONNAIRE. MAKE SURE YOU HAVE COMPLETED AND SIGNED THE
CERTIFICATION FORM (Page B-11) AND RETURN THIS QUESTIONNAIRE AND ALL
ADDITIONAL INFORMATION TO EPA.
Page B-50
F-54
-------
Part B, Section 3: Business Entity Financial Information
SECTION 3 COMMENTS
Question
Number
.•
•
Confidential
D Yes
D No
O Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
n NO
D Yes
D No
D Yes
D No
D Yes
n NO
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
n NO
D Yes
Q No
D Yes
D No
1 ll
*
Comment
, . • ' ,
.
F-55
Page B-51
-------
Part B, Section 3: Business Entity Financial Information
Question
Number
Confidential
D Yes
n NO
D Yes
D No
D Yes
n NO
D Yes
D No
D Yes
n NO
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
D No
AV [
,. « / 0 4 ,
Comment (continued)
F-56
Page B-52
..LI*
-------
SECTION 4: CORPORATE PARENT FINANCIAL INFORMATION
The purpose of Section 4 is to coiled; financial information about the corporate parent that
owns the business entfty identified In Section 3. (Refer to the Corporate Hierarchy Chart, OR
.Page8-15,) ' -" ,'",'',' , ~,,
Answer the questions m sequence, and do not leave any blank entries unless instructed
otherwise. Pay ctose attention to the specific instructions accompanying each question,
and be sure that your answers are given in the appropriate units. Definitions begirt on
Page B-7, Use the Comments section on Page 6-55 to record any assumptions or "
explanations needed to understand your answer; Reference each comment with the
appropriate questionand page number* '- ' - ' '
Call the helpline at 1-800-345-9545 if you have any questions or comments. The helpline
operates between 9:OO AM and 5:00 PM {Eastern Standard Time), Monday through Friday,
CORPORATE PARENT GENERAL INFORMATION
confidential 87. What is the name and mailing address of the corporate parent?
Yes a . ' :
NO n a. Name of parent company:
b. Mailing address or P.O. box:
c. City : '.—
State.
Zip
confidential 88. Please list the primary and secondary 4-digit Standard Industrial Classification (SIC) codes
Yes a assigned to the corporate parent. (See definitions beginning on Page B-7.)
NO
Primary SIC Code ..
Secondary SIC Code
confidential 89. In what year did the corporate parent purchase or otherwise gain control of the business entity
Yes n described in Section 3?
NO
Year
19
F-57
Page B-53
-------
Part B, Section 4: Corporate Parent Financial Information
YM D
NO a
90. Check the organization type that best describes the corporate parent. The corporate
hierarchy chart on Page B-15 shows corporate parent entities on the top row (level one).
.....
a. Corporation (C Corporation) D
b. Subchapter S corporation Q
c. Limited partnership Q
d. General partnership d
e. Sole proprietor n
f. Other (please describe) • • • • • D
,; . ' , i ' '|i«l ' ' , ,: „ i „ , 'I , ' ' '' ' ,' • / ; ,v'i| 1 / •
'i111: ' n» '" •" ' ' .' - " •' 'f ' ." '' - '""' ' • ' ' ' ' I i . '.
' ' i Til » " '" ""ln ' ' i '' ' I
91. Is the corporate parent privately or publicly held?
D """. ..'.. ' I , '.'.' '.''.".' '. • ,', '..
a a. Private D
b. Public • i • • > ^ D
NO
p
a
CORPORATE PARENT FINANCIAL STATEMENTS
Wl1,,,, •' !'• '•!. ' ' ; ' n. • ,; , , • i1 in • • i :,! ,i » "» : ,,l!" ",.'.,.„ , ' :'" . ii ..... :"' !„ i • '.;.', • , : • , , , ""i ", I
92. Include copies of the corporate parent's end-of-year financial statements for 1992, 1993, and
1994 with your completed questionnaire. These may be accountant reports, annual reports,
and/or 10-K forms, and MUST include both an income statement and balance sheets for the
corporate parent. These statements need not be audited but should conform to generally
accepted accounting principles (GAAP). In all cases, INCLUDE THE NOTES TO THE
FINANCIAL STATEMENTS.
1992
•
1993
•
1994
•
Financial Statement
Accountant Report
Annual Report
10-K Form
Other (please describe)
Page B-54
F-58.
-------
Part B, Section 4: Corporate Parent Financial Information
SECTION 4 COMMENTS
Question
Number
„
f f
Confidential
D Yes
D No
D Yes
D No
D Yes
D No
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
D Yes
n NO
•* * f ' s "" f '' f * f * y f
s f u % "• V"" * "" t
Comment / „ - ,-_
•
.
' ' .;.
• .-. : ''.;-.'..
(
>
' - '...•••'•'
, , .
F-59
Page B-55
-------
F-60
-------
r
U.S. Environmental Protection Agency
Tank and Container fnterfor Cleaning
Screener Questionnaire
APPENDIX G
EPA
Form Approved , . , ,
I ' OMB No. 2040-0166
| . • j Expires 11/30/96
Use No. 2 pencil only. Do not write on, stamp, or mark pages 1-3 of this form except to fill in the appropriate oval(s) for each question. Read
the General Instructions, Optical Scanner Instructions, and the Definition of Terms before completing this questionnaire form. Please see the
burden statement on page 2 of the cover letter. If you have any questions, call the helpline number at 1-800-275r1308.
SECTION 1. GENERAL INFORMATION
1. Is the information printed on the mailing label
correct?
"Yes
C No (Provide corrected address information on Page 4)
2. Identify the person most knowledgeable of
questionnaire responses on Page 4.
3. Is the facility and the business entity that owns
this facility one and the same?
OYes
•-_. No (Provide information on Page 4)
4. How many facilities operated by
the business entity listed in
question 3 conduct TEC
operations? TEC operations
include cleaning the interior of'
tank trucks, intermodal tank
containers, intermediate bulk
containers, rail tank cars, tank
barges, and/or tankers.
_ ^
•x x x
x a:
35
®;
*"(!^ •"SP1 f~*s"'
•-SL-' SL/ :ff--
X '.3D X'
'."£ 3D K
5. Does your facility perform any transportation
equipment cleaning (TEC) operations? TEC operations
include the following activities: cleaning the interior of
tank trucks, intermodal tank containers, intermediate
bulk containers (IBC's), rail tank cars, tank barges,
and/or tankers.
3 Yes
- No ' •
IF YOU ANSWERED "NO", STOP HERE. COMPLETE
THE CERTIFICATION FORM. RETURN THIS
QUESTIONNAIRE FORM AND THE SIGNED
CERTIFICATION FORM.
*U.S. GOVERNMENT PRINTING OFFICE: 1993-515-218
6. Does your facility generate transportation equipment cleaning
process wastewater? Refer to the Definition of Terms section.
CYes • .
CNo ;
IF NO TEC PROCESS WASTEWATER IS GENERATED
AT THIS FACILITY, STOP HERE. COMPLETE THE
CERTIFICATION FORM. RETURN THE CERTIFICATION
FORM AND THIS QUESTIONNAIRE FORM.
If transportation equipment cleaning process
wastewater is generated at your facility, to where is it
discharged and/or disposed? Indicate all that are
applicable. Provide the information associated with
each on Page 4.
O POTW (Specify name on Page 4)
O CTW (Specify name on Page 4)
y FOTW (Specify name on Page 4)
O Other facility (Specify on Page 4)
— United States Surface Waters. (Specify NPDES permit number below)
NPDES Permit Number
.I' z 'S c. B." Q; o;
-------
111 1'TUB1! i'!i.''M""""ll!,l
NOTE: FOR ALL NUMERICAL. QUESTIONS IN SECTIONS 2, 3, AND 4, IF INFORMATION IS NOT READILY AVAILABLE, PLEASE PROVIDE AN
APPROXIMATE FIGURE OR BEST ESTIMATE.
SECTION 2. TRANSPORTATION EQUIPMENT CLEANING OPERATIONS
7. For calendar year 1992, please approximate the number of
cleanings performed for each type of unit cleaned at this
facility. If possible, approximate based on readily-available
Information at your facility.
Tank Truck
Q. o,
€ 1.
0.
"€ i. t
'R I. t SL sc
X '€ C C C
3?'X £ r £
XX £ C C
3D'£ C ,€ C
X "£ t € €
r C
Rail Tank Car
' S.
CCT.J: £ r
c c
£ X £
XX X T '£
XXX
£ £
•XT ID
f C
»• x
c JT
Intermodal
Tank Container
o. o/ o o, o
T. i, C t: I
f. al C £ ?.
3. 'C .£ 3' C
X
£
ID I .£• I
f C C
Tank Barge
ti 6* 0 • 0
T 'T f X
•"£• 3D
I £
"£ £
C X
£ E
& 'C '€
£ £ £ £•
€ 'C; C JC
e
Intermediate
Bulk Container
C. •&. oJ .£
C .T £ X T
f 2" 2~" 2~* 2*
c f .6 x ]
rs'S -£••-£ :i
X
,C LC .£•• .T- X
•y T- i: §? w..
Tanker
.'"& '£
X X X X
® fi: X' -x
'^* "4s 4^ '"4"
• V2./ '5^ ^.5^
'• & .© ®
®
' C-
8. Please estimate what percent of the units cleaned by your
facility in calendar year 1992 were used to transport the
following commodities. If possible, approximate based on
readily-available information at your facility.
A s None
D * 26%-50%
B = Less than 5%
E = 51%-75%
C = 5%-25%
F = 76%-100%
Food Grade Products. Beverages, Animal
and Vegetable Oil, etc. ................................. X JC c: K 1} £
Petroleum and Coal Products (ex. coal;
gasoline; naphtha; lube, crude, and
fuel oil). ...... . ....... . .......................................... £ C- e C, .£ E
Latex. Rubber, Resins, Plastics,
Pfastteizere, etc ............................................. £ D g; g
Soaps and Detergents ................................... "S £ £ E
Hazardous Waste (as defined in 40 CFR
par! 261) ....... ............................ „ ................... 5. ,£ E-.g
Chemteals Not Usted in Above Categories .. T E .© • £
Other (Please specify on page 4) ................. £• ,$} ^ &
Other (Pfease specify on page 4) ................. K & •'£ '£.
c • r
£ E
E £
£ '£
E -E
-C E
9. What types of cleaning operations does your facility
perform? Indicate all that apply.
£ Water Wash
C. Presolve
c; Caustic Wash
D" Detergent Wash
C Others (Please
specify on page 4)
10. For calendar year 1992, please estimate your facility's total
average daily process and non-process wastewater
discharge, in gallons per day. If possible, approximate based
on readily-available .information at your facility.
Gallons
Per Da1
0" .O/ 0, OJ. Oj'.Q. 0,' ,0,
i? .f t1 £ .1 X t; T
2: ?, a: 2, 'c 2, ?;>2:
3? 3. JC 3". C .C C C
. • •!-• r^ -f -r% y y~, y-
A- t C 4. 4. 4, 4. C'
£• ;J£ £> 'A- £• •• £ £; v£
e? .C C C £' £ E X
£ £ £ £ £ .£ £•£
"s;- •"«: i: c 8~ ,c £• x
9" C' € "si? sT s!
SECTION 3. WASTEWATER TREATMENT
11. What type(s) of wastewater treatment technology(ies) or
disposal method(s) does your facility employ to manage
wastewater from transportation equipment cleaning
operations? Indicate ail that apply.
'^ No Treatment
_ Biological Treatment
JT Carbon Adsorption
- ._. Chemical Oxidation or Reduction
•-'_ Chlorination
CJ Clarification
. _ Coagulation
C? Deep Well Injection
;__. Dissolved Air Flotation
— Equalization
1. Evaporation Ponds
'-_- Filtration
:_• Gravity Separation
. .3 Grit Chambers
- ~2 Hydrolysis
• ' _ Ion Exchange/Resin Adsorption
_ Non-aerated Lagoons/Ponds/Basins
= Oil/Water Separator
. pH Adjustment
r Racks/Screens
-. Recycle/Reuse
• ; _ Reverse Osmosis
_ Sedimentation/Settling Ponds
._ Solvent Extraction
C Steam/Air Stripping
• _ Others (Please specify on page 4)
Please continue on
pages
G-2
-------
SECTION 4. ECONOMIC INFORMATION
-\1. PVeasc indicate which of the following represent your
facility's operational structure. Indicate all that apply. For
definitions of the following, refer to the Definition of Terms
section.
O Carrier
O Shipper
O Independent
O Builder/Leaser
If you indicated more than one type of facility operation
above, please estimate what percentage of your business
operations are dedicated to these activities.
Carrier
GpXX
©X
®®l
Shipper
X
••&
-,-L
•E'
GC
S
®
X
i:
.£•
X
X
X
•X
'X
X
X
Indepen-
dent
CD
CD 'X --3
'X .1
•X £•
.'?;• x
xx
•.§-> '-^*
® X
Builder/
Leaser
®®
XXX
® X
CE-J)
® ®
X X
®-x
13. On average, for fiscal year 1992, please estimate the number
of people that were employed at this facility on a full-time
basis. Of these, how many were involved in TEC-related
activities at your facility?
Total
Full-time
|i-> (d fn! ( < f
fs)
'col lo>!
(o>
fro'1
TEC
Full-time
' •,£• X X
X'-XXX
x- x- x
XX XX
•x-xxx-
x x -;
© -x x ex
X X X X;
14. For fiscal year 1992, please estimate your facility's total
annual revenues, in dollars. If possible, approximate based
on readily-available information at your facility.
Dollars
cs>! £ -'C'cs: • 03 .•£.
CD X X X X X X X X
X'X X"®"®®
-5} !X' -X 'X1 *^X C^' '"y
® ® X 'X X X ® X X
® ® X ® ® ® ® ® X
CD 'X X X 'X X- © © X
D ® ® ® ® ® ®
® ® X -X- X X- ® ® X
15. For fiscal year 1992, please estimate your facility's total
annual revenues from transportation equipment cleaning
operations, in dollars. If possible, approximate based on
readily-available information.
Dollars
®-x
CD CD
•X
®
CD
®
X
®
Cl>
(&
•X
X
X
X
X
'£•
•x*'X
XX
nx
XX
XX
X X
XX
X®
,9./ ' St/
.JO
X
X
x
'X
£;
X
X
•x
(ST.X-
X X
•X £
'IP 5*1
~L a-
.&: e
X ,£
"E 'D
£ -5;
CD
X
x-
X
X
"g~-
-X
x-
'91
-.5)
X
.?.•
-^
c.
T;
7"
D
9",
16. Darken in the ovals to indicate which questionnaire
responses are confidential business information. Response
to question(s):
7".
Facility name, address, contact person and discharge rates
can not be claimed confidential. Therefore, responses to
Questions 1,2, 6, and 10 can not be considered confidential.
Please continue on
page 4
•3-
G-3
-------
If your response to Question 1 was "No", please provide:
Facility Name
Facility Street Address
KO. Box
City
State
Zip Code
For Question 2, Identify the person most knowledgeable of questionnaire responses:
Name
Title
Telephone Number
Best Time To Contact
If your response to Question 3 was "No", please provide:
Business Entity Name
Street Addrass/P.O. Box
City
State
Zip Code
tf your response to Question 6 was "POTW", "CTW", "FOTW", or "Other Facility", please provide:
POTWName: '
CTW Name:
FOTW Name:
Other Facility Name:_
M your response to Question 8 included "Other", please specify the commodity or commodity group.
(1)
12)
H your response to Question 9 Included "Others", please specify the type of cleaning operation(s) performed.
(1) ' <3)
(¥l
141
It your response to Question 11 included "Others", please indicate the other wastewater treatment or disposal methods employed.
(1) (3)
(2)
<4>
Please provide any comments regarding your responses to the screener questionnaire. Please cross-reference your comments by question.
»,!
:~
, . PLEASE DO NOT WRITE IN THIS AREA O fS H ft
[CJOOMP DpBBoBooooo'-ooooo° dUUU
G-4
-------