EPA 230/1-74-032,-, MARCH, 1975 ECONOMIC ANALYSIS OF PROPOSED EFFLUENT GUIDELINES THE METAL FINISHING INDUSTRY APPENDIX -E QUANTITY U.S. ENVIRONMENTAL PROTECTION AGENCY Office of Planning and Evaluation Washington, D.C. 20460 USB ------- EPA - 230/1-74-032 ECONOMIC ANALYSIS OF THE PROPOSED EFFLUENT GUIDELINES THE METAL FINISHING INDUSTRY APPENDIX E MARCH, 1975 OFFICE OF PLANNING AND EVALUATION ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. 20460 CONTRACT NO. 68-01-1545 ------- PREFACE The attached document is a contractor's study prepared for the Office of Planning and Evaluation of the Environmental Protection Agency ("EPA"). The purpose of the study is to analyze the economic impact which could result from the application of alter- native effluent limitation guidelines and standards of perform- ance to be established under sections 304(b) and 306 of the Federal Water Pollution Control Act, as amended. The study supplements the technical study ("EPA Development Document") supporting the issuance of proposed regulations under sections 304(b) and 306. The Development Document surveys existing and potential waste treatment control methods and technology within particular industrial source categories and supports proposal of certain effluent limitation guidelines and standards of performance based upon an analysis of the feasbility of these guidelines and standards in accordance with the require- ments of sections 304(b) and 306 of the Act. Presented in the Development Document are the investment and operating costs associated with various alternative control and treatment tech- nologies. The attached document supplements this analysis by estimating the broader economic effects which might result from the required application of various control methods and tech- nologies. This study investigates the effect of alternative approaches in terms of product price increases, effects upon employment and the continued viability of affected plants, effects upon foreign trade and other competitive effects. The study has been prepared with the supervision and review of the Office of Planning and Evaluation of EPA. This report was submitted in fulfillment of a modification of an EPA contract. Work was completed as of March 1975. This report is being released and circulated at approximately the same time as publication in the Federal Register of a notice of proposed rule making under sections 304(b) and 306 of the Act for the subject point source category. The study is not an official EPA publication. It will be considered along with the information contained in the Development Document and any comments received by EPA on either document before or during proposed rule making proceedings necessary to establish final regulations. Prior to final promulgation of regulations, the accompanying study shall have standing in any EPA proceeding or court proceed- ing only to the extent that it represents the views of the contractor who studied the subject industry. It cannot be cited, referenced, or represented in any respect in any such proceeding as a statement of EPA's views regarding the subject industry. ------- - 3 - LIST OF TABLES (con't) Table Page Number Title Number E-14 Total Incremental Investment and Annual Costs for BPCT Under the Revised Effluent Guidelines - 1977 E-25 E-15 Estimate of Direct Discharging Establishment Closures Resulting from the Revised Effluent Guidelines - Alternate A - 1977 E-25 E-16 Impact of Closures on Employment for the Direct Discharging Segment E-26 ------- - 4 - LIST OF EXHIBITS Exhibit Number Title E-l Profit Before Interest and Taxes of Typical Metal Finishing Establishments by Establishment Size and Plant Process Type - Alternate A - 1977 E-2 Ratio of Calculated Earnings to Average Capital for the Metal Finishing Industry by Establishment Size and Plant Process Type - Alternate A - 1977 E-3 Cash Flow/Debt Retirement Analysis by Establishment Size and Plant Process Type - Alternate A - 1977 E-4 Percent Estimated 1977 Closures Due to Revised Effluent Guidelines by Plant Process Type and Establishment Size Category E-5 Estimated Number of Metal Finishing Establishment Closures by Process Segment by Type of Discharge - 1977 E-6 Pollution Control Investment and Annual Costs for BPCT Under Revised Effluent Guidelines and Costs - 1977 ------- ENVIRONMENTAL PROTECTION AGENCY APPENDIX E TABLE OF CONTENTS Page Title Number INTRODUCTION E-l REVISED COST ESTIMATES E-l IMPACT ANALYSIS E-7 SUMMARY E-20 CHANGES OCCURRING IN TAB D ESTIMATES E-24 ------- - 2 - LIST OF TABLES Table Page Number Title Number E-l Summary of Original BPT Capital Costs - Alternate A - 1977 E-3 E-2 Summary of Original BPT Annual Costs - Alternate A - 1977 E-3 E-3 Summary of Revised BPT Capital Costs - Alternate A - 1977 E-4 E-4 Summary of Revised BPT Operating and Maintenance Costs - Alternate A - 1977 E-5 E-5 Summary of Revised BPT Annual Costs - Alternate A ~ 1977 E-6 E-6 Price Increase Factors (as a Percent of Sales) by Model Plant Size (Employees) - Alternate A - 1977 E-9 E-7 Pollution Control Capital Investment Requirements for the Metal Finishing Industry E-ll E-8 Summary of Calculated Earnings to Average Capital Ratios - Alternate A - 1977 E-13 E-9 Summary of Coverage Ratios Derived from Cash Flow/Debt Retirement Analysis - Alternate A - 1977 E-16 E-10 Percent Range of Closures Anticipated Due to Low Profitability Establishment - Alternate A - 1977 E-18 E-ll Estimated Closures Resulting from the Revised Effluent Guidelines - Alternate A - 1977 E-19 E-12 Impact of Closures on Employment E-19 E-13 Revised Economic Analysis of Effluent Guide- lines (1977) - Metal Finishing Industry Direct and Municipal Discharges E-21 ------- APPENDIX E ECONOMIC IMPACT OF PROPOSED REVISED EFFLUENT GUIDELINES AND COSTS ON METAL FINISHING INDUSTRY ESTABLISHMENTS IN THE 1-4 EMPLOYEE AND 5-9 EMPLOYEE MODEL PLANT SIZE CATEGORIES INTRODUCTION On February 25, 1975 the Environmental Protection Agency furnished Kearney capital investment and annual costs based on proposed revised BPT effluent guidelines containing a general variance for small establishments. This variance is less strin- gent than the original BPT standards. The establishments included are the 1-4* employee and 5-9* employee establishments. This appendix discusses changes in economic impact which will result from these revised effluent guidelines and costs.** The revised effluent guidelines and costs apply to establishments which are municipal and direct dischargers, and Kearney's analysis will be conducted for both types of establishments. A separate section is devoted to the direct dischargers as described in Tab D. REVISED COST ESTIMATES The original proposed effluent guidelines and associated * Establishment size category by total number of employees. ** Changes in economic impact that will occur relative to the economic impact analysis presented in Kearney's September, 1974 report to EPA entitled "Economic Analysis of Proposed Effluent Guidelines - the Metal Finishing Industries." This report will hereafter be referred to as "the Metal Finishing Report." ------- costs were developed for the metal finishing industry by EPA through its technical contractor, Battelle Columbus Laboratories EPA, through this technical contractor, provided Kearney with capital investment costs and variable operating costs for meeting BPT effluent limitations. The original BPT costs pre- pared by Battelle Columbus Laboratories were based on a water pollution abatement technique which included the capability of achieving the destruction of oxidizable cyanides, reduction of hexavalent chromium, neutralization of acid and alkali wastes and removal of all but small amounts of heavy metal pollutants. These costs were scaled to model plants based on establishment size by number of employees and four plant process types (which were characterized as plant process types A, B, C and D),* The original capital equipment cost estimates by establishment size and plant process type are presented in Table E-l on the following page. * A detailed technical description of the four plant process types is presented in the Metal Finishing Report, Section V, Page V-31, under the heading "Model Plants Production Processes." ------- E - 3 Summary of Original BPT Capital Costs ' Alternate A - 1977(1) Model Plant Size (Employees) (2) 1-4 5-9 Process Grouj^ Segment A $33,469 49,201 B $43,930 60,349 C $50,946 71,877 D $61,961 81,756 Notes: (1) This table is constructed from Table V-5 of the Metal Finishing Report. (2) Figures are presented for only those establishment size segments where EPA revised effluent guidelines and costs. Source: Table V-5 of the Metal Finishing Report.' The original annual operating costs by establishment size and plant process type are presented in Table E-2 below. Summary of Original BPT Annual Costs _ Alternate A _-_ 1977j[l) ~~U973 Price Levels^ 1-4 Annual Costs Fixed: Cost of Capital^2) Depreciation^) LaborW Variable Costs <4> Total Costs 1973 Dollars^) $ 1 3 4 J, $1£ $10 A. ,765 ,530 ,000 .523 *££ I.255 $ 2 4 4 ,..i $13 $12 B ,317 ,634 ,000 Ji§2 ,6AO '.. iTIM'.'.'.TH! ,930 $ 2 5 4 JL $15 3ZZZS $14 C ,686 ,374 ,000 452 ,Jl£ ,800 D $ 3,267 6, 4, ,3_s °iL $16, 336 000 960, 763 tKSTZf-3> 840 Plant Size (Einplpjy«e3) and Process Segment 5-9 $ 2,095 $ 3,183 $ 3,791 $ 4,311 5,190 6,366 7,582 8,624 12.000 12,000 12,000 12,000 JLilli 10.728 9.790 14.231 $24.401 $32.277 $33.163 $39_,jj66 $23,132 $30,600 $31.400 $37.130 Notes: (1) This table is constructed from Exhibits V-8 through V-1.1 of the Metal Finishing Report. ° (2) Source is Exhibit V-7 of the Natal Finishing Report (3) Source is Exhibit V-7 of the Metal Finishing Report. (4) Exhibit V-7 and variable .costs adjusted for average employment in Plant Groups ,,x 2s explained in Exhibits V-3 through V-li of the Metal Finishing Report. lij Totals adjusted by a factor of .948 to reflect 1973 dollars. Sources: Exhibits V-7 through V-ll of tha Metal Finishing Report. ------- E - 4 On February Zb, 1975 EPA furnished Kearney new capital investment and variable operating costs for meeting BPT effluent limitations in the 1-4 employee and 5-9 employee model plant size categories. These costs are based on the assumption that the water usage rate will be 160 liters per square meter and that the water pollution abatement technique will destroy cyanides and equalize and neutralize the flow. EPA stated that this technique would apply to all establishments in the 1-4 employee and 5-9 employee model plant size categories regardless of plant process type, and calculated a range of costs.* The revised capital equipment cost estimates by establish- ment size are presented in Table E-3. Table E-3 Summary of Revised BPT Capital Costs Alternate A - 1977 (1973 Price Levels) Model Plant Size Range of BPT Capital Costs (Employees) Lower BoundUpper Bound 1-4 $13,700 $20,500 5-9 35,600 53,300 Note: This table corresponds to Table V-5 of the Metal Finishing Report. Source: EPA, February 26, 1975. * The range of costs reflected a lower and upper pollution control cost limit to account for differences resulting from the various plant process types. No precise cost estimates were provided by plant process type. These will hereafter be referred to as the "lower bound" and "upper bound" of pollution control costs. ------- E - 5 Note that the range of revised BPT capital costs is sub- stantially lower than the range of original BPT capital costs, representing a 59.1% reduction at the lower bound and a 66.9% reduction at the upper bound in the 1-4 employee establishment size category; and a 27.6% reduction at the lower bound and a 34.8% reduction at the upper bound in the 5-9 employee estab- lishment size category. The revised annual operating costs by establishment size provided by EPA included operating and maintenance costs, without interest and depreciation. These costs are presented in Table E-4. Table E-4 Summary of Revised BPT Operating and Maintenance Costs Alternate A - 1977 (1973 Price Levels) Range of BPT Annual Operating Model Plant Size and Maintenance Costs (Employees) Lower BoundUpper Bound 1-4 $3,900 $6,500 5-9 4,300 7,100 Source: EPA, February 26, 1975. A comparison of the revised BPT annual costs presented in Table E-4 and the original labor and variable costs presented in Table E-2 indicates that the range of revised BPT annual costs is substantially lower than the range of original BPT annual costs. This represents a 29.4% reduction at the lower bound an 18.3% reduction at the upper bound in the 1-4 employee ------- E - 6 establishment size category; and a 74.870 reduction at the lower bound and a 72.970 reduction at the upper bound in the 5-9 employee establishment size category. Revised cost of capital and depreciation can be. calculated from the figures presented in Tables E-3 and E-4. Cost of capital, depreciation and operating costs constitute the revised BPT annual costs which are presented in Table E-5. Table E-5 Summary of Revised BPT Annual Costs Alternate A - 1977(1) Range of BPT Annual Costs by Model Plant Size (Employees) 1-4 5-9 Lower Upper Lower Upper Annual Costs Bound Bound Bound Bound Cost of Capital(2) $ 685 $1,025 $1,780 $ 2,665 Depreciation(3) 1,370 2,050 3,560 5,330 Operating Costs(4) 3,900 6,500 4,300 7,100 Total Annual Costs $5,955 $9,575 $9_, 640 $15^091 Notes: (1) This table corresponds to Exhibits V-8 through V-ll of the Metal Finishing Report. (2) The cost of capital is calculated on the basis of 10% of average investment. Average invest- ment is equal to one-half of the initial capital cost. (3) Straight-line depreciation--10 year life. (4) As furnished by the EPA on 2/26/75. Sources: Tables E-3 and E-4 and Kearney calculations. The revised cost figures cited in Tab? "3s E-3, E-4, and E-5 will be used as the basis for calculating the revised estimate of economic impact. ------- E - 7 IMPACT ANALYSIS The following assumptions have been made in Kearney's estimate of economic impact based on the revised effluent guide- lines and costs furnished by EPA. 1. The revised BPT effluent guidelines and costs apply to 1977 only. They do not apply to 1983 standards. The 1983 standards have not been considered in this appendix. 2. All industry conditions, as described in Sections I, II and III of the Metal Finishing Report, are expected to remain unchanged. 3. The baseline industry forecast, as presented in Section VI-A of the Metal Finishing Report, is assumed to remain constant. Under these conditions the 1977 baseline forecast of the number of establishments in the 1-4 employee size category is 328 and the 5-9 employee size category is 140. 4. The impact framework, as presented in Section IV of the Metal Finishing Report, will be used as the basis for calculation of economic impact. (a) Price Effects Price determination factors, as presented in Section VI-B of the Metal Finishing Report, are assumed to remain unchanged. The market price resulting from the revised costs of meeting effluent guidelines will be determined by the costs incurred by the industry. ------- E - 8 It should be noted at this point that the price increases in Tables VI-10 through VI-13 of the Metal' Finishing Report were utilized to develop an estimate of the market price increase for each process segment. The price increases calculated for each process segment were determined by weighting the price change per establishment size by market share for those estab- lishments which have the lowest estimated treatment costs and represent 80% or more of industry capacity. These were the establishments with 20 or more employees. Therefore, the market price increases for the 10 employees and under establishments were riot a factor in the determination of the market price increases used for analysis in the original Metal Finishing Report. Price increase factors will be calculated for the 1-4 employee and 5-9 employee model plant size categories to show the price levels which must be attained to recover the costs associated with the revised effluent guidelines. These price increase factors should be used only to gain an understanding of the order of magnitude of required price increases in these size categories. The estimated market price increases will remain the same as those presented in the original Metal Finishing Report, as lower costs for smaller plants will result in only minor second order changes in industry market prices due to the relatively small sales volume of small establishments and the nature of the market. Kearney believes that the market price ------- E - 9 increases will continue to be dominated by the cost characteris- tics of the above 20 employee establishments, which represent 80% or more of industry capacity. Therefore, the final determina- tion of market prices and all other impacts stemming from the price elasticity of demand will be the same as in Sections VI-B and VI-C of the Metal Finishing Report. The lower and upper bound of price increase factors by model plant size required to cover the revised BPT pollution control costs in 1977 are presented in Table E-6. Table E-6 Price Increase Factors (as a Percent of Sales) by Model Plant Size (Employees) Alternate A - 1977(1) Model Plan-. S^ze Percent Price Increase (Employees') Lower Bound Upper Bound" 1-4 9.6% 15.9% 5-9 5.7 9.2 Note: This table corresponds to Tables VI-10 and VI-11 of the Metal Finishing Report. Sources: Table E-5 and Exhibit II-l of the Metal Finishing Report. These price increases correspond to a range of price increases of 19.1% to 31.3% in the 1-4 employee model plant size category and 15.8% to 25.4% in the 5-9 employee model plant size category, as cited in the Metal Finishing Report, Section VI-B, Page VI-19, under the heading, "Price Increase Factors Associated with the 1977 Proposed Effluent Guidelines - Alternate ------- E - 10 A." Note that the revised price increases are substantially less than the original price increases as calculated in the Metal Finishing Report. (b) Economic Impact The purpose of this section is to present a quantitative analysis of the economic impact associated with the revised effluent guidelines and costs furnished to Kearney by EPA on February 26, 1975. 1. Volume Impact. Since market prices will continue to be dominated by the cost characteristics of the above 20 employee establishments, which represent 80% or more of industry capacity, the adjustment in industry volume due to the revised effluent guidelines and costs is not expected to change from that presented in Section VI-C of the Metal Finishing Report. 2. Operational Impacts. Operational impacts on plant engineering, processes and employment resulting from the revised effluent guidelines and costs are not expected to change from those presented in Section VI-C of the Metal Finishing Report. (Refer to the Metal Finishing Report, Section VI-C, Pages VI-39 through VI-47.) 3. Customers and Suppliers. Impacts on customers and suppliers resulting from the revised effluent guidelines and costs are not expected to change from those presented in Section VI-C of the Met£" Finishing Report. 4. Capital Investment and Financing. The funds required ------- E - 11 for pollution control investment will remain much higher than current average annual expenditures. Table E-7 compares the pollution control investment requirements resulting from the revised cost estimates with 1967 levels of capital expenditures adjusted to 1973 dollars. Table E-7 Pollution Control Capital Investment Requirements for the Metal Finishing Industry(1) (? Millions) 1977 Capital Range of 1977 Capital Expenditures Expenditures Required Required For Model Plant 1967 Capital for Revised Capital In- Original Cap- Size Expen- vestment Estimates ital Investment (Employment) ditures (2) (3) Lower Bound Upper Bound Estimates(3) 1-4 $ 0.14 $ 4.5 $ 6.7 $13.62 5-9 0.64 4.9 7.5 8.73 Notes: (1) This table corresponds to Table VI-23 of the Metal Finishing Report. (2) 1967 values have been adjusted to 1973 dollars using a 1.25 inflation factor. (3) Data taken directly from Table VI-23 of the. Metal Finishing Report. Sources: Table E-3 and Table VI-23 and Exhibit VI-63 of the Metal Finishing Report. Note that the capital expenditure requirements are re- duced from those originally calculated in the Metal Finishing Report. All capital investment and financial implications cited for the original 1977 capital investment requirements in the Metal Finishing Report apply to the 1977 capital investment re- quirements resulting from the revised effluent guidelines and ------- E - 12 costs, which are presented in Table E-7. 5. Micro-Impacts. The micro-impacts of economies of scale in pollution abatement, economies of process specialization and economies of scale in financing resulting from the revised effluent guidelines and costs are not expected to change from those presented in Section VI-C of the Metal Finishing Report. (Refer to the Metal Finishing Report, Section VI-C, Pages VI-55 through VI-63.) 6. Closure Analysis. EPA's revised effluent guide- lines and costs did not include separate cost figures for each plant process type, (i.e., plant process types A, B, C, and D). Kearney considered the lower and upper bound of the new costs furnished by EPA for each plant process type and establishment size category presented in the original Metal Finishing Report. By analyzing each plant process type against the lower and upper bound of revised cost estimates, all potential closure possibil- ities can be identified. Income statements which include projected pollution control costs for 1977 under the revised effluent guidelines and costs are presented in Exhibit E-l.* * This exhibit is organized by plant process type. Sales, produc- tion and operating expense and interest on old debt are as presented for each plant process type in the Metal Finishing Report. Operating costs due to pollution control and depre- ciation reflect the new costs furnished by EPA on February 26, 1975. ------- E - 13 To analyze the economic impact after pollution control costs are in effect, the earnings of each establishment size category are compared to the average long-term capital invested. A calculation of the ratio of earnings before taxes and interest in relation to the value of the long-term debt and equity (includ- ing pollution control investment) is estimated in Exhibit E-2. Those establishments with a ratio of less than .1 to 1 are esti- mated to close. These ratios are summarized in Table E-8. Table E-8 Summary of Calculated Earnings to Average Capital Ratios Alternate A - 1977 Model Plant Size (Employees) Process Type A B C D 1 tower Bound .271 .294 .288 .329 ~ 4 Upper Bound .159 .180 .175 .212 5 Lower Bound .386 .428 .419 .482 - 9 Upper Bound .272 .309 .302 .356 Note: This table corresponds to Exhibit VI-46 of the Metal Finishing Report. Source: Exhibit E-2. As can be seen from the table, the analysis indicates no closures. A financial source will apply a highly individual cri- terion to establishment credit requirements for small firms. Since small firms sometimes attempt to minimize taxes by taking out investment income as salary of owners, simple ratios alone do not show credit worthiness. Financing sources will tend to examine both the business and the owner's credit worthiness in ------- E - 14 evaluating the request for a loan. Often the owner will be required to secure the debt partially with personal assets. Usually both the business and the owner will be required to be obligated for repayment. As a minimum test of financial strength, cash flow will have to be sufficient to retire the debt incurred. This can be expressed as shown below: (EBI & T - I) (I - TR) + D = DR £ where: BI & T: Earnings before interest and taxes I: Interest on debts T R: Rate of taxes on profit D: Depreciation DR: Debt retirement (principal) The left-hand side of the equation represents cash flow. The requirement can also be expressed as a coverage ratio: cash flow/debt retirement. This ratio shows how well debt retire- ment is covered by the cash flow projected. This financing test has been applied to the metal finishing industry for the revised effluent guidelines and costs. Cash flow requirements arising out of current balance sheet items are assumed constant. Debt retirement is based on cimortization of the loan for pollution control equipment over five years. This is in accordance with the requirements of banks, as summarized in Section II of the Metal Finishing Report. An accelerated tax write-off of five years with a straight-line depreciation method is used. Retirement of current debt occurs at 10% per year. ------- E - 15 Interest cost is set at 870 on existing debt and 10% on the new treatment system investment. One hundred percent of pollution abatement system costs is assumed debt financed. It is estimated that establishments not having earnings before interest and taxes of at least 10% on long-term investment with a coverage ratio of less than .1 to 1 will not be able to finance the required pollution control investment. It is likely that establishments meeting this criterion with a coverage ratio in the range of .1 to .2 to 1 will be required to provide col- lateral, a percentage of equity financing, or undertake other steps to secure the loan. However, failure to acquire financing will not necessarily be caused by the impact of pollution control regulations. Some owners may decide not to commit their personal assets to meet financing requirements, due to age or other per- sonal reasons. Hence, they may sell or close their businesses. The calculation of this coverage criterion for each plant process type is presented in Exhibit E-3. Coverage ratios are summarized in Table E-9. ------- E - 16 Table E-9 Summary of Coverage Ratios Derived from Cash Flow/Debt Retirement Analysis Alternate A - 1977 Plant Model Plant Size (Employees) Process 1-4 " 5-9 Type Lower Bound Upper B'oundLower Bound Upper Bound A 2.84 1.66 2.84 1.82 B 3.01 1.79 3.08 1.99 C 2.97 1.75 3.03 1.96 D 3.26 1.97 3.37 2.20 Source: Exhibit E-3. As can be seen from the table, the analysis indicates no closures. Although no closures are indicated on the basis of the earnings to average capital ratios and coverage ratios derived from cash flow/debt retirement analysis, some closures will pro- bably occur, for the following reasons: (a) The foregoing closure evaluation was based on the characteristics of the "typical" establishment. However, within each size category there is variation in firm perfor- mance and market conditions. The "typical" firm is not representa- tive of the complete range of per- formance. There are firms which are less profitable than average due to more intense competition in geographical or specialized markets, or due to high cost pro- duction factors. (b) Firms may close due to space and process line rearrangement require- ments. Some firms will be faced with moving the plant location to have adequate space for pollution control equipment. The costs associated with such moves may result in some closures. Other firms might ------- E - 17 be faced with plant expansion or significant process line rearrangements. Some of these firms might close rather than pay the associated costs. (c) Some Kearney industry contacts indicated that their cash flow was so low that the only way they could obtain the funds for the required pollution control equipment would be to pledge personal assets for collateral on a loan or use per- sonal funds to cover the purchase. Many of these stated that they would close rather than make this personal commitment:. (d) Effluent guidelines are only one regulatory consideration confront- ing the metal finishing industry. Other pollution control regulations (OSHA, Air Emission Guidelines, etc.) are anticipated by this industry. The combined costs of these regula- tions could result in some closures. It should be noted that 48 establishments in the 1-4 employee size category and 27 establishments in the 5-9 employee size category were closed in the 1977 baseline forecast due to below average profits and movement into larger size categories. To analyze the potential closures which might result from the factors presented above, the assumption was made that 570 of the establishments in the 1977 baseline forecast have below zero profits or less before interest and taxes. Model income statements based on revised effluent guidelines and costs (Exhibit E-l) are used to determine how much more capital investment can be allocated for pollution control before the ratio of earnings before interest and taxes falls below .1 to 1 and closures result. The calculation of the percentage of firms which are likely to ------- E - 18 close is made with a normal distribution using the average profits before interest and taxes for each plant process type/establish- ment size category as the midpoint of the curve. (Detailed methodology appears in. Exhibit E-4.) The percentage of firms under the range of conditions considered which will be closed in each size category by plant process type is presented in Exhibit E-4. Table E-10 presents the anticipated range of closures. Table E-10 Percent Range of Closures Anticipated Due to Low Profitability Establishments Alternate A - 1977 Model Plant Size Percent Range of Closures (Employees) Lower Bound Upper'"Bbund 1 - 4 12.5% 27.1% 5-9 9.7 14,9 Source: Exhibit E-4. On the basis of the baseline forecast (Exhibit VI-1 of the Metal Finishing Report) and by applying the appropriate plant process type (A, B, C or D) to each type of metal finishing operation (process segment), the lower and upper bound of closures can be calculated. These detailed calculations are presented in Exhibit E-5. Table E-ll summarizes the lower and upper bound of closures by model plant size category. ------- E - 19 Table E-ll Estimated Closures Resulting from the Revised Effluent Guidelines __ Alternate A - 1977(1) _ Model Plant Size Range of Establishment Closures (2) (Employees) ' Lwer~¥ollnd~~~ Upper Bound 1-4 49 80 5-9 16 20 Notes: (1) This table corresonds to Table VI-34 of the Metal Finishing Report. (2) Figures have been rounded from the totals for direct and municipal dischargers from Exhibit E-5. Source: Exhibit E-5. Note that the range of possible closures in the 1-4 employee establishment size category is 49 to 80 and the range of possible closures in the 5-- 9 employee establishment size cate- gory is 16 to 20, The range of the employment impact of closures can be estimated by multiplying the average employment per establishment in each size group, as shown in Table E-ll, by the estimated lower and upper bound of closures. The range of the employment impact of closures appears in Table E-12. Impac t of^ Closures on Employment ( 1 ) Model Plant Size Range of Employees Affected (Employees) LowerBound Upper Bound 1-4 98 160 5 - 9 13.2 140 Notes: (1) This table coirespoiids to the Total Number of Employees Affected, 1977 - Alternate A, in Exhibit VI-63 of the Metal Finishing Report. Sources: Table E-ll and Exhibit V-8 of the Metal Finishing Report. ------- E - 20 7. Total Annual Costs. Since market prices will con- tinue to be dominated by the cost characteristics of the above 20 employee establishments, which represent 8070 or more of indus- try capacity, the adjustment in industry volume due to the revised effluent guidelines and costs is not expected to change from that presented in Section VI-C of the Metal Finishing Report. This is because the demand will not change as market price remains constant. 8. Other Impacts. Other impacts considered,specifi- cally foreign trade and impacts on local or regional economies, are not expected to change substantially from those presented in Section VI-C of the Metal Finishing Report. SUMMARY A detailed summary of the important impacts associated with the revised effluent guidelines and costs for the 1-4 employee and 5-9 employee model plant size categories is shown in Table E-13 on the following page. ------- E - 21 Table E-13 Revised Economic Analysis of Effluent Guidelines (1977) - Metal Finishing Industry Direct and Municipal Dischargers (1) Average Sales Volume SIC Code Number of Plants in Size Segments 1967 Percent of Total Industry Plants NumS«r o*" Plants in 1977 Baseline Number of Plants with BPT Treatment 1n Place Establishment Size by Number of Employees 553,730 3471 and 3479 376 39.67. 328 N/A $146,290 3471 and 3479 167 17.6% 140 N/A ModV! Plant Size (Employees) Ranjfe Cost of Pollution Abatement Total Capital Cost "1977 - Alternate A"(2) Average Annual Investment "1977 - Alternate A"(3) Aversfe Annual Investment for Pollution Control "I9"f7 Alternate A" (4 ) Average Annual Investment with Pollution Control "19.7 - Alternate A"(r>) Total Capital Expenditure* as Percent of Capital(n) Annuali -eel Costs ^or^Sejyuent^ Incremental Increases including Capita f ftiarp.es "1177 Alternate A"(7) Incremental Increases Excluding Capital Charges "1977 - Alternate A"(8) Incremental Increases Including Capital Charges 33 a Percent of Sales "1977 - Alternate A"(9) Expected Price Increases Due to Pollution Control r'1977 - Altei-nate A" (10) Plant Closures Total Closures Anticipated "1977 - Alternate Ar'(ll) Percent Reduction of Size Segment Capacity Due to Closure "1977 Alternate A"(12) Employment Total Number of Kmployees Aftufted "1977 - Alternate A"(13) Percent of Total Employees in Size Segment "1977 - Alternate A"'(14) Community Effects Impact on Industry Growth "1977 - Alternate A"(15) Balance of Trade Effects(16) See the following pages for footnotes explanation. Lover Bound $4,493,600 1-4 Upper Bound $6,724,000 $120,000 $ 449,360 $ 672,400 49 14.9" 98 14.9% Minor Minor 24.47. 160 24. yi. Minor Minor 5-9 Lower Bound Upper Bound' $4,948,000 $7,462,000 $540,000 $ 498,400 $ 746,200 $ 569,360 1837, $1.951,240 $1,279,200 9 . 67. 12.5% $ 792,400 ?497. $3,140,600 $2,132,000 15.97. 16.17. $1,038,400 1317. $1,349,600 $ 607,400 5.7% 12.5% $1,286,200 1727. $2,113,300 $ 994,000 9.2% 16 . 1% 16 11.4% 10.07. Minor Minor 20 14.2% 140 12. VI. Minor Hi nor ------- E - 22 FOOTNOTES (1) This table corresponds to Exhibit VI-63 of the Metal Finishing Report. (2) The range of 1977 total capital cost is calculated by mul- tiplying the number of establishments in each size group in the 1977 baseline forecast times the low and high BPT capital costs. These costs were furnished by EPA on 2/26/75 and correspond to the costs in Tables V-6 through V-ll of the Metal Finishing Report. (3) The average annual investment is the annual investment pro- jected during 1977 without pollution control equipment costs. (4) The average annual investment for pollution control is based on an economic life of 10 years and equal to 10% of initial system cost. (5) Based on an economic life of 10 years, average annual treat- ment system investment will be equal to 1070 of initial system cost. Average annual investment with pollution control is equal to the average annual treatment system investment plus the average annual investment. (6) The percentages represent the range of cost associated with each size category for direct and municipal dischargers. The calculation is based on the percent capital cost (as shown in Exhibit E-l) is of long-term debt plus equity (as shown in Exhibit E-2). The capital cost exhibit corresponds to Exhibits V-6 through V-ll of the Metal Finishing Report and the long-term debt plus equity exhibit corresponds to Exhibits VI-30 through VI-45 of the Metal Finishing Report. (7) The range of 1977 total annual costs is calculated by multi- plying the number of establishments in each size group in the 1977 baseline forecast times the low and high BPT annual costs. These costs were furnished by EPA on 2/26/75 and correspond to the costs in Tables V-6 through V-ll of the Metal Finishing Report. ; (8) Incremental increases excluding capital charges for 1977 are calculated by multiplying the 1977 capital costs by .15 and1., subtracting from the annual costs including capital. The .15 factor reflects a capital charge of 15% consisting of 5% for the cost of capital (10% cost of capital on the average investment--one-half of the total) over a 10-year period and depreciation of 10% per year over a 10-year period. ------- E - 23 (9) As derived from the costs furnished by EPA on 2/26/75, Table E-13 and Exhibit II-l of the Metal Finishing Report. (10) As derived from the figures furnished EPA on 2/26/75. These correspond to the price increases cited in Table VI-14 of the Metal Finishing Report. (11) As derived from Table E-ll. (12) The percent reduction of size segment capacity due to closure is calculated against the estimated 1977 baseline number of establishments. (13) The range of the employment impact of closures is estimated by multiplying the average employment per establishment in each size group as shown in Exhibits V-8 through V-ll by the estimated lower and upper bound closures as shown in Table E-ll. Note baseline closures are excluded from this calcula- tion. Closures are based on assuming Alternate A conditions. (14) Employees affected as a percent of employment shown in Exhibit 1-9 of the Metal Finishing Report. (15) Measured against community and industry growth as a whole, the impacts are very minor. (16) A minor impact on the balance of trade as a whole is indi- cated. Sources: (As indicated in footnotes.) ------- E - 24 CHANGES OCCURRING IN TAB D ESTIMATES Tab D considered the impact of capital investment and total annual costs for pollution control equipment on industry prices, industry production, establishment closures, employment, communi- ties, industry growth and balance of trade on direct discharging plants only. All impacts discussed previously in this appendix apply to direct dischargers, with the exception of: 1. Capital investment and annual costs. 2. Establishment closures. 3. Employment. (a) Capital Investment and Annual Costs The incremental investment and annual costs required for the revised effluent guidelines for direct discharging establishments by size category are presented in Exhibit E-6. Table E-14 sum- marizes the total incremental investment and annual costs for pollution control for direct discharging establishments. ------- E - 25 Table E-14 Total Incremental Investment and Annual Costs for BPCT Under the Revised Effluent Guidelines - 1977 (? Millions) Range of Costs Lower BoundUpper Bound Incremental Investment Required for Pollution Control $28.241 $31.046 Annual Cost for Pollu- tion Control $10.054 $11.102 Source: Exhibit E-6. (b) Establishment Closures Direct discharging establishment closures resulting from the revised effluent guidelines and costs are shown in Table E-15, Table E-15 Estimate of Direct Discharging Establishment Closures Resulting from the Revised Effluent Guidelines, Alternate A - 1977 Model Plant Size Range of Closure Estimates (Employees) Lower BoundUpper Bound 1-4 11 19 5-9 4 5 Note: Figures have been rounded from the totals for direct dischargers from Exhibit E-5. Source: Exhibit E-5. (c) Employment The range of employment: impact of closures is presented in Table E-16. ------- E - 26 Table E-16 Impact of Closures on Employment for the Direct Discharging Segment Model Plant Size Range of Employees Affected (Employees) Lower Bound Upper Bound" 1-4 22 38 5-9 28 35 Source: Table E-15 and Exhibit V-8 of the Metal Finishing Report. ------- Plane Process Type Range Model Plane Siza (Employees) Sal«.<2> Less: Production and Operating Expense(3) Operating Cost* Due to Pollution Control(4) Depreciation(S) Subtotal Plus: IrtteresC on Old Debt(6) Profit Before Interest and Taxes ENVIRONKINTAL PROTSCTION AGENCY PROFIT BEFORE INTEREST AND FAXES OF TYPICAL METAL FINISHING ESTABLISHMENTS BY ESTABLISHMENT SIZE A[fD PLANT PROCESS TYPE - ALTERNATE A - 1977 tower $60,400 46,610 3,900 1.370 $ 8,520 $ 743 Q.26JJ A Bound $164,000 133,580 4,300 3.560 $ 22.560 $ 1,197 SLliJSl Uoper $60,400 46,610 6,500 2.050 $ 748 $ 5.938 Bound $164,000 133,580 7,100 5, -no j 17.190 $ 1,197 JALA?! Lower $61,200 46,610 3,900 ^l^SJ.O $-9-.320 $ 748 $10,068 B Bound $166,600 133,580 4,300 3,560 $ 25.160 $ 1,197 $ 26.357 Upper $61,200 46,610 6,500 2.0SO $ 6.040 $ 743 $ 6.788 Bound $166,600 133,580 7,100 5.330 $ 20 590 . $ 1,197 ^ 31-787 Lower $60,960 46,610 3,900 1.370 . S 9.100 $ 748 $ 9.348 C Bound $166,050 133,580 4.300 3,560 $ 24,610 S 1,197 S 25.80'- Upper $60,980 46,610 6,500 2.050_ $ 5.820 $ 74S S 6.568 Bound $166,050 133,580 7,100 5.330 $ 1,197 L2±*£l D $62,380 $16.J,'JOO $62.r;0 ,' ' 46,610 133,580 46, CIO I 3,900 4,300 f/,500 1,T7_0_ __3,56) __L>£0 _ £15 500 S 28.460 $ 7^2 'i 3 $ 748 $ 1,197 $ 71S f IU.^241 S_22,^7. S_;jJ6,'. i, Notes: (1) This exhibit corresponds to Exhibit(s) VI-12 of the Metal Finishing Report. (2) These sales figures are obtained from Exhibits VI-12 through VI-15 of the Metal Finishing Report. 3) Production and operating expenses are obtained from Exhibit II-3 of the htetal Finishing Report. 4) Operating costs (revised) were obtained from EPA February 25, 1975, 5) Depreciation is straight line depreciation - 10 year life. 6) Interest on old debt is added in at this point as it was included in the production and operating expense figure above. These figures were obtained from Exhibit VI-12, Sources! Table S-4 and Exhibits II-3, V-8 through V-ll and, VI-12 through VI-16 of the Metal Finishing Report. ------- ENVIRONMENTAL PROTECTION AGENCY RATIO OF CALCULATED EARNINGS TO AVERAGE CAPITAL FOR THE METAL FINISHING INDUSTRY BY ESTABLISHHEM SIZE AND PLANT PROCESS TYPE - ALTERNATE A - 1977 EXHIBIT E-2 Plant Process Type Model Plant Size (Employees) Average Lone-Tera Capital Investment Equicyd) Long-Term Debt(2) Pollution Control Debt/Equity^) Tocal Average Capital Earnings on Capital Before Ratio of Calculated Earnings to Avarage Capital A Lower Bound 1-4 5-9 $17,950 $28,720 9,350 14,960 6,850 17.800 $34.15,0 $61,480 $ 9.263 $23.757 .271 .386 Upper _i*_ $17,950 9,350 10.250 $37.550 S 5.988 .159 Bound 5-9 $28,720 14,960 26.650 $70.330 $19,487 .272 Notes: (1) Values for equity are taken from Exhibit II-4. (2) Values for long-term debt are taken from Exhibit II-4. Lowe] 1-4 $17,950 9,350 6.850 $34.150 $10.068 .294 B : Bound 5 9 $28,720 14,960 17.800 $61.480 $26.357 .428 Upper 1-4 $17,950 9,350 10,250 $37.550 S 6.788 .180 rv 26 1<3 Bound -Jb9_ $28,720 14,960 26,650 $70.330 $21.787 .309 I7"i. Lower -J^L_ $17,950 9,350 6,850 $34.150 $ 9.848 .288 C Bound 5-9 ' . $28,720 14,960 17.800 $61.4.80 $25.807 ,419 Upper 1-4 $17,950 9,350 10,250 $37.550 $ 6,568 .175 Bound 5-9 $28,720 14,960 26.650 $70.330 $21.237 .302 Lover 1-4 $17,950 9,350 6.850 $34.150 $11.248 ^329 D Bound 5-9 $28,720 14,960 17,800 ssytso $29.657 .482 ipper 1-4 $17,950 9,350 10,250 $37,550 S 7.968 .212 Bo.rj 5-9 528,720 14,960 26 650 J70.333 $25.087 .J5S Sourc««: Exhibit E-l, EPA «nd Exhibits Vl-30 through VI-33 of the Metal Finishing Report. ------- ENVIRONMENTAL PROTECTION AGENCY CASH FLOW/DEBT RETIREMENT ANALYSIS BY ESTABLISHMENT SIZE AND PLAKT PROCESS TYPE - ALTERNATE A - 1977 Interest Plant Employee Earnings Before Pollution Profits Debt Retirement Depreciation Type Coverage Class Taxes(l) Debt(2) DebtO) Taxes(4) Taxtj(5) Profits(6) PresentO) Svster.(S) F A B C D Notes: Lover Bound 1-4 S 7.898 5 748 S 874 ? 6,276 $1,381 $ 4,895 $2,800 $ 5-9 20,197 1,197 2,271 16,729 3,680 13,049 Upper Bound 1-4 3,938 748 1,308 1,882 414 1,468 5-9 13,857 1,197 3,401 9,259 2,037 7,222 Lower Bound 1-4 8,698 748 874 7,076 1,557 5,519 5-9 22,797 1,197 2,271 19,329 4,252 15,077 Upper Bound 1-4 4,738 748 1,308 2,682 590 2,092 5-9 16,457 1,197 3,401 11,859 7,609 9,250 Lower Bound 1-4 8,478 748 874 6,856 1,508 5,348 5-9 22,247 1,197 2,271 18,779 4,131 14,648 I'pper Bound 1-4 4,518 748 1,308 2,462 542 1,920 5-9 15,907 1,197 3,401 11,309 7,488 8,821 Lower Bound 1-4 9,878 748 874 8,256 1,816 6,440 5-9 26,097 1,197 2,271 22,629 4,978 17,651 Upper Bound 1-4 5,918 748 1,308 3,862 850 3,012 5-9 19,757 1,197 3,401 15,159 3,335 11,824 4,300 2,800 4,300 2,800 4,300 2,800 4,300 2,800 4,300 2,800 4,300 2,800 4,300 2,800 4,300 asn rresenc lo«(9) DebtO.0) 2,740 $10 7,120 4,100 10,660 2,740 7,120 4,100 10,660 2,740 7,120 4,100 10,660 2,740 7,120 4,100 10,660 (1) Profit Before Taxes and Interest is calculated in Exhibit E-l with depreciation adjusted from an economic life of ten years to a (2) Interest on present debt is at 87, per annum on the debt as shown in Exhibit F-l. will be 6.367. and principal retirement 20%. These data are used in the table. In actuality first year and the payments will have more last year paynents the reverse. If interest Is paid annually and principal retired In equal amounts, total interest bjt cash flow requirements would be higher in initial years. (5) Estimated taxes are based on a 227. on the first $25,000 and 487. thereafter. (7) Present depreciation is estimated to equal 107, of net fixed assets shown by the Robert Morris survey. (8) Treatment system depreciation is based on a fast tax write-off for pollution control equipment in accord period and the investment tax credit would not fit well with the amortization requirements of five years (9) Cash Flow equals Net Profits plus depreciation. (10) Present Debt is as shown in Exhibit E-2. Retirement is estimated to be 107, per rear. ,ance with Se and in some paid will b ction 169 of cases i-ncom 24 8 22 11 26 8 24 10 26 3 23 11 29 9 26 ,435 $ ,469 1 ,368 ,182 1 ,059 ,497 1 ,992 ,210 1 ,883 ,068 I ,820 ,7ol 1 ,980 ,071 1 ,912 ,784 1 tax life of interest and 935 ,496 935 ,496 935 ,496 935 ,496 935 ,496 935 ,496 935 ,496 935 ,496 five less e lower averaging t e he Internal aay not be (11) Treatment System Debt is based on financing 100% of the pollution control treatment system requirements. This is an upper bound estimate of financing is likely to require some equity participation in financing. For small firms this is likely to require use of personal assets. (12) Coverage is the ratio of Cash Flow to Debt Retirement. Reve high cash Treatment System Debt'll) Total $ 2, 7, 4, 10, 2, 7, 4, 10, 2, 7, 4 10! 2, 7, 4, 10, years. 740 $ 123 100 660 740 120 100 660 740 120 100 660 740 120 100 660 3, 3, 5, 12. 3, 8, 5, 12, 3, 8, 5, 12, 3, 3, 5, 12. Oebr Cove 675 616 035 156 675 616 035 156 675 blt> 035 156 675 616 035 156 raze'' 21 5.84 2.84 1.66 1.82 3 01 3.03 1.79 1.99 2.97 3.03 1.73 1.96 3.26 3.37 1.97 2.20 Principal retirement and 7. on total investoent; nue Code enough t . A long o utilize tr t!-. flow requirements. write-off ,e full credit Typical Sources: Exhibit E-I and E-2. and Exhibits VI-53 through Vt-56. ------- EXHIBIT E-4 ENVIRONMENTAL PROTECTION AGENCY PERCENT ESTIMATED 1977 CLOSURES DUE TO REVISED EFFLUENT1 GUIDELINES BY PLANT PROCESS TYPE AND ESTABLISHMENT SIZE CATEGORY(l) Plant Process Type A B C D Model Plant Size (Employees) 1-4 Lower Bound Upper Bound 15.2% 27.1% 14.0 23.0 14.2 23.9 12.5 19.2 5-9 Lower Bound Upper Bound 11.1% 14.9% 10.4 13,4 10.6 13.6 9.7 11.9 Note: (1) Sources: Percent estimated 1977 closures are calculated as follows: (Earnings on capital before taxes and interest from Exhibits E-9 through E-16) - (.1 of total average capital from Exhibits E-9 through E-16) ] * [(Earnings on capital before taxes and interest from Exhibits E-9 through E-16) :- (1.645 which is the standard normal variable exceeded with given probabilities of 5.0) ]= A number which can be translated into a percentage from probabili- ties that given standard normal variables will be exceeded. Exhibits E-9 through E-16 and "Statistics, a New Approach" by The Free Press. ------- ENVIRONMENTAL PROTECTION AGENCY CASH FLOW/DEBT RETIREMENT ANALYSIS BY ESTABLISHMENT SIZE AND PLAOT PROCESS TYPE - ALTERNATE A - 1977 Plant Process Range of Type A B C D Notes: Lower Bound L'pper Bound Lower Bound Upper Bound Lower Bound I'pper Bound Lower Bound Upper Bound (1) Profit Be (2) Interest Interest Employee Earnings Before Pollution 1-4 S 7.898 5 748 $ 874 5-9 20,197 1,197 2,271 1-4 3,938 748 1,308 5-9 13,857 1,197 3,401 1-4 8,698 748 874 5-9 22,797 1,197 2,271 1-4 4,738 748 1,308 5-9 16,457 1,197 3,401 1-4 8,478 748 874 5-9 22,247 1,197 2,271 1-4 4,518 748 1,308 5-9 15,907 1,197 3,401 1-4 9,878 748 874 5-9 26,097 1,197 2,271 1-4 5,918 748 1,308 5-9 19,757 1,197 3,401 Debt Retirement Profits Taxes(4) 5 6,276 16,729 1,882 9,259 7,076 19,329" ~ 2,682 11,859 6,856 18,779 2,462 11,309 8,256 22,629 3,862 15,159 fore Taxes and Interest Is calculated In Exhibit E-l with deprecia on present debt is at 87. per annum on the debt as shown in Exhibit (3) Based on amortization over five years, 26.38 of the debt will be paid each will be 6.387. and principal retirement 20%. These data are used In the tab last year payments the reverse. If interest Is paid annually and principal but cash flow reauirements would be higher in initial years. (5) Estimated Taxes (5) 51,381 3,680 414 2,037 1,557 4,S2 590 2,609 1,508 4,131 542 2,488 1,816 4,978 850 3,335 Net Prof its (6) $ 4,895 13,049 1,468 7,222 5,519 15,077 2,092 9,250 5,348 14,648 1,920 8,821 6,440 17,651 3,012 11,824 Depreciation Treatment Present(7) 52,800 4,300 2,800 4,300 2,900 4,300 2,800 4,300 2,800 4,300 2,800 4,300 2,800 4,300 2,800 4,300 tion adjusted from an economic life of F-l. year if payments are made le. In actuality first y retired in equal amounts yearly, and ear payments SvsteniCS) $ 2,740 7,120 4,100 10,660 2,740 7,120 4,100 10,660 2,740 7,120 4,100 10,660 2,740 7,120 4,100 10,660 Cash Flow(9) 510,435 24,469 8,368 22,182 11,059 26,497 8,992 24,210 10,883 26,068 8,820 23,781 11,980 29,071 9,912 26 , 784 Present DebtdO S 935 1,496 935 1,496 935 1,496 935 1,496 935 1,496 935 1,496 935 1,496 935 1,496 ten years to a tax life of five the interest will have mor rate Is 10%. For tt be lower averaging Treatment System J. Debt flli 5 2,740 7,120 4,100 10,660 2,740 7,120 4,100 10,660 2,740 7,120 4,100 10,660 2,740 7,120 4,100 10,660 years . 5 3,675 3,616 5,035 12,156 3,675 8,616 5,035 12,156 3,675 8,616 5,035 12,156 3,675 3,616 5,035 12,156 le average year Interest principal retirement and 5% on total Investment; taxes are based on a 22% on the first 525,000 and 487. thereafter. (7) Present depreciation is estimated to esual 10% of net fixed assets shown bv (8) Treatntnt system depreciation is based on a fast tax write-off the Robert Morris survey. for pollution control equipment in accordance with Section 169 of the Internal Revenue Code. A longer write-off 2.84 2.84 1.66 1.82 1.79 1.99 2.97 3.03 1.75 1.96 3.26 3.37 1.97 2.20 ,^ £ert°d and che *-n™»'°«>t tax credit would not fit well with the amortization requirements of five years and in some cases income may not be high enough to utilize the full credit. (9) Cash Flow equals Net Profits plus depreciation. (10) Present Debt Is as shown In Exhibit E-2. Retirement Is estimated to be 10% per year. (11) Treatment System Debt Is based on financing 100% of the pollution control treatment system requirements. This is an upper bound estimate of cash flow requirements. Typical financing is likely to require some equity participation in financing. For small firms thia is likely to require use of personal assets. (12) Coverage is the ratio of Cash Flow to Debt Retirement. Sources: Exhibit E-l and E-2, and Exhibit! VI-53 through VI-56. ------- EXHIBIT E-6 Process Segment l2) Cadmium Plating ''rect.v s Metal Plat me Anodizing ? lc'< 1 !*• K. Phosphat izing Ftchtne Establishment Size Segment {3 ) 1 -, 5 9 10-19 20-41 50 99 100 249 250+ 1 4 5-1 1C -19 20 49 50-99 100-249 250+ 1-4 5-9 10-19 20-49 50 99 100-249 250+ 1-4 5-9 10-19 20-49 50-99 100-249 250+ 1-4 5-9 10-19 20-49 50-99 100 241 250+ 1 4 5-1 10-19 20 49 50-99 100-249 250+ Number of Plants(4) 9 j 4 s 2 0 0 13 6 n 7 i 0 0 32 15 15 16 4 1 1 8 3 3 3 1 1 0 3 1 1 1 0 0 0 21 9 8 8 2 2 0 Total Invest- mant (5) S (Million) S 0.246 o r5 0 328 1 022 P 786 0 355 0 262 0 4«1 1 430 0.786 0 874 0 655 1 229 3.269 1.572 1 170 0.218 0.131 0.246 0.613 0.393 1.170 0 082 0.044 0.082 0 204 0.573 0.393 0 655 1 634 0 786 2 338 FNVIRONMENTAL PROTECTION AGENCY POM.l'TlON TONTROI TMVF'TMFW^ »Nn ANN'1*! COSTS FIR BPCT UNDER RFVISED EFFLUENT CUlnELLNEb AND COSTS . 1977(1) Total Pollution Control Lower Bound (6) 5 (Mil 5 0. 0 0. I 0. 0. 0 0 2 0. 0. 0. 0 4. 1. 0. 2. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0 0. 0 2 0 1. lion') 123 142 318 516 910 178 214 476 235 910 438 534 978 881 744 910 270 110 107 196 915 436 910 041 036 065 305 288 320 522 441 8"2 820 $28.241 Upper Bound (7 ) {(Million) $ 0.185 0.213 0.430 1.721 0 986 0.267 0 320 N/A ( 12 ) N/A N/A 0.656 0.800 1.299 5 311 1 896 .986 2.474 0 164 0.160 N/A N/A N/A N/A 0.062 0.053 0.087 0 332 0.431 0.480 N/A N/A N/A N/A $31.046 Req uir ad f o"~ - BPCT(8) Percent of Investment ( 9 ) 50 81 97 156. llft- 50 82- 97 156 lib 50- 82- 7S 122 131 168 125 75 122 . 75 122 Total Anmia I SalesvlO) <(Mt] •• 0 i) 1. 3 0 0 1 4 2 1 2 80-106 4 149- 111- 78- 50- 82- 80 149 111 78 50- 82- 79- • 163 • 121 - 84 7, 122 - 76 -120 .106 150-lb3 50 81. HO 149 1 1! 78 117 - 75 -122 -128 9 5 2 6 0 0 0 1 i! 2 , 0 0 0 0 1 1 ? 4 2 5 J76_ . 1 i 01 ) 486 ')B5 139 000 526 .698 878 708 200 ,526 ,719 . 195 ,271 600 052 ,940 .566 .430 ,439 .854 ,800 .263 ,940 ,161 ,146 .285 6on .128 317 .278 .800 526 .880 .J2fe Annual Lower Bound 16) S(M11 5 0. 0. 0. 0. °; 0. 0. 0. 0. 0. 0. 0. 0. 1. 0. 0. 0. 0. 0. 0 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. Q *!£. ilOPl 05- 059 197 519 33" 077 058 289 727 337 190 145 587 510 599 312 778 048 029 11" 283 150 312 Ola 010 039 094 125 087 313 755 300 624 m ControHll) Upper Sound ( 7 ) ^(Mil lion) S d OHh ;i rjft-j fj TO:. 0 5^p l 394 • ' 125 i 091 N 'A \" 'A N A 0 306 0 226 0.703 1 616 0.648 0.336 0.841 0.0^7 0.045 N'.-V N/A M/A N/A 0.029 0.015 0.047 0.101 I1 1 36 \i\ N/A N/A \'/A uiopi Percent of Salaa(9) 11 7 1 7 13- 11 "" 1" 1' 13 11- 7. 14- 16- 12- 11- 12 11- 7 14 1G 12 11 7 - 3 -t- 16- i i !_/_, Ib 11 ;_5 18 10 JO 20 15 18 1'J 18 10 17 17 13 11 13 16 10 18 10 17 [7 ' ^ 1 - (2) (3) (1) Data in these tables reflect only direct discharging establishments. Dollar values are at 1973 price levels. The data reflect the costs for the 1967 size distribution of establishments. This number of establishments and distribution by size and process segment is expected to change due to closures which are the result of the costs of meeting the effluent limitation guidelines In 1977. The designation "process segment" Indicates that the estimated number of firms in this segment primarily provide this type of service will usually also provide other services many of which may fall in other primary process segments. Establishment size is measured by total establishment employment. Sample data Indicates that employment and sales are directly correlated. More definitive employment data Is available for the industry so this measure was selected as the size segmentation parameter as opposed to sales or other size variables. Number of plants by size segment reflects the size distribution of the industry as a whole Vvhlch has been assumed applicable to each process segment. Total long-term investment is defined as long-term debt plus equity. Investment data is in 1973 dollars. If final Investment were used as a base, Kearney estimates that measure would be 40?-, to 60"'. of the lone-terni investment indicated. ("6) The lower bound estimate of investment and annual cost required for pollution control assumes only treatment of waste streams compatible with the stream produced by the primary service beine provided as indicated under process segment. i' > ) The upper bound estimate of investment and annual cost required for pollution control represents the cost which would be associated with the treatment of diversified waste streams indicating that significant secondary services are being provided in addition to those which have waste streams compatible with the primary service being provided as shown under process segment (8) Investment data is based on the technical and cost information developed by Battelle Columbus laboratories This includes the use of a S146 thousand (1974 prices) evaporator in all shops with 20 or more employees are not estimated to require an evaporator However, It also should be noted that shops In the range of 20-49 employees cannot justify the inclusion of an evaporator in their system based on the savings generated in water usage and in the size of the treatment system required For this reason the economic impact assessment of closure on these shops has been done hy eliminating the evaporator investment and increasing the annual costs bv the amount saved. This is only an approximation of the adjustments from removing the evaporator from the system Reworking the entire treatment system to exclude the evaporator requires adjustment of the size of the treatment system itself to reflect the need to process a larger stream of waste water. If the evaporator is eliminated from the 20-49 employee size segment on this approximation basis, total investments required are reduced by approximately $3 million and annual costs are increased by about 5130 thousand in total for the industry This does not consider the adjustment in Lhe treatment system but only the direct elimination of Investment and savings due to the evaporator. The detailed information necessary to develop complete 1977 investment and annual costs without evaporators is not available at the present Lime (9) This range represents the range implicit in the lower and upper bound estimates of investment in pullutlon control equipment as a percent of the total investment indicated. A similar calculation Is performed for percent of sales Total annual sales for each size segment have been calculated on the bases of estimated average sales oer establishment. Annual costs for pollution control include depreciation (straight line over 10 years to reflect economic life) cost of capital at 10'', per year on the average investment net of depreciation (i.e., one-half of total investment) maintenance, and operating cost. (12) N/A indicates that there are not estimated to be any establishments which would utilize treatment system capable of treating diverse waste streams In addition to the treatment required by the primary process indicated. In this instance, the total for the upper bound column reflects using the lower bound estimate where N/A is indicated. Kearney Management Consultants ------- |