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
------- |