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

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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

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                          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.

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                                                         - 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

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                                                         - 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

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               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

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                                                           - 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

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                         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."

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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."

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                                                                    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.

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                                                      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.

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                                                         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

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                                                      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.

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                                                       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.

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                                                        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

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                                                       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

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                                                       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

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                                                         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

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                                                       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.

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                                                       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

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                                                       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.

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                                                       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.

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                                                      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.

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                                                     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.

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                                                                                    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.

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                                                                                                                    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

-------