EPA 230/1 - 76 - 068
     ECONOMIC ANALYSIS OF PROPOSED TOXIC POLLUTANT STANDARDS
                  FOR POLYCHLORINATED BIPHENYLS:
          TRANSFORMER, CAPACITOR, AND PCB MANUFACTURERS
                      Prime Contact No. 68-01-3259
                         Subcontract No. 474-1
              OFFICE OF WATER PLANNING AND STANDARDS
                 ENVIRONMENTAL PROTECTION AGENCY
                       WASHINGTON, D.C. 20460
                            October, 1976
                  u s            Protection «•*•»

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                    This  document  is available in limited quantities through the
 ^O                 U.S.  Environmental  Protection  Agency,  Economic Analysis
 •>                  Staff (WH - 586), 401 M Street, S.W., Washington, D.C. 20460.
 f\                  Telephone:  (202) 755-6906                                ^
^
                    This  document will subsequently be  available  through  the
 :                   National  Technical  Information  Service,  Springfield,  VA
                    22151.

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                                     PREFACE
 The attached  document is a contractor's  study prepared for the  Office  of Water
;Planning and Standards of the Environmental Protection Agency (EPA).  The purpose of
 the study is to analyze the  economic impact which could result from the application of
 alternative toxic pollutant effluent standards to be established under Section 307 (a) of
 the Federal Water Pollution Control Act Amendments (_Ref. 25j.

 The study supplements the technical study prepared by Versar, Inc. [Ref. 1^ supporting
 the issuance of proposed regulations under Section 307 (a).  The technical study surveys
 existing  and  potential  waste  treatment  control  methods  and  technology  within
 particular industrial source categories and supports proposal of certain toxic pollutant
 effluent standards; the study is an assessment of the feasibility of these standards.  The
 technical study presents the investment and  operating  costs associated with various
 alternative control and treatment technologies. This document supplements the EPA's
 information  by estimating  the broader economic effects which might result from the
 application of various  control  methods  and  technologies.   This study investigated
 alternative  control  options  primarily  in  terms  of effects  on  product; prices   and
 curtailments in production.

 The study has been prepared with the supervision and review of the Office of Water
 Planning and Standards of EPA.  This  report  was submitted in fulfillment of Prime
 Contract No. 68-01-3259 by Versar, Inc. and in fulfillment of Subcontract No.  4741 by
 Jack Faucett Associates, Inc .

 This  report  is being released and  circulated concurrently with  the public  hearing,
 required under Section 307  (a).  The study is not an official EPA publication.  It will be
 considered along with the information obtained  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 proceeding only  -
 to the extent that it  represents the views of the  above  mentioned contractors  who
 studied-the  subject industry.  It cannot be cited, refereneedr or represented in: any_-
:respect  in-any such  proceeding  as  a statement of EPA's views regarding the subject
 industry.; -  - -

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The  criteria  by which the necessity  of  performing an Inflation  Impact Statement is
judged as established by the Administrator are not expected to be exceeded by the
promulgation of this regulation. However, this study meets all the requirements of an
Inflation Impact Statement.
                                  11

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                           TABLE OF CONTENTS
PREFACE  	 .......    i
EXECUTIVE SUMMARY	-	    vii
LIST OF TABLES	    v
LIST OF FIGURES	    vi
CHAPTER                                           ~~  "          PAGE
     1   INTRODUCTION ..................... ,    1-1
              Objective and Scope of This Study ............    1-1
              Definition of Economic Impact  ............. _ .  1-3
              Impact on Timing of Producer Decisions .........    1-4
     2   METHODOLOGY .....................    2-1
     3   DESCRIPTION OF INDUSTRY ............... .-  .  3-1
              Types of PCB-Insulated Transformers ..........   ,3-3
              Types of PCB-Insulated Capacitors  ...........    3-5
     4   FINANCIAL PROFILE OF THE INDUSTRY ..........    4-1
     5   BASELINE MARKET CONDITIONS:                     : :
           DEMAND, SUPPLY AND PRICE  ..............    5-1
              Capacitors  .....................    5-3
              Transformers .................... r  ^ , 5-3
              Effect of PCB Effluent Controls on Sales .........    5-9
     6   SUMMARY OF ALTERNATIVE                                ;
           TREATMENT TECHNOLOGIES ...............    6-1
              Treatment Cost Estimates ............... ...
              Annualized Costs for the Investment Analysis .......    6-3
         INVESTMENT ANALYSIS .................  ._, .  _7rl
              Background and Uses of Cash Flow Analysis  ......  ._ . .  J7-1
              Assumptions Underlying Model Pro Forma                . -:: ~ -
                Income Statements	  7-2
              Explanation of the Methodology Used in the               .
                Income Statements	    7-3
                                   111

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                          TABLE OF CONTENTS (Con't)
              Alternative A	    7-4
              Alternative B	    7-5
              Alternative C	    7-6
              Zero Discharge .	r'-   7-6
     8   ; ECONOMIC IMPACT	  .  .    8-1
              Introduction	    8-1
              Economic Impact of Effluent Control Alternatives.  .  .  .  r  -  8-2
              Delayed Impacts on Repair and Insurance Rates	    8-7
              Estimated Economic Impact for Individual Plants  .  .  .  .  r-~-'  8-8
     9    LIMITS OF THE ANALYSIS	  .  .    9-1

APPENDIX A: SPECIFIC TECHNICAL ISSUES	  .  .    A-l
APPENDIX B: EXCERPTS FROM FINANCIAL STATEMENTS .".  ..,.-. -" :: B-l
REFERENCES	.;.....    R-l
                                   IV

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                              LIST OF TABLES
TABLE NO.                                                               PAGE

£•1       Financial Profile of Companies With
            Direct Discharger Plants, 1974 and 1975 .  ..........    4-5
4r2       Additional Costs and Tax Data	    4-7
5-1       U.S. Imports and Exports of Electronic Products	    5-10
6-1       Alternative Technologies	    6-2
6-2       Annual Costs of Treatment Technologies	    6-5
7-1       Pro Forma Income Statement and Discounted Cash Flow
            Analysis for PCB Using Production of Model Plant #1	    7-8
7-2       Pro Forma Income Statement and Discounted Cash Flow
            Analysis for PCB Using Production of Model Plant #2  . . .  .  . "  7-9  J
7-3       Pro Forma Income Statement and Discounted Cash Flow
            Analysis for PCB Using Production of Model Plant S3  . ...  .    7-10~
7-4       " Pro Forma Income Statement and Discounted Cash Flow
            Analysis for PCB Using Production of Model Plant #4  . . .  .  .""" - T-ll~
7-5       Pro Forma Income Statement and Discounted Cash Flow
            Analysis for PCB Using Production of Model Plant #5  . . .  .  .    7-12  ^
A-l       Energy Conservation for Appliances with Capacitors	    A-2
B-l       AVX Corporation	    B-2
B-2       Federal Pacific Electric Company	    B-2
B-3       General Electric Company	  .  .    B-3
B-4       Pollution Control-Walther, Inc.
            for Helena Corporation (Subsidiary)	    B-4   ~
B-5       Research-Cottrell, Inc	    B-5
B-6       Sangamo Electric Company	    B-6
B-7       Sprague Electric Company	_ B-6
B-8       Westinghouse Corporation	    B-7

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                           LIST OF FIGURES
FIGURE NO.                                                     PAGE
5-1
5-2
5-3
Value of Shipments of Electronic Systems and
Components 	 	
: Annual Capacitor Sales and Trend ......;..
Capacitor Sales bv Tvoe 	 ; . .
. . . .~j 5-2
. . . . ». 5-4
..... 5-5
                                 VI

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                              EXECUTIVE SUMMARY
 This report presents an objective and comprehensive assessment of economic impacts
 from PCB effluent controls.  Numerical estimates are as accurate as possible given the
 data," the forecasts, and the technological  assessments available  for this  specific
 evaluation.   Estimates  can undoubtedly be improved if the data and  opinions withheld
 for proprietary and other reasons could be included in a reassessment.  Nevertheless,
 this report reflects every attempt to identify all relevant impacts and present unbiased
 estimates.

 The investment analysis in Chapter 7 indicates  that considering effluent controls only, a
 minimum of nine  and maximum of all eleven direct discharging plants will stop using
 PCBs  depending  on  the particular regulation issued.   Industry opinions and actions
 indicate that the  estimated minimum is very unlikely, possibly because there are other
 PCB controls and  actions that encourage them to stop using PCBs.

 Decisions against investment in control equipment does not mean, however, that the
 impacts of  this regulation are zero.  Company decisions to cease PCB  use will  have
 impacts,  particularly with regards to the timing of the decision to stop using PCBs. The
 earlier the switch to substitutes the more likely that product prices and performance
 will change in the transition.

                BASIC INFORMATION AND PCB CONTROL OPTIONS

 Evidence for pending decisions to cease PCB use prior to implementation of Section 307
 (a) controls  comes from three  sources:  investment analysis of probable effects  on
 company profits,  announced  decisions such as  those by General Electric and Monsanto,
 and capacitor/transformer users expectations of and preparations for PCB  substitutes.
 These decisions are significant in light of  the range of government alternatives that
 were considered.  A major force in government controls affecting PCB use is the Toxic
 Substances   Control  Act that  will  prohibit   the  use of  PCBs in  capacitors, and
 transformers^ 1980. The EPA proposed toxic pollutant effluent standards, for PCBs iS
•^uly 1976, and EPA is scheduled to promulgate regulations in January 1977, subsequent
 "to the public hearing record.
                                      vii

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Depending on the final standard, the affected plants which continue PCB use are likely
to install one of the treatment  technologies presented below.  Circumstances at each
plant could cause deviations in technology or costs from the following summaries:

        Government
        Regulatory                                        Average Investment
   :       Options    	Potential Technology	        Cost/Plant
             A        Process Change & Carbon Treatment          527,000
             B        Maximum Carbon Treatment               1,207,000
             C        Minimum Carbon Treatment                  392,000
        Discharge     Process Change and Recycle                 555, 000
The cost of each of the  technologies varies considerably among plants, but the above
costs are an average of investment costs for model plants that were considered.
                                                             *

Since  few if any plants will actually install effluent control equipment in response to
Section 307 _(a) directly, economic impacts can be viewed as em mating from timing^ of
decisions. Monsanto's voluntary ban on PCB production and the new Toxic Substances
Control Act will effectively terminate PCB use by 1980 independent of Section^ 307 (a)
provisions  (Refs. 26, 33^ •                               -..-,_

         ESTIMATED ECONOMIC IMPACTS FROM INVESTMENT ANALYSIS -

Conclusions  in  this section are  from the Investment Analysis :of model plants, as
discussed in  Chapter 7.  Total  investment costs and total annual costs for each of the
four treatment  technologies are given in the Table below. Our analysis focuses on the
11 direct discharging plants of the 37 plants that manufacture  PCB transformers and
capacitors.
    following summaries are based on analysis of investment— i.eM investment to meet-
only- Federal effluent controls under Section 307 (a)— for model plants.  Conclusions <3n
whether .companies with plants  similar  to  each model would actually install Ihe
specif ied:treatment are based on  a comparison of net present- values of the expected^
                                   via

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                           Alternative A Treatment Costs

EPA standards which would lead firms to invest in Alternative A would cause 5 direct
discharge capacitor plants and all  5 direct discharge transformer plants to stop using
PCBs in January 1978 rather than by 1980 as would otherwise occur. The one remaining
direct discharging  capacitor  manufacturer  could  comply  with  the  regulation  by
installing the necessary treatment equipment.  These early  curtailments in production
would reduce industry-wide production capacity of PCB capacitors by about 35 percent
and of PCB transformers by about 50 percent.   Industry-wide investment for control
equipment would be $ .26 million with annual costs of $ .14 million.

                           Alternative B Treatment Costs

EPA  standards which would lead firms to  invest  in  Alternative  B would  cause  all
capacitor and transformer  plants among the direct  discharges to stop using PCBs  in
January 1978 rather than by 1980 as would otherwise  occur. These early curtailments in
production  would reduce  industry-wide production capacity of PCB capacitors by about
45 percent  and of PCB transformers by about 50 percent.

                           Alternative C Treatment Costs

EPA standards which would lead firms to invest in Alternative C would cause 4 direct
discharge capacitor plants and all  5 direct discharge transformer plants to stop using
PCBs in January 1978 rather than by 1980 as would otherwise occur.  The two remaining
direct discharging  capacitor  manufacturers  could  comply with  the'regulation "by
installing the necessary treatment equipment.  These early  curtailments in production
would reduce industry-wide production capacity of PCB capacitors by about 30 percent
and of PCB transformers by about 50 percent.   Industry-wide investment for control
equipment would be $  .23 million with annual costs of $  .10 million.
                          Zero Discharge Treatment Costs
EPA standards which would lead firms to invest in zero discharge would" cause all but 1
direct  discharge capacitor plant and all 5 direct  discharge transformer plants to stop

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using PCBs  in January  1978 rather than by  1980 as  would otherwise occur.  The one
remaining direct discharging capacitor manufacturers could comply with the regulation
by  installing  the  necessary treatment  equipment.   These  early  curtailments in
production would reduce industry-wide production capacity of PCB capacitors by about
35 percent and of PCB transformers by about 50 percent. Industry-wide investment for
control equipment would be  $ .31 million with an annual cost of $ .19 million.

                              ADDITIONAL IMPACTS

The  following, economic impacts for the eleven direct  discharge plants are  based on
industry  trends as  well as  data collected from  transformer and capacitor users and
producers directly.

Average  transformer price increases due solely to PCB effluent controls will be minimal
because (1) PCBs used by direct discharge plants represent less than 10 and possibly only
5 percent of total transformers and (2) other expected controls and  voluntary bans will
already have caused a further shift to non-PCB units.  The price adjustment for the less
effective non-PCB transformers could be significant, but little  of this increase can
objectively be attributed to  Section 307 (a) controls.                    -  -  . .-      - -

The  dollar value  of all transformer sales is  likely to increase more because  of higher
costs with PCB substitutes  than they decrease because  of demand  response  to higher
prices.   However,  recent data indicates that larger imports could easily offset any
increase  from higher prices, leaving domestic producers with slightly lower dollar sales.

Industry-wide^ capacitor price increases  due solely to changes  resulting from  PCB
effluent .controls are likely to be less than 5 percent in 1977Tand decrease  to less than 2
percent as PCB substitute  technology improves by 1980.   All environmental controls
combined, can generate up to a  20  percent increase  in average capacitor  prices.
However, only part of  that  increase  can  be attributed  to Section  307 
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 There  are  no significant effects on  energy consumption, balance of payments,  or
 employment.  The announced and apparent shifts to non-PCB units and the  expected
 demand for capacitors and  transformers are likely to increase rather than  decrease
-: sales and industrywide employment.  However, to prevent losses to foreign competition,
: domestic producers might have  to absorb some cost increases in lower profits.  Since  all
 of the raf fected plants are either part of a much larger company or have a reasonably
-good PCB alternative, reduced profits will not necessarily lead to significant reductions:
 in employment.  There will be no reductions if sales in fact do increase and if similar
 numbers of people are needed to manufacture non-PCB units.    .        : -

:The above  summary of economic  impacts should be  interpreted carefully prior to a
 detailed review of  the report.   The real  world  operation  of  economic markets is  so
 complex, and projections into  the future are  so risky,  that accurate  estimates  of
 specific economic impacts from government action are generally difficult.
                                   Xll

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                                    CHAPTER 1
                                 INTRODUCTION
                      OBJECTIVE AND SCOPE OF THIS STUDY

 The-purpose of this study is to evaluate the economic impact of effluent standards on
 transformer,  capacitor,  and  PCB   manufacturing plants—i.e.,  the proposed  toxic
 pollutant effluent standards for polychlorinated biphenyls (PCBs) under Section 307 (a)
 of  PL 92^500  Ref.  25*!  ,  as  published  in  the  July 23, 1976,  Federal  Register,
 40 CFR. Part 129.  The overall industry impacts as  well as  impac^ on  a  single plant
 basis are analyzed.  Estimated changes in product prices and changes in sales and profits
 are the best possible from data available for this research.  Estimates are also made for
 related impacts on energy requirements, employment, balance of payments, and possible
 curtailment of production.

 The scope  of effort includes review of financial profiles, wastewater discharges,  and
 patterns of PCB use and production  for the following sectors:

      1.    Transformer industry                                     " - - -  ; ~ '-
                 •    Four transformer producing companies with a total of five direct
                      discharge plants
                 •    Users of transformers
      2.    Capacitor Industry                                 -      ..-.:-.:-.
- _  -  -            •    Five  companies with a total of six direct discharge plants
                 •    Users of capacitors
      3.    PCB production and distribution                           - .   :
                 •    One company  with no direct discharge plants              - ~. .:
                                    1-1

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A direct discharge plant is a facility that presently uses, or has recently used, PCBs and
which discharges waste materials containing PCBs into navigable waters as defined in
PL  92-500.

The review of Item 3—PCS production—was  minimal because it is unlikely that there
will be any direct dischargers when controls become effective.  The only producer—the
Monsanto Company—discharges into  municipal sewers only.   Furthermore, they have
announced a complete termination of  PCS production by October 31, 1977 which is prior
to   the  probable   January,  1978  date  for  enforcement  of  regulations  under
Section 307 (a); [Ref. 33l.

One aspect of the analysis is determining the effect of pollution control costs (one time
investment costs and annual operating costs) on each of  the direct discharge plants.
Data were collected  from  the plants through  telephone and written  responses.
Literature and the technical study by Versar were utilized, as appropriate.

Many plants  declined  to  give any information  due  to  proprietary reasons  and
uncertainties  about  PCB  controls which will be imposed  under the provisions of the
"Toxic Substances Control Act" which was  only recently signed.  Section 6 (e) states,
"Within  six months after the  effective date of this  Act  the  Administrator  shall
promulgate  rules to—impose specific restrictions and regulations pertaining to the
manufacture,  use,  distribution  and  disposal  of  PCBs  and  units  containing  PCBs."
Despite any reluctance  shown by some of the plants contacted, every effort was made
to organize and develop a sound data base which will reflect the financial condition for
each of the plants.  The reader should  bear in mind the following points:

     •    To  maintain confidentiality,  names of the plants are  withheld; specific
          plants are referenced only by number.
     •    All of the estimates are made on model plants fashioned after the actual 11
          direct discharge plants.
     •    Wherever specific information about a plant  was not available, it has been
          so stated. In some cases, estimates were made using relationships  developed
          from plants providing data.
                                     1-2

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There  are  18 plants that manufacture transformers  and 19 plants that manufacture
capacitors, but the economic analysis for this report focuses on only those plants which
presently discharge, or have recently  discharged, PCB waste  directly  into navigable
waters. The direct discharging plants, as of 1976 are as follows:
           Company Name
      Plant
    Location
PCB-Containing
    Product
 1.    AVX Corporation
 2.  ~  Federal Pacific Electric Co.
      (Cornell-Dubilier Electric Co.
      subsidiary)
 3.    General Electric Company
 4.    General Electric Company
 5.    General Electric Company
 6.    General Electric Company
 7.    Research-Cottrell, Inc.
 8.    Sangamo Electric Company
 9.    Sprague Electric Company
10.'   Westinghouse Electric Corp.
11. ~  Pollution Control-Walther, Inc.
      (Helena Corporation, subsidiary)
New Bedford, Mass.

New Bedford, Mass.
Hudson Falls, N.Y.
Ft. Edwards, N.Y.
Pittsfield, Mass.
Rome, Ga.
Boundbrook, N.J.
Pickens, S.C.
North Adams, Mass.
Sharon, Pa.

Helena, Ala.
  Capacitor

  Capacitor
  Capacitor
  Capacitor
  Transformer
  transformer
  Transformer
  Capacitor
  Capacitor
  transformer

  Transformer
                    DEFINITION OF ECONOMIC IMPACT
Impact is defined as the difference with and  without  a specified condition.  In this
study, the condition whose impact is being  examined  is effluent standards under
Section 307 (a) for  PCBs.  The condition for purposes of impact analysis is defined in
terms of estimated costs of four alternative treatment technologies Is shown" in Tables
6-1 and 6-2.  The following terminology will be used throughout the report.        '"r
                                     1-3

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             Alternative A.   Process changes; maximum recycle
             Alternative B.   Maximum carbon treatment
             Alternative C.   Minimum carbon treatment
             Zero Discharge.  Process changes; total recycle

  Since the cost of each treatment alternative varies with plant condition, there is no
  attempt to arrange the alternatives in any sequence of cost or effectiveness.  A plant
  may choose one of  these alternative  technologies or some  modification to meet the
  final toxic pollutant  effluent standard on PCBs since it is not required by the regulation
'. to install any specific technology.

  This  economic  impact analysis  is  concerned with  the likely transitional  economic
  effects for each of four possible alternative effluent standards.  These effects include
  changes in prices, production,  employment, balance of trade and energy consumption;
  estimates of each effect are presented in this report.  This  economic impact  analysis
  does  not consider changes  in the economic welfare of the  nation due to changes in
  pollution damage.

                    IMPACT ON TIMING OF PRODUCER DECISIONS

  Effluent controls under Section 307 (a)  will generally effect "the timing of producer
  decisions, only;  that is, the  shift  away  from  PCBs  by capacitor and transformer
  producers is likely to  occur within the next few years even  if Section 307 (a) did not
  exist.    The., shift  would be  forced   by   Monsanto's announced  ban  on   PCB
            f— .     —•*                                                 .—      —•  - -
  production Jlef. 3 3j,  provisions  in  the  new Toxic Substances  Act,'Ref.26 !,  and
  industry's own concern for potential dangers from PCBs.

.  Estimates of economic impact  have  been  developed from best appraisals of the
 -incremental effect  of  Section 307 (a) controls.   This section of the report merely
  suggests that readers  can  gain  perspective  by viewing  these  controls as generally
 , affecting the timing of producer decisions. Termination of PCB use might be necessary
  in 1978 or 1979 rather than the probable 1980 effective data without Section 307 (a).
                                       1-4

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                                     CHAPTER 2
                                   METHODOLOGY
      overall approach was to identify basic company options as shown on the upper-right
- of;Figure 2-1 and then evaluate each option in light of potential market response shown
 .in the lower part of Figure  2-1.   There  is considerable room for estimation  error
  because of the complicated interactive process  in the real world—i.e., the iterative
  process where,  (1) each company selects a tentative long-range policy, (2) the market
  responds to  the  combination of all company actions, (3) each company reacts to  the
  market response, and (4) subsequent round effects.                             -

- Despite estimation difficulties, this report presents  the best estimates in light of
  available data and industry forecasts. It presents these estimates in a manner that will
  allow industry's reaction to the analysis to provide a means for improving the estimates.

  The  sequential analysis to determine industry  options resulting  from proposed PCB
  effluent  standards is shown  in Figure  2-1.  The major  factors affecting a plant's
  decisions are:                                             -

 -       •   Market supply and demand and competition prior to new controls '-
        •   All government regulations prior to PCB effluent controls     :
        •   PCB effluent controls and possible new PCB regulations
        •   Incremental capital required to meet pollution control requirements
 -       •   Public image of manufacturing facilities in a specific community  ~.:     ~
:    :    •   Foreign competition, particularly in view of Japanese experience with PCB
            substitutes.                                             ;

 "These factors lead to choosing one of the options shown in Figure 2-1: (1) continue use
^ of PCB* (2) introduce one to one PCB substitutes,  or (3) terminate present production of
  PCB type products.                                       ::   :   :   :
                                      2-1

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Basic information on industry options and probable decisions came from two sources:
(1)  investment analysis using the pro forma income statements discussed in Chapter 7
and   (2)   opinions of industry representatives and reactions of  companies to date.
Industry  opinions  and reaction were obtained from  interviews, phone  calls, news
articles,  and submissions to EPA.  The investment analysis using pro forma income
statements is a useful but limited guide for  anticipating industry  response  to  the
probable effects  of  section 307 (a) controls.  On  the one hand, it is a review of the
  *
logical course  of  industry action; on the other hand,  there  are circumstances,  for
example, market  structure, which cannot  be  directly factored  into an  investment
  *
analysis based  on pro forma  income  statements.   Conclusions  drawn from industry
opinions and actions  to  data, which reflect  these  other factors, have been used as a
check on the investment analysis.                                            ;

The basic objective in developing and distributing this report is to identify the primary
industry options and estimate  the  associated economic impacts on industry as a whole
and on the individual  direct discharge plants.  The economic impact analysis is based on
the following assumptions and estimates:

     1.   .The remainder of  the industry—the plants which do not  have a  direct
           discharge—will have similar treatment  costs due to regulations within  one
           year of the effective date of controls considered in this report, as stated by
           EPA.

     2. ... Financial  profile data reflects  the  ability  of transformer and  capacitor
           plants to finance treatment costs of proposed PCB effluent regulations.

  .   .3.    Operating costs in  1976  for  model plants are  assumed to be a fixed
  •  ;._.    percentage of estimated sales of products containing PCBs.  Specifically,
  _\   .    operating  costs  are  estimated to be 95 percent and before-tax profits 5
          .percent of sales based on analysis of  financial statements.   Sales for  model
   -       plants are based on the annual consumption of PCBs. Again, estimates could
           be better if companies were willing to provide actual data.
     ,4.  ^Alternative treatment technologies and the required capital investment are
     	- as described in Versar reports and information obtained directly from EPA.  :
                                     2-3

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     5.    Monsanto's publicized halt of PCB production and the passage of the Toxic
           Substances Control Act justify a 3-year amortization of investment costs.

     6,    Stockpiling of PCBs and products with PCB units will not be significant as
           indicated by evidence of only minor, if any, stockpiling as of October, 1976.

The methodology was designed to  estimate the incremental impact of these standards
based on likely decisions for each affected plant.

There are many possible impacts for various company responses, but it is appropriate to
consider only the most rational company response.   Likewise, there  are  many impacts
associated with  different  combinations of environmental  controls,  but  only the
increments due to action under Section 207(a) of PL92-500 are relevant for this study.

Step 1  was to compute  the most  rational company  response for each plant, for each
control alternative. The most rational response is dependent on projected market prices
and sales  and estimated treatment costs for PCB effluent controls  only. This step is
described  in Chapter 7.

Step 2 was to verify the investment analysis with insights  from  industry reactions and
industry opinions.

Step 3   was to  analyze the  individual  plant  decisions to  determine  the  following
economic  effects:
           The Industry
           Producer costs
           Production levels
           Consumers
           Price changes
           Product performance
           The City or Surrounding Area
           Employment.
                                     2-4

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     •     The Nation
           Balance of payments
           Foreign competition

Many of these impacts  were determined to be insignificant, but were initially included
in the attempt to identify all possible impacts.  Categories with insignificant impact are
discussed in Appendix A.                                 :

There is considerably more detail  to  the  methodology,  but it is reserved  for more
efficient presentation in later  chapters.  Chapters 1 and 2 present the  basic approach
for  objectively  presenting significant differences  with and  without  PCB  effluent
controls.
                                     2-5

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                                     CHAPTER 3
                            DESCRIPTION OF INDUSTRY
 -The economic sectors that could be impacted are divided intb-the transformer industrys
; the; capacitor  industry, and  the customers  of each.   As stated earlier,:  the PCS
  manufacturing, sector  will  have no  significant impacts because  Monsanto—the only
  producer—is not covered by 307 (a)  controls since it is an indirect discharger.   -

  There are thirteen companies in the  United States which manufacture transformers in
  18 plant locations.  Some  of these plants make both  PCB  and non-PCB transformers.
  The amount of  PCB used in a transformer varies from 40 to 500 gallons, with an average
  of about 232 gallons (3,000 Ibs.).

  There are seventeen companies in the United States which manufacture capacitors in 19
 : plant locations.  The amount  of  PCBs contained in various types of capacitors  varies
  from 0.05 to 80 Ibs.

  Only 11 of the  37 plants discharge  PCB wastes directly into navigable  waterways. This
  study is focused on these 11 plants.  Basic effluent data for these plants were developed
               f    ~^
  by Versar, Inc. (Ref. 11. Plants are  referred to by number to preserve confidentiality.

  There are  a variety of transformers and capacitors produced by the  industry.  These
  products range  from a little over an ounce to several thousand pounds in weight.  Their
  ratings differ widely depending upon their applications.     -;:-.--:..:-   :-  - ----•:.--.-

  A transformer  is  a device  for  transferring electrical  energy  from  one  alternating
- current circuit to another by electromagnetic means.  It has no moving parts and
  performs its function by linking  two electric current-carrying circuits (the coils, usually
 ^copper wire) via a common magnetic flux carrying-circuit tthe core, usually  a Special'
 :grade  of iron).- A transformer may be designed to effect a change in voltage
                                        3-1

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  from one circuit to the other, or simply to obtain electrical energy from one electrical
  circuit to a second electrical circuit without making a conductive connection  between
  them.

  The  transmission  of  electrical energy from one point  to another is essentially the
  transmission of a required number of kilovolt-amperes (kva). By means of transformers,
  the kvas may be generated  at a low voltage suitable for the windings of generators,
 -^stepped up to  the higher voltages and lower currents  suitable for  transmission of
  electricity  over long distance wires, and then stepped  down to a  lower voltage and
  larger current suitable  for utilization by electrically powered equipment at the desired
 '- destination.

  The  almost universal use of the alternating current system  for the  transmission and
  distribution of  electrical  energy is  largely due to this ability of transformers to link
  circuits of different voltages and currents.  Thus the generator,.the transmission lines,
  the secondary distribution system, and finally the great  variety  of ultimate loads can
  each be operated  at the voltage most suitable to its particular function.  Without the
           t                                               '                     .   . . -
  use of transformers to adapt circuit  voltages to individual requirements  of different
  parts of the  system,  the  enormous  development  and progress in the  transmission and
  distribution of electrical energy during the past 80 years would not have been possible.

  A capacitor is a device that  stores electrical energy.  It consists  of two metal surfaces
  or electrodes separated by an insulating medium such as air, paper, plastic film, or oil.
  When a voltage is applied across the electrodes, electrostatic energy is-stored in the
  insulating medium.   The proportion of different types  of capacitors is  discussed in
  Chapter 5.-

  In  typical  industrial capacitors the  electrode  material is  aluminum  foil  and the
  insulating medium or dielectric  is paper tissue  and/or plastic film,  which - for, many
  applications is impregnated with a liquid dielectric.  A liquid impregnant is used to (1)
'fill the voids within the paper or plastic film structure, (2) fill the voids-between sheets,
  and (3> contribute  to the capacitance or charge-carrying ability of the composite. Voids
 -must-cbe eliminated within capacitors used above 200-300 yo.lts, which  exceeds .the
  dielectric ^breakdown strength of air.
                                      3-2

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Major use of transformers is in the transmission and distribution of electrical power
(kilovolt-amperes) from the generating plant to the ultimate load?  If the load were
purely resistive (e.g. an electric heating element) no further modification of the power
supply delivered  to it would be required.  Other loads  (e.g. induction  motors)  may
require  that a   portion of  the delivered kilovolt-amperes  be  used  to  provide a
magnetizing current which does not contribute directly to the useful power  output of
the-load.   This portion of the total kva delivered to the load is designated as reactive
Idlovolt-amperes  (kvars).   It has been  found more economical to-produce kvars from
total kvas  near  the point  of load  rather than near the point of  kva generation,  and
capacitors provide the most efficient way of effecting this transformation at the point
of load.                                                :

The  following outline helps  indicate the range of economic sectors  that could have
impacts from PCB effluent controls:

                   TYPES OF PCB-INSULATED TRANSFORMERS              '  i: I

The  two major types are distribution and  power transformers with the sub-categories
shown below:
 1.    Distribution Transformers
      a.    Network Transformers (500 KVA to 2500 KVA)                    : - L-: :
      b.    Single and Three-Phase Transformers (500 KVA to 2500 KVA)-:    .--------.-
      c.    Pole-Mounted and Station Transformers (up to 500 KVA)       --   : ~  	

       -T-T These transformers are used in power distribution systems and, therefore,.
           their  reliability  and  high  overload  capacity  (which  they  share  with
         :  comparable oil-insulated units), are extremely critical. The amount of PGE
     . -.  :  used in these transformers varies from 400 Ibs. to 6000 Ibs. per transformer."

      d.    Precipitation (high voltage DC) Transformers              :;   :;.:   :;.:   . r
                                    3-3

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2.    Power Transformers

     a.    Secondary Substation Transformers
                Load center units
                Secondary substation generation units
                Switchboard units
                Integral units
                Motor control units
                These  five sub-types of transformers comprise the largest group of
                PCB-insulated  transformers  and   they  are  widely  used  in  the -
                automobile,  chemical,  paper,  textile,   steel,  cement,  mining  and
                petroleum  industries.  They are also used in commerical'and public
                buildings, defense and nuclear energy installations, and the supply of
                electricity.

     b.    Master unit substation
     c.    Primary unit substation
     d.    Limited ampere substation
     e.    Industrial furnace

         _ - These transformers are  used  in high current,  low voltage power supplies
           (more than 2500 KVA at no more than  13.8  KV); viz. in "the vicinity of
           furnaces.

     f.    Rectifier

           These transformers are used to obtain DC  industrial power supplies. "  : - :

     g.    Transportation
                Third rail

                These transformers are used for rapid transit systems; they basically:
                serve a rectifier function.                                ?~" •'-   :-::.:
                                     3-4

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                Locomotive                                       ~     -  " "

                These transformers are used on  trains.   The changes in locomotive
                design since the  1930s would not now accommodate open dry-type
                transformers as replacements for PCB units.

                Multiple-unit car (MU)                             "            "

                These transformers are mounted under the flat-bed of passenger  cars.
                The transformer must  be ruggedly built to withstand vibrations and
                impacts.

                    TYPES OF PCB-INSULATED CAPACITORS              "    -
There are five major types of  capacitors with varying performance characteristics as
shown below:

Power Capacitors
1.   High Voltage Power
     Generally AC capacitors are used to improve the power factor of a circuit. Power
     factor is the ratio of true power in watts to the apparent power as obtained by
     multiplying the current  flowing to the load by the circuit voltage.  The power
     factor correction can be  made directly at the load or at utility substations. In the
     latter case high voltage units will be designed for 4,800 to 13,800  volt service.  To
     the utility engineer the use of capacitors is purely a matter of economics.   The
     two main benefits that result from the use of capacitors:  (1) reduction of losses
     associated with the  delivery of electrical power to the point  of use,  and  (2)
     reduction of the investment required in equipment for delivering electrical power
     to the point of use, this benefit may be broken down as follows:
                                     3-5

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                 Reduction of current for the same kilowatt load.
                 Reduction of the KVA rating of equipment required to handle the same
                 kilowatt load.
                 Reduction of the voltage drop for a given kilowatt load.
                 Control of delivered voltage if the capacitor KVA is varied.

- Electric utilities  also  use  banks of capacitors in series with distribution circuits to
 improve voltage regulation.  High voltage utility capacitors are  manufactured at the
'rate, of  200,000 per year, about 2 to 3 percent of  which are for replacements; the
 balance is for new installations.

 2.    Low Voltage Power	  ...

       Capacitors installed in industrial plants (typically large motors and welders) are
       designed for 230 to 575 volt service.  Capacitors installed near the loads are the
-.--   most  efficient  way  to  supply the  magnetizing  current to  produce the  flux
       necessary for the operation of inductive devices.  Rates for the sale of power are
       generally structured to encourage power factor  correction at the site, eliminating
       the need for the electric  utility to transmit both power-producing current and
       magnetizing current all the way from the generator to the plant site;            -

       The same considerations  apply to  induction heating application," the principal
       difference being that capacitors for this rapidly growing application are designed
       for operation at 960 to 9,600 Hz.

 Electronic Capacitors                                    -	    -..--.-
. 3.    Lighting                                                ;^_L_

       Capacitors improve the efficiency of lighting systems. A fluorescent, or mercury
 ._   _  vapor lamp can be ballasted without the use of  a capacitor,  but the power  factor
      -of the lighting system would then be in the range of 50 to 6& percent. Fluorescent
     -  and high intensity discharge lamps  for commercial or industrial lighting use  a^
• --  -  capacitor in  the circuit part of the lamp ballasting to bringl the  system "power
                                        3-6

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   ^factor into the  range of  90 to  95 percent.   The current  market for these
     applications is about  44,000,000  units annually of which about 10 percent are-
     estimated to be replacement ballasts.

4.    Air Conditioning                                         	

     As in the lighting applications, the capacitor improves system efficiency.  Almost
  :   all  air  conditioner  pump  motors  are  of the split-winding  type on  which the
     capacitor  provided phase  differential  for  the so-called start winding,  thus
     delivering  good starting torque.   The proper size PCB  capacitor permits  high
     (90 percent) power factor after start-up, while non-PCB capacitors would be less
     efficient.  The current market for this application is  about 12,000,000  units
     annually, with about 5 percent of these estimated to be for replacement usage.

Industrial Capacitors                                     -  -  -"	
5.    Industrial Electronics
     :This capacitor market category is a catch-all covering many varied applications,
     two important ones being motor  run and power supply applications.  Motor  run
     applications  are  for pumps, fans,  and  farm  equipment  and  do  not differ
     significantly from air conditioning  applications.  The  power" supplymarket  uses
     capacitors principally to provide high power factor, but through careful design the
     capacitor can also provide wave shaping where desired. The  market is estimated
     at  23,000,000 units  per year  with no estimate  as to the relative size  of  the
     replacement market.
                                     3-7

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                                   CHAPTER 4
                      FINANCIAL PROFILE OF INDUSTRIES
                                INTRODUCTION

During the past year, the  transformer  and capacitor industries have responded  to
anticipated PCS controls with as much as 40 percent shifts from PCB to non-PCB units.
As this shift becomes more  pronounced, price trends, profit changes, and net sales are
expected to further change industry structure.

Despite the limited availability  of data, some estimates are available for the overall
capacitor and transformer industries.  An estimate of U.S. PCB transformer production
is roughly 5,000 units per year with a value of $35 to $45 million.: The annual estimated
PCB transformer production  for 1971 to 1973 is given below Qlef. 41J.
             Capacitor
           PCB Shipments
                Transformer
               PCB Shipments
Year     (Ibs of PCBs x 106)   (Ibs of PCBs x 10 )
1971
1972
1973
14.1
14.4
20.2
11.1
11.3
15.9
Combined
Capacitor and
Transformer :
PCB Shipments
(Ibs of PCBs x 106)
25.2
25.7
36.1
Total PCB
- Transformer
: : : : "Units

at 3000 Ibs. PCB
Per Transformer
3700
3800
5300
Estimates by  General Electric  Company and  Westinghouse Electric  Corporation  of
industry ^annual sales of PCB transformers are $45  million: and $35  to.  $45 million,
respectively.   Preliminary  data for  1975  indicated a possible  decrease of- 15  to
20 percent, with this decline primarily due to the nationwide recession in 1975.  :.-:..-:
                                     4-1

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Annual production of PCB industrial capacitors by all major manufacturers during 1973
and 1974 was 90 to 95 million units  according to General Electric data.  Industry sales
estimated developed by the two major capacitor manufacturers are as follows:
 Source of Estimate
PCB
Power
Capacitors
($ Millions)
  PCB
Industrial &
Electronic
Capacitors
($ Millions)^,
      Total
.._!$- Millions)
 General Electric
 Westinghouse
50-52
  35
90-95
  70
      140-147
        105
                             CAPITAL AVAILABILITY

PCB capacitors comprised approximately 20 percent of the total number of capacitors
sold in the U.S. in 1973 1975, whereas PCB transformers were only about 10 percent of
the total number of transformers during the same period.

The ability of a firm  to  finance new investments resulting  from proposed effluent
standards depends upon a host of critical financial and economic factors.  In general,
the new capital must be raised by one or more of the following methods:  ------
 	-•- -   New equity capital generated by sales of new preferred or common stock "
     •     Loans from outside sources
     •     Retained  earnings

The financial  condition of a firm is of critical importance in its ability to raise  capital
for investment.  The firm's earning record, credit rating, debit-equity ratio and  overall
financial stability are critical factors in its ability to make investments required by the
proposed standards.  Internally generated funds depend upon profits which, in turn, will
depend  on  outlays for  PCB  effluent  controls.  In addition,  the nation's economic
condition, the demand for  the products, technology and other factors are important in
the determination of a plant's ability to  finance new investments.
                                      4-2

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In the transformer and  capacitor  industries, a  firm producing PCB  units generally
produces non-PCB  units as well.  Larger  companies also manufacture  products other
than transformers or capacitors. Therefore, if the market conditions are such that the
non-PCB part of production has rapidly rising sales in response to consumer demand, the
firm may find it uneconomical to invest in the PCB part of the firm and may decide to
dissolve it.  There is some indication that  some of the transformer and capacitor firms
.have  been gradually reducing  the PCB part of their operations over the  last  two to
three years.  Interviews with various plant officials indicate even greater reductions in
the future.

As part of the electronics industry  trend, profits  in the transformer and capacitor
industries are expected to increase in 1976. One indication of a 1976 recovery from the
1:975 de'cline is data compiled  by the  Electronic Industries Association fkef. 30J .  U.S.
factory shipment for all capacitors for the first six months of 1976 was 2.05 billion units
($296.4 million sales)  or  180 percent  of the  1.16 billion units  for  the  same period in
1975.

Another positive  outlook for  1976 is available  from company sales and  profits for
various industries fkef. 35J.  Both General Electric and  Westinghouse sales of all
products for the six months of  1976 were 9 percent over that for 1975. General Electric
and Westinghouse profits for the same periods increased by 55 percent and 36 percent,
respectively.  The  electrical and electronics industry composite of  37 companfes shows
a 12 percent  increase  in sales and  a  50 percent increase in profits for the same six
month  period.  Similarly,  the all-industry of all industries composite for the same
periods shows a 14 percent increase fn sales and a 36 percent increase in  profits.

.The primary focus of this project is on the five transformer and six capacitor plants (in
eight  companies)  which  discharge  directly  into navigable  waters  even  though  the
transformer and  capacitor industries  are  comprised of many  more plants.  Data for
publicly-held  companies were  obtained from the Securities and Exchange Commission.
These data  were used to assess the financial profile of the PCB user industry.  In each
case .the financial profile represents total  company data; information was-not available
for individual plants, nor was it available for the PCB portion of product-sales."
                                      4-3

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 Company income  statements and sales estimates indicate a potential ability for some
 companies to meet investment requirements for PCS effluent treatment or shifts from
 PCB to non-PCB production. Four of the eight companies with direct"discharge plants
 experienced an increase in net sales between  1974 and 1975, in spite of the general
 industry sales decline.  Westinghouse Electric Company showed an increase of over  $64
 million (1.1 percent  of 1974 sales)  and Research-Cottrell, Inc. showed an increase of
 over $59 million (36 percent).

/Pollution Control-Walther, Inc., of which  Helena Corporation is  a subsidiary,  expe-
 rienced a 1974 to 1975 sales increase of over $12 million (63 percent). In contrast, the
 remaining four companies had  reductions ranging from one-tenth of one percent for
 General Electric Company to over 24 percent for Sprague Electric Company. Based on
 January to  September figures, Sangamo  is the  fifth of eight companies to show
 reductions—the  Sangamo   Electric  Company  merged with  Schlumberger Electric
 Company on October 6, 1975.

 Table 4-1 shows that  five of the eight companies experienced an after-tax profit of
 greater  than $900,000 in  both 1974 and 1975.   Profits in 1974 ranged from 4.1 to
 11.2 percent of net  sales.  However,  Research-Cottrell, Inc.   showed  a loss of 2.3
 percent and Pollution Control Walther, Inc. showed  a loss of 10.5 percent.        -     :

 For  1975r the profits ranged from 2.4 to 14.2 percent of net sales for six companies^
. One of the remaining two companies—Sprague Electric Company—suffered a  loss of 7.3
 percent, probably as a result of the significant $53 million decline in sales.  Although
 Pollution Control-Walther, Inc.  showed a  pretax  loss  of  0.1 percent of net sales, it
 experienced a remarkable  recovery between 1974 and 1975 with $13 million increase in
 net sales.

"Research-Cottrell, Inc. showed  an improvement  in  1975  with  a pretax  profit of
 2.4. percent of net sales as compared with a loss of 2.3 percent in 1974.  The  other  five
 companies showed before tax profits of over 4.7 percent of sales. These profits tend to
 indicate some ability to finance new investments.                        -
                                      4-4

-------









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    In order to develop the model  pro  forma income statements which  are presented in
    Chapter 7, it is necessary to obtain information concerning the ratio of fixed to variable
    costs and also  the  provisions for income tax for  the  11  direct discharge plants.  This
    information can be  provided by a close inspection  of Table 4-2 financial data available
    for the companies  representing the  11  direct discharge  plants.  The variable costs
    ranged  from ,81.5  to  93.1 percent in 1974  and  from 76.5 to  95.4 percent in 1975.
    Conversely, the lowest percentages represented by the fixed costs were 6.9 and 4.6 for
    1974 and 1975, respectively; while, the highest percentages noted for  fixed costs were
 .  18.5 and 23.5 for 1974  and 1975, respectively.

    In 1974, provisions for  income tax varied  from 26.8 percent  of pretax  profits for
. _ Westinghouse Electric Corporation,  to  49.9 percent  for Sangamo  Electric  Company
    (based  on  the  nine  month  financial statement).    In  1975,  Westinghouse  Electric
    Corporation had the lowest tax provision and Research Cottrell, Inc., had  the  highest
    tax provision, with 55.7 percent.

    Information for Tables 4-1 and 4-2  was obtained  from financial statements and other
    company reports. Excerpts from company financial statements are given in Appendix B.

    In conclusion,  an estimate of  the cost of  capital for  the industry  is necessary for
    developing the pro  forma income statement in Chapter 7, including the calculations by
    which  anticipated  future net  income is discounted  to  its present  value.  Ah  EPA
    document !jlef. 28j states that the cost of capital for several industrial segments for
    1977-1979 averaged 15.9 percent.

  "  Each of the following  sections is a short summary of the  financial profile for the eight
    individual companies for which data were available. The goal of these  financial profiles
    is to allow some estimation of capital availability  and  to provide  information to develop
;   " pro forma income statements.
                                         4-6

-------
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                                AVX CORPORATION

 AVX Corporation, which mainly manufactures  ceramic capacitors and electromagnetic
 filters, holds a prominent position in the ceramic capacitor industry.  As stated in their
 Annual Report, their 1975 net sales of almost  $27 million represented almost one-fifth
 of the ceramic capacitor industry in the U.S.

 Before. analyzing  the five year summary  of  operations, it should be "noted that in
, #     _ -
 June 1973, after  the Aerovox Corporation  sold the non-ceramic capacitor  portion of
'their .business,  they merged with the AVX  Corporation to  concentrate on multi-layer
 ceramic  capacitors and the  electromagnetic filters which  utilize these capacitors in
 their production.

 An examination of net sales for the last five years reveals an increasing trend from
 1970 through 1974, with the highest net sales being slightly over $34 million.  However,
 a drop of 21 percent in net sales occurred in 1975. A partial explanation for this is that
 customers ordered fewer  items in  1975 as a result  of depleting  their overstocked
 inventories  from  1974, caused  by  their  apprehension of the raw  material  shortages
 reported at that time. This over-buying also contributed to the larger net sales  value
 for 1974.

 The cost of goods sold,  which represents  the major  portion of the operating costs,
 decreased in 1973 to its lowest  point of 75.6 percent of net sales during the five year
 period but rose to 79.3 percent of net sales  in 1975.  The lowest ratio of total operating
 costs to sales—87 percent—occurred in 1972.                         "  ~    -   -   —  -

 .Net income for continuing operations before tax, minority  interests and extraordinary
 items,  which is the  complement of total operating costs, ranged  form  5i percent to
 13 percent of net sales for the five year period.  The highest pretax profit shown was
( for 1973  and the lowest for 1975.  Despite the  lower profits  due  to the increased costs"
 and decreases net sales for 1975 as comparerd with 1974, it is feasible to expect AVX
 Corporation .to continue  experiencing a  profit in the  near  future.  In support  or this
 observation are the following facts:  The  Opcoa Division, which manufactured light-
                                       4-8

-------
emitting diodes and  which was operating at a loss from  1971 through  1974,  was
discontinued in December 1974. Also, late in 1974, AVX Corporation acquired capacitor
manufacturing  facilities at Myrtle  Beach, South Carolina which  accounted for the
increased interest expense in 1975 but which should contribute an increase to net sales
for 1976. In addition, a consolidated income statement show retained earnings of over
$.8 million at the end of 1975.  Finally, the first  quarter of 1976 shows an increase in
net sales of 9 percent as compared with the same quarter in 1975 [kef. 37j .

 Respite the decline  in sales for  1975, the outlook  is  good for the ceramic capacitor
'ndustry, particularly for   multi-layer  ceramic  capacitors.   These multi-layer or
 lonolithic ceramic capacitors are replacing many other types of capacitors because of
 h.eir high capacitance, extremely small size and high reliability.  They are used by the
 lilitary and aerospace systems and will soon be used to a greater degree by commercial
 nd private  consumers. Since multi-layer ceramic  capacitors constitute the principal
 roduct of AVX Corporation, and since this company is reported to  be still using some
 CB in  their capacitors, it seems safe to assume that this corporation would most likely
 ave the ability to invest in either treatment or replacement  costs  for equipment  that
 ould use substitute fluids.

                  FEDERAL PACIFIC ELECTRIC COMPANY FOR            :   -   -
              CORNELL-DUBILIER ELECTRIC COMPANY (subsidiary)     7-  -- --:

 n analysis  of the financial statements of Federal Pacific Electric Company was' made
 ince there  was no such data available for their subsidiary,  Cornell-Dubilier Electric
 ompany.  Major products produced by Cornell-Dubilier are electronic capacitor and
 rahsformer components, switch gear and circuit breakers;  Included are paper; plastic
 ilm, and aluminum foil capacitors which are of the  type usually impregnated with PCB
 ielectric fluid.

 ince comparable data^were not available for the five year period from 1971 to 1975, a
 omparision for the financial situation of this company was made for 1974 and 1975. —
                                     4-9

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 Both sales and operating costs increased in 1975 over  1974 by 8.4 percent and 4.7
 percent, - respectively.   Sales  were  $275.6  million  in  1975 and  the corresponding
 operating  costs were $233.5 million.  Pretax profits  were experienced for both years,
 amounting to $28.5 million and $39.0 million, respectively, and represented 11.2 percent
 and 14.2 percent of the respective net sales reported for 1974 and 1975.

. Since this company showed profits for both 1974 and 1975, not only before taxes, but
 after-minority interests and taxes, it would seem plausible to make the assumption that
 effluent standards causing  treatment or costs of changing to other raw materials can
 be- included  in  their operation without  much difficulty.   Lending support to  this
.assumption is the fact that 1975 retained earnings of $11.5 million were reported on the
 company financial statement.   In  addition, sales  for the first six  months of  1976
 increased  by 18.3 percent.  Since net income after  tax and after minority interests for
 this period increased by 67 percent, the financial outlook  for this company is favorable
 and indicates an ability to invest in meeting the effluent standards.

                          GENERAL ELECTRIC COMPANY

 The. leading  manufacturer  of  electrical  equipment  and  an important  producer  of
 electronic, equipment in the U.S. is the General Electric Company whose^ sales for  1975
 of .$13*339 million equalled more than twice the sales of the next largest producer of
 electrical  ^equipment, Westinghouse Electric  Corporation.-    Financial" statements
.obtained from the Form 10K filed with the Securities Exchange Commission and the
 1975 company Annual Report reveal that there are  five major product  consolidated
 operations which are listed as follows:

      (1)    Aerospace—                                             - :  :;   - -
            (Includes control devices, engines, instruments, radar systems, etc.)         :
      (2)    Consumer—
 .      _    (Includes  air  conditioners,  various  appliances, lamps,  radios,  television
           receivers, etc.)
                                   4-10

-------
      (3)   Industrial Components and Systems—
           (Includes  appliance  controls, capacitors, electronic  components,  motors,
"           transportation equipment, etc.)
      (4)   Industrial Power Equipment—
           (Includes generators, gas and steam turbines, transformers, etc.)
      (5)   International Division—
           (Includes varied products manufactured by foreign affiliates.)

 Analysis of the five year  period  from 1971 to 1975 indicates that company sales and
 operating costs increased over the previous year reaching a peak sales figure of $13,413
 million in 1974.  A slight decrease of $14 million, or one-tenth of one percent occurred
 in  1975.  On the other hand, operating costs maintained an increasing  trend  for  this
 period, with a lower percentage increase in 1975 of only five-tenths of one percent as
 compared with an increase of 16.9 percent for 1974.

 Company net profits before taxes and minority interests increased from 1971  to 1973.
 A slight downturn in profits  was experienced for both 1974 and 1975, amounting to one
 percent and 5 percent,  respectively.  Pretax profit for 1975 equalled $949.6 million.

 In  view of the fact that capacitors are  produced by  the Industrial Components  and
 Systems Division, we reviewed  the pertinent division sales and net income before tax
 figures. Except for  a  decrease of 4.6 percent in  1975 from 1974 for sales of Industrial
 Components and Systems, the sales from 1971  to 1974  showed an increase, peaking at
 $4,529 million in 1974. Sales for Industrial  Power  Equipment maintained an increase
 from 1971 to 1975 reaching its highest sales figure of $2,922 million in 1975.  Pretax
 profits by division  are available for only 1971  to  1974.   Industrial Components  and
 Systems' before tax profits increased  to $423 million in 1974, amounting to 9.3 percent
 of  sales.  Industrial Power Equipment's before tax profits increased from 1971  to 1973,
 but suffered a decline in 1974 of 26 percent from 1973.  The 1974 figure of $168 million
 represented  about 6 percent of the  1974  sales.  Net earnings after  tax for Industrial
 Components and Systems decreased 11 percent from 1974. Net earnings for Industrial
 Power Equipment also decreased about 35.6 percent in 1975 from 1974.
                                     4-11

-------

-------
 The outlook  for 1976, based on the company sales for  the  first  six months of 1976,
 appears to be favorable.  Sales for 1976 increased 8.8 percent compared with the same
 period in 1976.  Indications are that consumer  products will experience  a significant
- increase-in sales [Ref. 38~].  This company enjoyed a profit for  1974 and 1975,  and
 retained earnings amounted to about $300  million for these "years, indicating an ability
 to invest in treatment or replacement costs for equipment capable of using substitute
. fluids.  Furthermore, large expenditures for reasearch and development were made in
 1974 and 1975, amounting to $890 million and $938 million, respectively.           -

                       POLLUTION CONTROL-WALTHER, INC.
                       for HELENA CORPORATION (Subsidiary)

 Since financial data were not available for Helena  Corporation, a  financial review was
 made on the  basis  of income statements and Form 10K files  with SEC  for Pollution
 Control-Walther, Inc. (PC-W). Helena Corporation a subsidiary of  PC-W,'manufactures
 power supplies and  controls for PC-W to be utilized in their electrostatic  precipitators
 for which transformers are a component.                          '   " ~  "  "'

 Pollution Control-Walther, Inc, operates on a fiscal year  basis ending March 31. A five
 year analysis from  1971-1975 was not possible due to the lack of adequate available
. information.  Data  for 1973 is not comparable to that of  1974 and 1975, as the company
 was closed for half  of that year.                               ~~T~

 Sales revenues for  fiscal year 1975, amounting  to  almost $20.5 million, represented a
 16.9 percent increase over  1974.  An increase of  48 percent, almost   $10 million,  was
 experienced for sales in fiscal year 1976. Operating expenses exceeded earned revenues
, for 1974 and 1976,  amounting to $846 thousand and $121  thousand,"respectively.  Theser
 expenses for 1974 1976 represented increases of 142 percent for 1975 and 49 percent for
 1976.  A net loss before  taxes and minority interests was reported fo:r each year from
 1974-1976.    These losses  represented 10.5 percent,   0.1 percent,  and   0.6 percent,
 respectively, based  on revenues earned.  However, an adjustment was made in 1976 to"
 correct  the  cumulative  effect of a change in accounting principle/ This'correction7
 which  appeared to  wipe out the  1976 net  loss resulted  in a net profit "after taxes of
 $35,000 as shown on the income statement.                        	--  . ..
                                     4-12

-------
 An  accumulated deficit  was  reported at  the end  of each  year  averaging about
 $1.3 million which would seem to support the fact  that  it would  be unable to invest
 capital in meeting proposed effluent standards.

                            RESEARCH-COTTRELL, INC.

 -According to the  1975 Annual  Report and  the  10K  Form  filed with the  Securities
 Exchange Commission, Research-Cottrell, Inc. is the leading manufacturer :of precip-
 ritators, in addition to producing tall cooling towers and chimneys,  wet scrubbers  and
 other air pollution control equipment.  (Although this company  was included  in the list
 of direct discharge plants supplied  by EPA as having a transformer plant, no mention of
. transformers was found in the Annual Report; however, a precipitator  unit contains a
 transformer.  The  electrostatic  precipitators are used by electric utilities to remove
 metallic  or mineral   particles  from   industrial  by-products).    Its  Environmental
 Engineering Group  has the responsibility of controlling or eliminating any harmful solid
 or gaseous waste matter produced by industrial processes which  could be discharged into
 the air or streams.

 Inspection of a summary of financial  operations table shows  an  increasing trend for
 -sales and.operating  costs  from 1971  through 1975.   Sales  in  1975^ amounted  to
 $22-3.6 million,, an increase of 36 percent over 1974.  Cost of-sales and administrative,1
 general and selling expenses for 1975  amounted to $216 million, an Increase £of  39.5
 percent  as compared with 1974.  Net income for continuing  operations before tax and
 jextraordinary items for  1975 reached $5.3 million,  whereas  in 1974, the  company
 suffered a loss of $3.8 million. The more favorable financial  position in 1975 was most
 likely attributable to the  significant increase in sales as well as to an increase in new
 orders.   A restructuring of the Air Pollution Control Group,  which was operating at a
 loss, also contributed towards a profit instead of a loss.

 Analysis of the sales and income  figures of the Air Pollution Control Group (APC) which
 manufactures precipitators  would probably  result in  a better  insight into  capital
, availability for the transformer aspect  of Research-Cottrell,  Inc".  Sales of $f44 million"
..reported-for,the APC Group in  1975 and $81 million in 1974 represented B4;2:percent
                                      4-13

-------
and 49.5 percent, respectively, of the total company sales.  With the exception of the
4.8 percent decrease in 1973, sales for this group displayed an increasing trend between
1971 and 1975, reaching a peak in 1975.

Income for the APC Group showed an increase for 1972, whereas a significant decline of
57 percent was  experienced in  1973.   An even greater decrease occurred  in 1974,
resulting in a loss of over $8.5 million.  The loss is largely attributable to the loss of
$3.8 million suffered by the total company. As mentioned earlier, a restructuring of the
:APG Group helped the 1975 recovery when profits reached $1.8 million.

Sales for the fiscal third quarter ending on July 31, 1976, as compared with the same
period in 1975, showed an increase of 13.7 percent, whereas sales for the nine-month
fiscal  period for  1976 increased five  percent over  1974 (Ref. 39J.  Thus,  a. more
favorable outlook is indicated for 1976 as compared with 1975.  It would seem plausible
that this company may have  the ability  to  invest in treatment facilities or replacement
costs for equipment that would use a substitute dielectric.

                         SANGAMO ELECTRIC COMPANY

Despite the fact that the Sangamo Electric Company  was acquired on October Q, 1975
by the Schlumberger Electric Company,  an oilfield service enterprise, a financial profile
wilt ~be given because this company has  continued to  manufacture various  types of
capacitors" under the new title of Sangamo Weston.  This new company represents the
merger ~of  Sangamo,  Weston and  EMR companies as  a subsidiary  of Schlumberger
Electric "Company and produces, in addition to both small and large (power) capacitors,
other electronic components such as filters, oscillators, etc.

The  major products of Sangamo  are the energy management products produced for
:publfc utilities and industries, including capacitors made of aluminum, mica and paper
impregnated with oil.  The paper-oil capacitors are the  most likely to be impregnated
witirPCET oils.   These  are  used in household appliances as well  as in telephone,
computer, and electrical power distribution systems.
                                    4-14

-------
.A consolidated financial summary for 1971 through  1974,  indicated that sales-and
 operating costs were increasing as was net income.  A consolidated income statement
 revealed that  in 1974, net income before taxes, minority interests and  extraordinary
 items amounted to  approximately  $14 million,  while  retained earnings for  1974
.amounted to over $4.9 million or 3.4 percent of the net sales.  As itemized on an income
 statement comparing 1975 with 1974, for the nine-month period ending September 30,
 sales decreased 8 percent in 1975 while net profit before taxes,  etc. decreased about
 50 percent to $5 million.                                 •  . - . .

 According to the Sangamo Weston Annual Report, their sales and net income  are both
. expected to increase as are prospects for Schlumberger Products Corporation.  Overall,
 it would appear that the financial position of Sangamo was strenghtened by the merger
 so that an ability to invest in replacement costs or treatment facilities may be likely
 but this capital availability would depend on perspective PCB equipment sales.

                          SPRAGUE ELECTRIC COMPANY                        -

 As a manufacturer of various types of capacitors, Sprague Electric Company holds a
 prominent position in the capacitor industry.  Capacitors  comprised 82 percent of their
 197.5 sales figure.  These passive  components, including PCB-containing units, undergo
 different processes including impregnation, deposition and plating on-such" materials as
 paper, film and plastics, ceramics, aluminum and tantalum. These products are sold to
 other manufacturers  to  be  incorporated  in  such  end-products  as  refrigerators,
.fluorescent, lights,  television sets,  computers, and air conditioning units destined for
 both private and government users.

Analysis of a  five-year financial statement reveals an increasing trend for "net sales^
 from $118 million in 1971 to $215 million in 1974. A decline of 24.7 percent, amounting
 to $53 million, was experienced in 1975.  Selling,  general and administrative expenses
 increased from 1971 through 1975, representing an average of 14.JT percent of net sales
 over this period.  However,  the  costs of goods sold dropped 19.8 percent in 1975 as
 compared with 1974 after a four year increase. Attempts were made to reduce aft costs
. when .sales started decreasing partly due to customers liquidating-their-invenfories^in
 the second half of 1974.                                  :-. ^ :::-„.:  .   -
                                     4-15

-------
  Sprague Electric Company ended 1975 with a reported loss"before taxes, extraordinary
-  items, etc., amounting to $11.9 million.  Yet from  1972 through 1974 they enjoyed a
  profit of $1.0 million, $10.6 million, and $11.6 million, respectively.          :

 -Despite the decline in sales for 1975, Sprague Electric Company is expected to show a
-profit  for 1976.  Sales reported  for the first six months of 1976 amounted to $95.8
  million as  compared  with  $83.7  million for the same period in 1975 {an increase of
  H.S.-percentJ^Ref.  40J.   In addition,  the company is  attempting1" "to  replace PCB-
  contained  capacitors with  biodegradable impregnants  and/or metallized film.   As
 - planned, this procedure should start sometime in 1976. The expansion of the multi-layer
- ceramic-capacitor facility in Witchitafalls, Texas is expected to contribute toward a
  profitable 1976 as there is an increasing demand for this type of capacitor.  In view of
  the $7 million  annual average  expenditure for research, development and engineering
  purposes, added to the above noted improvements expected for 1976, conclusion can be
^  made to the effect  that Sprague Electric Company will be able to invest in replacement
  costs for equipment that would  use a substitute dielectric or treatment facilities.

                      WESTINGHOUSE ELECTRIC CORPORATION               ~-

 - The_ second  largest  producer of  electrical  equipment  is Westinghouse  Electric
  Corporation. Their many and varied products  may be classified into the following" four:
  divisions:                                               :

       (1)   Power Systems—                                        .-:-;-..
  ----     - -  (In  addition to transformers,  includes circuit  breakers,  control  devices,
             generators, meters,  etc.)                                ------
       (2)   Industry Products—                                       ~-...•'.-   .-•::_•--
     _.,-..   (Includes batteries, electronic components, lighting equipment^ motors,- etc.y;
       (3)   Public Systems—                                          --   ;  -  ;   -
        , - -- (Includes defense-related products,  such  as  radar devices and1 electronic'
             countermeasures,  etc.)                                   "   -."  -.~ .
       (4)   Broadcasting and Other Systems—                   -    :   ; '—'-'"--
   ...__....  (includes central air conditioning units, electric stairways,-elevators,-fans,
             watches, etc.)                                             _ ;  ;-  - -
                                      4-16

-------
  A five-year-historical financial summary was obtained from the 1975 company Annual
 ; Report indicating sales and net income for the company as a whole, as well as for each
  of the major divisions.  Company net sales and operating costs increased  each year from
  1971 to  1975 with the smallest increase for each item of one percent occurring in 1975.
  The largest increases of  13.7 percent for sales and 15.8 percent for operating costs as
--shown in Table 4-1 occurred in 1974 as compared with  1973.  Company net income
  before taxes indicated a profit each year for the five-year period.  However, the lowest
 f profit, amounting to $206 million or 3.6 percent of sales, was experienced  in  1974.
 --Some degree of recovery was evident in 1975 with a pretax profit of:$275 million, or 4.7
  percent of sales.                                            r

  Since transformers are  produced by the Power  Systems: division, a  more accurate
 - picture  of their financial position may be obtained by analyzing Power  System data In
 : addition to company data. Sales for the Power Systems, which represented 37.4 percent
  or $2,194 million of total company sales in  1975,  also increased each year from 1971
  through  1975.   These increases amounted to 9  percent,  8  percent,  13 percent  and~:
 T 9 percent^ respectively, of the previous year's sales. Operating costs were not given.

  The outlook for 1976 is more favorable than for 1975 as indicated by the comparison of
 .company sales for the first six  months of each year.   The 1976 sales'figure for this
  period amounted to an  increase  of 8.6 percent as compared  with that of 1975. This^
 :, more favorable  position  resulted from  the  discontinuance "where'possible,: of  unprof--
 5 itable operations.  Although the profitability  of  the  Power  Systems division will: be
  limited  as a result of some unfavorable fixed price contracts, this section as a whole^is
  expected to  improve [Ref. 32~].   Capital  availability  should  be  no  problem,  for
  Westinghouse.
                                     4-17

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                                    CHAPTER 5
          BASELINE MARKET CONDITIONS:  DEMAND, SUPPLY AND_£BICE=_
 There is need for a clear reference point in measuring differences with :and without PCB;
 effluent controls.  Since time for this study did not allow original market  research it
. was. necessary to use available historical data and expectations ^to project production
 and prices.

 Since-it is difficult to  determine the extent  to  which historical data :and  projections
 already reflect anticipated PCB  controls,  they are referred  to as  a reference point.
 Therefore, estimated impacts are a combination of two possible changes:

    .  L._  Changes  already  incorporated  in  data  and projections—i.e., changes that
           would be deleted if PCB effluent controls had never been proposed.'   : ^

      2.   Changes not yet reflected in the historical data and projections.

 JSince -most impacts are small percentages of total industry sales arid average prices,  the
 baseline market  trends are satisfactory for this analysis.            ~ -      'r~  -r -'  ~ :'-

 Production levels and average prices are necessary for determining the Relative impact
 .of .effluent control costs.  Each firm  will have its own sales base and projections tor its^
 investment analysis, but this study had  to  be based  on  industry averages and  general
 trends to avoid need for proprietary information.           ~~':: •'  ~-  '--'- "'-^'-  - ~ r -:: -

 Figure 5-1 shows the historical trend in overall  electronic components and the 1974-
 1975 decrease in transformer and capacitor sales. It is important to note that the 1975
 dip in transformer and capacitor sales corresponds to the overall patternlfl electronic
 components.   There is  little  chance that PCB  controls  influenced  this fdip since
 combined transformers and capacitors are only 10 percent of electronic cbmfp'dhents-aricf
 PCB units are only a fraction of total transformers and capacitors^    -  "  :'    ;   " ^:   :
                                      5-1

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              404.6

            447.1
             437.4 J
=882^
                   400    200

          1975 Million dollars
                                  Transistors
                                   Copocltors
                                  Resistors
                                 Transformers
                                  Connectors
                                             0     200    400  '   600 .   800"

                                                  1974 Million dollars
 Billions

of dollars    04 q
       Z1 j 1   «• *• w
    n  ^4.1
                             ELECTRONIC COMPONENTS


                             ELECTRONIC SYSTEMS  flNO EQUIPMENT
   20H
   10 H
    s-^
        S


                s

                      23.2
                    I
                            20.1


                                 16.5   16.6  17-!
I
I
I
I
                    16.2
I
 •vrXy
                                                           !§l?  15.1
I
i
       ,1975   1974  1973   1972   1971   1970   1969   1968  1967  1966 -c *


                %                                        _

      Source: Reference 16.




   _ FIGURE 5-1: VALUE OF SHIPMENTS OF ELECTRONIC SYSTEMS AND COMPONENTS"
                                    5-2

-------
                                   CAPACITORS

 Figures 5-2 and 5-3 show trends in total  capacitor sales and a breakdown by type of
.capacitor.  Again, there is no indication of a significant effect from PCS regulations;
 sales of all types of capacitors decreased between 1974 and 1975.
There is a big upturn in 1976 capacitor sales. Specifically, capacitor sales in the first
- -- ~ : -   -   -                     /••      «•\                - -       _~    -_  .   -   - -  i - .
half of 1976 were up 26 percent [Ref. 30).  The largest  increase has been in ceramic
dielectric capacitors—a 192 percent increase in number of units.
In   recent  testimony,   the  capacitor  industry  was, represented _ as   follows
(Ref. 4, p. 29 ff):

             Total Annual Sales                   $600 million
             DC (primarily electronic)            $450 million         -    .     -    -
             AC                                 $150 million
                 Large utility capacitors  $50 million                      ~~ ?T
                 Small capacitors
                  Lighting              $50 million
                  Motors and other                                         . _ _  . ;.
                    applications          $50 million

The. small AC capacitor sales could increase by more than 75 percent to $175 million by
,1980 if Federal Government (or state) energy standards are enforced  (Ref. 4, p. 3(]Q .

                                 TRANSFORMERS

There is less, available information on transformers, but  the upper part of Figure 5-2
indicates that transformer sales followed capacitor sales between 1974 and 1975.       "

Since transformers using  PCBs are marked more by their proximity to public exposure
than types of transformers, there is less useful information on transformer types.
                                      5-3

-------
700 -
=00 J
 00 -
 00 -
(Million $)
                                            ^ 5%.. Annual Growth Rate
                                                (Useful reference)
                6T	S3—  65   66     67    68    69     70    71     72    73    74    75
      Source: Reference 2, pp. 81-82.
                       FIGURE 5-2: ANNUAL CAPACITOR SALES AND TREND
                                          5-4

-------
ALL OTHER FIXED
    13%
                       VARIABLE 2-5*
VARIABLE 2.7%
                1970
                       VARIABLE 4 4%
                             MICA
                             5.0%
               1972
  VARIABLE 2.7%
                                                   1971
                  ' VARIABLE 4.3%
                         • ALL OTHER
                           FIXED
                            13%
             1973
                                          VARIABLE 3.0%
                                                                 MICA
                                                                 4.8%
               1974
                                                   1975
     Source:  .Reference 2, pp. 81-82.                            ~ ' ~~ '

     Note:   Paper and  film type capacitor is  a major use  bf'PCBs',


                FIGURE 5-3:  CAPACITOR SALES BY TYPE
                               5-5

-------
 e.future pricing and production  of the subset of transformers and capacitors which
 ntain PCBs  is a function of a number of variables including:

    •    General economic trends
    •    Electrical products and component trends                  '.  -
    •    Added production costs because of effluent standards        :    -•_..•
 . . •    Availability and price of products without PCBs                -;:.;:
    •    Legal and institutional factors                            _ -.: ~ .-  - . • 5

 ices during 1975 remained fairly  stable.  Private communications with presidents and
 uragers of various plants  and companies indicated that  there  were only-5 to 10
 rcent variations due to the combined effects of the above factors and the price of
 el.
                    *
 jlities purchase approximately 85 to 90 percent of PCB transformers (distribution and
 wer transformers) for network applications. It is expected that the demand for more
 liable, non-flammable transformers by utilities will increase to  meet the increasing-
 mand  for electricity. . Therefore, the added costs of PCB effluent standards very:   .
 :ely:will not affect the market for PCB transformers until a one-to-one substitute in
 rformance and cost-effectiveness is found.   Mineral oil transformers .are-;not.   --.
 tractive alternatives due  to large size, potential increases in the cost of insurance,
 orter average life, and increased repair and maintenance costs. - _  . - _; r . . -  .  .  -:-:„:

 the hoped-for perfect substitutes for PCBs are developed, tested and adopted by the
dustry, the switch from PCB-insulated transformers and capacitors to non-PCB units" --
 isild  be  much  faster  than presently anticipated.   However, a  certain, minimum   :
 oduction of IPCB-insulated transformers and capacitors will be necessary Ito-meet the -.::.-
 ecific  :demands of  defense installations  and  other uses  in the  vicinity of high
^m'raability areas, viz. furnaces, glass melting etc., unless  a perfect  substitute is "
 und.
 • - '
le. future supply of PCB transformers and capacitors faces some uncertainty due>to . -;:
imarid response to price increases caused by the added cost of. proposed. PCB effluent:---
andards^. The price of a non-PCB capacitor is about 20 to 30 pereenrhigherthan the:---
                                   5-6

-------
price of a comparable, (but not a perfect substitute) PCB capacitor.  This increase is
due  to  large size requirements (approximately  double) for a given electrical rating.
Mineral oil or dry type capacitors are accepted, at present, only when the appliance is
sufficiently small to make hazards minimal or price increases acceptable.

The  effect,of an increase in  price for PCB transformers and capacitors is of interest  :
because such price increases  might enable manufacturers to maintain  profits and cash
f.low, and thus, be able to afford treatment facilities to avoid PCB effluents.
   •
The  first question  that  would occur to many economists in this connection is, "Why
haven't suppliers already  raised prices if they could?"   Mineral 'oil is a much less
expensive dielectric, but is inferior in many aspects of performance including  size,
dielectric constant and resistance to fires.  Accordingly,  PCB containing products are
sold   on  a performance basis which  suggests  that  prices could be  increased  if all
producers were faced with  the same  percentage cost increase for a given product.  In
technical language  the industry-wide demand for PCBs and products made of  them are
fairly inelastic with respect to price because of the superior performance  with PCBs.
Company sales could, nevertheless, be very elastic with respect to price.     ...'-'-

The  new  rules proposed by EPA would  affect  only  those  transformer and capacitor -
producers that .discharge PCBs into navigable waters  directly.  The EPA plans to-Tssue :
pretreatment standards for other plants which discharge into publicly owned treatment
works as near to the effective date of the direct discharge regulations  as possible. It is
likely that the costs incurred by the indirect discharge plants will be similar to those
estimated in the Versar  technical study, causing the reallocation of resources between
the two kvdustry segments to be minimal. The size of this  effect would depend-upon the :
letter's, capacity and  ability  to expand  their capacity  and their  inventories and on
Mdnsanto's. willingness  to  increase sales to them.   In  immediate economic  terms,"
Monsanto would profit by using excess capacity or inventories. For public relations and
futore business relations, Monsanto might  not  choose to increase PCB sales to such :
customers, especially on a basis that they expected to be temporary.  The alternative of-
selling_at ^Efferent prices  to different customers to make PCB total costs" equal per
similar product unit must be  cost-justified  according  to the Hobinson-Patman Act and
justification would be very difficult in these circumstances.  A limit on  sales to:previous
                                     5-7

-------
 amounts would be a likely Monsanto response to the change in competition that extra
 disposal costs  could  generate.    Thus,  the  indirect  dischargers will not  have  an
 overwhelming competitive advantage.

 A review of the current industry sales, as obtained by telephone interviews, indicates a
 consistent decline in the demand for PCB transformers.  The 1975 decline in production
 for some plants ranged from 10 to 30 percent.  Precise data on sales of PCB units are
 not available.  The future demand for these units is uncertain due to various PCB issues
if    -       ~ »
 which would influence both the producers and the consumers. However, it is likely that
 sales or PCB  transformers will decline during  the next  three years,  with 1979  sales
 being approximately 50 percent of 1976 sales. This decrease is primarily  due  to (1> the
 necessary price increases of PCB  products  in  order to cover the increased costs of
 production caused by the effluent standards, and (2) the ban on PCB  consumption.  For
 the purposes of this analysis, it is estimated that production will decrease  by 25 percent
 in 1977, 20 percent in 1978, and 15 percent in 1979, as firms which currently use PCB
 products convert  to substitutes.   No information is available on the  export of PCB
 transformer and capacitor units beyond some  general statistics.   ,        ------

 The substitutes for PCB products are about 20-30  percent more expensive than the PCB"
 product of a  comparable electrical rating.  In  response to'the increased "costs of
 production following  installation  of pollution  control  equipment,  prices of  PCB"
 transformers and  capacitors are expected to rise to levels just below  the  prices of
 comparable substitute products.   More specifically, price increases of approximately
 20 percent are expected in 1977 due to all factors affecting the industry.  After this
 -large and immediate increase in prices, it is expected that the prices of PCB'capacitors
_and transformers will become stable, as any further increases would eliminate  the slight
 price advantage of PCB products.  However, prices of all capacitors and transformers'
 'pan  be expected to rise during the next  three  years in response to general  inflation.
 Prices, appear to reflect the approximately 10 percent general inflation in 1975, and in
 this analysis, plants are assumed to increase prices by 10  percent in each of  1978 and
 1979, although inflation may be somewhat less than this.          _ -  - -  -   	
                                      5-8

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                 EFFECT OF PCB EFFLUENT CONTROLS ON SALES      --~  -" "

: PCB controls would effect sales in two ways:  (1) price increases could reduce total
 quantity demanded, and (2) price increases could increase net imports. There is little
 indication that either  of these will have, or has already had, significant effects on
 transformer and capacitor sales.                                  :    :

f Table:5?rshows the 1974-1975 changes in imports and exports. There-is no indication in'
this data that proposed effluent controls have had a significant effect on net imports of^
• PCB units.
                                       5-9

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           TABLE 5~1<-U.S. IMPORTS AND EXPORTS OF ELECTRONIC PRODUCTS

                                 (Millions of Units and Dollars)

                                                        IMPORTS
1975

SELECTED PRODUCTS
„
Transformers, Rectifiers and
• - Rectifying Apparatus
Microphones, Loudspeakers
" " Audio Amplifying Equipment
Tuners for TV Receivers
Television Apparatus, NEC
Capacitors
Other
TOTAL
Units
na
na
12.3
na
1,443.6
na
na
Dollars
73.6
120.2
76.7
308.3
85.6
282.2
946.6

~~wilH.&
na
na
18.1
na
2,701.4
na
na
1974

DnlT
i-MjiiHrs
53.0
148.7 ~
88.0
358.7
144.7
371.0
1,164.1
% Inc
or (De<
Units
na'
na
(32.0)
na
(46.6)
na
na
rease
ireasey
Dollars
38.9
(19.2)
(12.-8)
(14.1)
(40.8)
nn

(18.7)
                                                        EXPORTS
'SELECTED PRODUCTS .

Coils, Transformers, Reactors,
   Chokes and Parts of
   Electronic Components

Television Tuners

Microphones, Loudspeakers
   and Amplifiers

Capacitors

Parts, NEC, for Capacitors

Oth'er
      TOTAL
1975
Units
na
2.3
na
258.8
na
na
na
Dollars
43.5
6.0
120.1
64.3
15.8
630.8
880.5
1974
: -nn-t 	
Will lw
"na
4.5
na
321.7
na
na
na
% Increase
or (Decrease) — -


54.4
11.4
111.7
88.3
25.1
663.3
291.9
Units
na
(48.9)
na
(19.5)
na
na
na
Dofl&ps
(20.0)
(47:4)
7.5
(27.2)
(39.5)
tin

(7.8)
Source:  Ref. 2, Table 74.
                                        5-10

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                                    CHAPTER 6
            SUMMARY OF ALTERNATIVE TREATMENT TECHNOLOGIES
 The alternative  treatment technologies  [ Ref. 1  considered in this report consist  of
 various -combinations of basic technologies applied to several -possible routes of PCB
 escape into the  environment including  wastewater  and  rainfall  runoff.   Table 6-1
 summarizes descriptions of these  alternative technologies and ranks each alternative
 treatment technology with respect to relative PCB reduction.  It is likely that a plant
 would install a  treatment system similar  to  one of these  alternative technologies
 depending on the final regulations, but the regulation does not require a plant to install
 any specific technology.

 Each of the alternatives required that  incinerator scrubber water be  pretreated and
 subjected  to adsorption by activated carbon. Associated wastes from  various parts  of
 the plant  are also treated the same way.  No treatment of sanitary wastewaters is
 necessary as they are discharged to municipal systems.

 Rainfall runoff from certain areas is handled by enclosing them to. eliminate contact of
' PCB-with rainfall runoff.  Differences in costs and effectiveness are derived solely from
 variations  in handling non-contact  cooling water, steam jet condensate, detergent
 washing water and boiler blowdowns.

 Alternatives "A" and Zero Discharge use process changes and recycling of wastewaters.
 Alternative "B"  makes maximum  use  of  adsorption  by  activated  carbon,  while
 Alternative "C",  which does not  treat the  non-contact cooling water,, achieves the-
 lowest reduction of PCB discharge and costs the least, as shown in Table B-2.. Thus the
 fundamental  differences  among  the various  alternatives  concern  the amount  of,
 recycling, process change, and  carbon  treatment used.  Activated carbon  is  a very^
 effective adsorber,  but its effectiveness decays as it  is used, and the replacement  of
 carbon is necessary.  Zero Discharge depends upon incineration Jiea ting to a, degree -that
 disassociates the PCB  molecules.  This approach  may dictate concentration of. waste
 :from more than one source.
                                        6-1

-------
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                                                   6-2

-------
                          TREATMENT COST ESTIMATES

Costs for alternative treatment technologies were estimated by Versar, Inc., based on
effluent data compiled from Section 308  letter responses and  visits to some plants.
These data include total PCB use, total wastewater discharge, total PCB discharge, and
plant equipment.  Using this information, Versar estimated required capital investment
and annual operating costs for individual plants using engineering techniques. For those
plants  with  "insufficient  data for  engineering  techniques,  costs were  based on  a
representative effluent flow and the assumption that little or no treatment equipment
was being used. Treatment costs for this study were derived from Versar cost data.

               ANNUALIZED COSTS FOR THE INVESTMENT ANALYSIS

For purposes of the investment analysis in this report, five model plants were specified
to represent  the set of transformer and capacitor plants classified as direct dischargers.
The model plants presented in Chapter 7 illustrate the range of available financial and
production characteristics.  It was  necessary to use model plants  for  the following
reasons:
 1.    Appropriate financial and production data were not available for 5 out of the 11
     " direct discharge plants.

 2.    One of the 11 direct discharge plants was operating at a loss, but it was assumed,
      however,  that  the  PCB portion  of  operations was operating  at  a  profit.
      Predictions are made concerning this plant's ability and willingness to incur PCB
r"    ' treatment costs in Chapter 7.

 3.    Most  companies  are  unwilling  to have   data  on  their  company publicized,
      particularly for use in evaluation of environmental controls.

 Capital investments for each of the alternative treatment technologies were estimated
 for   the  five  model  plants.    The  lump-sum investment   costs  formulated  by
  - «- —  f ~'- ^ -  "•%                                            's. .. -   -- • -   -    TT^_   Z  ~ ~
 Versarjllef. 1J were converted to  annual equivalent costs by amortizing the investment
                                       6-3

-------
 over a three year period at 9 percent annual interest rate.  A discussion of the reasons
 for  using  9 percent  as  the  annual interest  rate is presented later.     A three year
 payback  period  is  appropriate in light of  Monsanto's publicized cutback  of PCB
 production and the recent passage of the Toxic Substances Control Act, which prohibits
 production of PCBs  after  January 1979,  and  their use in  production  of electrical
 equipment after  July 1979.   The annual operating and maintenance costs  of each
 alternative treatment technology  were added to capital recovery costs to obtain total -
 annual costs for each alternative technology as shown in Table 6^2.  The alternative  "
 treatment costs  for  1977  do not include  operating  or  maintenance  costs,  as the
 treatment system is assumed to be under construction  but not in operation during this
 period.  It should also be noted that estimated operating and maintenance costs were
 adjusted for inflation at an annual rate of 8 percent in 1978 and 7.5 percent in 1979,
 based on unpublished GECO estimated for inflation for those years.

 Investment decisions for the five model plants are based on "the annual treatment costs
: for  each alternative listed in Table 6-2.  Predictions are made for each -model plant
 based on its net present value of complying  with proposed PGB  effluent standards as
 .compared tcr its net present value if it did not install  the treatment equipment;"-This
 analysis is presented in Chapters 7 and 8.                  --...:'   i  -.:  -
                                      6-4

-------
      TABLE 6-2. - ANNUAL COSTS OF TREATMENT TECHNOLOGIES
                                (treatment costs)
                               1977a           1978b       1979- Jan. 1980
    Alternative  A           173,000        245,000           257,-OOQ-
    Alternative  B           775,000        955,000           968,-OOQ"
    Alternative  C            55,000    '     58,000            58 ,-QOQ
    Zero Discharge          170,000        283,000           292,-QOO-
          #2
    Alternative  A           101,000         139,000           142,-000'
    Alternative  B           500,000         615,000           623,-000'
    Alternative  G            37,000         37,000            37,-000
    Zero Discharge          121,000         191,000           197^000
          #3
    Alternative  A           256,000        331,000           336,-000
    Alternative  B           370,000        461,000           467,-GOO"
    Alternative  C           227,000        285,000           290,000"
    Zero Discharge          269,000        391,000           400,-000
    Alternative A           256,000        331,000           336.-000"
    Alternative B           370,000        461,000           467,-OGO"
    Alternative C           227,000        285,000           290,-GOG"
    Zero Discharge           269,000        391,000           400=000
          #5
    Alternative A            256,000         331,000          336,-QOG"
    Alternative B            370,000         461,000          467,-000"
    Alternative C            227,000         285,000          290,000"
    Zero Discharge           269,000         391,000          400,eOOO:
aThe alternative treatment costs for 1977 do not include operating costs as the"
 treatment system is assumed to be under construction, but not operating
 this period.
 Operating  and maintenance costs for 1978 and 1979 were estimated  'Using'
 unpublished OECD forcasted inflation  rates of 8.0 percent  and 7.5 percent;
 respectively.                                                  ":
                                      6-5

-------
                                    CHAPTER 7
                              INVESTMENT ANALYSIS
The financial condition of a firm is a critical factor in determining its ability to finance
the new investments which would result from the imposition of PCB effluent standards
under Section 307 (a).

Model plants^ were developed for this  analysis, and to the extent possible were designed
to represent  actual plants.   An analysis of  the projected cash  flows for these model
plants indicates  the capability of individual  transformer and capacitor plants to install
the equipment necessary to meet PCB  effluent regulations.

Model plants  reflect real plants when the appropriate financial and production data for
the PCB operations of specific plants were available.  Appropriate data were available to
develop models  and provide income statements  for five plants.  Models were  not
developed for the six remaining plants due to the lack  of suitable data, and in many
cases,  the unwillingness  of individual plants  to  participate  in supplying necessary
Information.  A model was not constructed for the one direct  discharge  plant ;that has
been operating at a loss.  If  the PCB portion  of operations for this firm is operating at a
profit,  predictions can then be  made concerning this plant's advantage in accepting
treatment costs.

                BACKGROUND AND  USES OF CASH FLOW ANALYSIS    :  . "   '

A discounted cash  flow  analysis can be used to indicate the investment decisions of
individual  plants.  A cash flow  analysis summarizes cash inflows and outflows and is
useful to plant financial planners in their analysis of alternative investments.

A present value  is calculated for a future  stream of net cash flows by using a specified
cost of- capital.  The net present value for PCB production without installing~treatment is
Calculated by using the 1977 Pro Forma Income Statement, and allowing treatment costs
                                      7-1

-------
to be zero. The firm would stop production after 1977 since it would not confirm to the
effluent standards.  The  net present value for PCB production if treatment equipment
were installed is calculated by using the Pro Forma Income Statement with deduction for
annualized treatment costs.  The present value of  future incomes with and without the
specified control  alternative  can then be compared; for each plant, the company will
presumably choose the course of action that would most increase their net present value.

     ASSUMPTIONS UNDERLYING MODEL PRO FORMA INCOME STATEMENTS

Analysis  of  the  financial statements of  specific  firms  currently  producing  PCB-
containing  capacitors and transformers  was presented  in  Chapter 4.  The following
conclusions from  previous chapters have been incorporated into the model Pro Forma
Income Statements in this chapter:

     1.    Fixed  costs are approximately  18 percent of each firm's  total costs;  the
           remaining 82 percent of costs are divided among a variety of variable costs.

     2.    The costs of capital in the electronics industry was estimated to average 15.9
           percent over  the next three years (see information provided by the EPA in
         ~~Ref. 28^.

     3.    The firms involved in the production of  the PCB capacitors and transformers
           have annual tax payments amounting to approximately 40 percent of pretax
           net income.

In addition to the above  assumptions, the model Pro Forma Income Statements are also
based on findings concerning the expected production and price trends for PCB products
during "the next three years.  Production of PCB items is expected  to  decrease by
25 percent -in  1977, 20  percent  in  1978,  and 15 percent  in  1979.   Price increases
associated  with these  declining levels of production  and other effects  of combined
environmental controls are expected to be 20 percent in  1977 and 10 percent in each of
1978 and 1979.
                                     7-2

-------
 Another assumption is important in light of the relatively short time horizon of this
 investment analysis.  The Toxic Substances Control Act (TOSCA) is expected to prohibit
 all consumption of PCBs by 1980.  Hence, any investment which a firm might undertake
 to  comply with the proposed interim effluent standards for PCBs  would be useless (or
 greatly reduced in value) as soon as the total ban goes into effect (see Appendix A). For
 this reason, the time horizon of the investment analysis has been limited to 1979; also,
 the investments necessary to comply with the proposed standards have been amortized
 over the three year lifetime which these investments would be likely to have.  Salvage
 value of the production equipment  is assumed to be negligible, since no information on
 this was available.

.     EXPLANATION OF THE METHODOLOGY USED IN THE INCOME STATEMENTS

 The best way to explain the methodology employed in the construction of the model Pro
 Forma Income Statements is to present a step-by-step description of the process which
 was used.

      1.    The  price/pound  of PCBs  used  was determined by dividing the estimated
           annual sales of PCB units by the pounds of PCB used annually.      -

      .2?    Production levels were obtained  from EPA and were'than projected through
           1979, allowing for anticipated decreases in production levels.

      3.    The price/pound of PCBs was used as a surrogate for the price of the PCB
           products themselves and was projected through 1979,  allowing for estimated
           price increases due to the espected market conditions and inflation.

      4.    Sales for 1977  through 1979 equal production (in  terms  of  PCB*s  used)
           multiplied by price/pound.
      5.    Fixed costs are approximately 18 percent of total costs in 1976. These costs
           were inflated in accordance with unpublished OECD estimates for inflation iff
           the U.S. during 1977 through 1979.                        ..-.::_-.':
                                       7-3

-------
      6.   Variable costs were projected to decrease during 1977  through 1979 at  the
           same rate as production, to reflect the decreasing amounts of raw materials
           and labor used.  These costs were then inflated at the same rates as the fixed
           costs were inflated.

     . 7.   Treatment costs are zero in 1976.  In 1977, they equal"the annualized  costs of
        :  t the capital expenditures necessary for the firm to comply with the effluent;
        "-standards.  For  1978 and 1979, treatment costs include both the annualized
 "  .:      capital  costs and the expected operating and maintenance  costs for each
           year.                                                   :

      8.   Sales minus the three classes of costs yields pet pretax income (loss).

      9.   The   tax  rate   was  estimated  to  be 40 percent;  hence  net  income  is
           approximately 60 percent of net pretax income.

   : 10.   Net  income was discounted to its present value using the standard technique
           of:   present value =      4* Yt (1 + r)   where T'is net income in yearjt'
           and V is the annual discount factor.                      ,  -        -.-__.

 Tables 7-1 through  7-5  present  the Pro  Forma  Income Statements and :the cash flow
 analysis which was performed.  The following section summarizes-results from analysis of
 Pro Forma Income Statements under each of alternatives A through D..-_---:   .- •  :  ._

                                  ALTERNATIVE A

.If. EPA issues standards  such that firms wouls be likely to implement Treatment A*  the
 model plants Investment analysis indicates that plant 2, would continue to produce PCS
. pr-oducts and would, therefore, incur the expenses necessary to .comply with standards. -
 For" plants 1, 3, 4,  and 5, however,  net income would be maximized  by continuing
 production of PCB products through the end of 1977,  but stopping use of PCBsassoon.as
 the  new standards became effective.                     ; - -   -  ; -..- -:?, -;: - r;; - - - - - -.
                                       7-4

-------
 Due  to  the  variation in  results among model plants,  it is  difficult to make accurate
 predictions about the responses of the six plants for which models were not constructed.
 However, four of these plants have publicly stated that they will stop accepting orders
 for PCB items as of July 1, 1977. Clearly, these plants will not undertake the investment
 necessary to comply with the  standards which would  become effective in early 1978,
.unless their backlog of orders grows to enormous proportions.

 The most likely action for the four firms which have announced cutoff dates for new PCB
 units is that they will accumulate only as many  orders as they can fill before the
 standards go into effect.  It is assumed that  the other two firms  will either continue
 production or cease production in  the same ratio as the model plants;  this means that
 probably both firms will cease production of PCB products.

 Implementation  of standards  which  would  require  firms  to  undertake Treatment
 Alternative A would  cause all affected PCB transformer producers to cease production
 of PCB products;  on the other hand one producer of  PCB capacitors would probably
 comply with the standards.

                                   ALTERNATIVE B

  In the event that the EPA issues effluent standards such that the direct  discharge plants
  would  be  likely  to  undertake Treatment B,  the  model   plant investment  analysis
  indicated that plants 1 through 5 would probably cease use of PCBs early in 1978 rather
  than comply with the new standards.

  Examining  the six plants for  which models  were  not constructed,"four have  already
_ "publicly announced their  intention  to stop accepting orders for  PCB  items  as of
 ' July 1, 1977_...  Clearly,  these plants will probably  not  undertake  the  investment
  necessary to comply with the proposed standards which would become effective in early
 : 1978,  unless their backlog  of  order grows  to enormous proportions.  These plants will
  probably stop accepting orders as soon as they accumulate as many orders as they can
  fill  before the proposed  standards go into effect.  Concerning the other two plants, the
  unanimity of the results from our model plants indicated that these two plants will also
  discontinue the use of PCBs, rather than comply with the new standards. T  ":" "   ' " :
                                      7-5

-------
 The promulgation of effluent standards for  which firms  would be likely to implement
 Treatment Alternative B would probably force all affected producers of PCB capacitors
"and transformers to cease use of PCB early in  1978, rather than comply with the new
 standards.

                                 ALTERNATIVE C

 fir the "event that the EPA issues effluent standards such that the direct discharge plants
-would be likely to undertake Treatment Alternative C, the  model plant investment
 .analysis indicate that plants  1 and  2 would continue use of PCBs, whereas plants 3, 4
 and 5  would cease production early in 1978.                          _   :

 Examining the  six plants  for which models were not  constructed, four have already
 publicly announced their  intention  to stop accepting  orders for PCB  items as of
 July 1, 1977.   Clearly,  these plants will probably not  undertake even  the  minimal
 investment necessary to  comply with the  proposed standards which  would become
 effective in  early 1978. It is likely  that these  firms will accumulate  as many order as
 they can fill before the proposed standards go into  effect, and  then stop accepting
 -orders—the near unanimity  of  the  results from our  model plants indicated that the
 remaining two plants  would probably continue the use of PCBs, and would comply with
 the new standards.                                        -   -

 According: to cash  flow analysis, effluent standards which might lead  the 11 direct
 discharge plants to invest in Treament Alternative C  would cause two capacitor and
 three  transformer  producers to cease  use  of PCBs,  rather than comply  with the
 standards in addition to  the plants that have already announced their deadline for taking
 orders for PCB units.                                              -

                                 ZERO  DISCHARGE

"If7the EPA issues standards  such that the  direct discharge firms-would be likely to
- implement Treatment Alternative D, (Zero Discharge),  the—model-plants investment -
 analysis indicate that only plant 2 will  continue to produce PCB items_untiL 1980> plants
                                          7-6

-------
 1, 3, .4, and 5 will all cease use of PCS. In terms of production, the withdrawal of these
 four plants  from the production of PCB items will cause a decrease in capacity of
 approximately 75 percent.

 Examining the six  plants for which models were not constructed, four  have already
. publicly, announced their intention to stop  accepting  orders for PCB items  as of
 July 1.-1977* These plants will obviously not undertake the large investment necessary
.to comply with  the standards which would become effective in early 1978.  The most
 likely scenario is that these firms will accumulate only as many orders as they can fill
-before the proposed standards go into  effect, they will stop accepting orders even if it
 were before  the announced July 1, 1977 deadline.   The near unanimity of the results
 from our  model  plants indicates that the  remaining two plants would also cease use of
 PCBs rather than comply with the new  standards.

 Implementation  of  effluent standards which  might lead the 11 direct dischargers of
 PCBs to invest in Treatment Alternative D would cause 10 of the 11 plants to cease use
 of PCBs rather  than  comply with the new standards. Only  one  capacitor plant  would
 maximize its future net income by undertaking the necessary investment.

. Detailed data on the five model plants are given in Tables 7-1 through 7-5.  Other data
 are  available on  project  worksheets, but are  deleted from  this  report  to  ensure
 confidentiality of data.
                                       7-7

-------
;:|LE.7-l.-PRp FORMA INCOME STATEMENTS AND DISCOUNTED'CASH FLOW ANALYSIS
       FOR PCB USING PRODUCTION OF MODEL PLANT NO. 1 (IN DOLLARS)
—

•





;/.
.. - •


Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Nee Inconc (Lots)
The Present Vilue
of Plant's Net Income
The Present Value
of Plant's Net Income
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Lots) Before
Less Taxes
Net Income (Lots)
The Pretent Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Leas Taxes
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Treatment
1976
3,450,000
604,000
2,679,000
-0-
Taxes 173,000
69,200
Alternative A
197_7
3,110,000
655,000
2,178,000
173,000
104,000
41,600
103,800 62,400
With Treatment is: » 54,000 +
Without Installing Treatment is:
Treatment
Taxes
Alternative B
3,110,000
655,000
2,178,000
775,000
(498,000)
-0-
(498,000)
With Treatment is: - -430,000
Without Installing Treatment is:
Treatment
Taxes
Alternative C
3,110,000
655,000
2,178,000
55,000
222,000
88,800
133,200
With Treatment is: - 115,000 +
Without Installing Treatment is:
Zero
Taxes
Discharge
3,110,000
655,000
2,178,000
170,000
107,000
42,800
64,200
With Treatment is: • 55,000 +
Without Installing Treatment is:
1978
2,737,000
707,000
1,736,000
245,000
49,000
19,600
29,400
22,000 + 28,000' »
143,000
2,737,000
707,000
1,736,000
955,000
(661,000)
-0-
(661,000)
- 493,000 - 412,000
143,000
2,737,000
707,000
1,736,000
58,000
236,000
94,400
141,600
106,000 + 105,000
143,000
2,737,000
707,000
1,736,000
283,000
11,000
4,400
6,600
5,000 + 14,000 -
143,000
1979
2,558,000
760,000
1,469,000 .
257,006
72,000 -
28,800
43,200 .
104,000
2,558,000
760,000
1,469,000
968,000
(639,000)
-0-
(639,000)
• -1,335,000
2,558,000
760,000
1,469,000
58,000
271,000
108,400
162;600 -
326,000
2,558,000
760,000
1,469,000
292,000 -
37,000 -
-14,300
22,200 -
74,000

	

.-:.-- - - -

-
- . -- -
-.-- - --•:--

•>
                              7-8

-------
TABLE,7-2.-PRO FORMA INCOME STATEMENTS AND DISCOUNTED CASH FLOW ANALYSIS"
       -FOR PCB USING PRODUCTION OF MODEL PLANT NO. 2 (IN DOLLARS)

—
• -."
m




^
. •.-

'•



Sales
Less Fixed Costs
Less V»ri«ble Costs
Less Treatment Costs
Treatment
1976
4,546,000
795,000
3,524,000
-0-
Met Income (Loss) Before Taxes 227,000
Less Taxes 90,800
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Sec Income

*
Alternative A
1977
4,091,000
862,000
2,865,000
101,000
263,000
105,200
136,200 157,800
With Treatment is: • 136 + 110,000
Without Installing Treatment is: •
Treatment
Sales
Less Fixed Costs
Less Variable Coses
Less Treataent Costs
Net Income (Loss) Before Taxes
Less Taxes
Alternative B
4,091,000
862,000
2,865,000
500,000
(136,000)
-0-
Net Income (Loss) (136,000)
The Present Value
of Plant's Net Income With Treatment is: • 117,000 - 172
The Present Value
of Plant's Net Income Without Installing Treatment is: *
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Income (Lots)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income

Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Set Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Treataent
Taxes
Alternative C
4,091,000
862,000
2,865,000
37,000
327,000
130,800
196,200
With Treatment is: • 169,000 * 155,
Without Installing Treatment is: •
Zero
Taxes
Discharge
4,091,000
862,000
2,865,000
121,000
243,000
97,200
145,800
With Treatment is: " 126,000 + 87
Without Installing Treatment is: *
1978
3,600,000
931,000
2,284,000
139,000
246,000
98.400
147,600
* 108,000 «
188,000
3,600,000
931,000
2,284,000
615,000
(230,000)
-0-
(230,000)
,000 - 108,000
188,000
3,600,000
931,000
2,284,000
. 37,000
348,000
139,200
208,800
000 + 149,000
188,000
3,600,000
931,000
2,284,000
191,000
194,000
77,600
116,400
000 + 87,000
188,000

1979
3,365,000
1,001,000
1,942,000
142,000
280,000
112,000
168,000
354,000
3,365,000
1,001,000
1,942,000
623,000
(201,000V
-0-
(201,000)
» -354,000
3,365,000
1,001,000-
1,942,000 - -
"37,000 "
385,000 ~
154,000
231,000
• 473^,000
3,365,000
1,001,000-
1,942,000 -
197,000
225,000 "
90,000
135,000 "
300,000


	
	

--.:--

->

                                7-9

-------
.BLE Z-3.-PRO-FORMA INCOME STATEMENTS AND DISCOUNTED € ASH FLOW ANALYSIS
       FOR PCS USING PRODUCTION OF MODEL PLANT NO. 3 (IN DOLLARS)



—





•
	 7- —


"


-




.
. •
	


,___




Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs

Net Income (Loss) Before
Less Taxes

Net Incone (Loss)
The Present Value
of Plant's Met Income
The Present Value
of Plant's Net Income


Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes

Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income


Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs

Net Income (Loss) Before
Less Taxes

Net Income (Loss)
The Present Value
of Plant's Nat Income
The Present Value
of Plant's Net Income
— — -- "

Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Incone (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income


Treatment
1976
3,916,000
685,000
3,036,000


Taxes 195,000
78j 000

117,480
With Treatment is:
Without Installing T



Taxes

With Treatment is:
Without Installing T




Taxes

With Treatment is:
Without Installing 1

Zero

Taxes
With Treatment is:
Without Installing 1


Alternative A
1977
3,524,000
743,000
2,468,000


57,000


34,200
30,000 + 450 +
reatment is: •


3,524,000
743,000
2,468,000
370,000
(57,000)
-0-

(57,000)
- -49,000 - 96
reatment is: *


3,524,000
743,000
2,468,000
227,000

36 , 000
34 , 400

51,600
45,000 * 21,
reatment is: "

Discharge
3,524,000
743,000
2,468,000
269,000
44,000
17,600
26,400
23,000 - 40,
reatment is: "



1978
3,102,000
802,000
1,968,000


1,000


600
14,000
162,000


3,102,000
802,000
1,968,000
461,000
(129,000)
-0-

(129,000)
,000 - 61,000
162,000


3,102,000
802,000
1,968,000
285,000

47,000
18,800

28,200
000 + 32,000
162,000


3,102,000
802,000
1,968,000
391,000
(59,000)
-0-
(59,000)
000 - 18,000
162,000
, , .,, .


1979
2,898,000
862,000
1,664,000


36,000


21,600
44,450


:, 898, 000
862,000
1,664,000
467,000
(95,000)
-0-

(95,000)
« (206,000)


2,398,000
862,000
1,664,000
290,000 '

82,000 "
32,800

49,200
98,000


2,898,000
862,000
1,664,000
400,000 '
(28,000)"
-0-
(28,000) '
(35,000)
._ _ ..

	









.


- --











•y
                               7-10

-------
TABLE; 7-4.-PRO FORMA INCOME STATEMENTS AND DISCOUNTEDjCASH FLOW ANALYSIS
        FOR PCB USING PRODUCTION OF MODEL PLANT NO. 4 (IN DOLLARS)

—
__*__




	
*



Sales
Less Fixed Coits
Less Variable Coses
Less Treatment Coats
Treatment
1976
4,546,000
795,000
3,524,000
-0-
Net Income (Loss) Before Taxes 227,000
Less Taxes 90,800
Dec Income(Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income

Alternative A
1977
4,091,000
862,000
2,865,000
256,000
1 OS, 000
43,200
136,200 64,800
With Treatment is: » 56,000 + 24
Without Installing Treatment is:
Treatment
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before Taxes
Less Taxes
Alternative B
4,091,000
862,000
2,865,000
370,000
(6,000)
-0-
Net Income (Loss) (6,000)
The Present Value
of Plant's Net Income With Treatment is: " (-5,000 -
The Present Value
of Plane's Net Income Without Installing Treatment is:
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Treatment
Taxes
Alternative C
4,091,000
862,000
2,865,000
227,000
137,000
54,800
82,200
With Treatment is: » 71,000 *
Without Installing Treatment is:
Zero
Taxes
Discharge
4,091,000
862,000
2,865,000
269,000
95,000
38,000
57,000
With Treatment is: » 49,000 -
Without Installing Treatment is:
1978
3,600,000
931,000
2,284,000
331,000
54,000
21,600
32,400
,000 + 33,000
188,000
3,600,000
931,000
2,284,000
461,000
(76,000)
-0-
(76,000)
57,000 - 29,000)
188,000
3,600,000
931,000
2,284,000
285,000
100,000
40,000
60,000
45,000 + 51.000
188,000
3,600,000
931,000
2,284,000
391,000
(6,000)
-0-
(6,000)
4,000 » 8,000 «
188,000
1979
3,365,000
1,001,000
1,942,000
336,000
86,000
34,400
5 MOO-
US, 000"
3,365,000
1,001,000
1,942,000
467,000
(45,000)-
-0-
(45,000)
(91,000)
3,365,000
1,001,000
1,942,000 -
290,000
132,000 -
'52,800
79,200 ~
167,000
: 3, 365, 000
1,001,000
1,942,000
400,000
- -22:,000 -
' 8,800
13f200 -
53,000-

—


- -
•- - -
-..-._-.- -

1
                               7-1 1

-------
7-5.-PRQ .FORMA INCOME STATEMENTS-AND DISCOUNTED CASH FLOW ANALYSIS
  FOR PCB USING PRODUCTION OF MODEL PLANT NO. 5 (IN DOLLARS)      : "


-•

"•












-










Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Sales
Less Fixed Costs
Less Variable Costs
Less Treatment Costs
Net Income (Loss) Before
Less Taxes
Net Income (Loss)
The Present Value
of Plant's Net Income
The Present Value
of Plant's Net Income
Treatment
1976
1,594,000
279,000
1,236,000
-0-
Taxes 79,000
31,600
47,400
With Treatment is:
Alternative A
1977
1,435,000
302,000
1,005,000
256,000
(128,000)
-0-
(128,000)
« - 110,000 -
Without Installing Treatment is: -
Treatment


Taxes

With Treatment is:
Alternative B
1,435,000
302,000
1,005,000
370,000
(242,000
-0-
(242,000)
» -208,000
Without Installing Treatment is: *
Treatment

Taxes

With Treatment is:
Alternative C
1,435,000
302,000
1,005,000
227.000
(99,000)
-0-
(99,000)
* - 85,000 -
Without Installing Treatment is: *
Zero Discharge
1,435,000
Taxes

With Treatment is:
302,000
1,005,000
269,000
(141,000)
-0-
(141,000)
-122,000
Without Installing Treatment is: •
1978
1,262,000
327,000
801,000
331,000
(197,000)
-0-
(197,000)
147,000 - 119
66,000
1,262,000
327,000
801,000
461,000
(327,000)
-0-
(327,000)
1979
1,179,000
351,000
677,000-
336,000 .---
(185.000).
. -0- .
(185.000).
,000 " -376,000

1,179,000
351,000
677,000
467,000
(316,000)
-0-
(316,000)
- 244,000 - 204,000 • -656,000
66,000
1,262,000
327,000
801,000
285,000
(151,000)
-0-
(151,000)
113,000 - 90
66,000
1,262,000
327,000
801,000
391,000
(257,000)
-0-
(257,000)
- 192,000 -
66,000

..1,179,000
351,000
677,000-
290,000 -
d-39-,000).
-0-
(139,000)
,000 - - 2SS.OOO-

1,179,000
351,000
677,000-
400,000 _-.r
(249-.000). .
. -o--
(249,000) .
161,000 "..-475,000








-
-- :- . - - -. - --,-:--






-_ --

- _ -





- . - - --_
-:.~ - --....- :-t.:-t-







-:- -..---- ..--'
                            7-12

-------
                                  CHAPTER 8


                              ECONOMIC IMPACT




                                INTRODUCTION


This chapter is  a summary of the probable  economic impacts for each alternative

treatment technology.  It includes estimated  market responses to each manufacturer's

action and, in turn, the company reaction to market response.


Several types of impact can be considered, as illustrated in the following diagram:



                                         Area of Consideration

                                    All Controls          Only the
                                    Except PCS          Addition
                                    Effluent Controls     of PCB
                                                        Effluent Controls
     Company Action                     (1)                _j[2)	


1.    Company action that causes      Impact 1             Impact 2
     treatment costs to be
     incurred

2.    Company action that avoids      Impact 3             Impact 4
     need for treatment
This report iff concerned with Impact 2 and 4—i.e. the incremental impacts due to PCB

e"ffluent controls..


Transformer plants are limited to Impact 4 because all companies with direct discharge

plants; are: predicted to phase out PCB use prior to the January, 1978 enforcement of

toxic pollutant effluent standards.  The results are given in the next section.    -
                                    8-1

-------
Effects on the capacitor industry  are  more complicated  because they include some
possibility in Impact 2 as well as Impact 4.  Also, the range of conditions under which
capacitors  operate  is considerably greater as  shown in a subsequent section of  this
Chapter.   Westinghouse  Electric Company, in particular, has exerted much greater
efforts to delay controls on capacitor manufacturers than it has  to delay controls on
transformer manufacturers.

The next part of this chapter  will present the estimated economic impacts based on
whether treatment technology A, B, C or Zero Discharge might be used by the affected
plants. Some of the impacts common to all the treatment technologies are discussed in
a separate section.  The last part of this chapter analyzes the impact of the regulations
on the individual direct  discharge plants.  Note  that  the effects on production are
primarily a matter of timing, since this  type of use of PCBs will be prohibited by 1980
due to the Toxic Substances Control Act.

           ECONOMIC IMPACT OF EFFLUENT CONTROL ALTERNATIVES

                                  Alternative A

If the EPA issues standards such that  the direct  discharge plants would be likely to
implement  Treatment A,  it's likely  that all five transformer producers affected by the
regulations would cease  the use of PCBs in 1978 rather than invest in the  equipment
necessary to meet the new standards. All but one of the capacitor producers would  also
switch to the production of non-PC B items. In terms of prodution,  Alternative A would
cause a 100 percent decrease in the number of PCB transformers produced by the direct
dischargers, and about an 80 percent reduction in their production of PCB capacitors.

This would  be roughly equivalent to a decrease in total transformer production of about
3 to 7 percent of current production, and a decrease in total capacitor production of
about  5  to  10 percent of current  production.    However, these  decreases in total
capacitor and transformer production would be at least partially offset by increases in
prodtiction~of non-PCB transformers and  capacitors, as the affected firms phase out
their  PCB  production and increase production of  non-PCB products.  Note that  this
incremental reduction in  production due to Section 307 (a) the regulations will decline
to zero by 1980, when the Toxic Substances Control Act bans production.
                                     8-2

-------
 These responses to the EPA's standards would have only a slight impact on employment
 as the production of non-PCB products require as much labor as the production of PCB
 items.  The temporary layoffs during the conversion of the production facilities could be
 frilly offset by the temporary increases in employment necessary to adapt existing
 equipment to the use of non-PCB transformer and capacitors.

 The anticipated impact  on the balance of  payments is insignificant,  despite the fact
 that the Japanese, who have already banned the use of PCBs have a head start in the
 development of non-PCB products. The expected insignificant effect on the balance of
 payments is based on the expectation that domestic producers of products threatened by
 imports would  absorb higher costs in the form of lower profits.  Also important is-the
 fact that considerable political pressure is  being exerted to place tariffs  on imported
 goods which threaten domestic  producers  who have  been affected by  the effluent
 standards.

 The impact of Alternative A upon domestic  energy consumption would also be small,; as
 this regulation does not affect the  large "stock"  of PCB transformers and capacitors
 currently  in use—it pertains  only  to  the  "flow" of replacement and new-use  PCB
 capacitors  and  transformers.    Hence, the  total increment iri  domestic  energy
 consumption due to these effluent  standards is equal  to the-difference  in efficiency
 between new PCB capacitors and transformers and their substitutes. -This difference in
 efficiency is quite small, with the best  available industry estimates placing it around 5
 .to  10 percent.   Sources indicate that  this slight  difference in efficiency,  which is
 limited to just  the replacement and new-use capacitors  and  transformers would cause a
 negligible increase in energy consumption.                         :  ~         -. ~ -  ~

                                   Alternative B
^11
 If the  EPA standards are  such  that the direct  discharge plants would  be likely to
.implement  Alternative B,  our analysis  indicates  that  all  transformer- and capacitor
 plants  affected  would probably  cease the use  of PCBs  rather than invest  in the
 equipment necessary to meet the  new standards.  This rwould mean'- a: 100 percent ~
 decrease  ittrthe  production  of PCB  transformers and: capacitors by  the""direct
 dischargers.                                            " —:~-.~.
                                      8-3

-------
 This would be roughly equivalent to a decrease in total transformer production of about
 3 to 7 percent of current production,  and a decrease in total capacitor production of
 about 5  to  10 percent  of  current production.   However,  these decreases in  total
 capacitor and transformer production  would be at least partially offset by increases in
 production of non-PCB transformers and capacitors, as the affected firms phase out
 their PCB production and increase production of non-PCB products.  Note that this
•incremental  reduction in production due to Section 307 (a) the regulations will decline
 to zero by 1980, when the Toxic Substances Control Act bans production.

 These responses to the EPA's standards would have only a slight impact on employment
 as the production of non-PCB products require as much labor as the production of PCB
-items.  The temporary layoffs during the conversion of the production facilities could be
 fully offset  by the temporary  increases  in employment necessary  to adapt existing
 equipment to the use of non-PCB transformer and capacitors.

 The anticipated impact on the balance of payments is insignificant, despite the fact
 that the Japanese, who have already banned the use of PCBs have a head start in the
 development of non-PCB products. The expected insignificant effect on the balance of
 payments is based on the expectation that domestic producers of products threatened by
 imports would absorb higher costs in the form of lower profits.  Also important is the
 fact that considerable political pressure is being exerted to place tariffs  on imported
 goods which  threaten domestic producers  who  have  been  affected by  the effluent
 standards.

 The impact of Alternative B upon domestic energy consumption would also be small, as
 this regulation  does not affect the large  "stock" of PCB transformers and capacitors
 currently in use—it pertains  only to the "flow" of replacement and new-use  PCB
 capacitors  and  transformers.    Hence,  the  total  increment in  domestic  energy
-consumption due  to  these effluent standards  is  equal to the difference in efficiency
 between new PCB capacitors and transformers and their substitutes^JThis difference in
 efficiency is quite small, with the best available industry estimates placing it around 5
 to 10 percent.   Sources indicate  that  this slight  difference in efficiency, which is
 limited to just the replacement and new-use capacitors and transformers would cause a
 negligible increase in energy consumption.                  - - - : -	- -   -  - -
                                      8-4

-------
                                  Alternative C

If  the  EPA  issues standards such that  the  direct discharge  plants would be likely to
implement Alternative C, our analysis indicates that all of the transformer producers
affected by the  regulations would cease the  use of PCBs rather than invest in the
equipment necessary to meet the new standards. However, two of the producers of PCB
capacitors would  continue to use PCBs,  and  would meet the new standards. This would
mean a 100 percent reduction in  the production of PCB transformers by the direct
dischargers, and  about  a  60  to 70 percent  decrease  in  their  production  of  PCB
capacitors.

This would be  roughly equivalent to a decrease  in total transformer production of about
3 to 7  percent of current production, and a decrease in total capacitor production of
about  5 to 10 percent  of  current  production.   However,  these decreases  in  total
capacitor and  transformer production would be at least partially offset by increases in
production of  non-PCB transformers and capacitors, as  the  affected firms "phase out
their PCB production  and increase production of non-PCB products.   Note  that this
incremental reduction  in production due to Section 307 (a) the regulations will decline
to zero by 1980, when the Toxic Substances Control Act bans production.

These responses to the EPA's standards  would have only a slight impact on employment
as the  production of non-PCB products require as much labor as the production of PCB
items.  The temporary layoffs during the conversion of the production facilities could be
fully offset by the  temporary increases  in employment necessary to adapt existing
equipment to the  use of non-PCB transformer and capacitors.

The anticipated impact  on  the balance of payments is insignificant, despite  the fact
that .the Japanese, who have already banned the  use of PCBs have a head start in the
development of non-PCB products.  The expected insignificant effect on the balance~of
payments is based on the expectation that domestic producers of products threatened by
imports would absorb higher costs in the form  of lower profits.   Also important is-the
fact that considerable political pressure is  being exerted to  place tariffs on imported
goods - which threaten domestic  producers  who  have  been  affected  by the  effluent
standards.
                                     8-5

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The impact of Alternative C upon domestic energy consumption would also be small, as
this regulation does not affect  the large "stock" of PCB transformers and capacitors
currently in use—it  pertains only to  the  "flow"  of  replacement  and new-use  PCB
capacitors  and transformers.   Hence, the  total  increment  in  domestic  energy
consumption due to these effluent standards is  equal  to the  difference in efficiency
between new PCB capacitors and transformers and their substitutes.^ This difference in
efficiency is quite small, with the best available industry estimates placing it around 5
:to  10 percent.  Sources  indicate that  this slight difference  in  efficiency,  which is.
limited to just the replacement and new-use capacitors  and transformers would cause a
negligible increase in energy consumption.                  -:  r                    ~

                                  Zero Discharge

If the EPA issues standards such that  the direct discharge plants would be likely to
implement the Zero Discharge Alternative our analysis indicates that  all transformer
producers affected by the regulation would cease the use of PCBs rather than invest in
the equipment necessary  to  meet the new standards.   However, one of the capacitor
plants would be likely to install  the necessary treatment. This would mean a decrease
of  100 percent in the production of PCB transformers by the direct dischargers whereas
their  capacitor production would fall by  about 85 percent.

This would be roughly equivalent to a decrease in total  transformer production of about
3 to 7 percent of current production, and a decrease in total  capacitor production of
about 5  to  10 percent of  current  production.   Howeverr these decreases in total
capacitor and transformer production would be at least partially offset by increases in
production of non-PCB transformers  and capacitors, as the  affected firms-phase  out
their  PCB production and increase production of non-PCB products.' Note  that this
incremental reduction in production due to Section 307 (a) the regulations will decline
to zero by 1980, when the Toxic  Substances Control Act bans production.            ~ '

These responses to the EPA's standards would have only a slight impact on employment
:as the production of non-PCB products require as much labor as the production of~PCB~
Sterns;.:  The. temporary layoffs during the conversion of the production facilities could be
_fuHy.;offset ,by_ the  temporary  increases in  employment necessary-to:adapt existing
equipment to the use of non-PCB transformer and capacitors^ /:----   : - -- .    : v : - - '
                                      8-6

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The anticipated impact  on the  balance of payments is insignificant, despite the  fact
that the Japanese, who have already banned the use of PCBs have a head start in the
development of non-PCB products.  The expected insignificant effect on the balance of
payments is based on the expectation that domestic producers of products threatened by
imports would absorb higher costs in the form  of lower profits.  Also important is the
fact that considerable political pressure is being  exerted  to  place tariffs on imported
goods  which threaten domestic  producers  who have been  affected by the effluent
standards.

The impact of the Zero Discharge Alternative upon domestic energy consumption would
also be small, as this regulation does not affect the large  "stock" of PCB transformers
and capacitors currently in use—it pertains only to the "flow" of replacement and new-
use PCB capacitors and transformers. Hence,  the total increment in domestic energy
consumption due to  these effluent  standards is equal to the difference  in efficiency
between new PCB capacitors and transformers  and their substitutes._.TWs difference in
efficiency is quite" small, with the best available industry estimates placing it around 5
to  10 percent.  Sources  indicate that this  slight difference  in efficiency, which  is
limited to just the replacement and new-use capacitors and transformers  would cause a:
negligible increase in energy consumption.

:              DELAYED IMPACTS IN REPAIR  AND INSURANCE RATES  -- --  - -

Whichever Treatment  Technologies the direct  dischargers eventually select, there-are
some effects of the PCB effluent standards which will remain unchanged.  Two of these
effect are the possible changes in product liability insurance rates and the impact upon
the product repair element of the industry.                •

There are two ways that PCB effluent standards  in, say,  f978  could have effects  that
are delayed until after the 1978-1979 study  period.  First,  capacitor and transformer
manufacturers' obligations and  committments to repair  PCB units could have impact
for many years after terminating production of new PCB units*  Second,  any saftey
degradation with PCB substitutes might not be  reflected in higher-insurance rates until
several- year later when  law suits  are reflected in  higher  outlays for-claims under
product liability insurance.                              -   ;__..:.      ,
                                     8-7

-------
 Since  Section 307 (a)  controls do  not pertain  to repair  facilities there is  no direct
 impact.  However, a manufacturer might find that costs to fulfill repair committments
 are slightly higher after it ceases use of PCBs in new units. Since no company was able
 to  provide  definitive  estimates  in this areas,  it was concluded  that  this impact is
 possible but the expected value is minor.

 Property  fire insurance  rates are not expected  to change. Vaults or other adaptations
.to new codes may be required, but fire insurance per se should not change significantly.

 Product liability insurance typically changes with the group claim record—i.e., after,
 rather than before, changes in product liability.  Insurance rates are typically reviewed
 once per year, after another year's experience has been accumulated.  In the case of an
 abrupt or drastic change it is possible that judgement of insurance company executives
 could  supercede the experience record on the previous  product;  however, even  the
 change from judgements will be corrected by the eventual experience record.

 Insurance executives have great difficulty discussing changes in the rates before  the
 codes  and before  a  consensus on changes on safety.  As of October, 1976 several PCB
 substitutes are still in  testing stages.

_-The; best  estimate is an insignificant change in insurance  rates as PCB substitutes are-
 phased in over the study period—1977 through 1979.       -                -

             ESTIMATED ECONOMIC IMPACT FOR INDIVIDUAL PLANTS

                  Direct Discharge Transformer Manufacturers                  -  -
 There _ are; four  transformer manufacturers  who are  (or  were until  recently) direct
 dischargers of PCBs into navigable waters:                 : ^   .  -
                                      8-8

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      Company                       Plant Location

 General Electric Company             Pittsfield, Massachusetts
                                      Rome, Georgia
 Helena Corporation                   Helena, Alabama
 Research-Cottrell, Inc.                Finderne, New Jersey
 Westinghouse Electric Corporation     Sharon, Pennsylvania

 The  General Electric and  Westinghouse decisions may have less to do "with effluent
 standards than with (1) Monsanto's announcement that it, the sole producer of PCBs in
 the  U.S.,  would stop  selling PCBs  October 31, 1977 {lief. 40  ,  and (2)  the Toxic
 Substances Control Act  just signed by President Ford which forbids production of PCBs
 in the U.S. after January 1, 1979 or their sale after  June 30, 1979. Imports would also
 be forbidden by June 30, 1979.

 The economically useful life of effluent treatment facilities appears to be so short that
 investment in treatment is unlikely.  The  EPA plants to  extend the effluent controls
 from direct dischargers  to indirect dischargers, but any delay would limit the ability of
 direct  dischargers  to  recover  treatment  costs   via  price  increases  because" of
 competition from other manufacturers. Thus anyone  considering investing in treatment
 facilities faces a formidable combination of adverse economic factors.

 The electric utility companies which purchase most  General Electric and Westinghouse
 transformers should be  able to absorb any price increases due to announced  shifts to
 non-PCB units.  Although electric utilities have delay in regulatory agency approval of
 cost increases, they'usually succeed in passing all costs increases to customers. They do
 not face the competitive pressure witnessed in the transformer industry." ~" ::"- "   - " "~-~

 AU of-the large customers for PCB-containing transformers from General Electric and
 Westinghouse are power companies and electric train  facilities for mass transit systems.
 It is widely believed that the power companies will need to buy new transformers as the
- old PCB-filled transformers breakdown since it is impossible ta completely df-aurand
                                      8-9

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  eliminate PCBs from the old cases, tanks and tubing and other insides.   Thus extra
  investment funds will be required.  If mineral oils or presently known alternatives are
  used, fire-proof vaults  will probably be required around  the transformers, at least in
  many urban locations, to reduce possible  fire losses.  These, too, require additional
  capital.  It is  also believed that  electric trains will have difficulties  in  making the
  transition to other types of transformers but many are used in Japan.

  Only about 5 percent of all transformers have been built with PCBs and it is unlikely
  that employment or output at the General  Electric and Westinghouse plants or at their
 :customers' establishments will  be  reduced.   Employment  at  power plants and  their
  distribution system nodes to  build vaults  and  make  other  changes, will increase but
  these effects will be widely dispersed and of a temporary,  transitional nature.

  Hence a strong  case  can be made that  economic impacts  of  the effluent  controls
  themselves on General Electric and Westinghouse is a minor increase in demand for new
  replacement transformers (non-PCB).  One might expect  a  temporary favorable effect
  on their  non-direct discharger competitors but Monsanto's withdrawal from production
  and  the EPA's planned regulations for non-direct dischargers make this advantage very
  limited and temporary' Ref. 40 |.

  The  other two relevant producers of  transformers  (i.e., those containing PCBs and
 - discharging directly) are small compared to General Electric and Westinghouse and they
  also have a different set of ultimate consumers.  They produce transformers only for
  use in their own products.

  Both Research-Cottrell and  Helena produce rectifier transformer combinations to be
 -incorporated in electrostatic precipitators of  participates, either in public utility-or
--  private industry power plants' smokestacks. Their sales of-transformers are"completely
; integrated as part of the precipitator business and are not sold-as special transformers.
  The  total cost of a precipitator is  much larger than that of the transformer component.
 .Since precipitators  are required  to control air pollution, the  price  of component
  transformers will probably not reduce the demand for precipitators." - :  --- :' -': -: -
- ^ A concensus  from telephone  interviews in preparation of this-' report.
                                     8-10

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Research-Gottrell and Helena's parent company Pollution Control-Walther, Inc. PC-W
specialize in air pollution control and have images that could be damaged by publicity
about misuse of PCBs. Research-Cottrell is a substantial company with total sales of
$223 million in 1975. New orders for electrostatic precipitators were $125 million. PC-
W is much smaller and not yet profitable on an annual basis, but made a profit in the
last two quarters of fiscal 1976 ending March 31.  According to Moody's "Manual of OTC
Industrials," PC-W has been talking about a merger with a larger company," Combustion
Engineering,  a  competitor in nuclear  power  systems  with General  Electric  and
Westinghouse.  Should this go through it would be likely that PC-W could  invest in~
ventures with reasonable profit potentials.

Helena is located in the  small village of  Helena, Alabama, just outside of Birmingham.
Research-Cottrell is located in Northern New Jersey,  well outside of the depressed
Newark area.   Both are in an industry that is widely regarded as rapidly expanding.
Despite PC-W's string of annual  losses which have trended downward since  Helena's
start  in April,  1973,  it seems reasonable to think that financial prospects in general
could allow profitable investment.

The  high temperatures  inside of smoke stack  will probably require that  non-PCB
transformer-rectifiers be placed outside and connected with direct current links to the
precipitators themselves. This could open an opportunity for other manufacturers of
transformers to supply those parts.

                     Direct Discharge Capacitor Manufacturers                _______
There are five capacitor producers with a total of six plants that presently use or have
recently used, PCBs and also discharge wastewater into a navigable river:       -~:  -j •
               Company Name
        AVX Corporation
        Cornell-Dubilier Electric Co.
        General Electric Company
        General Electric Company
        Sangamo Electric Company
        Sprague Electric Company
  Plant Location
New Bedford, Mass.
New Bedford, Mass.
Hudson Falls, N.Y.
Ft. Edwards, N.Y.^ -
Pickens, S.C. ^-V--
North Adams, :Mass.
                                   8-11

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 Chapter 4 presents financial profiles of these five companies.

 It is even more difficult to assess the economic impacts on the diverse companies in the
 capacitor industry than in the transformer industry.  There are difficulties in assessing
 the impacts on each of the six capacitor plants which are currently discharging PCBs
 into navigable waters. This is largely due to three factors: (1) the wide variety of sizes
 and shapes  of PCB capacitors—from under  1 inch to over  2 feet, (2) the broad range of
 conditions under which capacitors operate, and (3) the different market situations in
 which the consumers of PCB transformers and capacitors operate.

 To summarize the discussion of PCB  capacitors presented in Chapters 3 and 5  of this
 report, there are  basically two classes of PCB capacitors.  (1) Large PCB capacitors,
 known as power or industrial  capacitors, are primarily used by the electric utilities in
 the generation and transmission of power.  The demand for these power and industrial
 capacitors has been growing at approximately  the same rate as sales of electricity. (2)
 The second  class of PCB capacitors is the smaller electronic capacitors.  These are used
 in a variety of  household appliances (including radios, televisions and air conditioners),
 industrial electonin components, and in fluorescent and mercury vapor• lighting.  The
 demand for these  PCB capacitors has also been steadily growing, as shown in Chapter 5.

 Substitutes  for  PCB capacitors are  currently available; however, there are one-fo.r-one
 substitutes  for  small capacitors.  The price of a non-PCB capacitor is  about 20 to  30
 percent Jiigher  than the price of a comparable PCB product.- This is largely due to the
 fact  that non-PCB capacitors are nearly double  the  size  of the comparable PCB
 capacitor  of a given electrical rating.  This size differential becomes significant when
 one considers that many  electronic capacitors are used in small appliances and in  the
 ballast boxes of  fluorescent  and mercury  vapor lamps.  T?or the consumers of PGB
 electronic  capacitors to  switch  to  the larger  non-PCB  substitutes  would  involve
 redesigning many  of their products—hence,  consumers of electronic capacitors will tend
 to continue to use PCB capacitors for as long as possible.

:A shift  to non-PCB products may not be as difficult for the consumers~of the larger
 power capacitors.  The utility companies should be able to1 absorb the additional" costs
 involved,in-switching from PCB to non-PCB products, including the costs of redesigriing
                                     8-12

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where necessary.  Although electric utilities frequently run into delays in the approval
of price increases in response to higher costs, they usually succeed in being eventually
able to pass cost increases through to their consumers. Being a regulated monopoly, the
utilities are not faced with the same competitive pressures which confront the users of
the smaller electronic  capacitors.  In technical  terms,  the demand for PCB power
capacitors is more elastic than the demand for PCB electronic capacitors.

The General Electric Company has publicly announced that it intends to stop using PCBs
sometime in 1977 rather than wait for EPA standards. As noted in this chapter's analysis
of the transformer industry, General Electric's decision may have been influenced more
by  Monsanto's  announced end of PCB sales,  than  by the possibility  of new  effluent
standards.

The major customers  for General Electric's PCB capacitors  are large utility companies.
General  Electric also produces small capacitors for  its  own appliance  division.   As
indicated above, the utilities will probably be able to pass the costs of switching to non-
PCB  capacitors through to its customers.  However,  the General  Electric  appliance
divisions compete in a more  competitive  market than  the utilities—hence, the  increase
in costs due to  switching to non-PCB capacitors might be absorbed in the form  of lower
profits.

.No significant  employment  effects  are  anticipated  at  either of  General Electric's
capacitor plants, as General Electric intends to convert its operations to the production-
of non-PCB capacitors rather than close down.  There may  be short term layoffs while
the conversions occur,  but these layoffs  would not have  lasting  significant  effects.
Employment at power plants and along their distribution  systems will increase, due to
the need  to .modify existing equipment in order to accommodate the larger  non-PGB
capacitors.   However,  these effects will be widely dispersed and  of "a temporary,
transitional nature.

None of the other producers of PCB-filled capacitors have  publicly announced their
intentions either to meet the expected new EPA standards or to cease  the use of PCBs.
The behavior of these plants will largely  depend upon which alternative treatment is
likely tp be used to meet the new regulations, and  hence  any analysis of the economic
                                    8-13

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impacts upon these  plants must  also be related to these treatment alternatives.  All
estimates of the impacts of the effluent control alternatives upon the production levels
of  PCB  transformers  and  capacitors at  individual  plants  would  be based  upon
confidential data so these estimated are not presented.
                                     8-14

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                                    CHAPTER 9
                             LIMITS OF THE ANALYSIS
 The data used in this report were Collected from some published sources, the Versar
 Task II Report, corporate annual reports, industry sources,  and proprietary information
 obtained by  the EPA.                                                   -

 Five model plants were developed by synthesizing available data on  eleven real plants.
 In general, it would  be reasonable to associate a real plant with at least one of the
 model plants. However, plant-to-plant variations due to location factors and difference
 in   management  practices   may  be  encountered.    Uncertainties  in  technology,
 applicability  of  substitutes, costs,  product mix and  other  regulations, could  have
 introduced errors.  However, data presented  in this  study generally  reflect  typical
 conditions in the transformer and capacitor industries and provide a reasonable basis for
 evaluating the transformer and capacitor industries  and provide a reasonable basis for
 evaluating the economic impacts of Section 307 (a) controls.

 Several critical assumptions and estimates were made in this study  and pointed out at
 various places. The following is a summary of the more important limitations: -        ":

      1.   One  important limitation is that  investment capability had to be'based on
           company-wide  data  rather than  on  the  profits  or prospects  of  PCB
           operations  alone.    However,  neither  the  cost   of capital  nor  capital
           availability appear to be the deciding factor in a plants decision. -- --    -:: r.

:^  -;  2-:  The useful life of the effluent control equipment was considered to be three
           years. If substitute dielectric fluids can be treated with the same equipment
           as General Electric has agreed to do in its settlement with New; York State,
      -.-;- the useful  life for  such equipment is greatly increased.   A-longer  life
   ;-: ,;-.  expectancy would cause more plants to install the equipment and use PGBs
^:  ::- -.;.  -until the ban in 1980, in accordance with the Toxic Substances Control Act.-
                                    9-1

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3.   Efforts to conserve electricity can slow the  growth in demand for electric
     equipment generally, but still  increase the demand for 'small capacitors  in
     motors and household equipment generally.  States are considering laws  in
     addition to the federal Energy Policy and Conservation Act of  December
     1975.   This analysis has  been based  upon current  laws  concerning energy
     policy  and conservation,  as forecasting the outcome  of the  legislative
     process is highly uncertain. However, if the laws  under consideration are
     enacted,  they  would probably  increase the demand for small capacitors  in
     motors and household appliances.

4.   The speed of  adjustment  of  the  product liability insurance industry and
     various safety agencies is unknown and indeterminable until  the capacitor
     industry settles on a standard  substitute for PCBs.  Our analysis considered
     these  costs to be negligible  for  1978 and  1979.   See  the discussion  in
     Chapter 8.
                                                                          *
5.   More mineral oil than is currently available would be required to replace all
     PCBs.  It is not known where and at  what price sufficient mineral oil will
     become available.
6.  - - Plants were assumed to be fairly similar in characteristics for which specific
     information  was unavailable,  (e.g.,  product lines,  the  ratio  of fixed to
     variable costs, and the cost of capital). If there are substantial differences
     among plants with  respect to those characteristics,  these differences could
     change the results of the investment analysis in Chapter 7.  '-"-'-     '.- ~-.-. ,\

     The capacitor and  transformer  industries are currently undergoing a period
        change due to government regulation  of PCBs.  These dynamic forces
        ke it difficult to accurately forecast production and prices of PCB items.
          tively small changes  in these forecasts can cause singificant changes in
          results  of  the  analysis.   For example, if  production fell ^more than
     Expected or prices could not be  increased as  much as projected more' plants
                               9-2

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4

-------
     might stop using PCBs than the investment analysis showed.  Conversely, if
     production fell  more  slowly  and prices could  be increased more than
     projected, more plants might install the treatment equipment.

8.    It has been assumed that the sections of the Toxic Substances Control Act
     that provide for exceptions to the  ban on  PCBs  will not be used  for
     transformer or  capacitor  manufacturers.   If these manufacturers were
     exempted  from   the  ban  the  likelihood  of  their  installing  treatment
     equipment would increase .
                               9-3

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                                  APPENDIX A
                          SPECIFIC TECHNICAL ISSUES
 This  appendix  presents (1) specific issues  that were investigated and found  to  be
 unimportant for impact estimates, and (2) specific issues that seemed too technical for
 most readers of the overall report.                                           ------

   CAPACITOR USE AND ENERGY  CONSERVATION IN HOUSEHOLD APPLIANCES

 On December 22, 1975 the Federal Energy  Policy  and Conservation  Act* 42USC6201,
 was enacted and became  effective.  The Federal Energy Administration was instructed
 to propose standards for increased energy use efficiency for 1980 within 180 days from
 passage. There is to be at least a 20% overall increase in efficiency in the 1972 energy
 use  rates  of  household  appliances; that  is, the  energy  consumed by all  covered
 appliances produced in 1980 must be 20% less  than  the energy consumed  by  all such
 appliances produced in 1972.

 According  to -the proposed standards issued in the  May 14, 1976- issue of the 1976
 Federal Register, the increases in efficiency shown in Table A-l are to take place by
 1980.

 The 92-94%  reduction in energy consumption  by  black and  white  TV sets makes it
 obvious that  the standards pertain  to total energy consumption rather  than  rates of
 energy use.  For example, the  number of black and White sets produced in 1980 is
 expected to be  small compared to that in 1972.                     .-.-•-.

 Categories of appliance beyond the Table A-l list are included, but they do not contain
 capacitors; however,  they  do  affect the computation of the  rtat least 20%" overall
 improvement shown in the first line of Table A-l.
    -effect on the demand for capacitors derives from the fact that adding^ additional
 capacitors in parallel can have dramatic effects on energy consumption oT fractional
Jiorse_-power motors.  For example, start-up energy use can be" reduced 60-80%.  MrV

                                    A-l

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             TABLEAU-ENERGY CONSERVATION FOR APPLIANCES WITH CAPACITORS.
                           Appliances Which
                          Contain Capacitors
             All covered appliances
             Refrigerators and refrigerator-freezers
             Freezers
             Room air-conditioners
             Clothes washers
             Electric clothes dryers
             Dishwashers
             TV monochrome
             TV color
% Decrease in Energy Use
 for All Units Produced
      At least 20%
         43-50
         33-40
         28-40   -
         11-50
         16-14
         22-40
         92-94
         50-80
          Clifford Tuttle of the Electronic Industries Association, testified that the demand for
          small capacitors in the U.S. would increase from its present $100 million to between 150
         -and 175  million dollars by 1980 as a result of compliance with the Energy Policy and
          Conservation Act [Ref. 4J .  Some states are considering laws or reguations that would
          restrict energy use beyond the proposed federal requirements.          :       --  - -

          It  is  natural to inquire  why these changes in energy requirements have  not already
          occured inasmuch as they do not require new technology.  The answer seems to be that
          :foc the-user of household appliances the operating costs have seemed less important
         -than the appliance purchase price and the appliance reliability. In turn, manufacturers
          have focused their attention on reliability and lower initial costs.

          It appears that Mr.  Tuttle, despite the circumstances of his testimony, has focused on
         ;the demand  for total capacitors rather  than capacitors affected by regulations on :the
         : use of PCBs.  The cost of liquid dielectrics  in appliances using capacitors is a fraction
          of total  cost.
L.
                                              A-2

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            In summary, there  appears to  be no significant effects from  proposed PCB effluent
            controls on energy usage.

                         VIEWPOINT OF CONTROL EQUIPMENT MANUFACTURERS

            This industry supplies filtration  and carbon adsorption equipment.  Some equipment
            manufacturers assemble components  from  other  manufacturers, but  at least one
\            manufacturer produces all  components. It is necessary for the supplier to work closely
i
            with the purchaser so that the equipment can be custom designed to fit the exact needs.
i"
j
;            The whole industry  has had great difficulty in obtaining any contracts to treat PCB
,            effluents; no  transformer  company  is known to have  ordered  such  equipment  or  is
i
!            planning  to order such equipment.    General  Electric has announced  plans  to  treat
            effluents from their  Hudson Falls  and Fort Edwards, N.Y. capacitor plants, but no  other
|            capacitor plant has announced such plans. This action by General  Electric, resulted, in
            part, from  legal proceedings  initiated by  N.Y. State's  Environmental Conservation
t
j            Department; the action cannot be attributed solely to proposed federal controls under
            Section 307 (a).
i ~
i
            General Electric will discontinue  accepting orders for products containing PCBs by July
;            1, 1977 but will continue to use the PCB treatment facility  on whatever substitute fluid
!
;            they use instead. Their $3.5 million  pollution control system is scheduled for operation
            by  April,  1977.  If  other plants expect their substitute fluids to  need treatment, the
            likelihood of installing the system would  tend  to increase greatly.  One of the major
   - - .      problems in marketing treatment  equipment is the short usage period. This period may
            be less than the  time required for payback of investment outlays.                     :
                                                A-3

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                                  APPENDIX B

                   EXCER-PTS FROM FINANCIAL STATEMENTS             I.	„ _

The tables in this appendix summarize financial and sales data that were available and
used for this report.
                                    B-l

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                           EXCERPTS 5TLOM FINANCIAL STATEMENTS
                                       TABLE B-l
                               AVX CORPORATION
(in thousand* of dollars e.xctpt pvr shart amounts)

Continuing1 operations :
-, Net sales 	
, Costs, expenses and other income :
Cost of sales 	
Seilin;, general and administrative expenses
Interest expense . •
• • Other income 	
i
Income from continuing operations before
income taxes and -ninnrirv •nr?r+«t

1075
325.950
21.300
-1,008
:i4
ii52)
23.480
L 500

1974
834,096
26,727
4,539
59
(97)
31,333
2,753

1973
527,355
21,053
3,750
25
Clsl)
24.347
3.209

1972
322,170
16,311-
- 2,46* -
57
(54) -
19,238
2.382

1971
S16.692
13.159
•- 1.352 -
140
(29)
15.132
1,560

                                   TABLE B-2

                    FEDERAL PACIFIC ELECTRIC COMPANY
                 for CORNELL-DUBILIER ELECTRIC COMPANY
                                   (subsidiary)
                     3TATSM5HTS OP 2TCCMS A2Q RETAriiD  EAE^fC-S
                   for the years ended ^ecetaber 21,  1=75 ar.d 197^
           Hsvenusa:
             Set salas                           $273,504,21^  52=^,355,578
             Hoyaitiss and other lacone             1.230.5?^     1,717.22"
                                                275.3-t.563   256,072.80°;
           Casts and axnenses:
             Ccsr of products sold                202,730,011   192,593,031
             Selling and  adoiaiatrative            30,315,023   30,j62,9O4
             Ln-erast                              3,-55,572    ^,2^1,010
             Other expenses                           3lS.«2      ^u.sg^
                  Income  before ainority
                     interest and income taxes    29,01=,5C5   28,^63,597
                                       B-2

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                  SCC2RPTS HICM FINANCIAL STATEMENTS

                           TABLE B-3

                GENERAL ELECTRIC COMPANY
Ten-year financial summary
(Dollar amounts in millions; per-share amounts in dollars)
-Slimmary^aLoperalions _ _
Sales ol products and services
Materials, engineering and production costs
Selling, general and administrative expenses
	 Operating costs
	 .Operating msirgjn
Other income
Interest and other financial charges
	 _?_srninqs before income taxes and minority interest
Provision for "income faxes
Minority interest
Net earnings

„
1975
SI 3.399.1
10.1953
2.282.3
12.478.1
9?'.0
197.5
(1689)
9496
(C53.0)
	 (10.8)
Sean a


1974
$13.413.1
10.1370
2.230.5
12.418.1
995.0
1353
(180.1)
1.000.7
(3fl2. i)
	 Q0.2)
Sfiflfl 1


1973
$11,575.3
8.515.2
2.105.3
10.620.5
954.8
183.7
. <128.9):
1.011.6
(4187)
	 (7.8)
Seae «


1972
$10.239.5
7.509.6
1.915.2
9,424.3
814.7
1C9.2
. (1.06.7)
897.2
(364.1)
(3.1)


1971 -
$9.425.3
6,962.1
1,726.2
8,688.3
737.0
152.0
(96.9)
792.1
(317.1)
	 (3.2)


                       SALES 3Y CATEGORY
                                  Year ancied Dacaaaer 31
SALZS
    Consolidated Operations
      Aarospace	
      Consuaer	,	
      Inaustrial Components and
        Sys cams	
      Industrial Pover  Equipment.
      Iaternaciotia.1	
51,623
 2,383

 2,865
 2,131
 1,584
5 1,514
  2,782

  3,158
  2,249
  1,330
$ 1,611
 _ 3,097

  3,723
  2,477
  2,318
                                  1971     1972     1973
                                       (in millions)
? 1,916
  3,214

  4,529
  2,737
  3,213
INCOME
Consoliiacad Operations
(income before cax«s)


Industrial Coirooneats and

Industrial Powar Equipment.





S 62 S
131

233
223
139




47 5
251

271
225
170




73 5
260

319
223
245



— 	
125
144 - • —

423
168 - -------
290 - :--.--


       Operating  Results By Major  Categories
                                                                      samings as a
                                                                    :»retnt of sans
	 __ -7—— 	 	
'nausirtai uamoonents ana systems
T. Consumer . 	
'ndustnai Power Equipment
- . .. Aerospace" 	
i . international - 	
. General Electric Credit Corporation
. 7j Corporate eliminations ... 	
— — ~ Total Company .. 	
1975
$ 4.320
. . . 1380
.. . . 2.322
.... 1,972
	 3,7*5
	 (2.44Q)
	 313.399
1974
S 4,529
3,214
2,787
1.916
3.218
(2.2S1)
313.413
__1325_
-322S- -
- ' 108
' -73 -
"158 .
: 52 -
19XL.
3254"
36.
tor •
75
174
43"
(125)
5608
1 975 	
5.2"=
3.3
" :~ 2.2
3.9
4.2
4.3
.137J 	
5.5%
2.7
3.3
3.3
5.4
4.5
                                B-3

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                      SXC2SPTS ?ROM FINANCIAL STATEMENTS
                                   TABLE B-4
                      POLLUTION  CONTROL-WALTHER,  INC.
                      for HELENA CORP.,  (Subsidiary)
                         CONSOLIDATED STATEMENT OF INCOME (LOSS),
Revenues  earned

Cost_ ot_ revenues earned
Operating  expanses:
  General  and administrative
  Selling
Interest income

Interest expense
State taxes on  income
Minority interest In Iocs
Cumulative  effect on years prior to
  March 31,  1976 of a chang
  for earned revenue on cer
  (Nota 2)

   -..  .  . Net income  (loss)




e

m operations
3 ion for
income
terest
ity interest
ative effect of a
nting principle
e in accounting


Ye
1976
$30.286,516
29,193.585
1,092.331
858,374
355,475
1,213,349
(121,018)
82,465
(149,024)
(187.577)
48,768
(236,345)
(236,345)

271.611
35,266
ar Btded March
1975
$20,429,470
19,510,975*
918.495
632.509
253,439*
885,948
32,547
97,810
(156,164)
(25,307)
(25.307) .
(25,307)

:
(25,307)
31,
1974
$7,591,359
7.308,827*
(217,468)
426,608
202,357*
628,965
(846.433)
96,925
(49,447)
-: (798; 953} .- .
r- (798; 953)--
43 ,986
(734,969!- -"
. " . ---:•- .-

(754.969)
                                   B-4

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                              SXCSRPTS TSOM  FINANCIAL STATEMENTS
                                            TABLE  B-5
                              RESEARCH-COTTRELL,  INC.
(Thousands of Dollars except par share amounts)
; SUMMARY OF OPERATIONS
	 MEW ORDERS 	

*•". 	 SACXECCT"

Sales
Cost or sales
Administrative, general and selling axoenses
Operating income (loss)
J- Other income (deductions)
interest sxoense
Miscellaneous, net
income i toss) from continuing ooeranons
cerora ncome taxes
1975

$245496

351493
223448
183489
33,459

(2.002)
(283)
5433
1974 _

5237.466 ._

330.243 — _
164.497
137.356
23,349
'2.308)

(1,732)
233
,'3.307)
_ 1973

_S231.711

—257.27A . ..
140.174
107.945
22.345
9.334

'541)
135
9.023
1972

5147,420

165,737
132,777
99.354
22.336
11,037

(316)
(33)
10.638
1971

SI 56.578

151,094
102.524
77,219
17.041
3.364

^•470)
'2)
7,392
                   SALES AND INCOME 3Y LINES OF BUSINESS on thousands)
                   Sataa
                                               1975
                                                      1974
                                                              1973
1972
                                                                             1971
                   Air Pollution Control (also includes
                     Rex-Kleen. international
                     Ooerations and Oxy-Cataiyst)   J143J42 531.419  S 65.337  S 59,121 555.084
Cfiimneys
Coonng Towers
environmental Sngmeenng
Total
Income (Lou)
Air Pollution Control
Chimneys
Cooling Towers
Environmental Engineenng
Unallocated General Corporate
cxoenses and Other income
and Deductions
Income Taxes (C-eoit)
Net income i Loss)
34^50
19,99*
25.SS8
S323.S46
S 1,799
4,851
1420
3,411
S 11,291
5,348
2470
S 2,383
29.632
30.202
23.244
5164.497
S (3.550)
3.284
2,770
3.164
S 663
4,475
(559)
S (3.248)
24.334
27.201
22.752
5140.174
S 2.779
2.796
2.110
3,390
S 11.075
2.047
4.509
5 4.519
23.157
19.021
21,478
5132.777
S 5.399
2.902
1,030
2.925
S 13.256
2.563
5.353
S 5.335
13.050
1 1 .950
17.540
5102.524
S 5,102
2.394
247
2.258
S 10.001
2.109
3.943
S 3.949
                                              B-5

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                      EXCERPTS FROM FINANCIAL STATEMENTS
                              TABLE 3-3
                   SANGAMO  ELECTRIC  COMPANY
      Profit and  Loss Information
Cos:.; ir.ci e.-cpenadS, including interest expense
  o: 0.395, 000 ($1, 115, 000 in 1974)
Encsfrtu before income taxes,  minority interests
                    erscit
                                                                 ir'or the Nin* Month's
                                                                ..Ended Sxata.T.!jffr SiJ.
                                                                  1575          137-1
                                                              (CTna. milted)

                                                      $93, 194,000   106, 343, 00.'
                                                       93,025. 300  -  96-. 453. Z'.:.

                                                        5, 169, 000    10, 395, '„"?•:_
Consonoarea statement
of Operations
Sales (a) (b)
  Cost of sales
  Selling and administrative
    expenses
-  Interest expense (h)
Income before income taxes,
  •minority interests and
                                         1970
                                 13,897
                                  lj.317
                                  4. 581
                                                  Vear £nded Decemoer 3!
                                            1971
                                                       1972
                                                   (In thousands of dollars)

                                       3108,925   107,134   113,420   127, 170  145,902

                                         33,630   83,561    35,312   96,330  108,429
                                                   19,557    13,086    13,991    21,491
                                                  __L245       594       743     1.686
                                104,344   104.363   103.992   116,064   131.606
                                                   2,321
                                                       9, 423  T 11.106 .. _14. 2_96_
                              TABLE B-7
                  SPRAGUE ELECTRIC COMPANY


Net laies
Cost cf jO
* Se»i"5. ;s
- ^esaarcn.

' ' " " " ••> 9r:iir>n
r - - - - - -Miscsilans

" Tcuunes ar sciiars)
RMiUta
3os said
•rsra! and administrative sxoenses
aeveicoment and sngineenng *.xo«nsas

'ncorfle (loss)
>ous income fsxpensa)— 
-------
SXC2HPTS  FROM FINANCIAL STATEMENTS
            TABLE B-8
 WESTINGHOUSE CORPORATION
•
.........
'.amounts TT thousands of dollars)

'ncome:
Ecuity »n income 'ossi from non-consolidated
5u^S)diar"*s and affiliated ccmoanies 	
C;ner ncome 	

Cost and axoenses:


it,forost
1 rc~me 'axes 	
1 Minority .merest n net .ncome of
1 -onsondatsd suosidianes 	


' '^c^me *rrm c^ntinuind ocerations 	


(amounts ;n thousands ofdoi'ars)

Power Systems 	
- 'ndusfry Products "."«-.
i Public Systems . ... .- ~ 	
Broadcasting
" * Other 	 -.-.- 	 .: 	
1 Total^..;....". 	 ....^. 	
1
1 • - " „,, ,„

(amounts in thousands of-doilars)

Power Systems 	
'. Industry ?foducts 	 	 	
-P-jbiic Svstsms . - 	 	

-Other ..;.:: 	 	 	 :: 	
-' "• Jpcsme 5£fai"e 'axes 'ram- continuing ocerations . .
"- Hncame taxes 	 _-.-. : -. 	
1973
	 35.862.747
	 (4.513)
	 70.374
5.923.508
.... 4 347 151
	 901 233
	 128,323
	 76.425
	 93.335
	 2.452
5, "49,384
	 ' 73 524


1975
	 32 194 737
... 2 206 371
	 1 283 189
144 782
	 33.668
	 S5.362.747

•975
	 S 55 352
	 163 5~7
*5 *^1 2
	 39 =60
	 9.010
. . 774 31 1
	 33.335
-/«*-
35.798513
(32.23S)
71 =90
5.333 113
4 563 "45
727 i26
123.313
111.251
53.370
3.25?
5.539.181
'33 937


J9T4


32. 011-,' 36
2.196.519
1.399.794
135 754 '
55.310
55.798.513



5 13.534
157 "-14
•16.406)
33.G67
3.223
206 !63
63.370
197J

35.101.123
3341
53.567
5.r 63. 031
3.360.412
398 775
'07564
59317
145.333
2.516
4 384 5 1 7
'33514


.

31.776.447
1,767.969
1.375.360
120.537
30.210
S5.-01.123
	

'373-

S 113.006
-U3.049
15.321
33.460
. . 26.527
-331,363
145.333
"»ar S.idaa

34.498.564
24.510
55.332
4578.706
3 446,463
525.325
;6."30
54 577
153.324
2.436
4 373.356
•99.750


fnr snaaa
1972

31,542.697
1.482.030
1.205.579
116,446
51,712
34.498,564
	

rear =id»a
•
S 145.572
115,029
23.934
32,"01
. - 38.274. .
355.510
153.324
Oecemo«r 31
„
34.126.500
36.163
52.386
4215.149
3.U6 734
338.331
34,384
66462
1 37,399
3.470
4 033.330
•31.213


197'

31,504.097
1,392.115
1.093.413
109.475
27,500
34.125.500

C»csmotr 31

S 130,560
30.335
23.345
31.708
5.2.74Q
313.688
137,399
               B-7

-------
                                   REFERENCES
. 1.   Versar, Inc., PCB Water Elimination/Reduction Technology and Associated,_CQsts,
      -Marrcrfaeturers of Electrical  Capacitors  and Transformers,, j^ddendurn. to  Final.
      Report, Task II, Contract No. 68-01-3259,  2 July 1976.

 2;  - Electronic Industry Association, Electronic Market Data Book,  1976 Edition, pp.
      81 ff.

-3.   Electrical World, 27th Annual  Electrical Industry Forecast, pp. 43-58.        :	
 4.    U.S.  Environmental  Protection   Agency,  Industry  Views  on  the  Use   of
 	Folyctflorinated Biphenyls  in Transformers and Capacitors^ jungJL976)_ContraGt_
       No. EPA 560/4-76-003.

 5.    Versar  Inc.,  PCBs in  the  United  States  Industrial Use  and  Environmental,
 	Distribution, Task I Final Report, Contract No. 68-01-3259, 25 February 1976.

 6.   Electrical Week, 29 March 1976, pp. 8-9.                  -	

 7.   Electrical Week, 26 July 1976, pp. 7-8.                   ^_	
 8.    Versar Inc., Assessment of Wastewater Management, Treatment Technology.^ and
 	jv^rt^vj"*-. 4v+rav-ji /"* *i»«*i.r^^^r«^^^^i.rTr4^^3T*^^*^^^FTR/^Tcr!T™7ai'n.  U.S.:Department of Commerce, Selected Electronic and AssociatedTrbducts,'
 ~     IncludlngTelephone and Telegraph Apparatus, 1973, Series: MA-36N(73>il. '-''- '--''-
                                    R-l

-------
                      REFERENCES (Continued)
 16.   U.S.  Department  of Commerce, Selected Electronic  and Associated Products,
      IhGludTng Telephone and Telegraph Apparatus. 1975, Series:  MA-36N(75>-1.

 1-7.   General Electric  Company, Schenectady,  N.Y.,  The Role of Polychlorinated
      Biphenyhls in Electrical Equipment, 4 February 1972.       ;	
 18.   Interdepartmental  Task  Force  on  PCBs,  Polychlorinated  Biphenyls  and the
~~    Environnrent Washington, B.C., May 1972, National Technical Information Center.

 19.   Electronic Industry Association, Statement of Electronic Industry Association to
      EPA Concerning Proposed Toxic Pollutant Effluent Standards for Polychlorinated
      Biphenyls (PCB).

 20.   General Electric  Company,  "The Impact  of a  "Ban"  on  the  Use of PCB in
      Capacitors," Enclosure in letter to Dr. Martha Sager,  Chairman of  Effluent
      Standards and Water Quality Information Advisory Committee, 21 November 1973.

 21.   Electrical Week, 30 August 1976, pp.  5-6.                 ^ ___________________

 22.   Clark, Dietz and Associates, Engineers, Inc. Wastewater Management Summary of
     --
 23.   Hutzinger, O.S. Safe, and V. Zilks, The Chemistry  of PCBs,  CRC Press, 18901
      Cranwood Parkway, Cleveland, Ohio  44128.

 24.   National  Academy  of  Sciences,  Principles for  Evaluating  Chemicals in the
      Environment, 1973.                                     - _______

 25.   PL92-500: Water Pollution Control Act Amendment of 1972.  Section 307 (a).

 26.   Toxic Substances Control Act, Section 6 (e).  Signed October 12, 1976 by President
      Ford.

 27.   Chemical Week, "G.E. Settles on PCBs," 15 September 1976. p. 14. _
 28.   Environmental Protection Agency, Office of Planning and "Evaluation,  Economic
      Analysis Division, Estimation of the Cost  of  Capital for Major  United States
     "Industries with Application  to Pollution Control Investments,. jj
      4-55.

 29.   Electronic News, "Capacitor Shipments Off 30% to 2.& Billion Units," Martin Gold,
      May 24, 1976, p. 35.

 30.   Electronic News, "U.S. Capacitor Shipments Rise 76%," 20 September 1976; p. 40,

JU>   Executive Office of the President, Office of Mangament and Budget, ^Discount
    ~ Rates to be Used in Evaluating Time-Discounted Costs and Benefits,'^ Circular No.
      A-94, March 27, 1972.                                   ---        --^  -
                                   R-2

-------
f-

{(
I
                                   REFERENCES (Continued)
            32.  Standard <5c Poor's New York Stock Exchange Report for Westinghouse Electric
                 Corporation, July 27, 1976, p. 2470.

            33.  Business Week, October 18, 1976, p. 48.
            34.  'Massachusetts Institute of Technology, Center for Policy Alternatives, The Impact
                 .'oT Governmental Restrictions on the Production and Use of Chemicals, F
            35.   Business Week, "Survey of Corporate Performance: Second Quarter 1976— Profits:
                  The Improvement Continues," August 16, 1976, pp. 71-90.

            36.   Electronics, "U.S. Markets:  Forecast 1976," Economics Department, McGraw-
                  Hill, Vol. 49, No. 1, January 8, 1976, p. 92.  (Part of World -Electronics Markets
                  MOUNTING A PUSH TOWARD A SLOW MODEST RECOVERY), pp. 83-95.
             37.   Standard & Poor's American Stock Exchange Report for AVX Corporation, JunejB
                  1976, p. 7023.
                                                                 s
             38 .   Standard  &  Poor's  New  York  Stock Exchange Report  for _General_Electric
                  Company, July 26, 1976, p. 966.

             39.   Standard & Poor's American Stock Exchange Report for Research-Cottrell, Inc.,
                  September 2, 1976, p. 9005.

             40.:  .Standard  &  Poor's  New  York  Stock Exchange Report  for  Sprague Electric
                  Company, August 31, 1976, p. 2094.                          :

            .41.   Progress Report Task Order V -  Detailed Technical Market and Economic Impact
                 "Study   of the Environmental Role  of  PCBs  in the  Electrical jind  Inyestm en r
                  Casting Industries, May 4, 1974, p. 10.                    '~-~.l~~ ._.~~ ".'.-" ......
                                               R-3

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