United States Office of EPA 440/2-80-087
Environmental Protection Water Planning and Standards
Agency Washington, DC 20460
Water
oEPA Economic Impact Analysis
of Alternative Pollution
Control Technologies
Wood Preserving
Subcategories of the
Timber Products Industry
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EPA-440/2-80-087
Economic Impact Analysis of
Alternative Pollution Control Technologies
Wood Preserving Subcategories
of the Timber Products Industry
U.S. Environmental Protection Agency
Office of Water Regulations and Standards
January 1981
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PREFACE
This document is a contractor's study prepared for the Office of Water Regulations 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 effluent standards and limita-
tions issued under Sections 301, 304, 306 and 307 of the Clean Water Act to the timber products
industry.
The study supplements the technical study (EPA Development Document) supporting the
issuance of these regulations. The Development Document surveys existing and potential waste
treatment control methods and technology within particular industrial source categories and
supports certain standards and limitations based upon an analysis of the feasibility of these
standards in accordance with the requirements of the Clean Water Act. Presented in the
Development Document are the investment and operating costs associated with various control
and treatment technologies. The attached document supplements this analysis by estimating the
broader economic effects which might result from the application of various control methods and
technologies. This study investigates the effect in terms of product price increases, effects upon
employment and the continued viability of affected plants, effects upon foreign trade and other
competitive effects.
The study has been prepared with the supervision and review of the Office of Water
Regulations and Standards of EPA. This report was submitted in fulfillment of Contract No. 68-
01-4194 by Arthur D. Little, Inc.
iii
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TABLE OF CONTENTS
Page
List of Tables vii
List of Figures ix
I. EXECUTIVE SUMMARY 1
A. SCOPE OF WORK 1
B. INDUSTRY CHARACTERIZATION 1
C. COSTS OF COMPLIANCE 2
D. ECONOMIC IMPACT 3
II. INDUSTRY CHARACTERIZATION 9
A. INDUSTRY DEFINITION 9
B. TYPES OF FIRMS 9
C. PRODUCT DESCRIPTION 12
D. CHARACTERISTICS OF THE EXISTING INDUSTRY PLANTS 17
E. CHARACTERISTICS OF NEW PLANTS 19
F. COMPETITIVE STRUCTURE OF THE INDUSTRY 26
G. PRICE AND COST HISTORY 27
H. FINANCIAL PROFILES 30
III. COST OF COMPLIANCE 37
A. INTRODUCTION 37
B. CURRENT EFFLUENT STATUS 37
C. CONTROL OPTIONS 37
D. COSTS OF COMPLIANCE FOR EXISTING INDUSTRY 38
E. COST OF COMPLIANCE FOR NEW SOURCES 42
IV. ECONOMIC IMPACT ASSESSMENT 45
A. ECONOMIC CHARACTERISTICS OF AFFECTED PLANTS 45
B. ECONOMIC IMPACT ON EXISTING INDUSTRY 45
C. ECONOMIC IMPACT UPON NEW SOURCES AND
CAPACITY EXPANSIONS 54
v
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TABLE OF CONTENTS (Continued)
Page
V. LIMITATIONS OF ANALYSIS
59
A. EPA REGULATIONS AFFECTING WASTE DISPOSAL
B. RETURN-ON-INVESTMENT CRITERIA
C. COST VARIATIONS FROM PLANT TO PLANT
D. FUTURE GROWTH IN DEMAND
E. LOCAL CONDITIONS OF AFFECTED PLANTS
59
59
60
61
61
REFERENCES
63
BIBLIOGRAPHY
65
APPENDIX A - INDUSTRY CHARACTERIZATION
67
APPENDIX B - NEW SOURCE MODELS
71
APPENDIX C - EPA FINANCIAL SURVEY
81
APPENDIX D - SAMPLE CALCULATIONS
147
vi
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LIST OF TABLES
Table No. Page
1-1 Total Cost of Compliance: Wood Preserving Industry 4
I-2 Summary of Economic Impact: Steam Indirect Dischargers 5
1-3 Summary of Economic Impact: Boulton Indirect Dischargers 6
1-4 Cost of Compliance: New Wood Preserving Plants 8
I-5 Effect of NSPS/PSNS Requirements Upon Long-Run Revenue
Required to Support New Sources 8
II-1 Pressure Cylinder Capacity of the Ten Largest Wood Preserving
Firms, 1976 10
II-2 Wood Preserving Plants: Form of Business Organization, 1976 11
11-3 Preserved Wood Products and Their Potential Substitutes 13
II-4 Wood Treated with Preservatives, 1955-1976 14
II-5 Value of Shipments for the Wood Preserving Industry, 1958-1976 15
II-6 Distribution by Annual Sales Value 19
11-7 Number of Production Employees Per Plant, 1976 21
II-8 Distribution of Wood Preserving Plants by Year of Initial Operation 21
11-9 Profitability of New Plants Versus Older Plants, 1976 22
11-10 Estimated Fixed Capital Requirements for the Manufacture of
Preserved Wood (Organic Treatment) 24
11-11 Estimated Annual Operating Costs for the Manufacture of
Preserved Wood 25
II-12 Concentration Ratios in the Wood Preserving Industry, 1963-1976 26
11-13 Selected Operating Ratios for the Wood Preserving Industry,
1964 to 1976 30
II-14 Wood Preserving Plants: Cost as a Percent of Sales by
Sales Category 32
11-15 Wood Preserving Plants: Asset Turnover by Sales/Service
Category, 1976 33
II-16 Wood Preserving Plants: Distribution of Assets by Sales and
Service Category, 1976 34
11-17 Capital Expenditures and Productivity in Wood Preserving
Industry, 1967-1976 35
II-18 Target Rate of Return for Investments Made by Wood Preserving
Industry 36
III-1 Wood Preserving Steam Indirect Dischargers: Cost of Compliance
Under Alternative Technologies 39
fll-2 Wood Preserving Boulton Indirect Dischargers: Cost of Compliance
Under Alternative Technologies 40
III-3 Total Cost of Compliance: Wood Preserving Industry Installing
Least-Cost Technology 41
111-4 Wood Preserving Industry Production Size Cutoffs: Indirect
Dischargers 42
vii
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LIST OF TABLES (Continued)
Table No.
Page
111-5
Total Cost of Compliance: Wood Preserving Industry Installing
43
Least-Cost Technology (With Size Cutoff)
II1-6
Model Plants for New Source Performance Standards
44
II1-7
Cost of Compliance: New Wood Preserving Plants
44
IV-1
Land Availability for Plants
46
IV-2
Indirect Discharger Wood Preserving Plants: Percentage Decline in
Profitability After Compliance Without Price Increases
50
IV-3
Form of Business Organization by Discharge Status
52
IV-4
Wood Preserving Industry: Potential Plant Closures Under PSES
53
Alternatives
IV-5
Wood Preserving Industry: Employment Losses from Plant Closures
55
IV-6
Effect of NSPS/PSNS Requirements Upon Long-Run Revenue
Required to Support New Sources
57
V-1
Change in Revenue Required by Cost of Capital
60
viii
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LIST OF FIGURES
Figure No. Page
11-1 Sales Trends for Preserved Wood Products, 1960-1988 16
II-2 Wood Preserving Plants in the United States, 1974 20
11-3 Wood Preserving Industry: Price Indices of Raw Materials,
1970-1978 28
II-4 List Prices of Selected Preserved Wood Products, 1969-1978 29
IV-1 Price Increases Required to Recover Costs of Compliance 48
IV-2 Investment Required for PSES Alternatives as a Percentage
of Cash Flow 51
V-1 Revenue Requirement as a Percentage of Sales by ROR for
Sample Plants 60
ix
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I. EXECUTIVE SUMMARY
A. SCOPE OF WORK
The U.S. Environmental Protection Agency (EPA) is required by Section 301 (d) of the
Clean Water Act to review and revise, if necessary, effluent limitations promulgated pursuant to
Sections 301, 304, and 306 within five years of promulgation of these regulations. This study
presents an economic impact analysis of alternative pollution control technologies for the wood
preserving subcategories of the timber products industry. It characterizes each wood preserving
subsegment; summarizes alternative technologies and their related coBts of compliance* and
analyzes and discusses the anticipated economic impact on those plants that would have to make
investments to be in compliance with alternative regulation options. The EPA assisted in the
analysis by surveying the wood preserving industry through a Financial Survey,
The study does not address the costs and economic impacts that might or might not be
incurred as a result of other environmental or other Federal regulations, such as EPA solid waste
regulations, EPA air pollution regulations, EPA pesticide regulations or Occupational Safety and
Health Administration regulations.
This analysis was based upon data provided by affected plants reflecting 1976 operating
costs and conditions. Also, costs of compliance generated by the Technical Contractor are based
upon 1977 equipment and materials prices,
B. INDUSTRY CHARACTERIZATION
The wood preserving industry comprises establishments primarily engaged in treating
wood, sawed or planed in other establishments, with creosote or other preservatives to prevent
decay and to protect against fire and insects. This industry also includes the cutting, treating,
and selling of crossties, poles, posts, and pilings.
The wood treating process can employ either pressure or non-pressure systems. Non-
pressure processors use open tanks containing the preservatives in which the wood is immersed.
Pressure processors can be either "full-cell," commonly used with aqueous solutions, or "empty-
cell," used with oil preservatives.
The industry is composed of a large number of small, privately owned plants and a few
larger establishments, totaling 302 companies that operated about 415 wood preserving plants in
the United States in 1976. Of these companies, 87% are single-plant firms. Koppers Company,
with the greatest total production capacity, operates 25 plants, whereas the other multi-plant
firms operate 10 or fewer. The 10 largest represent approximately 51% of total industry pressure-
tank capacity.
Wood preserving companies vary with respect to the degree of vertical integration and
ownership. Most of the companies are not integrated back to the ownership of timberland but
purchase wood or treat customer-owned wood on a service basis only. Ownership is about 22%
through publicly held corporations, 69% privately held and 9% proprietorships.
'Derived from Revised Technical Review of Best Available Technology, Best Demonstrated Technology and Best
Demonstrated Technology and Pretreatment Technology for the Timber Producti Point Source Category, as prepared
for the Environmental Protection Agency by Environmental Science & Engineering, Inc.
1
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In general, firms located in the South are treating mostly Southern pine while those in the
West treat mostly Douglas fir. The industry uses either oil-borne (organic) preservatives, for
products such as poles, pilings and railroad ties, or waterborne (inorganic) preservatives, for
plywood and lumber. The majority (809c) of firms treat with organic preservatives.
Two types of pressure processes are utilized: Boulton and steam. These process categories
have different effluent streams and thus are the basis of industry segmentation for developing the
cost of water pollution treatment.
Wood preserving plants are distributed throughout the United States, with a 45fr concen-
tration in the Southeast. Of plants responding to the EPA Financial Survey, 30fr described their
plant site as urban, whereas 25rr were reported to be suburban and 459r, rural. The industry
plants exhibit a wide range of annual sales value, with 459? of the facilities having sales between
$300,000 and $2.4 million.
The value of shipments by the wood preserving industry rose from $344 million in 1967 to
$761 million in 1974, before easing in the succeeding two years. The volume of wood preserved
peaked at 286 million cubic feet in 1967; in 1976, the total volume was 257 million cubic feet.
Future growth will vary by product but is forecast by Arthur D. Little, Inc., to average three
percent per year to 1988.
Preserved wood is largely a commodity market modified by transportation costs which give
regional advantages to some producers. Sometimes, the availability of a particular wood species
can also be a factor. Demand elasticity in the industry varies somewhat among products but the
major factors governing demand are the economic climate of user industries and the cost-
effectiveness of substitute products.
The industry has experienced significant cost increases for the principal raw materials used,
especially chemicals and wood. While producers have been largely able to pass on increased costs
in the form of higher selling prices, margins have eased during the 1970 s.
Pro-forma income statements developed for seven sales and service categories of wood
preserving plants indicate a range in after-tax profit of 0.5% to 6%. (Plant models were developed
for five plants treating owned-wo°d products and ranging in sales from $200,000 to $7.5 million,
and two plants offering a treating service only and having sales of $250,000 and $1 million,
respectively.) The return on total capital in 1976 for respondents to the EPA Financial Survey
ranges from 1.99? to 329c. The ratio of sales to total assets ranges from 2.5 to 5.
C. COSTS OF COMPLIANCE
Costs of compliance were developed for three levels of pollution control as the Pretreatment
Standard for Existing Sources (PSES) for each indirect discharge plant:
• Biological treatment;
• Metals removal; and
• Zero discharge.
Six options were examined for indirect dischargers:
• Option 1: Existing interim final pretreatment standards; i.e., no further regulation;
2
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• Option 2: Biological treatment for plants using pentachlorophenol;
• Option 3: Metals removal for plants with fugitive metals;
• Option 4: Zero discharge of pentachlorophenol or fugitive metals;
• Option 5: Zero discharge for plants using pentachlorophenol; and
• Option 6: Zero discharge for all indirect dischargers.
The total investment required for all indirect dischargers is highest for Option 6, at $6.8
million, and lowest for Option 3, at $1.5 million (Table 1-1).
The cost of compliance was also calculated using a production size-cutoff established by the
EPA. The effect of using the size cutoff is to cut approximately in half the number of affected
plants and the total industry cost of compliance.
There is only one direct intermittent discharge plant.
D. ECONOMIC IMPACT
1. Existing Sources
Option 1, no further regulation, has been proposed by the EPA. There are no anticipated
economic impacts. The EPA orginally proposed Option 5 without a size cutoff as the PSES.
A small portion of the wood preserving subcategory would have been affected by the other
alternatives that were considered. In the steam category, the number of plants affected ranges
from 2 to 29, depending upon the option and whether the size cutoff would be utilized. The
affected steam plants, without a size cutoff, represent 2% of total plants under Option 3, up to 7bl-
under Option 6. (Table 1-2).
In the steam category, the range of revenue required to recover cost increases with the
stringency of the option. There is also wide variability from plant to plant under all options
without a size cutoff.
In the Boulton category, from 2 to 10 plants would be affected, depending upon the option
and whether the size cutoff would be utilized. The affected Boulton plants are equivalent to \-2cc
of the total plants. (Table 1-3).
Since zero discharge was less costly for some Boulton plants than biological treatment or
metals removal, the range of revenue required to cover compliance cost is similar under all but
Option 3. Under all options with cutoff, the range of required revenue is 2-6%, reflecting a
relatively lower effect on large plants.
There will be no general price increase as a consequence of the alternatives studied.
Individual plants would have been able to recover their cost if local market conditions permitted.
Therefore, the profitability of affected plants would have declined.
3
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TABLE 1-1
TOTAL COST OF COMPLIANCE: WOOD PRESERVING INDUSTRY
With No Size Cutoff With Size Cutoff
Cost ($ Millions) Cost ($ Millions)
Affected Annual Annulaized Affected Annual Annualized
Plants Investment Operating Cost Cost Plants Investment Operating Cost Cost
A. INDIRECT STEAM PLANTS
Option 1
0
-
-
-
0
—
—
—
Option 2
18
1.8
0.4
0.7
13
1.4
0.3
0.5
Option 3
8
1.0
0.2
0.3
2
0.3
0.0
0.1
Option 4
23
4.5
0.6
1.4
11
2.6
0.3
0.7
Option 5
19
3.8
0.5
1.2
11
2.6
0.3
0.7
Option 6
29
5.6
0.7
1.7
13
2.7
0.3
0.7
Option 1 0 —
Option 2 5 0.7
Option 3 5 0.5
Option 4 6 0.7
Option 5 5 0.5
Option 6 10 1.2
B. INDIRECT BOULTON PLANTS
0.1 0.3 4
0.2 0.3 5
0.2 0.3 3
0.1 0.2 2
0.4 0.6 6
0.6 0.1 0.2
0.5 0.2 0.3
0.5 0.1 0.2
0.3 0.1 0.1
0.9 0.3 0.4
Source: Data supplied by EPA and Environmental Science and Engineering, Inc., revised by Arthur D. Little. Inc., to reflect land cost of $5000
an acre.
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TABLE 1-2
SUMMARY OF ECONOMIC IMPACT: STEAM INDIRECT DISCHARGERS
Option 2 Option 3 Option 4 Option 5
Without With
Cutoff Cutoff
Without With
Cutoff Cutoff
Without With
Cutoff Cutoff
Without With
Cutoff Cutoff
Option 6
Without With
Cutoff Cutoff
Number of Plants Affected* 18 13
%of Total Plants 4% 3%
8
2%
2
0%
23
6%
11
3%
19
5%
11
3%
29
7%
13
4%
Revenue Increase (%) to Re-
cover Compliance Costs
0-14
0-12
2-14
28
28
28
28
2-33
2-33
Compliance Investment as a
Percent of Cash Flow
Number of Plant Closures
Moderate Probability
High Probability
Total
9-130
9-97
20-200
20
14-240
14-200
14-210
14-130
14-589
14-211
10
Unemployment from Plant
Clotures
Moderate Probability 103
High Probability —
Total 103
%of Total Employment 1%
54
77
131
1%
112
199
311
3%
112
112
1%
112
103
215
2%
112
112
1%
127
253
380
4%
112
27
139
1%
'Plants required to make expenditures to comply.
Source: Arthur O. Little, Inc., estimates.
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TABLE 1-3
SUMMARY OF ECONOMIC IMPACT: BOULTON INDIRECT DISCHARGERS
Option 2 Option 3 Option 4 Option 5
Without
Cutoff
With
Cutoff
Without
Cutoff
With
Cutoff
Without
Cutoff
With
Cutoff
Without
Cutoff
With
Cutoff
Option 6
Without With
Cutoff Cutoff
Number ot Warn Mtatwi
% of Total Plants
10
2
6
1
Revenue Increase (%) to
Recover Compliance Costs
4-49
4-6
2-11 3-4
2-49 2-4
2-49 2-4
2-49
2-4
Compliance Investment as a
FVrcent of Cash Flow
Number of Plant Closures
Moderate Probability
High Probability
Total
42-600
42-68
29-134
29-68
42-600
44-55
42-60
55%
37-600
37-55
Unemployment from Plant
Closures
Moderate Probability 26
High Probability —
Total 26
% of Total Employment 0
26
15
41
26
15
41
26
15
41
1
26
15
41
Source: Arthur 0. Little. Inc., estimates.
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The investment required under each option studied is generally larger than the average
annual cash flow for indirect dischargers (Table 1-2). An estimated 25% of annual cash flow could
be made available for pollution control investment (see Chapter IV). Thus plants that would have
incurred pollution control investment greater than a year's cash flow required external financing
or faced plant closure.
Recent cost revisions show that, under Option 5 (without cutoffs), there could be from two
to three plant closures in the steam category and one to two in the Boulton category. The
employment losses associated with plant closures would have ranged from 103 to 215 in the steam
category and from 15 to 41 in the Boulton category. Under Options 2 and 3, in the steam
category, plant closures and employment would have been lower while under Options 4 and 6
both would be higher. In the Boulton category, the plant closures and employment losses are the
same under Options 3, 4 and 6 as for Option 5.
2. New Sources
Arthur D. Little, Inc., expects that most capacity expansion in the wood preserving industry
will occur through incremental expansion of existing facilities. However, the cost of New Source
Performance Standards (NSPS) for any new wood preserving plants will not have a significant
effect on their competitive position relative to existing plants.
The NSPS for new wood preserving plants require zero discharge. The cost (Table 1-4)
differs slightly for Boulton and Steam plants of the same size (Plant B and Plant C) because the
method of achieving zero discharge differs for each process.
The revenue increase required to recover NSPS compliance cost (Table 1-5) is about lrr
higher than the revenue required to operate a new plant to earn the historic rate of return for the
industry.
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TABLE 1-4
Model Plant Type
Boulton Plant A1
Boulton Plant B1
Organic Plant C1
Organic Plant D1
COST OF COMPLIANCE:
NEW WOOD PRESERVING PLANTS
Total
Investment
$161,030
223,810
209,200
327,500
Operating
Cost
$39,480
57,280
35,150
46,260
Acres of Land
Required
0.50
0.75
0.90
1.95
Annualized
Cost
$ 53,780
95,420
70,161
109,520
Total Requirement
Primary Oil-Water
Separation
2-Cylinder Plant
5-Cylinder Plant
80,000
113,500
8,000
9,500
1. Half the investment and operating cost of primary oil/water separation has been excluded.
Source: Environmental Science and Engineering, Inc., letter dated August 11, 1978, adjusted to
reflect land cost of $5000 an acre (incremental cost of additional land required).
Case
A
B
C
D
TABLE 1-5
EFFECT OF NSPS/PSNS REQUIREMENTS UPON LONG-RUN REVENUE
REQUIRED TO SUPPORT NEW SOURCES
Plant Type/Product
Boulton/Doug'as ^'r P°'es
Boulton/Doug'as ^'r P°'es
Steam/Southern Pina Poles
Steam/Southern Pine Poles
Annual
Production
(000 Cubic ft.)
720
1,800
1,800
4,500
Baseline
Annual
Revenues
($000)
7,860
19,300
11,300
28,100
Revenue Required for
NSPS/PSNS Compliance
Costs'
($000)
86
153
112
175
% Baseline
1.1
0.8
1.0
0.6
1. See Section IV-C-2 for a di«ussi„n of the TOtflodolosy M
Compliance Costs.
Source: Arthur D. Little/ ,nc" est'mates based upon Table 1-4 and new plant models.
8
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II. INDUSTRY CHARACTERIZATION
A. INDUSTRY DEFINITION
As defined in Standard Industrial Classification (SIC) 2491, the wood preserving industry
"comprises establishments primarily engaged in treating wood, sawed or planed in other estab-
lishments, with creosote or other preservatives to prevent decay and to protect against fire and
insects. This industry also includes the cutting, treating, and selling of crossties, poles, posts, and
piling."
B. TYPES OF FIRMS
The wood preserving industry is composed of a large number of small, privately owned
plants and a few larger establishments. Larger establishments are generally either:
• Owned by companies whose major source of income is not wood preserving: e.g.,
Koppers, Kerr-McGee Chemical Corp., Southern Wood Piedmont Co., and Inter-
national Paper Company; or
• Owned by companies which are primarily wood preservers; e.g., J. H. Baxter & Co.,
Wyckoff Co.
Each of these firms operates at numerous locations. There were approximately 302 com-
panies and 415 wood preserving plants in the country in 1976. An Environmental Protection
Agency Financial Survey* was answered by 337 plants.
1. Size of Firm
The wood preserving companies vary considerably in both sales and number of wood
preserving operations. Of 302 wood preserving companies, 263 (87%) are single-plant firms, 39
(13rr) are multi-plant firms. Koppers Company operates 25 plants; the other multi-plant firms
operate 10 or fewer plants.
Available information shows that total annual sales of these companies, including sales
from other operations, range from less than $200,000 to over $1 billion. Single-plant firms are
concentrated in the smaller size categories.
The wood preserving industry has a large number of small firms. However, on the basis of
pressure tank capacity, the 10 largest firms represent approximately 51% of the total industry.
While actual production may not be directly correlated with pressure tank capacity because
capacity utilization may vary and different products and different species of wood require varying
treating times, pressure tank capacity is an indicator of production capacity. In 1976, Koppers
Co., Inc., represented 20% of total industry capacity, while the four largest firms, on average,
represented 37% of total capacity (Table II-l). The 263 single-plant firms, on average, have
capacity that represents less than .25% of the industry total.
•Survey conducted by EPA under Section 308 of the Federal Water Pollution Control Act, as amended, referred to
throughout as the "EPA Financial Survey." A response summary and the tabulated data are contained In Appendix
D. The number of responses to Individual questions often are fewer than 337.
9
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TABLE 11-1
PRESSURE CYLINDER CAPACITY OF THE TEN LARGEST
WOOD PRESERVING FIRMS, 1976
Total Pressure
Tank Capacity
Percent of Total
Company
(thousand cubic feet)
Industry Capacity
Koppers Co., Inc.
415
20
Kerr-McGee Chemical Co.
127
6
Southern Wood Piedmont Co.
123
6
J. H. Baxter
108
5
Wyckoff Co.
73
3
Atlantic Creosoting Co., Inc.
57
3
International Paper Company
51
2
McCormick & Baxter Creosoting Co.
50
2
Crown Zellerbach Treated Wood Products
45
2
Cascade Pole Co.
34
2
All others
1,023
49
Total Industry
2,106
100
Source: Arthur D. Little, Inc., estimates based upon Ernst and Ernst Wood Preservation Statistics -
1976.
2. Integration
Wood preserving companies also vary with respect to vertical integration. Some plants are
integrated to wood and may be part of lumber operations or associated with a company sawmill.
In such cases, the wood treating operation may be an additional service for lumber customers. In
other cases, such as Koppers Company, Weyerhaeuser, and International Paper, the company is
more broadly integrated in wood products and/or chemicals. In a few cases, railroads and utility
companies own Wo°d treatment facilities, which serve as captive suppliers of poles, ties, cross-
arms, etc., and seldom sell to others. The Atchison, Topeka & Sante Fe Railway Company,
Burlington Northern, Southern California Edison Company, Texas Electric Cooperatives, Inc.,
and Utah Power & Light are some of these.
Most of the companies, however, do not own their own timberland and must purchase all of
their wood. A number of plants treat wood for customers on a service basis only, while other
plants treat purchased wood in addition to treating wood on a service basis.
3 Ownership Characteristics
Both privately and publicly held companies are represented in this industry segment. In
«renerfl*' t^ie 9maMer> 8>ngle-plant companies are privately held and the largest companies are
pUblidy held.
There are basically two different patterns of ownership and management in the industry. In
th® category are plants owned by publicly held corporations which may or may not do wood
10
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preserving as the primary activity. These plants are managed by individuals with little or no
equity in the corporation. Plants following the second pattern are owner-managed and may be
proprietorships or privately held corporations. Some may even have been owned by the same
family for several generations.
The ownership and management patterns in an industry are important for an assessment of
how the industry would be affected by pollution control costB. Profitability requirements are very
different for an owner-manager versus a corporation, which views more critically the return on
investment from one of many plants. The former may accept an increase in abatement costs as a
neccessity for staying in business, while the latter may decide that the increased cost is not
justified by the expected returns. On the other hand, a closely held company may have difficulty
obtaining capital investment funds and thus be unable to continue to operate.
Among those plants primarily treating with organic preservatives, 25% are owned by
publicly held corporations. Among the plants primarily treating with inorganic preservatives,
only 10% of the plants are owned by publicly held corporations (Table II-2). Publicly held
corporations owned only 22% of the total number of plants responding to the EPA Financial
Survey; but according to the 1972 Bureau of Census statistics, publicly held corporations
accounted for 73% of the total value added in the wood preserving industry.
TABLE 11-2
WOOD PRESERVING PLANTS:
FORM OF BUSINESS ORGANIZATION, 1976
Primarily
Organic Preservatives # %
Proprietorship 23 10
Co-op 1 0
Privately Held Corporation 158 66
Publicly Held Corporation 69 24
Number of Respondents 241 100
Primarily
Inorganic Preservatives
Proprietorship 5 8
Co-op - -
Privately Held Corporation 64 82
Publicly Held Corporation 7 10
Number of Respondents 66 100
Total
Proprietorship 31 9
Co-op 1 0
Privately Held Corporation 230 69
Publicly Held Corporation 72 22
Number of Respondents' 334 100
1. Because of non-respondents, subtotals do not add to total.
Source: Derived from EPA Financial Survey.
11
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C. PRODUCT DESCRIPTION
1. Type of Products
The development of the wood preserving industry in the United States has been based on
the need for prolonging life in wooden structural products. Historically, railroads ties, utility
poles, and pilings treated with creosote have been the major products of the industry. In recent
years, lumber and plywood treated for fire retardancy, insect resistance, and rot resistance have
experienced rapid growth.
The industry's products as listed in SIC 249111 include:
• Bridges and trestles of wood, treated
• Creosoting of wood
• Crossties, treated
• Flooring, wood block, treated
• Mine props, treated
• Millwork, treated
• Piles, foundation and marine construction, treated
• Piling of wood, treated
• Poles, cutting and preserving
• Poles and pole crossarms, treated
• Structural lumber and timber, treated
• Vehicle lumber, treated
• Wood products, creosoted
The industry can be categorized according to size, product, technology, or location. Gener-
ally speaking, the firms that are located in the South are treating mostly Southern pine, and
those in the West are treating mostly Douglas fir. The industry uses oil-borne (organic) or
waterborne (inorganic) preservatives. The products treated with oil, such as poles, piling, and
railroad ties, have a distinct odor and "oiliness," which makes them unsuitable for use where odor
is objectionable. The waterborne preservatives are used for preserving plywood and lumber,
especially when treating for fire retardancy.
Competition in the wood preserving industry is normally very keen and usually based on
price. Many suppliers only exist to serve regional markets, and some regions are served by only
one or two suppliers. There is some limited competition from other materials, such as steel,
concrete, and aluminum (Table II-3). In addition to price differentials, there are advantages and
disadvantages to each type of material. Generally, the type of use dictates the type of material
required. For example, treated wood piles must be used in acidic soil because acidic conditions
corrode steel and concrete. Of particular interest is the possibility of more vigorous competition
from concrete railroad ties; concrete ties are being used in several parts of the United States and
Europe and may pose significant competition in the future.
2. Market Size
From 1955 to 1976, the volume of wood treated with preservatives fluctuated from a low of
213.9 million cubic feet in 1962 to a peak production of 286.4 million cubic feet in 1967 (Table II-
4). Production was 257.2 million cubic feet in 1976, the most recent year for which data are
available. The industry's historical peak production level, 356.6 million cubic feet, was in 1947,
indicating that there has been a long-term downward trend in the use of preserved wood.
12
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TABLE 11-3
PRESERVED WOOD PRODUCTS AND THEIR POTENTIAL SUBSTITUTES
Preserved Wood Product
Piling
Marine piling
2 x 4's, etc.
Plywood
Fire-retardant lumber, plywood, etc.
Poles
Railroad ties
Potential Substitute1
In-place concrete
Driven concrete
Steel piling
Hollow I beams
In-place concrete
Driven concrete
Interlocking iron sheets
Metal studs
I-Beams
Prestressed walls
Concrete
Cinder block
Sheetrock
Particleboard
Asbestos
Gypsum
Metal sheets
Metal poles
Prestressed concrete
Concrete ties
1. Not all substitutes have been proven to be reliable. The potential for
substitution is limited because material selection is often dictated by
specific uses.
Source: Arthur D. Little, Inc., observations of available alternatives in the
marketplace.
13
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TABLE 11-4
WOOD TREATED WITH PRESERVATIVES. 1955-1976
(millions of cubic feet)
Fence
Lumber &
Switch
Product
Crossarmt
Crossties
Posts
Timbers
Piling
Poles
Ties
Miscellaneous
Total
1955
4.3
85.9
16.2
39.4
13.9
74.8
7.3
3.8
248.4
1956
4.7
83.2
12.8
41.0
16.8
85.8
8.1
3.6
257.9
1957
4.6
101.5
13.4
41.9
16.3
84.0
8.1
4.8
274.5
1958
3.4
73.9
14.9
38.4
16.2
73.8
6.7
5.6
232.8
1959
3.6
52.1
15.7
39.9
14.7
78.3
4.5
5.7
214.5
1960
3.7
57.2
13.5
39.5
16.1
75.1
4.9
6.0
216.1
1961
3.6
55.8
15.0
38.8
14.3
76.4
4.7
6.6
215.4
1962
3.5
42.9
17.1
42.6
17.8
78.7
4.3
6.9
213.9
1963
3.4
47.4
18.2
43.5
15.9
77.0
5.3
6.7
217.4
1964
3.6
55.7
18.6
47.3
16.5
80.6
6.8
8.0
237.0
1965
4.9
63.7
18.4
50.3
17.8
83.9
7.5
9.2
255.7
1966
5.5
70.4
19.7
60.4
21.1
87.1
7.8
8.6
280.6
1967
4.6
80.4
21.0
62.2
16.6
84.3
8.3
8.9
286.4
1968
3.3
78.5
16.5
62.6
17.4
76.2
7.9
9.4
271.9
1969
3.2
71.3
15.7
59.6
14.7
74.4
6.4
8.2
253.5
1970
3.5
79.4
15.1
55.7
15.1
76.8
7.9
6.9
260.3
1971
3.1
87.0
16.7
59.9
13.7
74.4
6.2
7.7
268.6
1972
2.4
85.9
18.2
64.0
14.3
74.5
6.0
7.2
272.6
1973
2.6
67.6
15.2
68.9
13.0
75.4
5.0
6.9
254.4
1974
2.4
75.9
17.3
77.8
13.3
73.8
6.5
8.5
274.7
1975
1.4
93.1
15.3
61.5
9.4
49.1
8.0
6.4
244.1
1976
4.6
95.3
13.8
67.1
8.5
53.1
5.7
9.0
257.2
Note:
1. Data for 1966-1971 are not comparable with previous years because they include wood treated with fire-retardant chemicals under each category rather
than under Miscellaneous.
2. Wood Blocks: Data for 1957-1969 are included in Miscellaneous.
3. Miscellaneous: Includes all wood products treated with fire-retardant chemicals in 1955-1965. In 1965, 2.8 million cubic feet of wood were treated
with fire retardants.
Source: Ernst and Ernst, Wood Preservation Statistics - 1976.
-------
The current dollar value of shipments rose from $344.2 million in 1967 to $761 million in
1974, the peak year (Table II-5). Both 1975 ($647.7 million) and 1976 ($704 million) were below
this peak level. Typically, about 85% of the value of shipments is from owned wood, with the
remainder contract work."
TABLE 11-5
VALUE OF SHIPMENTS FOR THE WOOD PRESERVING INDUSTRY. 1958-1976
($ million)
Value of
Capital
Year
Shipments
Expenditures
1958
203.0
3.7
1959
218.1
(D)
1960
225.1
3.7
1961
220.1
4.1
1962
230.0
4.9
1963
247.3
5.5
1964
270.9
5.8
1965
279.6
11.4
1966
326.0
10.4
1967
344.2
10.7
1968
375.1
9.3
1969
386.1
13.2
1970
387.8
8.4
1971
416.9
10.4
1972
475.8
14.8
1973
557.4
11.6
1974
761.2
28.1
1975
647.7
27.5
1976
704.3
22.3
Source: U.S. Department of Commerce, Bureau of the
Census, AnnuaI Survey of Manufacturers
3. Future Demand Growth
During the early sixties, the demand for preserved wood products increased dramatically
compared with levels existing in the fifties (Table II-4). Since then, there have been wide swings
in total annual production for individual product categories but there are discernible trends.
Swings in total production follow business conditions (e.g., the 1974-75 recession) and conditions
in user industries (e.g., railroad construction programs).
The annual production volumes of ties, poles and timbers during the sixties and seventies
and forecast trends in each of the major categories are shown in Figure II-l. Arthur D. Little, Inc.,
has concluded that these trends are likely to continue over the next 10 years.
15
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110
100
90
80
70
60
50
40
30
20
10
Poles
30
20
10
I I I I I I I I I I I I I I I
60 62 64 66 68 70 72 74 76 78 8082 84 86 88
Year
60 62 64 66 68 7072 74 76 78 80 82 84 86 88
Year
Source: Historic Data - Ernst & Ernst data cited in The Analysis of Existing Wood Preserving Techniques and Possible
Substitutes. June 1977.
Forecast — Arthur D. Uttle' 'nc- estimate! bated upon trend analysis adjusted for structural changes influencing
product demand'
FIGURE 11-1 SALES TRENDS FOR PRESERVED WOOD PRODUCTS. 1960-1988
(Thoutand Cubic Feet)
16
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The forecast values from 1978 through 1988 were derived by analyzing the production trend
from 1963 to 1976 for each product category as well as the annual fluctuations. Also, changes in
factors influencing demand were subjectively incorporated into the forecast. The growth rate (or
decline) underlying the trend was compared with other forecasts' to check for reasonableness
and to establish a range. As a group, all the other preserved wood products exhibited no upward
or downward trend and were assumed to remain stable at about 42,000 cubic feet per year. The
forecast for total preserved wood products is the sum of the individual product forecasts.
This analysis was performed to identify product areas where the demand might be declining
and thus provide a basis for assessing the willingness and unwillingness of affected plants to make
an investment in pollution control expenditures. Product growth areas were also examined to
gauge the extent to which they would take up the slack in the production of declining products
and to evaluate the potential for any price increase.
Based upon the forecast described above, the future outlook for preserved wood products
appears good, with the decline in pole demand being offset by the increase in demand for ties and
timbers.' The pole demand will decline because of slowdowns in growth of utilities and because
the size of new transmission lines will require steel. Also, the demand for poles in new urban areas
is being affected by the requirement to place utility distribution lines underground. The demand
for railroad ties is a result of the rebuilding of roadbeds, which will produce an upward trend over
the next 10 years, but will level off as the railroad industry shifts from rebuilding to maintenance.
The growth in demand for timbers and lumber is in part a consequence of FHA requirements for
preserved wood in home construction.' While the average annual growth in timbers from 1963 to
1974 was 5.4c'c, a future real growth rate of 39*r is forecasted to reflect the expected construction of
single-family units in the 1978-1988 period.
D. CHARACTERISTICS OF THE EXISTING INDUSTRY PLANTS
1. Process Technology
Wood preserving is a two-stage process; first, the wood is preconditioned to reduce its
moisture content; and, second, the wood is treated with preservatives.
Any one of several methods can be used to precondition, including: seasoning in large, open
yards; kiln drying; pressure steaming in a retort, followed by vacuum drying; heating in a
preservative bath under reduced pressures (Boulton Process); or vapor drying. Pressure treat-
ment is the most common form of processing because it provides a superior product to that
resulting from the brush- or dip-application of preservative.
Wood treating can be either a pressure or non-pressure process. In the non-pressure pro-
cesses, the wood is immersed in open tanks containing the preservatives. The pressure processes
can be either "full-cell" or "empty cell." In the "full-cell" process, a vacuum is created in the
retort and the preservative is added and forced into the wood under pressure. In the "empty-cell"
process, preservative is added to the retort and forced into the wood under pressure; then the
retort is evacuated.
The typical pressure treatment facility includes four major processing areas;
• A treating cylinder, or pressure vessel, with the necessary pumps, tanks, and control
equipment;
-------
• A boiler plant to heat the solution and to pressurize the cylinder;
• A seasoning and storage yard, including the cylinder loading track and ancillary
transportation facilities; and
• Support equipment, such as hoists and lifts for handling timber; finishing equip-
ment, for incising, boring, blocking, framing and shaving materials, and kilns, or
other processing facilities, for artificial seasoning of selected products.
The treating cylinders are the most important component of a wood treatment plant. These
steel cylinders (retorts), typically used in pressure treatment, are from 4 to 10 feet in diameter
and up to 175 feet in length. As an indication of the "charge"* size held by a treating cylinder, the
average charge for a 6-foot by 36-foot cylinder, typical for a facility in the Northeast, can be 6,(XX)
board feet (500 cubic feet) of lumber.61
Wood preserving plants can also be categorized on the basis of the types of preservatives
used, as follows:
• plants treating with organic materials, such as pentachlorophenol, oil, and creosote
solutions;
• plants treating with waterborne inorganic salts, principally zinc, copper, arsenic,
and chromium; and
• plants treating with both organic and inorganic preservatives.
Of the plants identified by the 1976 AWPA Wood Preservation Statistics, 49% treat with
organics, 27% treat with inorganics, and 24% treat with both types of preservatives.
2. Product Diversification Within Plants
Although the industry treats a wide range of wood products, individual plants usually
concentrate on a limited range of products. Plants using inorganic (waterborne) preservatives
treat mostly dimension lumber, posts, and poles for insect and rot resistance and fire retardancy;
plants using organic (oil-borne)preservatives treat primarily poles, posts, pilings, and railroad
ties, and a few other products such as cross arms and bridge timber. Poles and ties are the major
production items of organic plants; inorganic piant8 have a greater variety of treated wood
products, but their volume may be smaller-
3. Size of Plants
There are no published data on individual piant capacities or production, because capacity
varies with the type of wood treated, the type of treatment and the type of conditioning. For
example, Douglas fir requires a considerably larger residence time than species found in other
parts of the country. Although the numbers ol cyl,nder8 and type8 of processes are known, there is
not necessarily a correlation between t]?e***nd either plant capacity or production. Some
industry members reported that a typic*1 cylinder, operating with an organic process, has
an output of 30,000 to 45,000 board feet Per QaV (based on 15,000 board feet per charge, 2 or 3
charges per day). Daily inorganic P™duCtl°" 'be somewhat higher because of shorter treat-
ment times. Reported annual operating r® Ulme U8ed for treating as a percent of total time
available for treatment, not including 1 ¦'*** unloading time) for the industry range from
40% to 70% Thus this industry operates at jer capacity utilization rates and has more excess
capacity relative to production than the *ve Ke all manufacturing.
'Charge: the wood volume In a process batch.
18
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Taking 1976 annual sales value as an indicator of size, the plants are very uniformly
distributed among the value of sales size categories shown in Table II-6. The median plant size
lies in the $0.7 to $1.2 million annual sales range. Six of the 319 plants responding to the EPA
Financial Survey on this question had sales of over $11.5 million, whereas 25 plants had sales of
less than $70 thousand.
TABLE 11-6
DISTRIBUTION BY ANNUAL SALES VALUE
1976 Salei
($000)
0-70
71-155
156-300
301-700
701-1200
1201-2400
2401-3200
3201-4800
4801-7200
7201-11,500
Over 11,500
Plants Built
Since 1970
8
4
10
8
5
5
5
50
16
8
20
16
10
10
10
10
100
Plants Built
1970 or Earlier
Total Responding
Source: Derived by Arthur D. Little, Inc., from EPA Financial Survey
Total
#
%
#
%
17
6
25
8
21
8
25
8
19
7
29
9
40
15
48
15
45
17
50
16
37
14
42
14
21
8
26
8
)
24
8
69
r
30
9
13
4
)
6
2
269
100
318
100
4. Location
There are no statistics available on the geographical distribution of consumption. However,
since transportation costs limit the market of a wood preserving facility to about 200 miles, it is
reasonable to expect that consumption follows the distribution pattern of production facilities
(Figure II-2). Most of the plants (45%) are in the Southeast region. Of the plants responding to
the EPA Financial Survey, 30% described their plant site as urban, whereas 25% were suburban
and 45%, rural.
5. Employment
The median-sized plant employs 10 to 19 production workers (Table II-7). Two plants
employ more than 125 workers, whereas 22% of all plants employ fewer than 3 workers. The
Bureau of the Census estimated the total employment of the wood preserving industry to be 9,700
in 1976. Because of the increased use of materials-handling equipment, employment has de-
creased from the peak of 12,800 in 1968.
E. CHARACTERISTICS OF NEW PLANTS
1. Plants Constructed Since 1971
Of the 332 plants responding to the question in the EPA Financial Survey, 56 plants began
operation in the 1971-1977 period (Table II-8). Table II-6 showed the size distribution of 50 of
these new plants based on the value of their 1976 sales. The average new plant is smaller than the
19
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1. Northeast Region
2. North Central Region
3. Southeast Region
4. South Central Region
5. Rocky Mountain Region
6. Pacific Region
Type of Retort
o Pressure
a Non-Pressure
o Pressure and
Non-Pressure
Note: Number codes correspond to AWPA directory listings.
Source: American Wood Preservers Association.
FIGURE 11-2 HOOD PRESERVING PLANTS IN THE UNITED STATES, 1974
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TABLE 11-7
NUMBER OF PRODUCTION EMPLOYEES PER PLANT. 1976
Number of Production
Employees per Plant Number of Plants Percentage of Plants
1 -3
73
22
4-6
39
12
7-9
26
8
10-19
56
17
20-34
55
17
35-48
27
8
49 - 75
36
11
76-99
8
2
100-125
6
2
Over 125
2
1
Subtotal
328
100
No Response
9
Total
337
Source: Derived by Arthur D. Little, Inc., from Environmental Protection
Agency Financial Survey.
TABLE II-8
DISTRIBUTION OF WOOD PRESERVING PLANTS
BY YEAR OF INITIAL OPERATION
Year of Initial Operation Number of Plants Percentage of Plants
Before 1930 58 17
1931 - 1940 13 4
1941 - 1950 46 14
1951 - 1960 83 25
1961 - 1970 76 23
1971 - 1977 _56 17
Subtotal 332 100
No Response 5
Total 337
Source: Derived by Arthur D. Little, Inc., from Environmental Protection Agency
Financial Survey.
21
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older plants, possibly suggesting that facilities typically expand over their production life or that
smaller facilities may now be economic in some markets. Comparing the plant size distribution of
the new plants to the size distribution of all plants (Table II-6), one can see that the median new
plants are smaller than all the older plants. The median annual sales of the new plants is $0.3 to
$0.7 million, whereas the median annual sales of older plants is $0.7 to $1.2 million.
The median age of the 332 plants responding to the EPA Financial Survey on this question
is approximately 20 years; 58 plants were built before 1930 and 56 plants began operation between
1971 and 1977, i.e., an average of 7 per year (Table II-8). Just under half (47rr) of the responding
plants were built in the 1950's and 1960's.
The profitability of the two groups is roughly comparable (Table II-9). The older plants and
the new plants have a median profitability after tax of 2rc of sales value.
TABLE 11-9
PROFITABILITY OF NEW PLANTS VERSUS OLDER PLANTS, 1976
1976 Profit
After Tax
ai Percentage of
Sales Value
New Plants
Number
Percentage
Older Plants'
Number
Percentage
Under 1
16
37
56
25
1 - 2
6
14
58
25
3-4
7
16
47
21
5-7
7
16
38
17
Over 7
7
16
26
11
Subtotal
43
100
225
100
No Response
7
62
Total
50
287
1. New plants are those beginning operation between 1971 and 1977, while older plants
began operation before 1971.
Source: Derived by Arthur D. Little, Inc., from Environmental Protection
Agency Financial Survey.
2. Capital and Operating Costs for New Plants
Capital and operating costs were developed for model new source plants proposed by the
Technical Contractor, who selected two plant sizes, with each assumed to be producing one of
four preserved wood products. The plant sizes are as follows:
• Two cylinders, each seven-foot diameter by 130 feet long.
• Five cylinders, each seven-foot diameter by 130 feet long.
22
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The product, location and process relationships are as follows:
Case
A
B
C
D
Product
Railroad ties
Southern pine poles
Douglas fir poles
Southern pine lumber
Location
South Central
South Central
West Coast
South Central
Process
Boultonizing
Steam
Boultonizing
Inorganic
The total installed cost for the 5-cylinder facility is about $6.5 million ($1977), compared to
$3.3 million for the two-cylinder plant (Table 11-10). Of the respondents to the EPA Financial
Survey, only 7 (2°?) indicated that they had net fixed assets over $2 million. Thus the nominal
investment for a new facility is more than three times larger than the book value of an existing
facility.
Arthur D. Little estimates that the two-cylinder plant would have 25 operating, 7 mainte-
nance and 13 supervisory and office employees, at an average annual cost of $15,000 per employee
(Table 11-11). The five-cylinder plant is assumed by Arthur D. Little to have 50 operating, 14
maintenance and 20 supervisory and office personnel, reflecting scale economies over the two-
cylinder plant. Taxes and insurance are estimated at 4% of the capital cost. While maintenance
and other consumable supplies, such as packaging, vary with the operating volume of each plant,
these variations are too small to affect overall operating costs and have been assumed by Arthur
D. Little to be a constant percentage of sales.
The following additional assumptions were made:
• One-product operation was assumed, although most facilities have variable and
constantly changing product mixes, depending on specific and local market condi-
tions.
• Capital requirements for the West Coast facility are estimated to be 10% greater
than for the Southern plants.
• Land requirements are 50 acres and 75 acres, respectively, for the two plants.
• Raw wood and preservative costs are as specified in accepted, published industry
references.*
• Forty percent of the cylinder volume is U9ed for each charge, with plants operating
three shifts a day and 300 days per year.
• While cycle time depends on wood species, moisture content, type of process
employed and degree of preservation required, the following, perhaps conservative,
cycle times were used:
— Railroad ties (Boultonized) — 30 hours
— Southern pine poles (steamed) — 16 hours
— Douglas fir poles, green (Boultonized) — 40 hours
— Southern pine lumber (CCA-treated)** — 16 hours
•Shown later In Figure 11-3.
"Chromated copper arsenate.
23
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TABLE 11-10
ESTIMATED FIXED CAPITAL REQUIREMENTS FOR THE MANUFACTURE OF
PRESERVED WOOD (ORGANIC TREATMENT)
(1977 $000)
Location: South, new facility or replacement value1
Cylinder Size: 7-foot diameter, 130 feet long, 5000 cubic feet in volume
Installed3
Installed2
Bare Cost
Cost of a
Cost of a
of Equipment
Two-Cylinder
Five-Cylinder
Per Cylinder
Plant
Plant
Site Preparation3
200
300
Yard Equipment4
400
800
1,600
Pressure Cylinder
250
700
1,700
Storage Tanks and Pumps
100
250
400
Utilities:
Boiler and Compressor5
125
400
750
Dry Kilns
100
250
400
Primary Oil-Water Separation®
NA
40
57
Subtotal
975
2,640
5,207
Engineering, Construction and
Contingency at 25%
660
1,302
Total Fixed Capital7
3,300
6,509
Acres of Land Required
50
75
1. Add 10% for West Coast construction cost differential.
2. Installation includes piping, instrumentation, electrical, structures, foundations, erec-
tion labor, and allocated portion of shops and offices.
3. Site preparation costs estimated at $4,000 per acre.
4. Yard Equipment includes track and trams for cylinder loading, trimming and framing
equipment, and mobile equipment. Processing is based on receipt of rough sawn wood,
and specifically excludes debarking and rough sawing.
5. A wastewood-fired boiler is assumed.
6. For the primary oil-water separation system, 50% of the cost is included in the cost of
the plant, as indicated in The Development Document for Effluent Limitations for the
Timber Products Processing Point Source Category, October, 1979, US EPA, p. 277.
7. Does not include cost of land acquisition, because land costs for a greenfield plant very
considerably from site to site.
Source: Arthur D. Little, Inc., estimates based on industry interviews.
24
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TABLE 11-11
ESTIMATED ANNUAL OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD1
($000)
Operating Conditions2
A-1
A-2
B-1
B-2
C-1
C-2
D-1
D-2
Wood
2.064
5,160
5,400
13,500
2,448
6.120
6,480
16,200
Preservatives
672
1,680
378
945
230
576
594
1,485
Total Raw Materials
2,736
6,840
5,778
14,445
2.678
6,696
7,074
17,685
Labor
596
1,173
596
1,173
596
1,173
596
1,173
Supplies3
132
326
132
326
132
326
132
326
Fuel and Power3
132
326
132
326
132
326
132
326
Taxes and Insurance
132
260
132
260
145
286
132
260
Total Operating Cost
3.728
8,925
6,770
16,530
3.683
8,807
8.066
19,770
1. See Appendix B for supplemental data.
2. Operating Conditions:
Case A — Railroad ties, Boultonized, South Central location, 30 hours per charge
Case B — Southern pine poles, steamed. South Central location, 16 hours per charge
Case C — Douglas fir poles, Boultonized, West Coast location, 40 hours per charge
Case D — Southern pine lumber, CCA-treated, South Central location, 16 hours per charge
Case 1—2 cylinders, each 7-foot diameter, 130 feet long, 5,000 cubic feet
Case 2 — 5 cylinders, each 7-foot diameter, 130 feet long, 5,000 cubic feet
3. Includes 50% of the operating cost of oil-water separation.
Source: Arthur D. Little, Inc., estimates based on industry interviews.
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F. COMPETITIVE STRUCTURE OF THE INDUSTRY
1. Market Structure
Although the industry is composed of many small firms, the four largest firms had 37rr of
the total market in 1976, and the eight largest firms had of the total market (Table 11-12).
The size of the firms varies considerably. The top company has about 20^ of the market, the next
three companies have to 6cr each, and the next four about 2% each. The remainder of the top
20 have market shares of lrr each and the next 30 have shares averaging about 0.6rf. The level of
concentration has not changed significantly since 1963, indicating a stable market structure.
TABLE 11-12
CONCENTRATION RATIOS IN THE WOOD PRESERVING INDUSTRY, 1963-1976
Percent of Value of Shipment! Accounted for by
4
8
20
50
Largest
Largest
Largest
Largest
Year
Companies
Companies
Companies
Companies
1963
34
44
64
84
1967
35
44
63
84
1970
34
NA
NA
NA
1972
35
44
60
78
1976
37
47
NA
NA
Source: 1963-1972: U.S. Bureau of Census, Annual Survey of Manufacturers,
1976: Arthur D. Little, Inc., estimates based upon Annual Reports
and AWPA data.
Preserved wood is largely a commodity market limited by transportation coats which give
regional advantages to some producers. There is some interregional competition in the industry.
However, the cost of outbound transportation (which is reflected in the delivered price) results in
predominantly regional markets. For some applications, a particular wood species is preferred
and wood may be shipped over longer distances in these cases; more often, a suitable wood species
may be found locally.
2. Pricing Mechanism
Pricing mechanisms appear to be quite varied. For some products (mostly lumber), whole-
salers and commission firms conduct continuous pricing and bidding between the preserving
plants and the final customers via the telephone. Some of the preserved lumber is sold from price
lists. On the other hand, most poles, piling, and railroad ties are sold directly to the customer
through formal bids for specific projects. As most preservers keep small inventories and make the
products only on order, purchase decisions are made on the basis of price, availability, and
delivery of future production.
3. Price Elasticity of Demand
Demand elasticity varies somewhat according to the product. The major factors governing
demand are the availability of substitute products and the economic climate of user industries.
Demand for those products with high demand growth potential (such as dimensionalized lumber)
26
-------
will probably not be affected by an increase in prices because substitution possibilities are
limited. Those products which are threatened by lower demand growth potential (such as utility
poles) also have higher price elasticity because of the existence of substitutes, and producers will
be less able to pass along cost increases as increases in price.
For the immediate future, preserved wood railroad ties dominate that market. However,
concrete ties are now being used for some of the replacements. The market for utility poles is
mostly a replacement market because of substitute products and underground wiring. Other
products, such as construction and marine pilings, face some pressure from substitute products.
In summary, it appears that although some products will have high growth rates, there are
substitute products for many applications which will make it difficult for producers to increase
prices.
G. PRICE AND COST HISTORY
In the 1970-1978 period, the costs of wood preservative chemicals have shown the greatest
increase, followed by those of wood (lumber, piles, and ties), and finally labor (Figure II-3A). All
of these costs have increased at a rate greater than that of general inflation (Figure II-3B).
The cost of labor in the wood preserving industry has been increasing steadily; the average
payroll per worker was more than 60% higher in 1978 than in 1970, an annual increase of 6.2%.
However, since 1970, labor as a percent of value added and per dollar of shipments has declined
(Table 11-13). In fact, employment in the industry as a whole has declined, from 12,000 in 1970 to
9,700 in 1976. The percentage of the workforce classified as production workers has also declined,
from 84% to 79% for the same period, mainly because of the greater use of materials-handling
equipment to reduce labor costs.
Naturally, the most significant raw material cost is for wood, which represents from 40% to
75% of the selling price of the preserved wood product. The selling prices of untreated ties and
piles (Figure II-4) and lumber (Figure II-3A) have increased, respectively, 12.4%, 8.8%, and 13.7%
annually in the 1970-1978 period, or faster than the rate of overall inflation. The higher rate of
increase for ties versus piles is attributable in part to favorable demand levels for railroad ties.
The proportion of wood cost to total sales dollars has remained roughly constant over the 1970-
1978 period and, except for the 1974-1975 recession, the combined cost of all raw materials has
been a stable proportion of the sales dollar (Table 11-13). Thus, producers have been able to pass
on increased costs of wood in the form of increased selling prices, as indicated by selling prices
having closely tracked wood costs (Figure II-4).
After years of relatively constant prices, the prices of major chemical preservatives, pen-
tachlorophenol and, particularly, creosote oil, have increased dramatically since 1973. The price
increases for these chemical preservatives over the 1970-78 period, which averaged 11.1% and
12.6% per year, respectively, are greater than those of the final products. This indicates their
increased importance as an input cost, although they still make up a smaller portion of the total
than either wood or labor.
27
-------
250.0
200.0
150.0
100.0
50.0
1972 Values: creosote, 27d/gallon; pentachloiophenol 18
-------
12
11
10
9
8
7
-------
TABLE 11-13
SELECTED OPERATING RATIOS FOR
THE WOOD PRESERVING INDUSTRY, 1964 to 1976
Cost of
Cost of
Materials
Materials &
Per
Payrolls
Dollar of
Per Dollar of
Value Added
Payrolls
Shipments
Shipments
Per Employee
Percent
Year
(dollars)
(dollars)
(dollars)
Value Ad
1964
0.63
0.81
8,788
49
1965
0.64
0.81
9,050
48
1966
0.63
0.80
10,479
45
1967
0.62
0.80
11,103
46
1968
0.61
0.79
11,540
45
1969
0.64
0.81
11,818
47
1970
0.63
0.81
12,017
51
1971
0.64
0.82
13,800
48
1972
0.64
0.80
15,557
42
1973
0.67
0.80
18,446
40
1974
0.63
0.75
30,783
29
1975
0.64
0.78
24,548
38
1976
0.68
0.81
23,608
41
Source: U.S. Department of Commerce, Bureau of the Census, Census of Manufactures,
1973,1974, 1975, 1976; and Arthur D. Little, Inc., estimates.
Given the availability of substitutes and demand growth discussed above, the industry will
have a more difficult time in passing along increased costs in the form of price increases. The
pollution abatement cost is predominantly fixed rather than variable. A change in fixed cost
represents a change in long-run average total cost. Since the effluent abatement cost per unit of
production will be greater for smaller plants, smaller plants may not recover the entire cost
increase through higher prices. Market factors will determine whether this cost increase may be
passed along through price increases or will be absorbed by reducing profits.
H. FINANCIAL PROFILES
I. Income and Asset Analysis
The economic impact of this regulation upon the timber products industry was examined on
a stand-alone basis without regard to the other businesses associated with the industry or to
resources available to the parent companies of the plants. For this reason, it is important to have
an accurate picture of the revenues and expenses associated with the plant operations in the
affected industry as well as the assets used by the plants. The source of financial profile data used
in this study is the EPA Financial Survey.
30
-------
Pro-forma income statements were developed for seven sales and service categories of wood
preserving plants (Table 11-14). Sales-level categories were selected to represent the distribution
of plant sales, profit and loss, and cash flow (Table 11-15). Some of these categories could even be
grouped together, if one were interested in the pro-forma distribution of expenses alone. However,
pro-forma income statements were developed for five categories of plants treating owned-wood
products (TOWP) and two categories of plants providing a treating service only (TSO). The
number of plants providing TSO represents 13% of the total respondents to the EPA Financial
Survey. These plants were in the smaller size categories and two sales categories were sufficient to
represent this group for an economic impact assessment.
Some cost elements vary with the size of plant and service offered. Wood cost as a percent of
sales increases as sales increase for plants treating owned-wood products. The reasons for this
could be that the larger plants usually derive a greater portion of their sales from items such as
ties and poles whereas smaller plants usually treat more specialty lumber and timbers. Ties and
poles are more of a commodity product and thus price would be lower relative to cost of goods
sold. Another reason would be that plants with higher sales volume have a larger base over which
to spread fixed cost (note that the general and administrative expense is a lower percentage of
sales for large plants) and thus can afford to have a higher ratio of wood cost to sales. As would be
expected, plants primarily engaged in providing a treating service have low wood costs as a
percent of sales.
The profit after tax is a percent of sales increases with sales for plants treating owned-wood
products while the reverse is true for plants providing a treating service only. However, sales
turnover (Sales/Net Assets) varies by sales category (Table 11-15). The smallest sales category,
has the lowest return on capital (margin x turnover). In all other categories, return on capital is
from 9.3% to 11.1%.
Plants primarily engaged in a treating service have substantially higher rates of return on
total capital (Table 11-15) than plants treating owned-wood products. This could be artificial if
TSO plants have older, more fully depreciated equipment and associated lower book values than
comparably sized plants treating owned-wood products. The weighted average return on capital
is about 12%.
The distribution of assets at wood preserving plants (in contrast to parent companies) was
analyzed to determine working capital requirements associated with compliance investment. The
distribution of assets varies with size of plant (Table 11-16). For plants engaged in treating owned-
wood products, fixed assets as a percentage of total assets generally decline as sales level
increases. While the reverse is true for TSO plants (Table 11-16), the variability and small total
number of plants are such that the two plant sizes are not statistically different in the percentage
of assets in plant and equipment.
The "other current asset" category includes inventory items. As expected, plants treating
owned-wood products, except the smallest plants, have a higher percentage of assets in this item
than plants engaged in treating service only. For both plant categories, accounts receivable
decrease as a percent of total assets as sales increase.
In recent years, more than 85% of the industry's capital expenditures have been on new
machinery and equipment to reduce labor costs (column 3 of Table 11-17). This investment has
reduced total employment and raised the level of industry productivity (Bhown as a real increase
in value added per employee in 1967 dollars in column 7) by about 25% in the 1967-76 period.
31
-------
TABLE 11-14
WOOD PRESERVING PLANTS:
COST AS A PERCENT OF SALES
BY SALES CATEGORY
Treating Service
Plants Treating Owned-Wood Products (TOWP) Only (TSQ)
Sales Category ($000)
200
700
1,800
3,500
7,500
250
1,000
Sales (%)
100
100
100
100
100
100
100
Cost Goods Sold
Wood
44
44
55
50
55
8*
24
Payroll
19
17
13
12
19
20
19
Other Expenses
18
17
15
20
12
39
34
Depreciation
4
2
2
2
2
5
2
Total Cost Goods Sold
85
80
85
84
88
72
79
Gross Margin
15
20
15
16
12
28
21
Selling General
& Administration
11
12
11
9
5
14
15
Interest Expense
3
2
1
1
1
2
1
Profit Before Tax
1
6
3
6
6
12
5
Profit After Tax
0.5
3
2
3
3
6
3
Number of Financial
Survey Respondents
50
81
40
50
50
6
37
Percent of Total
Respondents'
15%
25%
12%
15%
15%
2%
11?
•Plants offering a Treating Service Only have lower wood costs because they mostly treat customers' wood.
1. 13 plants (4%) had sales evenly sP'it between TSO and TOWP.
Source: Derived by Arthur D. Little, Inc., from EPA Financial Survey.
32
-------
TABLE 11-15
WOOD PRESERVING PLANTS:
ASSET TURNOVER BY SALES/SERVICE CATEGORY, 1976
Sales/Service
Category ($000)
Total
Plants
Sales/
Total Assets
Turnover Ratio
Sales/
Net Assets:
Sales/
Fixed Assets
1976
Return on
Total
Capital (%)3
TOWP
200
700
1,800
3,500
7,500
50
81
40
50
50
2.5
3.0
3.0
2.5
2.5
3.8
4.7
4.3
3.1
3.1
5.0
8.0
10.0
10.0
8.0
1.9
11.1
8.6
9.3
9.3
TSO
250
1,000
6
37
3.0
5.0
4.0
8.0
5.0
10.0
24.0
32.0
1. Based on 327 responses; 13 plants had sales equally split between TSO and TOWP.
2. Total assets less current liabilities.
3. Profit After-Tax (Table 11-14) = Margin
Sales/Net Assets = Turnover; Net Assets = Total Assets — Current Liability
Rate-of-Return on Total Capital = Margin x Turnover
Source: Derived by Arthur D. Little, Inc., from EPA Financial Survey.
However, a number of firms have not made the expenditures to reduce labor costs; their
comparatively less favorable cost structure will make the financing of major capital expenditures
for pollution control especially difficult.
2. Investment Criteria
As part of the EPA Financial Survey, wood preserving plants were asked to provide their
criteria for investment in wood preserving plant and equipment. This information is used in the
economic impact assessment to estimate the price increase required to recover the cost of
pollution control investment. A total of 119 (35%) of the plants indicated an investment criterion;
22% provided target internal rate-of-return values, and 6% provided payback criteria.
Plants providing rates-of-return criteria represented a cross-section of the wood preserving
plants responding. There were too few responses to the question to subcategorize the rate-of-
return by plant characteristics. However, the distribution of respondents to the question was
similar to that of the total sample with respect to sales level, current discharge status and type of
preserved wood product. The distribution of target rates of return was taken as representative of
the total industry.
33
-------
TABLE 11-16
WOOD PRESERVING PLANTS.
DISTRIBUTION OF ASSETS
BY SALES AND SERVICE CATEGORY, 1976
Plants Treating Owned-Wood Products (TOWP)
Treating Service
Only (TSO)
Sales Category ($000)
200
700
1,800
3,500
7,500
250
1,000
Accounts Receivable
35.0%
35.0%
30.0%
20.0%
20.0%
35.0%
26.0%
Other Current Assets
15.0
27.5
40.0
55.0
50.0
25.0
24.0
Total Current Assets
50.0
62.5
70.0
75.0
70.0
60.0
50.0
Fixed Assets
50.0
37.5
30.0
25.0
30.0
40.0
50.0
Total Assets
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Average Value of
Total Assets ($000)
270
320
617
1,805
3,710
1.3
751
Number of Plants in
Sample1
50
81
40
50
50
6
37
1. Based on 327 responses; the sales of 13 plants were equally split between TSO and TOWP.
Source: Derived by Arthur D. Little, Inc., from Environmental Protection Agency Financial Survey.
The average and median pre-tax rates of return are in the 20-24% category (Table 11-18).
Using midpoints of the categories, the weighted average after-tax rate-of-return is about 12%,
assuming a 48% tax rate. The impact was assessed (Chapter IV) using the weighted average value
and the sensitivity was analyzed (Chapter V) to determine the effect of different rates of return.
34
-------
TABLE 11-17
CAPITAL EXPENDITURES AND PRODUCTIVITY IN WOOD PRESERVING INDUSTRY, 1967-1976
(5)
(6)
(7)
Ui
Ul
(2)
Production
Value Added
Value Added
(1)
New Structures
(3)
(4)
Workers as
Per Man Hrs.
Per Man Hrs. of
Total New
and Additions
New Machinery
Total
% of Total
of Production
Production
Yew
Expenditures
to Plants
and Equipment
Employment
Employment
Worker
Worker
(millions of
(millions of
(millions of
(000s)
(percent)
(current $)
(1967 $)
current dollars)
current dollars)
current dollars)
1967
10.7
1.4
9.3
12.2
84
6.25
6.25
1968
9.3
1.4*
7.9*
12.6
84
6.58
6.03
1969
13.2
NA
NA
12.1
83
6.78
5.77
1970
8.4
1.4
7.0
12.0
81
7.14
5.78
1971
10.4
.5
9.9
11.3
82
7.94
5.94
1972
14.8
2.2
12.6
11.3
81
9.35
6.35
1973
11.6
2.0
9.6
10.1
83
10.41
6.34
1974
28.1
3.9
24.2
10.6
81
17.63
9.94
1975
27.5
4.9
22.6
9.3
80
14.54
7.57
1976
22.3
2.4*
19.9
9.7
79
14.87
7.74
'Indicates the standard error is greater than 15%.
NA — Means not available.
Source: U.S. Department of Commerce, Bureau of the Census, Annual Survey of Manufacturers, 1967-1976.
-------
TABLE 11-18
TARGET RATE OF RETURN FOR
INVESTMENTS MADE BY WOOD PRESERVING INDUSTRY
Pre-Tax
Rate of %
Return (%) # Respondents
0-4 0 0
5-9 2 4
10-14 7 13
15-19 11 21
20-24 8 15
25-29 12 25
30-40 8 15
40 or more 4 7
52 100
# % of
Distribution of Sample Respondents Total
Plants Using Rate-of-Return Criteria 75 22
Plants Using Payback Criteria 21 6
Plants Using Other Methods 23 7
Not Answering Question 218 65
337 100
Source: Environmental Protection Agency Financial Survey.
36
-------
III. COST OF COMPLIANCE
A. INTRODUCTION
The costs of compliance for a number of alternative Pretreatment Standards for Existing
Sources (PSES) regulations have been developed by the EPA Technical Contractor, Environ-
mental Science and Engineering, Inc. " The purpose of this Chapter is to review the current
status of the industry, summarize the costs of compliance associated with each option, and
describe the investment and operating costs that will be incurred under each alternative.
B. CURRENT EFFLUENT STATUS
One wood preserving plant discharges* into navigable waters, i.e., it is a direct intermittent
discharger, while 39 discharge into municipal systems, i.e., indirect discharge. Inorganic plants
are required to be at no discharge; all remaining organic plants do not discharge. The plants that
will be required to make expenditures represent a minority of the industry. In total, the 39
potentially affected plants represent about 10% of the 415 plants in the industry.
The one direct intermittent-discharge plant is a steam plant. An additional 29 plants in the
steam category and 10 Boulton plants discharge into municipal systems.
The costs of compliance developed by the EPA Technical Contractor were based upon a
separate EPA Technical Survey as well as on plant visits and sampling data. The Technical
Contractor developed cost-of-compliance data for each plant separately, including two plants
that did not provide economic data. Current effluent status was verified by the Technical
Contractor through follow-up phone calls.
C. CONTROL OPTIONS
Six options were examined for indirect dischargers:
• Option 1: Existing interim final pretreatment standards; i.e., no further regu-
lation;
• Option 2: Biological treatment for plants using pentachlorophenol;
• Option 3: Metals removal for plants with fugitive metals;
• Option 4: Zero discharge of pentachlorophenol or fugitive metals;
• Option 5: Zero discharge for plants using pentachlorophenol; and
• Option 6: Zero discharge for all indirect dischargers.
Treatment technology as developed by the Technical Contractor differed by wood pre-
serving process; and for indirect dischargers, two subcategories for pollution control treatment
were used:
• Boulton Process; and
• Steam Process.
* Process wastewater, as defined by the EPA and used In the Financial Survey (see Appendix C). The definition
excludes storm and other waters not having contact with the process.
37
-------
D. COSTS OF COMPLIANCE FOR EXISTING INDUSTRY
Tables III-l and III-2 contain the incremental investment and operating costs associated
with each of the options, or levels of control, respectively, for the steam and Boulton plants. The
land investment has been broken out separately because it permits comparison of the relative
amount of land required for each of these control options. On the basis of the Technical
Contractor's work and the results of the Financial Survey, a cost of $5000 per acre was taken for
land; thus the number of acres required for each can readily be determined.* Land investment
was separated from other investment in the economic impact assessment because land is not a
depreciable asset and, therefore, must be treated separately. As the tables show, the compliance
costs vary considerably from plant to plant, depending upon the volume of water effluent.
The investment required for compliance by indirect discharge steam plants increases with
the stringency of the pollution control requirement. In contrast, for most Boulton plants, the cost
of zero discharge can be lower than the cost of metals removal or biological treatment. (The
obvious exceptions to this are the two Boulton plants which would incur zero cost except under a
no-discharge option.)
Table III-3 shows the total costs of compliance that will be incurred by the direct and
indirect dischargers in the wood preserving industry. Since "zero discharge" is generally less
expensive for Boulton plants than heavy metals removal, the six Boulton plants presumably
would install the cooling tower evaporation control equipment under Option 3. Table III-3
illustrates the total cost of compliance assuming that plants will install zero discharge control
equipment where biological treatment or metals removal are more expensive.
The lowest cost alternative for indirect discharges is Option 3, where total investment is $1.5
million and the fewest plants (13) are affected. Under Option 6, which represents zero discharge
for all indirect dischargers, the investment required is $6.8 million and the annualized cost is $2.3
million. (See Appendix D for annualized-cost-calculation methodology.)
The EPA also considered the use of production cut-off levels (Table III-4) to trigger
compliance for indirect dischargers. Applying the cutoffs under each alternative produces sub-
stantially lower compliance costs and fewer affected plants (Table III-5). Under each alternative
the investment cost, operating costs and number of affected plants are about half the levels with
n° size-cutoff criterion.
• Since September, 1979, the EPA had its Technical Contractor revise the cost of compliance for seven plants. The
revised cost (or plants 7, g, 12, 22, and 27 excluded the opportunity cost for owned land. However, owned land Is
Squired to accommodate the eff'u®nt treatment systems for these plants.
38
-------
TABLE III-1
WOOD PRESERVING STEAM INDIRECT DISCHARGERS:
COST OF COMPLIANCE UNDER ALTERNATIVE TECHNOLOGIES
($)
l*«t
Biological Treatment
Investment
Land
Other
Operating
Costs
Metals Removal
Investment
Land
Other
Operating
Costs
Spray Evaporation
Investment
Land
Other
Operating
Costs
Type of
Preservative1
vo
2
1.250
80,950
20.500
3
650
45,450
16,000
4
3.900
236,300
34.000
5
900
64.200
18.500
6
1,100
69,200
19,200
7
1,050
68,150
19,000
8
1.750
108.450
23,400
9
2.050
126.450
25,200
10
-
68,500
25,500
11
2.650
161,950
28,600
12
2.600
160,500
28.300
13
650
48,650
16.300
t4
1.250
79,550
20,200
15
1,300
82.100
20.600
16
1.150
73.950
19,600
17
3,400
207.500
42.300
18
2.450
149.550
27.400
19
1,900
117.500
34.200
20
1,850
116,150
23.700
21
-
42,600
4,700
22
— Not Applicable
23
950
45,950
25,200
24
650
45.450
16,000
25
—
79.100
29.400
27
5,400
315,300
51.700
28
— Not Applicable
29
2,400
146.300
27.100
30
650
45.450
16.000
31
950
45.950
25.200
2,250
Not Applicable
83.300 11,800
Not Applicable
101.900 14,600
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Not Applicable
146.700 27,900
145.500 27,600
Not Applicable
111.100 16,600
Not Applicable
Not Applicable
158,700 31,500
Not Applicable
Not Applicable
Not Applicable
Not Applicable
130,550 16,600
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Nol Applicable
142,800 26,500
Not Applicable
Not Applicable
2,850
146.550
17,000
P
750
77,650
15,400
C.M
10,400
312,400
22,000
C
1.800
117,300
16,300
P.M
2,250
131,250
16,600
P
-
109,200
115,600
P
4,750
183.350
17,900
C
-
137,300
62.772
P
-
88.600
15,600
P
7.500
243.900
19,400
M
-
261,700
31,160
P.M
850
82.450
15.500
C
2,800
145.100
18,000
M
2,950
149.550
17,100
P
2,400
143.200
18,200
P
9,300
287.300
32,500
M
8.250
231.550
19,100
C
5,100
203.300
30,000
P
5,000
193,000
18,100
P
-
106.100
3,400
P
-
>1.000.000
> 50,000
P.M
750
78,350
15,300
P
-
66,800
1,500
P
—
116,400
16,200
P
-
376,700
65,900
P
112,200
18,000
C
6,700
227.000
19,000
P.M
750
78.300
15,400
P
750
78.350
15.300
C
1 t' = pentachlorophenol; C 3 creosote; M = heavy metal salts
Source: Environmental Science & Engineering, Inc., adjusted to reflect land oost at $5000 per acre.
-------
TABLE 111-2
WOOD PRESERVING BOULTON INDIRECT DISCHARGERS:
COST OF COMPLIANCE UNDER ALTERNATIVE TECHNOLOGIES
<$)
Biological Treatmwit
Metals Removal
Cooling Tower Etyoirton
O
Land
Otter
Operating
Costs
32
1.250
81,050
23.900
34
1,650
102,350
23,300
35
1.650
102,350
23,300
36
2.750
171.150
29.000
37
- Not Applicable
38
4,000
234,000
34,700
38
- Not Applicable
40
2.150
132,350
25,700
41
20.000
966.000
93,100
42
6,500
345,500
44,500
Investment
Land
1,250
1.250
1,250
Other
Operating
Cottt
Not Applicable
Not Applicable
125,750 23,200
147,150 30.100
Not Appliceble
103,500 38.400
Not Applicable
137.750 26.700
Not Applicable
118,500 46,000
lnv«
Land
itment
Other
Operating
Costs
Types
Preservati
-
74.800
25,380
P
-
71,900
28,400
C
-
73,400
26,280
P.M
-
92.000
33,800
P.M
-
110.400
42,300
C
1,250
166.950
35,600
P.M
-
103.500
38,900
C
-
132.350
25.700
P.M
-
178,200
89,200
C
1,250
182,850
43.100
C.M
1. P " pentachlorophenol; C - creosote; M - heavy metalj.
Source: Gnmmw«ntal Science & engineering. Inc., adjusted to reflect cost of land at $5,000 per acre.
-------
TABLE 111-3
TOTAL COST OF COMPLIANCE: WOOD PRESERVING INDUSTRY
INSTALLING LEAST-COST TECHNOLOGY
(SOOO's)
Investment
No. of
Other
Annual
Operating
Annualized
Indirect Dischargers
Plants
Total
Land
Investments
Cost
Cost
Option 1
Steam
—
—
—
—
-
—
Boulton
-
-
-
-
-
-
Option 2
Steam
18
1,822.8
25.0
1,797.8
424.4
730.1
Boulton
5
732.6
11.8
720.8
136.6
259.4
23
2,555.4
36.8
2,518.6
561.0
989.5
Option 3
Steam
8
1,022.9
2.3
1,020.6
173.1
345.2
Boulton
5
526.1
1.2
524.9
171.2
259.7
13
1,549.0
3.5
1,545.5
344.3
604.9
Option 4
Steam
23
4,535.5
50.9
4,484.6
630.4
1,391.7
Boulton
6
728.5
2.5
726.0
189.9
312.5
29
5,264.0
53.4
5,210.6
820.3
1,704.2
Option 5
Steam
19
3,762.7
32.1
3,730.6
545.1
1,177.2
Boulton
5
540.8
1.3
539.5
146.8
237.8
24
4,303.5
33.4
4,270.1
691.9
1,415.0
Option 6
Steam
29
5,560.8
75.9
5,484.9
738.2
1,671.0
Boulton
10
1,192.5
2.5
1,190.0
388.7
589.4
39
6,753.3
78.4
6,674.9
1,126.9
2,260.4
Direct Dischargers
Biological Treatment
with Carbon Adsorption
1
69.0
-
69.0
23.0
34.6
Discharge/Spray
Evaporation
1
177.0
-
177.0
15.0
44.8
Source: Data supplied by EPA and Environmental Science and Engineering, Inc., revised by
Arthur D. Little, Inc., to reflect land cost of $5000 an acre.
41
-------
TABLE 111-4
WOOD PRESERVING INDUSTRY PRODUCTION SIZE
INDIRECT DISCHARGERS
STEAM
Alternative
Plants Affected
Without Cutoff
Cutoff
(000 Cu. Ft.)
Plants Affected
With Cutoff
Option 1
Option 2
Option 3
Option 4
Option 5
Option 6
0
18
8
23
19
29
Not Applicable
900
1,200
1,200
1,200
1,200
0
13
2
11
11
13
Option 1 0
Option 2 5
Option 3 5
Option 4 6
Option 5 5
Option 6 10
BOULTON
Not Applicable 0
700 4
700 5
1,100 3
1,100 2
1,100 6
E. COST OF COMPLIANCE FOR NEW SOURCES
Costs of compliance for new sources were generated by the Technical Contractor for organic
plants using the Boulton process and organic Bteam methods. Urider existing NSPS guidelines,
new wood preserving plants using inorganic processes are required to have zero discharge;
therefore, they were not analyzed.
The treatment technology for new Boulton process plants consists of:"'
• Primary gravity oil-water separation;
• Flocculation followed by rapid sand filtration; and
• Evaporation in cooling tower, with provisions for additional heat input through a
heat exchanger.
The treatment technology for a new steam process plant consists of:
• Primary gravity oil-water separation;
• Flocculation followed by rapid sand filtration; and
• Containment and spray evaporation.
42
-------
TABLE II1-5
TOTAL COST OF COMPLIANCE: WOOD PRESERVING INDUSTRY
INSTALLING LEAST-COST TECHNOLOGY
(WITH SIZE CUTOFF)
($000's)
No. of
Investment
Annual
Operating
Annualized
Indirect Dischargers
Plants
Total
Land
Investments
Cost
Cost
Option 1
Steam
-
-
-
-
-
-
Boulton
-
-
-
-
-
Option 2
Steam
13
1,374.0
19.2
1,354.8
318.9
549.4
Boulton
4
650.5
10.6
639.9
112.7
221.7
17
2,024.5
29.8
1,994.7
431.6
770.1
Option 3
Steam
2
275.7
2.3
273.4
43.1
89.4
Boulton
5
526.1
1.2
524.9
171.2
259.7
7
801.8
3.5
798.3
214.3
349.1
Option 4
Steam
11
2,552.9
18.3
2,534.6
250.4
679.4
Boulton
3
484.7
2.5
482.2
104.4
185.9
14
3,037.6
20.8
3,016.8
354.8
865.3
Option 5
Steam
11
2,554.4
19.8
2,534.6
250.4
679.4
Boulton
2
300.6
1.3
299.3
61.3
111.9
13
2,855.0
21.1
2,833.9
311.7
791.5
Option 6
Steam
13
2,744.3
19.1
2,725.2
283.7
744.9
Boulton
6
876.7
2.5
874.2
274.8
422.3
19
3,621.0
21.6
3,599.4
558.5
1,167.2
Direct Dischargers
Biological Treatment
with Carbon Adsorption
1
69.0
-
69.0
23.0
34.6
No Discharge/Spray
44.8
Evaporation
1
177.0
-
177.0
15.0
Source: Data supplied by Environmental Science and Engineering, Inc., revised by Arthur D. Little, Inc., to
reflect land cost of $5000 an acre.
43
-------
Cost-of-compliance estimates were based upon the plant types and sizes shown in Table
IH-6. Two sizes of Boulton plant are shown (one with two 130' x 7' cylinders, and one with five
cylinders), each treating Douglas fir poles, which require a long residence time in a retort. Costs
were also developed for two sizes of organic steam plants treating Southern pine poles. Boulton
plants treating southern oak railroad ties would have production rate and wastewater flows
similar to those for the organic steam plants.
TABLE 111-6
MODEL PLANTS FOR NEW SOURCE PERFORMANCE STANDARDS
Plant Type
Design Production
Cubic Feet/Day
Product Type
Wastewater Flow
(Gal./Day)
Boulton Process
Plant A
Plant B
3,200
8,000
Douglas Fir Poles
3,300
8,240
Steam Process
Plant C
Plant D
6,000
15,000
Southern Pine Poles
2,700
6,750
Source: The Development Document for Effluent Limitations for the Timber Products
Processing Point Source Category, October, 1979, US EPA, p. 102.
The cost of compliance with the new source treatment technology is shown in Table III-7 for
each model plant. The compliance investment and operating costs reflect only one half of the cost
of primary oil-water separation; the remainder has been included in the new plant baseline data
described in Chapter II and included in Chapter IV. The reason for this is that approximately
one-half of the investment in oil/water separation was found by Environmental Science and
Engineering to be economically justified and was, therefore, excluded from the cost. The total
cost of primary oil-water separation is also shown in Table III-7; these costs differ by size of plant
but not by treatment method.
TABLE 111-7
COST OF COMPLIANCE: NEW WOOD PRESERVING PLANTS
Total Operating Acres of Land Annualized
Model Plant Type Investment Cost Required Cost
Boulton Plant A1 $161,030 $39,480 0.50 $ 53,780
Boulton Plant B1 223,310 57,280 0.75 95,420
Organic Plant C1 209,200 35,150 0.90 70,161
Organic Plant D1 327,500 46,260 1.95 109,520
Total Requirement
Primary Oil-Water Separation
2-Cylinder Plant 80,000 8,000
5-Cylinder Plant 113,500 9,500
1. Half the investment and operating cost of primary oil/water separation has been excluded.
Source: Environmental Science and Engineering, Inc., letter dated August 11, 1978, adjusted to reflect
land cost of $5000 an acre (incremental cost of additional land required).
44
-------
IV. ECONOMIC IMPACT ASSESSMENT
This chapter discusses the results of the economic impact assessment of the costs of
complying with the regulatory options studied. It also contains a description of plants that will be
required to install or modify equipment (thus incurring higher costs of operation) to comply with
the studied control options, and compares these plants with those that currently are self-
contained, i.e., have zero discharge.
A. ECONOMIC CHARACTERISTICS OF AFFECTED PLANTS
As described in Chapter III, onlv 9cc of the plants in the wood preserving industry will be
affected by the regulatory alternatives studied because the remaining 91^ of the industry are
currently not discharging process wastewater into navigable water or into a municipal system.
The affected plants were compared with the remainder of the industry in several areas important
to determining the effects of the alternatives on the industry, i.e.:
• Sales
• Process
• Profitability
• Product Mix
• Location
With the exception of plant sales and location, the affected plants are not significantly
different from the other plants. In general, plants affected by the studied regulatory requirements
are larger than the unaffected plants.
Most of the affected plants (77°c) are in urban areas while most of the no discharge plants
(77'c) are in suburban or rural areas (Table IV-1). The affected plants located in urban areas
cited a lack of available adjacent land for an effluent treatment system (17 of 39 affected
respondents). However, land availability does not appear to be a problem in suburban or rural
locations.
B. ECONOMIC IMPACT ON EXISTING INDUSTRY
The economic impacts of the compliance costs for each studied alternative were analyzed
with respect to:
• Price
• Demand reduction/shifts
• Financial effects
• Plant closures and market structure
(The sensitivity of these economic impacts to the assumptions that were made is discussed
in Chapter V, Limitations of Analysis.)
45
-------
TABLE IV-1
LAND AVAILABILITY FOR PLANTS
DISCHARGING PLANTS
NO
Land Availability mcrMA
Available
Unavailable
No Answer
Total
PLANTS
Type of Location
#
%
#
%
#
%
#
%
#
%
Urban
9
30
17
57
4
13
30
100
68
23
Suburban
4
80
0
0
1
20
5
100
80
27
Rural
2
63
0
0
1
33
3
100
150
50
No Answer
-
-
-
-
1
1
Total
15
38
17
44
7
18
39
100
298
100
% of Total Sample (337 Respondents)
5
5
2
12
88
Note: This table includes three plants as "DISCHARGING PLANTS" which the EPA has learned are "NO DISCHARGE" plants.
Source: EPA Financial Survey.
-------
1. Price Effects
The potential long-run price effects resulting from the control alternatives that were studied
were addressed by estimating the "long-run price increases" — i.e., those necessary to recover
all costs associated with a control option, including a normal rate of return on investment,
associated with the costs for each control alternative. The rate of return on investment that was
used was the average value for the plants responding to the rate-of-return criteria question posed
in the EPA Financial Survey. (See Chapter II.)
An estimate was made of the revenue required for plants to recover the total cost of
compliance for each option with incremental costs. As a percentage of sales (Figure IV-1), the
relative increase in revenue required to recover compliance costs varies with the size of plant.
The revenue required to recover compliance costs can be viewed as the average price
increase across all products required by a plant in a given sales category. Obviously, small plants
have a higher revenue requirement because compliance costs for a given option are dis-
proportionately higher for small plants than for large plants.
Because only 9Tc of the plants in the industry will be affected by the options studied, the
price increases expected from the regulation are likely to range from 0% to the same percentage as
that for the larger plants. The wood preserving industry is competitive and the demand curve
facing individual firms is more elastic than the industry demand curve. However, the following
factors and circumstances may enable these plants to obtain price increases to recover cost:
• The affected plants are generally larger than the industry average;
• They may be in isolated geographic markets; and
• The general price level inflation in the U.S. (6-8% per year) may facilitate at least
partial cost recovery.
Larger plants are often associated with multi-plant companies which have some market
power and may be able to obtain a price increase to recover a portion of the cost of compliance.*
Plants in locations where there are few or no competing firms may be able to raise prices; the
primary limitation would be the cost of transporting products from the nearest plant that is not
affected. Finally, during the 1970's, the prices of preserved wood products have outpaced general
price inflation. Given "customary," inflation-related price increases of 6-8%, affected wood
preservers may be able to recover an additional 1-2% of increased cost associated with pollution
control.
Note that the analysis of plant closures viewed each plant as a stand-alone operation,
unable to recover the cost of compliance through price increases at associated plants or through
other corporate activities.
* Although there are occasions when multi-plant companies do not have market power at a specific location,
economic theory and actual experience Indicate that such market power generally exists.
47
-------
Option 2
Option 3
00
c
S
£
s
?
<
50
40
0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12 0
1977 Plant Sales ($ Millions)
Options 4 and 5
a.
•I
30
20
10
n
~
-;P1anls with metals
excluded under
Option 5
¦
-
¦
~
U
~
¦
~
¦
¦
m
~
¦
*
¦
u
Q
O
¦
¦
im
*
-L_ I—
¦
1
•
i i i i
•
0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 120
1977 Plant Sales (( Millions)
Option 6
1.0 2.0 3.0 4.0 5.0 GO 7.0 80 90 100 11.0 12.0
1977 Plant S«'il('^ ($ Million*)
0 1.0 2.0 3.0 4.0 5.0 6 0 7.0 8.0 9.0 10.0 11.0 12.0
Lcqrml 1971 Plant Salts (S Millions)
¦ Steam-Indirect
n OrMillm Indirect
FIGURE IV-1 PRICE INCREASES REQUIRED TO RECOVER COSTS OF COMPLIANCE
-------
2. Production Shifts
Growth rates in the demand for preserved wood products will affect the ability of affected
plants to obtain price increases. It is unlikely that plants predominantly producing poles will be
able to obtain higher prices for this product in the face of a declining industry demand. Shifting
from poles to other products may enable a plant to produce a product with higher added value to
maintain current production levels. However, tight capacity is not foreseen for any preserved
wood product and thus the ability of affected plants to increase real prices will be inhibited.
The selection of preserved wood versus steel or concrete materials is predominantly based
upon structural requirements. Requirements could change in railroad ties if concrete ties con-
tinue to be technically feasible and economically producible. A portion of the market expansion
forecast for ties could be captured by concrete substitutes, especially if the life-cycle costs become
more competitive. While this may not be a factor until the mid-1980's, it would coincide with the
deadline for regulatory compliance and would further prevent the affected plants from recovering
costs of compliance through price increases.
3. Financial Effects
It is unlikely that the affected plants as a group would be able to recover the costs of
complying with the studied alternatives through higher prices. If they elect to install the pollution
control equipment, profitability is likely to decline. Table IV-2 shows the effect of increased
operating costs and investment upon profitability in the absence of price increases. The analysis
considered the effect on operating costs due to out-of-pocket expenditures; i.e., while potential
interest payments on debt are included as a cost, the total cost of capital is not included in the
figures. Also, the lowest-cost means of achieving compliance was used i.e., if Option 4 is less
expensive than Option 3 for a plant, it is assumed the plant will install Option 4.
Because the costs of compliance for small plants are relatively higher than for the remainder
of the industry, small firms will suffer the greatest decline in profitability as a result of com-
pliance. The small plants with lowest sales volume would be in a negative profit situation under
all of the control options studied. Plants in the other sales categories would suffer a decline in
profitability but most affected plants would still be profitable under each alternative.
Any price increases the affected plants are able to obtain would mitigate the reduction in
profitability for small and medium-sized plants. However, as discussed above, price increases
that do occur (barring a tight market) will reflect the cost structure of the larger plants. Even with
price increases, many plants with less than $1.8 million in sales are likely to become unprofitable
if they make the compliance expenditures.
Reduction in profitability is not the only financial effect of the regulation. If one were to
assume that all affected plants could recover the pollution control expenditures through price
increases, it is still likely that a number of affected plants would be unable to finance the required
investment.
For small plants with sales under $1 million, the investment required for all options studied
exceeds annual plant cash flow for all but one plant (Figure IV-2). Even for larger plants, the
49
-------
TABLE IV-2
INDIRECT DISCHARGER WOOD PRESERVING PLANTS :
PERCENTAGE DECLINE IN PROFITABILITY AFTER COMPLIANCE WITHOUT
PRICE INCREASES
Plant Sales ($000): 200
700 1800 3500 7500
Percentage Decline in Profitability1
Option 2
Steam
Boulton
Option 3
Steam
Boulton
Option 4
Steam
Boulton
Option 5
Steam
Boulton
Option 6
Steam
Boulton
260
260
260
260
20-73
79
21-79
21-79
8-155
21-100 8-174
8-174
8-174
89
6-46
16-42
3-208
16-45
3-208
16-45
2-45
13-68
36-113 4
16-45 13-68
6208 3-50
16-45 13-68
3-50
13-68
3-50
13-68
1. Change in Profit/Precompliance Profit: the absolute value of the changes in profit divided by
precompliance profit. A value greater than 100% means plant is operating at a loss.
Source: Arthur D. Little, Inc., estimates.
studied alternatives often require investment exceeding a single year's cash flow. Considering the
fact that a portion of the plant's cash flow must be used for expenditures other than those
associated with the studied regulations, affected plants will not generate sufficient cash flow to
self-finance compliance with these regulations. The affected plants generate an annual cash flow
equivalent to approximately 4% of sales.* About 3% of sales is reinvested to maintain industry
assets, leaving about 1% of sales for dividends, retained earnings, and other purposes. To have
available the equivalent of one year's cash to invest in pollution control, wood preservers would be
required to accumulate four years' cash flow in excess of maintenance investment requirements.
Therefore, if the studied regulations had been required in 1984, any plant with a pollution control
investment requirement in excess of one year's cash flow would have had to obtain external
financing between 1979 and 1983 to fund pollution control expenditures associated with PSES.
Assuming that a plant is viable (i.e., prices will eventually increase to cover the investment
expenditures), a plant will have to seek financing from a parent company or the financial
* Based upon responses to the EPA Financial Survey. (See Chapter II.) A sample cash flow calculation Is shown In
Appendix D.
50
-------
600
| 500
CB
o
o
s>
c
03
O
9
O.
400
300
5 200
9
>
C
100
o#
o
~ •
o
•
o
• o
'
&
o<
9»
mbS.
Option 2 O
Option 3 •
Option 4 •
Option 5 •
Option 6 #
Plus ~
Plus a Plus ~
° ~
° ~ . *
o
1.0
2.0
3.0
4.0 5.0 6.0
1977 Plant Sales ($ Millions)
7.0
8.0
9.0
FIGURE IV—2 INVESTMENT REQUIRED FOR PSES ALTERNATIVES
AS A PERCENTAGE OF CASH FLOW
-------
community. However, the wood preserving industry is dominated by privately held corporations,
and only 22c? of all plants are publicly held (Table IV-3). Inasmuch as many of the privately held
corporations and proprietorships are one-plant corporations, effectively the plant and corporate
cash flows are one and the same. Also, the ownership pattern of the plants that will be affected by
the studied regulations is only slightly more favorable than that of the industry overall, with 21
(54c<) of the discharging plants organized as proprietorships or privately held corporations. The
privately held corporations will require external financing to a greater extent than the publicly
held corporations because they are smaller and have less cash flow and no other corporate sources
to rely upon. In either case, the financial community or parent corporations is less likely to be
willing to make investments in financially nonviable plants. On the basis of the financial criteria,
only the larger affected plants would be willing to make the investment required to satisfy
regulatory requirements.
TABLE IV-3
FORM OF BUSINESS ORGANIZATION BY DISCHARGE STATUS
Discharging Plants Zero Discharge* Total Plants
Form of Business Organization
Number
Percent
Number
Percent
Number
Percent
Proprietorship
1 1
2
1 31
11
} 32
9
Co-op
)
J
Privately Held Corporation
20
52
210
71
230
69
Publicly Held Corporation
18
46
54
18
72
22
Total**
39
100
295
100
334
100
"Plants currently at, or currently required to be at, zero discharge.
**Total respondents to question.
Source: EPA Financial Survey, adjusted to reflect subsequent plant closures.
4. Plant Closures
The affected wood preserving plants (especially the small ones) will most likely be unable
fully to recover costs through price increases. Further, a number of plants will not be able to
finance the pollution control investment requirements through cash flow. Thus plant shutdowns
in the wood preserving industry would occur under the studied options.
The evaluation of whether a plant would shut down rather than make the investment
required to comply with pollution control regulations is imprecise. First, the evaluation is
external to the corporate environment and based on no knowledge or consideration of corporate
goals and objectives. Second, the evaluation is based on financial criteria and, while they are in
turn based upon industry data and a distribution of wood preserving plant rate-of-return criteria,
they may not reflect the actual parameters that would be used in the individual decision-making
process, especially since few plants provided information on financial decision criteria. Third,
innovative methods to meet standards cannot be predetermined for purposes of analysis.
52
-------
With those caveats in mind, the analysis indicates a number of closure candidates (Table
IV-4), based on the following characteristics:
• low sales,
• low profitability, and/or
• negative cash flow.
TABLE IV-4
WOOD PRESERVING INDUSTRY: POTENTIAL PLANT CLOSURES
UNDER PSES ALTERNATIVES
Alternative
Without Size Cutoff
High
Probability
Moderate
Probability
Total
With Size Cutoff
High Moderate
Probability Probability Total
Option 2
Steam-Indirect
Boulton-lndirect
Total
2
J_
3
2
J_
3
Option 3
Steam-Indirect
Boulton-lndirect
Total
1
_1_
2
Option 4
Steam-Indirect
Boulton-lndirect
Total
6
_1_
7
Option 5
Steam-Indirect
Boulton-lndirect
Total
3
_2_
5
Option 6
Steam-Indirect
Boulton-lndirect
Total
8
J_
9
2
_1_
3
10
_2
12
2
T
Source: Arthur D. Little, Inc., estimates.
53
-------
The profitability and cash flow of each discharging plant was derived from the EPA
Financial Survey. The change in operating cost and the relationship of investment required to
cash flow was examined under each control option. The plants were assumed to install the least
costly treatment technology that would achieve compliance; for example, Option 6 (no discharge)
costs were used if less costly than Options 2 or 3.
If a plant could finance the pollution control investment from cash flow and maintain a
positive profit margin in the absence of price increases, then the plant was judged likely to remain
open. A plant was designated as having a high probability of closure where required investment
was on the order of 200% of annual cash flow and/or post-compliance profit margins would be
negative. Plants judged to have a moderate probability of closure were those for which investment
would be 100% to 2009c of annual cash flow but which would still have a positive profit after tax.
Wood preserving plants are typically small, privately held companies that have no debt and
no access to equity markets. Therefore, to remain viable, an average wood preserving plant must
be able to finance pollution control investment from internal cash flow.
The reason for selecting investment equal to 200% of cash flow as the high-impact criterion
was that wood preserving plants have, on the average, 259b of cash flow available for discretionary
purposes after normal investments. With an anticipated four-year lead time between the pro-
posed regulation and the date of compliance, an average plant would be able to internally finance
a pollution control investment that was less than 100% of cash flow, would have some difficulty
for an investment between 100% and 200% of cash flow and would have considerable difficulty for
an investment equal to 200% of cash flow.
Since compliance costs are disproportionately high for smaller plants, plants with low sales
volumes are affected more severely. Under Option 2, two steam plants and one Boulton plant
could close (Table IV-4). The number of potential closures increases with the stringency and
scope of the regulatory alternative and under Option 6 up to 10 steam plants and 2 Boulton plants
face closure. If the EPA were to apply a size cutoff, the number of potential closures falls off
radically, with plant closures foreseen only under Options 4, 5, and 6.
Option 1, no further regulation, was chosen. No plant closures should result.
5. Employment Effects
The potential employment losses attributable to plants with a high probability of closure
increase under each of the options and reach a maximum of 4.3% of the industry production
workers under Option 6 (Table IV-5). The employment losses associated with plant closure are
equivalent to 3.6% of production workers under Option 4 and 2.6% under Option 5. The multiplier
effect, if any, of individual plant closings on local employment levels is not measurable, as most
plants are very small. As plant closures will result in a shift in demand and not demand loss, there
will be no multiplier effect at the national level.
C. ECONOMIC IMPACT UPON NEW SOURCES AND
CAPACITY EXPANSIONS
1. Potential for New Plants
The wood treating industry is not capital intensive compared with the average manufac-
turing industry; the sales turnover ratios for plants in 1976 was found to range from 3.0 to 10.0 or
54
-------
TABLE IV-5
WOOD PRESERVING INDUSTRY:
EMPLOYMENT LOSSES FROM PLANT CLOSURES
Without Size Cutoff
With Size Cutoff
Alternative
Option 2
Steam-Indirect
Boulton-lndirect
Total
% Employees*
Option 3
Steam-Indirect
Boulton-lndirect
Total
% Employees*
Option 4
Steam-Indirect
Boulton-lndirect
Total
% Employees*
Option 5
Steam-Indirect
Boulton-lndirect
Total
% Employees*
Option 6
Steam-Indirect
Boulton-lndirect
Total
% Employees*
High
Moderate
High
Moderate
robability
Probability
Total
Probability
Probability
Total
103
103
_
_
-
26
26
-
-
-
-
129
129
-
-
-
1.3%
1.3%
77
54
131
_
_
15
26
41
-
-
-
92
80
172
-
-
-
1.0%
1.0%
1.8%
199
112
311
112
112
15
26
41
-
-
-
214
138
352
-
112
112
2.2%
1.4%
3.6%
1.1%
1.1%
103
112
215
—
112
112
15
26
41
-
-
-
118
138
256
—
112
112
1.2%
1.4%
2.6%
1.1%
1.1%
253
127
380
27
112
139
15
26
41
-
-
-
268
153
421
27
112
139
2.8%
1.6%
4.3%
0.3%
1.1%
1.4%
* Based upon 9,700 production workers in 1976, Department of Commerce, Bureau of Census, Annual Survey
of Manufacturers: General Statistics. Plant production employment data from EPA Financial Survey.
Source: Arthur D. Little, Inc., estimates based upon EPA Financial Survey and closure candidates
identified in the analysis.
more,* whereas the ratio of sales to assets for most process industries is on the order of 1.0 to
2.5.There is considerable excess capacity among existing plants, based upon maximum
operating capacities, but transportation and other factors make it likely that new capacity will be
built in growing regions (e.g., the South) before excess capacity is fully utilized in others.
'Financial Survey.
"Based on data from FTC-SEC, Quarterly Financial Reports.
55
-------
Although most new capacity may take the form of incremental expansion (e.g., the addition
of a new retort at an existing site), some 17% (or 56 of 337) of the respondents to the Financial
Survey indicated that their wood treating plants have begun operation since 1970.
2. Effect Upon New Plants
A number of new wood preserving plant models (Chapter II) were developed to evaluate the
impact of New Source Performance Standards (NSPS) and Pretreatment Standards for New
Sources (PSNS). Process economic models were developed for four different plant types:
• Boulton plants treating Douglas fir poles in the Northwest;
• Organic steam plants treating Southern pine poles;
• Boulton plants treating oak railroad ties in the South; and
• Inorganic plants treating Southern pine lumber.
Two plant sizes were created for each type: one with two cylinders and one with five (See
Chapter II). As mentioned in Chapter III, existing standards for new inorganic plants will have no
incremental costs of compliance from revisions to existing water effluent regulations. Further,
costs of compliance for Boulton plants treating oak railroad ties were not available.
Table IV-6 depicts the baseline revenues on each model plant as well as the incremental
revenue required* to recover costs of compliance. The baseline revenues were calculated as the
revenue required to recover the cost of operating a new plant, including a normal rate of return on
investment, excluding the costs of NSPS water pollution control. The model plants are larger
than the average existing plant, with production and revenue levels at the upper end of the
spectrum.
The revenue required for NSPS Compliance Costs were calculated as the revenue required
to recover the cost for NSPS water pollution control, including a normal rate of return on
investment It is similar to that for existing plants for Option 6, the no discharge option, in the
higher sales categories shown in Figure IV-1. The cost of pollution control equipment perse would
not appear to hinder the addition of new capacity.
If the existing industry regulatory requirements are defined as additional biological treat-
ment or current pre-treatment standards, then incremental expansion may be favored as a means
of capacity expansion.
Any understatement of the total capital investment for a new plant would tend to reduce the
potential economic impact resulting from compliance costs, and vice versa.
* The revenue required to recover cost Is equivalent to the annual revenue needed to yield the median Industry rate of
return over the life of the Investment, using a discounted cash flow method of calculating return on Investment.
56
-------
TABLE IV-6
EFFECT OF NSPS/PSNS REQUIREMENTS UPON LONG-RUN REVENUE
REQUIRED TO SUPPORT NEW SOURCES
Baseline
Revenue Required for
Annual
Annual
NSPS/PSNS Compliance
Production
Revenues'
Costs
Case
Plant Type/Product
(000 Cubic ft.)
($000)
($000)
% Baseline
A
Boulton/Douglas Fir Poles
720
7,860
86
1.1
B
Boulton/Douglas Fir Poles
1,800
19,300
153
0.8
C
Steam/Southern Pine Poles
1,800
11,300
112
1.0
D
Steam/Southern Pine Poles
4,500
28,100
175
0.6
1. 1978 dollars.
Source: Arthur D. Little, Inc., estimates. See Appendix B for cost and operating characteristics of new
plants.
57
-------
V. LIMITATIONS OF ANALYSIS
The economic impact of BAT regulations may differ from the analysis in this economic
impact assessment, depending upon the following:
(1) EPA regulations which affect waste disposal;
(2) Return-on-investment criteria;
(3) Cost variation from plant to plant;
(4) Future growth in demand; and/or
(5) Local conditions of affected plants.
Item (1) was beyond the scope of the Technical Contractor's or the Economic Contractor's
work. Items (2) through (5) are limitations in every analysis of this type, but their influence on the
results of a study varies from case to case, and thus requires discussion.
A. EPA REGULATIONS AFFECTING WASTE DISPOSAL
Subtitle C of the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 (RCRA), creates a regulatory framework to control hazardous wastes.
Section 3004 addresses standards for owners and operators of hazardous waste treatment, storage
and disposal facilities. Regulations issued under Subtitle C affect the analysis of alternative
control options under the Clean Water Act because they specify the technical and monitoring
requirements for hazardous waste disposal methods and their restrictions.
BPT and PSES standards have not been altered in the Wood Preserving industry. BAT is
not being promulagated in the Steam category and is unaltered for the others. Thus, additional
sludge should not be generated and new RCRA costs will not be incurred.
NSPS and PSNS both require zero discharge of process wastewater. The impoundments
associated with spray evaporation may be considered as methods of hazardous waste disposal or
storage; therefore, plants may incur some costs under Subtitle C of the Resource Conservation
and Recovery Act. Estimates are not available for these costs and their resultant effects on the
industry.
B. RETURN-ON-INVESTMENT CRITERIA
The median value of the cost of capital of the industry was used in the analyses of new plant
revenue. The revenue required to cover cost of compliance for existing plants was used in the
calculation. The use of a higher or lower target rate of return than the median value (12%)
produces noticeably higher or lower required revenue to cover cost of compliance (Table V-l).
Table V-l shows that the change in revenue requirement for a discount rate change from 12% to
5% ranges from 22% to 40% for the sample plants. A change in the discount rate from 12% to 20%
results in an even greater change, from 33% to 51%.
There is relatively little variation in the revenue requirement as a percent of sales due to
ROR target (Figure V-l). The requirement seems to be higher for both the smallest plants and the
59
-------
TABLE V-1
CHANGE IN REVENUE REQUIRED BY COST OF CAPITAL
Discount Rate
Revenue
Required 1
1. From a sample of affected plants.
12%
5%
20%
$000
$000
% Change
$000
% Change
5
3
-40
7
40
39
30
- 23
52
33
75
52
- 31
113
51
89
59
-22
121
36
108
78
- 28
156
44
173
118
-32
258
49
178
130
-27
255
43
434
300
-31
643
48
very large plants, but even these plants require additional revenue of less than 10% of sales. The
bulk of the increases in revenue to maintain target ROR are within the 1-5% range; on the
average, the ROR scenarios differ by 1 percentage point. Therefore, the economic impact
assessment is basically insensitive to the return-on-investment criteria employed.
10
~
~
ROR = 20%
o
ROR = 12%
O
A
ROR = 5%
~
A
—
~
o
~
o
~
~
A
O
A
O
°8
A
1
]
A
1
aa
1
1
' '
I
10
a?
C
0)
E
4)
w.
'5
a
Q>
3
C
0>
GC
1000 2000 3000 4000 5000 6000
Sales Volume ($000)
7000
8000
FIGURE V-1 REVENUE REQUIREMENT AS A PERCENTAGE
OF SALES BY ROR FOR SAMPLE PLANTS
C. COST VARIATIONS FROM PLANT TO PLANT
Because of plant-specific conditions, the Technical Contractor indicated that the cost
estimates for an individual plant could vary between 75% and 150% of the costs for the control
60
-------
options presented in Chapter III. The cost differences could arise as a result of such factors as
usable treatment in place, land availability, and/or cost of controls. The cost of compliance is
based upon land cost per acre, which will vary considerably depending upon the plant location.
Those plants with lower costs will be less severely affected by the alternatives studied. In
addition to the understatement of compliance cost caused by EPA regulations on hazardous
waste, there could be plant-specific conditions (e.g., terrain) which contribute to higher costs.
Plants with higher costs will be more severely affected by the regulation.
D. FUTURE GROWTH IN DEMAND
If the forecast growth for railroad ties and timbers does not materialize or if the rate of
decline in poles is greater than forecast, the number of potential closure candidates could
increase. If, on the other hand, demand growth is greater by virtue of a strong housing market
growth and accelerated repair of railroads, then the number of plant closures could be fewer than
indicated because the industry capacity utilization rate could increase and result in price
increases sufficient to recover the costs of pollution control investment.
E. LOCAL CONDITIONS OF AFFECTED PLANTS
The analysis of plant closures is subject to the limitations of any plant closure analysis
(Chapter IV). In addition, local market conditions of some affected plants will determine to a
significant extent whether a plant will shut down rather than comply with a regulation. For
example, if an affected plant were in a market area where there were virtually no competing
firms, it might be able to increase its price and recover the cost of installing control equipment,
limited by the cost of transportation of the closest competing firm. This would also be the case if
all the plants in an area were required to make equivalent expenditures to comply with pollution
control requirements. Local conditions could produce a worse effect than described in Chapter IV
if, for example, most of the firms in the area are not affected, in which case the affected plant
would have very little chance of recovering the costs of pollution control.
61
-------
REFERENCES
1. Annual Survey of Manufactures, U.S. Department of Commerce, various years.
2. Census of Manufactures, U.S. Department of Commerce, 1972.
3. Trend Impact Analysis Study of the Wood Preserving Market, Dow Marketing Research
Reports, February 1976.
4. Ibid, p. 21-22.
5. Ibid, p. 36.
6. Personal communications with members of the AWPA.
7. Revised Technical Review of Best Available Technology, Best Demonstrated Technology and
Pretreatment Technology for the Timber Products Point Source Category, report to the Envi-
ronmental Protection Agency by Environmental Science & Engineering, Project No. 78-052,
September 1, 1978.
8. Development Document for Effluent Limitations Guidelines and Standards for the Timber
Products Processing Point Source Category, U.S. Environmental Protection Agency, October
1979.
63
-------
BIBLIOGRAPHY
The Analysis of Existing Wood Preserving Techniques and Possible Substitutes, Contract No. 68-
01-4310, by The MITRE Corporation, for the U.S. Environmental Protection Agency, June 1977.
Annual Survey of Manufactures, Bureau of the Census, U.S. Department of Commerce, various
years.
Census of Manufactures, Bureau of the Census, U.S. Department of Commerce, 1967 and 1972.
Chemical Marketing Reporter, Schnell Publishing Co., Inc., New York, various issues.
Development Document for Effluent Limitations Guidelines and Standards for the Timber
Products Processing Point Source Category, U.S. Environmental Protection Agency, October
1979.
Economic Indicators, Council of Economic Advisors,
Engineering News Record, McGraw Hill, Inc., New York, various issues.
Employment and Earnings, Bureau of Labor Statistics, U.S. Department of Labor, various
issues.
Integrated Economic Impact Assessment of Hazardous Waste Management Regulations, Prelim-
inary Draft Report for the Office of Solid Waste, U.S. Environmental Protection Agency, October
1978.
Quarterly Financial Reports, Federal Trade Commission, Securities and Exchange Commission,
various issues.
Revised Technical Review of Best Available Technology, Best Demonstrated Technology and
Pretreatment Technology for the Timber Products Point Source Category, report to the U.S.
Environmental Protection Agency, by Environmental Science & Engineering, Project No. 78-052,
September 1, 1978.
Trend Impact Analysis Study of the Wood Preserving Market, J. L. Natonski, February 1976.
Wholesale Prices and Price Indexes, Bureau of Labor Statistics, various issues.
Wood Preserving Statistics, Ernst & Ernst, 1976.
65
-------
APPENDIX A
INDUSTRY CHARACTERIZATION
67
-------
APPENDIX A
INPUSTRY CHARACTERIZATION
1. PRODUCT DIVERSIFICATION
It is primarily the largest companies in the industry which produce a wide range of products.
Most firms in the industry operate only one plant. In these cases, the plant produces organically
treated products or inorganically treated products, although some single plant firms produce
hoth. Furthermore, smaller firms tend to specialize on particular preserved wood products. For
example, a firm may produce only preserved railroad ties or posts or pilings or dimensional
lumber. For many of the smaller firms, wood preserving is a service offered by a company in the
lumber and wood products business.
2. IMPORTS AND EXPORTS
Import and export statistics do not distinguish preserved wood products from other wood
products. However, piling, utility poles, and railway crossties are likely to be preserved when
imported or exported. In recent years, imports, primarily from Canada, have been in the range of
$10 million to $15 million per year (Table A-l). Exports, primarily to wood-poor regions such as
the Middle East and Japan, have totaled $20 million to $35 million in recent years (Table A-2).
About 10' < to 15' i of the U.S. production of utility poles is exported. With this exception, imports
and exports do not constitute a sizeable portion of any other preserved wood markets.
TABLE A-1
U.S. IMPORTS OF PRESERVED WOOD PRODUCTS1,1970-1977
Timber, Poles, Piling, Potts, and
Other Wood in the Rough
Railroad Ties
Total
Value2
Quantity
Value2
Value2
Year
($000)
(MBF)
($000)
($000)
1970
7,733
8,418
717
8,450
1971
8,633
3,363
385
9,018
1972
9,369
7,924
757
10,126
1973
8,654
11,308
1,505
10,159
1974
15,069
13,916
2,566
17,635
1975
9,868
12,475
2,625
12,493
1976
10,615
8,164
2,314
12,929
1977
10,011
7,367
1,370
11,381
1. U.S. import statistics do not distinguish preserved wood products from other wood products,
but the products shown are predominantly preserved wood products.
2. Values shown are f.a.s. (free alongside ship) values.
Source: U.S. Department of Commerce, Bureau of the Census, U.S. Imports - Schedule A,
Commodity by Country, FT 135.
69
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TABLE A-2
U.S. EXPORTS OF PRESERVED WOOD PRODUCTS1, 1970-1977
Piling
Utility Line Poles
Railway Crossties &
Mine Ties-Softwood
Railway Crossties &
Mine Ties-Hardwood
Total
Year
Quantity
(LFT)
Value2
($000)
Quantity
(Number)
Value2
($000)
Quantity
(MBF)
Value2
($000)
Quantity
(MBF)
Value2
($000)
Value2
($000)
1970
5,055,702
1,935
160,526
5,526
4,052
353
11,626
2,065
9,879
1971
3,119,931
1,646
71,717
2,385
4,343
509
7,486
1,320
5,860
1972
2,231,276
1,355
102.869
3,935
6,027
1,131
11,568
1,937
8,358
1973
3,210,603
1,931
151.661
6,631
4,209
631
4,979
858
10,051
1974
7,802.427
5,730
169,602
12,163
33,113
3,900
21,617
3,977
25,770
1975
4.104,573
4,090
202.012
15,872
28,224
3,196
47,319
9,636
32,794
1976
2,599,684
2,251
298,439
16.350
15,903
1,859
15,003
3,242
23,702
1977
3,096.484
3,124
250,936
16.708
9,355
1,015
9355
2,423
23,270
1. U.S. export statistics do not separate preserved wood products from other wood products, but the products shown are predominantly preserved wood
products.
2. Values shown are f.a.s. (free alongside ship) values at US. port.
Source: U.S. Department of Commerce, Bureau of the Census, U.S. Exports - Schedule B, Commodity by Country, FT 410.
-------
APPENDIX B
NEW SOURCE MODELS
71
-------
TABLE B-1
PLANT A-1
ESTIMATED OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD -
ORGANIC TREATMENT
Cylinder Size: 2 cylinders, each T diameter x 130' long, 5000 cubic feet
Capital Cost: $3,300,000(1978)
Location: South Central
Production: 2000 cubic feet per charge; 30 hours per charge (Boultonizing)
3 shifts per day, 300 days per year
Product: 960,000 cubic feet per year of railroad ties
Thousand
Unit Cost Units Per Dollars Per Dollars
Item Units ($) Cubic Foot Cubic Foot Per Year
Raw Materials:
Wood Cubic feet 2.15 1.0 2.15 2,064
Creosote Gallons 0.70 1.0 0.70 672
Total Raw Materials 2.85 2,736
Processing:
Labor, Operating Man hours 6.00 0.324 311
Labor, Maintenance Man hours 6.50 0.090 86
Maintenance Supplies 0.090 86
Consumable Supplies 0.046 46
Fuel and Power 0.135 132
Plant Overhead 50% of Labor 0.207 199
Taxes and Insurance 4% of Capital 0.137 132
Total Processing 1.029 992
Total Cost, F.O.B. Plant 3.879 3,728
Source: Arthur D. Little, Inc., estimates based on industry interviews.
73
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TABLE B-2
PLANT A-2
ESTIMATED OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD
ORGANIC TREATMENT
Cylinder Size: 5 cylinders, each 7' diameter x 130' long, 5000 cubic feet
Capital Cost: $6,509,000 (1978)
Location: South Central
Production: 2000 cubic feet per charge; 30 hours per charge (Boultonizing)
3 shifts per day, 300 days per year
Product: 2,400,000 cubic feet per year of railroad ties
Item
Raw Materials:
Wood
Creosote
Total Raw Materials
Processing:
Labor, Operating
Labor, Maintenance
Maintenance Supplies
Consumable Supplies
Fuel and Power
Plant Overhead
Taxes and Insurance
Total Processing
Total Co«t, F.O.B. Plant
Units
Cubic feet
Gallons
Man hours
Man hours
50% of Labor
4% of Capital
Unit Cost
($)
2.15
0.70
6.00
6.50
Units Per
Cubic Foot
1.0
1.0
0.012
0.003
Dollars Per
Cubic Foot
2.15
0.70
2.85
0.250
0.076
0.090
0.046
0.135
0.163
0.108
0.868
3.718
Thousand
Dollars
Per Year
5,160
1,680
6,840
600
182
216
110
326
391
260
2.085
8,925
Source: Arthur D. Little, Inc., estimates based on industry interviews.
74
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TABLE B-3
PLANT B-1
ESTIMATED OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD
ORGANIC TREATMENT
Cylinder Size: 2 cylinders, each 7' diameter x 130' long, 5000 cubic feet
Capital Coit: $3,300,000 (1978)
Location: South Central
Production: 2000 cubic feet per charge; 16 hours per charge (Steam)
3 shifts per day, 300 days per year
Product: 1,800,000 cubic feet per year of Southern pine poles
Item
Units
Unit Cost
($)
Units Per
Cubic Foot
Dollars Per
Cubic Foot
Thousand
Dollars
Per Year
Raw Materials:
Wood
Pentachlorophenol
Total Raw Materials
Processing:
Labor, Operating
Labor, Maintenance
Maintenance Supplies
Consumable Supplies
Fuel and Power
Plant Overhead
Taxes and Insurance
Total Processing
Total Cost, F.O.B. Plant
Cubic feet
Pounds
Man hours
Man hours
50% of Labor
4% of Capital
3.00
0.42
6.00
6.50
1.0
0.5
3.00
0.21
3.21
5,400
378
5,778
311
86
86
46
132
199
132
992
6,770
Source: Arthur D. Little, Inc., estimates based on industry interviews.
75
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TABLE B-4
PLANT B-2
ESTIMATED OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD -
ORGANIC TREATMENT
Cylinder Size: 5 cylinders, each 7' diameter x 130' long, 5000 cubic feet
Capital Cost: $6,509,000(1978)
Location: South Central
Production: 2000 cubic feet per charge; 16 hours per charge (Steam)
3 shifts per day, 300 days per year
Product: 4,500,000 cubic feet per year of Southern pine poles
Thousand
Unit Cost Units Per Dollars Per Dollars
Item Units ($) Cubic Foot Cubic Foot Per Year
Raw Materials:
Wood Cubic feet 3.00 1.0 3.00 13,500
Pentachlorophenol Pounds 0.42 0.5 0.21 945
Total Raw Materials 3.21 14,445
Processing:
Labor, Operating Man hours 6.00 0.133 600
Labor, Maintenance Man hours 6.50 0.040 182
Maintenance Supplies 0.048 216
Consumable Supplies 0.024 110
Fuel and Power 0.072 326
Plant Overhead 50% of Labor 0.087 391
Taxes and Insurance 4% of Capital 0.058 260
Total Processing 0.462 2,085
Total Cost, F.O.B. Plant 3.672 16,530
Source: Arthur D. Little, Inc., estimates based on industry interviews.
76
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TABLE B-5
PLANT C-1
ESTIMATED OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD
ORGANIC TREATMENT
Cylinder Size: 2 cylinders, each 7' diameter x 130' long, 5000 cubic feet
Capital Cott: $3,630,000 (1978)
Location: West Coast
Production: 2000 cubic feet per charge; 40 hours per charge (Boultonizing)
3 shifts per day, 300 days per year
Product: 720,000 cubic feet per year of Douglas fir poles
Item
Raw Materials:
Wood
Pentachlorophenol
Total Raw Materials
Uniti
Cubic feet
Pounds
Unit Cott
($)
3.40
0.42
Units Per
Cubic Foot
1.0
0.75
Dollars Per
Cubic Foot
3.40
0.32
3.72
Thousand
Dollars
Per Year
2,448
230
2,678
Processing:
Labor, Operating
Labor, Maintenance
Maintenance Supplies
Consumable Supplies
Fuel and Power
Plant Overhead
Taxes and Insurance
Total Processing
Total Cost, F.O.B. Plant
Man hours
Man hours
50% of Labor
4% of Capital
6.00
6.50
0.432
0.119
0.119
0.064
0.183
0.276
0.201
1.396
5.116
311
86
86
46
132
199
145
1.005
3,683
Source: Arthur D. Little, Inc., estimates besed on industry interviews.
77
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TABLE B-6
PLANT C-2
ESTIMATED OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD
ORGANIC TREATMENT
Cylinder Size: 5 cylinders, each T diameter x 130' long, 5000 cubic feet
Capital Cost: $7,160,000 (1978)
Location: West Coast
Production: 2000 cubic feet per charge; 40 hours per charge (Boultonizing)
3 shifts per day, 300 days per year
Product: 1,800,000 cubic feet per year of Douglas fir poles
Item
Units
Unit Cost
($)
Units Per
Cubic Foot
Dollars Per
Cubic Foot
Thousand
Dollars
Per Year
Raw Materials:
Wood
Pentachlorophenol
Total Raw Materials
Processing:
Labor, Operating
Labor, Maintenance
Maintenance Supplies
Consumable Supplies
Fuel and Rower
Plant Overhead
Taxes and Insurance
Total Processing
Total Cost. F.O.B. Plant
Cubic feet
Pounds
Man hours
Man hours
50% of Labor
4% of Capital
3.40
0.42
6.00
6.50
1.0
0.75
3.40
0.32
3.72
0.333
0.101
0.120
0.061
0.181
0.217
0.159
1.172
4.892
6,120
576
6,696
600
182
216
110
326
391
286
2,111
8,807
Source: Arthur D. Little, Inc., estimates based on industry interviews.
78
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TABLE B-7
PLANT D-1
ESTIMATED OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD -
ORGANIC TREATMENT
Cylinder Size: 2 cylinders, each 7' diameter x 130' long, 5000 cubic feet
Capital Cost: $3,300,000 (1978)
Location: South Central
Production: 2000 cubic feet per charge; 16 hours per charge (Steam)
3 shifts per day, 300 days per year
Product: 1,800,000 cubic feet per year of Southern pine lumber
Thousand
Unit Cost Units Per Dollars Per Dollars
Item Units ($) Cubic Foot Cubic Foot Per Year
Raw Materials:
Wood Cubic feet 3.60 1.0 3.60 6,480
CCA Pounds 1.00 0.33 0.33 594
Total Raw Materials 3.93 7,074
Processing:
Labor, Operating Man hours 6.00 0.173 311
Labor, Maintenance Man hours 6.50 0.048 86
Maintenance Supplies 0.048 86
Consumable Supplies 0.024 46
Fuel and Power 0.072 132
Plant Overhead 50% of Labor 0.111 199
Taxes and Insurance 4% of Capital 0.073 132
Total Processing 0.549 992
Total Cost, F.O.B. Plant 4.479 8,066
Source: Arthur D. Little, Inc., estimates based on industry interviews.
79
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TABLE B-8
PLANT D-2
ESTIMATED OPERATING COSTS FOR THE MANUFACTURE OF PRESERVED WOOD
ORGANIC TREATMENT
Cylinder Size: 5 cylinders, each 7' diameter x 130' long, 5000 cubic feet
Capital Cost: $6,509,000(1978)
Location: South Central
Production: 2000 cubic feet per charge; 16 hours per charge (Steam)
3 shifts per day, 300 days per year
Product: 4,500,000 cubic feet per year of Southern pine lumber
Item
Units
Unit Cost
($)
Units Per
Cubic Foot
Dollars Per
Cubic Foot
Thousand
Dollars
Per Year
Raw Materials:
Wood
CCA
Total Raw Materials
Processing:
Labor, Operating
Labor, Maintenance
Maintenance Supplies
Consumable Supplies
Fuel and Power
Plant Overhead
Taxes and Insurance
Total Processing
Total Cost, F.O.B. Plant
Cubic feet
Pounds
Man hours
Man hours
50% of Labor
4% of Capital
3.60
1.00
6.00
6.50
1.0
0.33
3.60
0.33
3.93
0.133
0.040
0.048
0.024
0.072
0.087
0.058
0.462
4.392
16,200
1,485
17,685
600
182
216
110
326
391
260
2,085
19,770
Source: Arthur D. Little, Inc., estimates based on industry interviews.
80
-------
APPENDIX C
EPA FINANCIAL SURVEY
81
-------
TABLE C 1
RESPONSES TO EPA FINANCIAL SURVEY
# %*
Total Mailed
Less Duplicates
Net Responses
Total Applicable Responses
Total Non-Applicable Responses**
No Answer
601
27
424 87.1
337 69.2
87
150 30.8
*Based on sum of "Total Applicable" and "No Answers" (487).
**Plants which indicated that they do not treat wood.
Note: The EPA Financial Survey was conducted in Fall, 1977
Source: Arthur D. Little, Inc., estimates.
83
-------
INSTRUCTIONS AND DEFINITIONS RELATING TO
WOOD PRESERVING
1. This survey must be completed by each manufacturing facility that treats wood either
as a treating service only (TSO) or treats wood products owned by it for subsequent
sale to others.
2. A questionnaire for each wood preserving plant has been sent to the corporate address.
This may or may not be a plant site. All questions on the survey form refer to one
particular plant site only and a separate questionnaire must be completed for each
location. Questionnaires were mailed to corporate offices because much of the infor-
mation resides there and typically corporate involvement is required for response to
material of this kind.
3. Please submit one completed questionnaire for each plant in the enclosed, pre-
addressed envelope by October 21, 1977.
4. All questions contained in this survey are intended to obtain information about your
manufacturing operations and activities as they pertain to wood preserving only. Other
plant operations should not be considered in determining your responses unless a
question specifically instructs you to do so.
5. A list of definitions of terms used in the survey has been provided to assist you in
understanding the questions asked and to insure your interpretation of terms is the
same as that of the persons who developed the survey. Please read these definitions
prior to completing any questions and refer to them as often as necessary to assure
accuracy in the completion of your response. Defined terms appear in italics in the
questionnaire.
6. All questions should be answered by checking the appropriate box or boxes. Those
questions requiring a written response should be answered by printing or typing in
the appropriate space.
7. Attempt to answer all questions. Where appropriate, answers should be provided for
the most recent fiscal year. If you cannot provide a full response to a question, answer
as much of it as you can. If a question is not relevant to your plant operation or the
information requested is not obtainable, please provide an explanation. If clarification
or supplementation of any response is necessary, please attach a separate sheet. If you
do not know the answer to a question, write "don't know" or "DK". If the answer
is "zero", write in zero (0).
8. If you have difficulty understanding or answering any question, please call Stephen
Mermelstein, 202-755-6906.
9. Please retain a copy of your completed survey, since it may be necessary to contact
you in the future to verify your responses.
10. Definitions appear on the reverse of this sheet.
84
-------
DEFINITIONS
Annual Cost of Pollution Control and Other Environmen-
tal Regulations - Depreciation charges for pollution con-
trol equipment or for plant and equipment modifica-
tions required by regulations. Operating costs include
the cost of maintenance and operating labor, supplies,
fuel, and electricity required to operate the equipment
related to the regulation.
Depreciation - Annual book depreciation of assets at
this plant. Do not include any Timberland Depletion
in this figure.
Fixed Assets - Capital assets, plant site land, and equip-
ment are all categories of fixed assets. The book values
or value net to depreciation or depletion should be
shown. Do not include any Timberland in this figure.
General and Administrative Cost - Salaries, wages, and
related labor costs not directly associated with produc-
tion activity; state and local taxes; selling expense
insurance and other overhead costs.
Gross Margin - Earnings before interest, taxes, general
and administrative expense.
Navigable Waters - Waters of the United States, including
ocean, rivers, streams, etc. (surface water).
NPDES (National Pollutant Discharge Elimination System)
Permit - A permit issued by EPA or an approved state
program to point sources which discharge to public
waters allowing the discharge of wastewater under
certain stated conditions.
OSHA - The Occupational Safety and Health Admin-
istration.
Other Materials Cost - Chemicals and other supplies
used in the production of wood treated products.
Payback Period - The number of years it takes for an
investment to repay itself.
Payroll Costs - Wages, unemployment insurance, FICA
and other related costs of direct labor (and indirect)
employed in treating wood products.
Peak Design Capacity = Design Void x 0.6 x Charge
Factor
Design Void = J. 142 x (Cylinder Radius)1 x Cylinder
Length
Charge Factor 1 Average number of possible charges
per 24 hour period
Peak Capacity as Modified = Modified Void x 0.6 x Charge
Factor
Modified Void = 3.142 x (Current Cylinder Radius)' x
Current Cylinder Length
Process Waste - Any used water or liquid waste product
which results from or has had contact with the manu-
facturing process, including any water for which there
is a reasonable possibility of contamination from the
wood preserving process or from raw material-inter-
mediate product-final product, storage, transportation,
handling, processing or cleaning. For purposes of this
survey, cooling water, sanitary wastewater, storm
water and boiler blowdown are not considered process
waste if they have no contact with the process.
Production Workers - Direct and indirect labor associated
with and attributable to wood treating at this plant.
Profit After Tax - If this is a single-plant company, the
net profit remaining after Federal Income taxes. If a
multi-plant company, calculate an approximate profit
after tax by using the actual corporate tax rate.
Profit Before Tax - Sales less all costs, except Federal
Income taxes.
Return on Investment - The average annual revenue (or
decreased cost) realized on an investment, expressed
as a percentage of the original investment cost.
Sales - Sales, fob plant, net of discounts, and returns. If
the plant is a cost center, estimate the approximate
market value (fob plant) of the products produced in
the most recent fiscal year.
Total Assets - Fixed assets, inventories, receivables, cash
securities, et cetera.
Total Liabilities - Long-term debt, accounts and notes
payable, deferred taxes, et cetera.
Treated Wood Products - Wood treated with organics
(oils) or with inorganic salt solutions or dual oil and
salt treatment.
Unusual Production Costs - Any plant characteristic that
causes unusual costs should be described as well as the
impact upon operations. For example, if the plant is in
a remote location, freight costs to the nearest market
may be higher than those of other plants competing in
the market.
Wood Coat - If this plant is treating service only (TSO),
wood cost should be zero. If treating owned wood
products, show the cost of the wood products before
treatment. (Use approximate cost as a percentage of
sales if actual cost is unknown.)
85
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308 QUESTIONNAIRE
WOOD PRESERVING
Company Code #
(for EPA use)
NOTE: Upon receipt by EPA, this page will be separated from the remainder of the questionnaire so
that data processing and use of the data is conducted on a coded basis by its contractor.
i. Name of Plant
ii. Plant Site Address
Street
City State Zip
iii. Name of Respondent*
iv. Address of Respondent
Street City State Zip
v. Telephone of Respondent
vi. Parent Company
vii. Total number of wood treating wood plants owned by parent
viii. Is this plant engaged in treating wood products?
Yes ~ Continue with Questionnaire
No ~ Do not fill out the questionnaire but return after completing this page, through Question
viii with a cover letter describing the nature of your business.
ix. To assert your claim of confidentiality, please check off the box corresponding to the questions,
which, in the company's opinion, require confidential treatment.
1
~
5
~
10
~
14
~
18
~
22
~
2
~
7
~
11
~
15
~
19
~
23
~
3
~
8
~
12
~
16
~
20
~
24
~
4
~
9
~
13
~
17
~
21
~
25
~
'Person to be contacted in case of questions.
86
-------
308 QUESTIONNAIRE
WOOD PRESERVING
Company Code
(for EPA use)
A. GENERAL INFORMATION
1. What is the form of business organization of this plant?
Proprietorship or Partnership ~
Co-op ~
Privately-held Corporation ~
Publically-held Corporation ~
2. Is this wood treating plant a stand-alone operation or part of a multi-plant complex at this
location?
Stand-alone ~
Multi-plant complex ~
3. Approximately what percent of total sales at this complex or plant was from wood treating
in FY 1976? %
4. Is this plant at an urban, suburban, or rural location?
Urban ~
Suburban ~
Rural ~
5. What year did the wood treating plant begin operation?
87
-------
EFFLUENT INFORMATION
6. How does this plant dispose of liquid process waste?
a.
Discharge into navigable water
~
b.
Discharge into municipal sewer
~
c.
Disposed on plant site
~
d.
Disposed off plant site
~
e.
Process waste is recycled (no discharge)
~
f.
This plant does not generate liquid process waste
~
g-
Other ~ Please specify
IF THE ANSWER TO QUESTION 6 IS(c), (d), (e), OR(f), YOU MAY OMIT ANSWERS TO THE
FOLLOWING QUESTIONS:
7, 10,20, 21b, 22, 25
7.a If you do not discharge liquid process waste into a municipal sewer, do you have the option to
connect?
Yes ~ No ~ Don't Know ~
b. If you do have the option to connect to a municipal sewer, what is the initial capital investment
cost?
S Don't Know ~
c. If you discharge any wood treating process waste into a sewer system, on what basis are your
sewer charges made?
Flat annual fee ~
Gallon of effluent ~
Other ~ Please Specify
d. If you discharge into a municipal sewer, what were your total sewer charges in 1976? S
e. If you discharge liquid process waste into navigable waters, do you have an NPDES permit?
Yes ~ No ~ Don't Know ~
f. Do you own or have available for purchase about one acre of land at or adjacent to this facility
that could be used for an effluent treatment system?
Yes ~ No ~
If yes, what is the current market value per acre? S
SALES AND PRODUCT MIX
8. Fiscal year 1976 wood treating plant sales (thousands of dollars).
Under 70
~
301-700
~
1,801-2,400
~
4,801-7,200
~
71-155
~
701-1,200
~
2,401-3,200
~
7,201-11,500
~
156-300
~
1,201-1,800
~
3,201-4,800
~
More than 11,500
~
88
-------
9. Which of the following product types are treated at this plant:
Treated At a percent of Plant Sales
Treated Wood Products at Plant Under 10 11-30 31-50 51-70 71-90 Over 90
a. Organic (Oil or Dual Oil
and Salt Treatment)
(1) Railroad Ties ~ ~ ~ ~ ~ ~ ~
(2) Pilings, Poles ~ ~ ~ ~ ~ ~ ~
(3) Timber, Lumber,
and Other ~ ~ ~ ~ ~ ~ ~
b. Inorganic (Salt Based)
(1) Pilings, Poles ~ ~ ~ ~ ~ ~ ~
(2) Timber, Lumber,
and Other d 0 Q D Q Q O
lO.a. Are any changes (other than normal business fluctuations) planned in production process or product
mix?
Yes ~ No ~ (If No, Go to Part D)
b. Process change towards:
More Organic ~ More Inorganic ~
Less Organic ~ Less Inorganic ~
c. Product Mix Change
More Ties ~ More Poles ~ More Other ~
Less Ties ~ Less Poles ~ Less Other ~
d. Other, please specify nature of change .
D. PLANT CAPACITY AND PRODUCTION
11. What is your peak design capacity (or peak capacity as modified)? cu. ft.
Cubic Feet/24 hour period*
12.a. What region of the country is the origin of most of the wood treated at this facility?
Northeast ~ Southeast ~ Midwest ~
Northwest ~ Southwest ~ Other ~
b. Is the wood mostly:
Hardwood ~ or Softwood ~
•If unable to calculate peak (design) capacity by the formula shown in "DEFINITIONS" atUch a separate sheet describing
the radius and length of each cylinder.
89
-------
Typical number of production days per week?
1-4 ~ 5 ~ 6 ~ 7 ~
Number of weeks at each shift level (total should add to 52 weeks):
No. of Weekt
a- at 0 shifts (shut down or no wood preserving)
b. at 1 shift
c- at 2 shifts
d. at 3 shifts
e- at 4 shifts
52 Weeks TOTAL OF (a) + (b) + (c) + (d) + (e)
1976 Production (Thousands of cubic feet)
Typical number of production workers in 1976:
1-3 ~ 7-9 ~ 20-34 ~ 49-75 ~ 100-125 ~
4-6 ~ 10-19 ~ 35-48 ~ 76-99 ~ Over 125 ~
This facility is primarily engaged in (a) treating service only (TSO), and or(b) treating owned wood
products for sale to others:
Approximate Percent of Sales
Under 10
10-25
26-50
51-75
Over 75
a. Treating Service Only
~
~
~
~
~
b. Treating Owned Wood Products
~
~
~
~
~
What proportion of owned wood is from company-owned timberland?
Approximate Percent of Owned Wood Supply
None 1-24 25-49 50-74 75-100
~ ~ ~ ~ ~
90
-------
E. FINANCIAL STATEMENT
19. Revenue and Expenses
Check the box for each item which most closely approximates your 1976 fiscal year expenses as a
percent of sales.
Cost at a Percent of Plant Sale*
Under
10-
16-
22
29
39-
49-
Over
10
15
21
28
38
48
60
60
a. Wood Cost
~
~
~
~
~
~
~
~
b. Other Materials Cost
~
~
~
~
~
~
~
~
c. Payroll Cost
~
~
~
~
~
~
~
~
Under 1
1-2
3-5
6-8
Over 8
d. Depreciation
~
~
~
~
~
Under 10
11-15
16-25
26-30
Over 30
e. Gross Margin
~
~
~
~
~
Under 1
1-5
6-10
11-15
Over 15
f. General and Administrative Cost
~
~
~
~
~
Under 1
1-4
5-8
9-12
Over 12
g. Interest Expense
~
~
~
~
~
Under 1
1-4
5-8
9-12
Over 12
h. Profit Before Tax
~
~
~
~
~
Under 1
1-2
3-4
5-7
Over 7
i. Profit After Tax
~
~
~
~
~
20. How representative was this plant's 1976 profit before tax experience versus the average for 1971-1975?
About the same ~
Better than Average ~
Worse than Average ~
91
-------
Factors related to Revenues and Expenses
a. Fixed Costs: If the plant faces lease, rental or mortgage commitments beyond 1976, (for build-
ings or equipment), indicate the average annual charges and the year the commitments expire.
Leases/ Wood Debt
Rental ~ Contracts ~ Payment ~ Other* ~
(1) Average Annual Charge: S S S S
(2) Commitment Expires: 19 19 19 19
("if other commitments attach separate sheet)
b. What Depreciation Method is Used: Equipment Buildings
(1) Book Basis:
Straight-Line
Double-Declining Balance
Sum of Year's Digits
Other:
(Please Specify)
(2) Tax Basis:
Straight Line
Double-Declining Balance
Sum of Year's Digits
Other:
(Please Specify)
(3) Pollution Control Equipment Amortization
Accelerated Over 5 Years
Same method as other equipment
Unusual Production Costs
Are there any circumstances peculiar to this plant which result in unusual production costs?
Yes ~ No ~
If Yes, please describe: _____ —
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
92
-------
Historical/Annual Cost of Pollution Control and Other Environmental Regulations.
(1) Water Pollution Regulations:
(a) Annual Operating Costs
(b) Annual Depreciation Charges
(2) Solid Waste Disposal (including waste
water sludge and wood waste, con-
tract hauling):
(a) Annual Operating Costs
(b) Annual Depreciation Charges
(3) Other Environmental Regulations
Affecting Production Processes
and Production Costs
(Please Specify):
Don't
Know
~
~
~
~
None
~
~
~
~
Air
~
Fiscal Year Ending
1975
OSHA
~
1976
(a) Annual Operating Costs ~ ~ S S.
(b) Annual Depreciation Charges ~ ~ S S .
(4) Other Administrative Costs:
Environmental department,
research, litigation, consultants,
additional administrative costs. ~ ~ S $.
Value of wood treating plant Assets and Liabilities (as of the end of the most recent fiscal year).
a. Net Fixed Assets (Gross Fixed Assets
less cumulative depreciation) $ Don't Know ~
b. Total Assets: (Net Fixed Assets, Cash
receivables, inventory, other assets) S Don't Know ~
c. What was the value of this wood treating
plant's accounts receivable? $
d. What was the value of this wood treating
plant's accounts payable? $
e. Current Plant Debt (i.e., debt maturing in
current year or payable on demand). $
f. Long-Term Plant Debt (debt maturing
beyond the current year [1977]) $
g. Total Plant Liabilities (long-term debt,
accounts payable, deferred taxes, other
debt, etc.) $
93
-------
Capital Investment Criteria for the Plant
a. What investment criteria do you use?
Return on Investment (ROI) ~
Payback ~
Discounted Cash Flow ~
Other ~
b. If you use return on investment criteria:
(1) What is the target internal pre-tax rate of return on capital required for investment in
this plant?
(2) At what ROI would you consider plant shutdown?
c. If you use payback period criteria, what is the required payback period for investment?
years
d. What is the current long term interest rate you must pay for new capital?
percent per year
Capital Investment for the Plant (not including capitalized operating or maintenance expenses).
(Actual) 1971-76
(Planned) 1977
(1)
Total Capital
Investment
$
$
(2)
Water Pollution
Control
(3)
Other Environmental
Regulation (State or Federal)
Impacting Production Processes
94
-------
STRAIGHT TABULATION OF WOOD PRESERVING INDUSTRY RESPONSES
A. GENERAL INFORMATION
1. What is the form of business organization of this plant?
Number
Percent
Proprietorship or Partnership
31
9. 28
Co-op
1
.30
Privately-held Corporation
230
68. 86
Publically-held Corporation
72
21.56
Total
334
100.00
Is this wood treating plant a
a multi-plant complex at this
stand-alone
location?
operation
Number
Percent
Stand-alone
268
80.00
Multi-plant complex
67
20.00
Total
335
100.00
95
-------
3. Approximately what percent of total sales at this complex or plant
was from wood treating in FY 1976?
j
11
j. j r> r i
r .
I -c? ,
i
211
Ml
i-
2 1
'<. 2 J 1
U- I'U
T .
1 'J I
^ r\ 7 1
I-
I O
d 0 - ? /
i
^ I
1 .4;-,4I
i
¦s
1 .'»6A
•4 ¦)"/¦
T
i. 7° j r
J.
I.IP J
1.4 ..
U .2^/
c.
1 . 4 o 4
cu-5Qi 60-69"' 70-7°.'i d0-p9°/
j T I I I I
1 1 7 T ? I 1 5 I 2 21 ^ ri I number
I j.J4^T O.S9 3I 4 . 4 11 * . c 2 P I 17.2111 percentage
I r i I I 1
17 ? 1 5 22 c j number
5.J4*j r.c93 4.451 ^•'52R 17.211 percentage
;.o ko«
1003b ANSWER SuMb
I 15 51 201 337
I 4 5.9941 5.9 3^1 lfJO.JOJ
155 20 337
45.994 5.^35 100.uOO
96
-------
4. Is this plant at an urban, suburban, or rural location?
Number
Percent
Urban
Suburban
Rural
Total
98
85
153
336
29.38
25.22
45.40
100.00
5. What year did the wood treating plant begin operation?
t- f J u
1930
>31-1943 1941-195C 1951-1*6J
58 I
17.2111
I
5 -i
17.211
1-
ni
3.858 1
i-
3.858
1-
4&I
13.6501
1-
o
13.650
24.
I
d3 I
.6291
1
J 3
24.629
number
percentage
1^1-19/0 19 71-1 >7 7
P|M = R
1.
761
22.552 I
I-
'jM
16.617 I
¦1
71>
22.552
5ft
16.617
NO
ANSWER
*5 1
1.484 I
p
1.484
KPn
337
10J.OOO
3^7
100.000
number
percentage
number
percentage
97
-------
B. EFFLUENT INFORMATION
6. How does this plant dispose of liquid process waste?
Number
Percent
Direct discharge
10
2.9
Indirect-steaming
30
7.8
Indirect-Boulton
10
2.7
Disposed on plant site
98
26.2
Disposed off plant site
18
4.8
No discharge (recycled)
126
33.8
No liquid waste
60
16.1
Inorganic
5
1.3
Other
7
1.9
No entry
9
2.4
Total
337
100.0
IF THE ANSWER TO QUESTION 6 is (c) , (d), (e) OR (f), YOU MAY OMIT
ANSWERS TO THE FOLLOWING QUESTIONS:
7, 10, 20, 21b, 22, 25
7.(a) If you do not discharge liquid process waste into a municipal
sewer, do you have the option to connect?
Number
Percent
Yes
2
6.67
No
19
63.33
Don't Know
9
30.00
Total
30
100.00
98
-------
7 (b) If you do have the option to connect to a municipal sewer, what 1s the
initial capital Investment cost?
iioo.i- i~,ouc- i5fjoj- c*n,Ojo-
0-5t000 LO~00 0 IjtCOj ^0 f 000 ?j»uOu
I J J T J T
1 I 11 I i I number
1 1 0.297 1 i i t perCentage
I j j j , T
l
0.297
25tOOO- 30t 000- 35»000-
301000 33»uOO <+^»000 45 * w/OQ 50*000 5J«000
i l ! I- I 1
I I i I I 1 number
1 I I I I * percentage
• 1-- — I I- — I- 1 I
,\0 kP'a
DONT KNOW ANSWfR SUM:>
1 -I I
I HI 3£ 51 3 3? number
1 3.2641 96.439 i ioo» joo percentage
l 1 1
11 3 4.'5 3 37 number
3.264 96.439 100. ono percentage
7.(c) If you discharge any wood treating process waste into a sewer
system, on what basis are your sewer charges made?
Flat annual fee
Gallon of effluent
Other
Total
Nunber
Percent
7
17.07
21
51.22
13
31.71
41
100.00
99
-------
7. (d.) If you discharge into a municipal sewer, what were your total
sewer charges in 1976? $ •
7.(e) If you discharge liquid process waste into navigable waters,
do you have an NPDES permit?
Number
Percent
Yes
10
62.50
No
k
25.00
Don1
11 Kn ow
2
12.50
Total
16
100.00
100
-------
7. (f)Do you own or have available for purchase about one acre of land at or
adjacent to this facility that could be used for an effluent treatment
system?
cOO- l,OCO- 1,50 0- 2,000-
C-500 1,000 1,500 2,O0J ?,SO 0
I J 1 I I I-
I i I ll «-¦ I 2 1 ^ I number
I 0.593 1 0.297 1 0.593 1 0.5931 0.593T percentage
l i j; ;I x I-
i l 2 2 l number
0.593 0.297 0.593 0.593 0.593 percentage
J,500- 3,000- 3,500- A,000- <+,50J- >
3,JO J 3 ,c0C t ,00 0 A,500 5,000 *,0 00
l j x I I I
3 1 I I 21 21 12-1 number
0.8901 I I 0.593 1 0.593 1 3.561 1 percentage
i 1 x 1 1 1
3 2 2 13 number
0.890 0.593 0.593 3.561 percentage
NO
NO LAND ANSWER
I 321 2771
I 9.4961 82.1961
I j !
32 277
9.496 82.196
ROW
SU^S
3 3 7 number
loo.ooo percentage
3 3 7 number
ioo.ooo percentage
101
-------
C. SALES AND PRODUCT MIX
8. Fiscal year 1976 wood treating plant sales (thousands of dollars),
Number
Percent
Under
70
25
7.86
71 -
155
25
7.86
156 -
300
29
9.12
301 -
700
48
15.09
701 -
1,200
50
15.72
1,200
- 1,800
21
6.60
1,801
- 2,400
21
6.60
2,401
- 3,200
26
8.18
3,201
- 4,800
24
7.55
4,801
- 7,200
30
9.43
7,201
- 11,500
13
4.09
More than 11,500
6
1.89
Total
318
100.00
9. Which of the following product types are treated at this plant-
a. Organic (Oil or Dual Oil and Salt Treatment)
(1) Railroad Ties
Number
Percent
Under 10
35
34.65
11 - 30
19
18.81
31 - 50
7
6.93
51 - 70
10
9.90
71 - 90
10
9.90
Over 90
20
19.80
Total
101
100.00
102
-------
(2) Pilings, Poles
Number
Percent
Under 10
23
15.43
11 - 30
30
20.13
31 - 50
21
14.10
51 - 70
15
10.07
71 - 90
25
16.78
Over 90
35
23.49
Total
149
100.00
(3) Timber, Lumber, and Other
Number
Percent
Under 10
64
30.77
11 - 30
48
23.07
31 - 50
33
15.86
51 - 70
14
6.73
71 - 90
19
9.13
Over 90
30
14.42
Total
208
100.00
Inorganic (Salt Based)
(1) Pilings, Poles
Number
Percent
Under 10
33
70.21
11 - 30
11
23.40
31 - 50
0
.00
51 - 70
0
.00
71 - 90
1
2.13
Over 90
2
4-25
Total
47
100.00
(2) Timber, Lumber, and
Other
Number
Percent
Under 10
13
9.92
11 - 30
26
19.85
31 - 50
13
9.92
51 - 70
6
4.58
71 - 90
14
10.68
Over 90
59
15.04
Total
131
100.00
103
-------
Number Percent
9c. Other 1 100.00
10a. Are any changes (other than normal business fluctuations) planned
in production process or product mix?
Number Percent
Yes 11 8.21
No 123 91.79
Total 134 100.00
10b. Process changes towards:
More Organic
Less Organic
More Inorganic
Less Inorganic
Total
Number Percent
1 10.00
6 60.00
3 30.00
_0 .00
10 100.00
10c. Product Mix Change
Number Percent
More Ties 2 33.33
Less Ties 0 .00
More Poles 0 .00
Less Poles 0 .00
More Other 4 66.67
Less Other _0 .00
Total 6 100.00
104
-------
D. PLANT CAPACITY AND PRODUCTION
12a. What region of the country is the origin of most of the wood
treated at this facility?
Number
Percent
Northeast
15
4.55
Northwest
65
19.75
Southeast
146
44.37
Southwest
39
11.85
Midwest
40
12.16
Other
24
7.29
Total
329
100.00
12b. Is the wood mostly:
Hardwood
Softwood
Total
Number Percent
62 18.84
267 81.16
329 100.00
13. Typical number of production days per week?
Number
Percent
1
- 4 days
32
9.79
5
days
252
77.06
6
days
26
7.95
7
days
17
5.20
Total
327
100.00
105
-------
Npnber of weeks at each shift level (total should add to 52 weeks):
at 0 shifts (shut down or no wood preserving)
j-9 LO-1^ JC- 3 *
I I I I 1
I z Til 12; !JI M number
I 83.383 1 3.5611 2.9671 1.7801 percentage
l 1 1 I 1
i!bl 12 10 6 number
83.383 3.561 2.967 1.780 percentage
POJR PUW
5-1-*>2 J A T A SUM*;
T I I
11 li 261 337 number
0.297 r o.297 i 7.715! loo.ooo percentage
7 — i J
i i 26 337 number
0-297 0.297 7.715 luP.ooo percentage
106
-------
14. Number of weeks at each shift level (total should add to 52 weeks)
-------
14. Cumber of weeks at each shift level (total should add to 52 weeks):
rw»
i 1
£ ^folI i ii number
I "j,y? 3! .<.5721 percentage
1 „ number
d 3."23 *»• log
-------
14. Number of weeks at each shift level (total should add to 52 weeks):
(cont) at 3 shifts
u - i 1P - 1 •) Z 0 - 2 c
I j i J
I 2311 4i i>! number
I ih.2.7 71 i.'jM i.faCdi percentage
l j i J
2 31 ^ p number
74.277 i.?j6 i.t-Od percentage
30-V/
i. '
* I
1 .*JRI
!¦
A'J -
y.
71
2.2511
1,
1 .6J8
7
2 .2^1
50-52
I
i
10.? 71 I
I
j Q
IP.^71
ROw
S'JWS
311 number
inj. joo percentage
il1 number
loo.ooo percentage
109
-------
14. Number of weeks at each shift level (total should add to 52 weeks):
(cont) 4 shifts
u-9 LO-1/ ? j-
I I I 1
I jo7! I number
I 9 6.71h I 1 •. ^11i I percentage
j I 1 T-
jo 7 ? number
9 3.71^ percentage
30-19 4u-V>
I I ? I iit number
T . A ^ ? I
J T
i°o.jnj percentage
il number
lOJ.uno percentage
110
-------
15. 1976 Production (Thousands of cubic feet).
2?c. .ooc
c 50 ~ 0 00 —
0 )C
c r'l '1 ,
I
Jr • 61 I
L
1 £C
ic- . 61
l;M number
16.617 1 percentage
-jf
It. 617
number
percentage
> 0 j « jO j -
coo
1 ¦
jni
«.902 i
[¦
P. 902
7Kct jn j-
ltJOJ.uOu
1«uO J* 00u
171
^.044 I
59 I
17.751 I
17
5.044
59
17.751
M J
An5 wFR
1
551
16.320 I
1
16.320
number
percentage
number
percentage
R J*
SUMS
3 i? number
ico. o jc percentage
^7 number
loc. ooo percentage
111
-------
Typical number of production workers in 1976:
Number
Percent
1-3
73
22.32
4-6
39
11.93
7 - 9
26
7.95
10 - 19
56
17.12
20 - 34
55
16.92
35 - 48
27
8.26
49 - 75
35
10.70
76 - 99
8
2.45
100 - 125
6
1.83
Over 125
2
.61
Total
327
100.00
This facility is primarily engaged in (a) treating service
only (TSO), and/or (b) treating owned wood products for sale
to others:
Treating Service Only
Number
Percent
Under 10% of Sales
134
52.55
10 - 25
49
19.22
26 - 50
30
11.76
51 - 75
14
5.49
Over 75
28
10.98
Total
256
100.00
Treating Owned Wood
Number
Percent
Products
Under 1®% of Sales
21
6.80
10 - 25
20
6.47
26 - 50
17
5.50
51 - 75
39
12.12
Over 75
212
68.61
Total
309
100.00
112
-------
18. What proportion of owned wood is from company-owned timberland?
Number
Percent
None
256
77.81
1 - 24%
59
17.93
25 - 49
3
.91
50 - 74
2
.61
75 - 100
9
2.74
Total
329
100.00
FINANCIAL STATEMENT
19. Revenue and Expenses (as % of Sales)
Wood Cost
Number
Percent
Under 10
17
5.67
10 - 15
10
3.34
16 - 21
10
3.34
22 - 28
15
5.02
29 - 38
49
16.39
39 - 48
59
19.73
49 - 60
69
23.08
Over 60
70
23.41
Total
299
100.00
Other Materials Cost
Number
Percent
Under 10
65
21.60
10 - 15
74
24.50
16 - 21
72
23.92
22 - 28
44
14.62
29 - 38
27
8.97
39 - 48
13
4.32
49 - 60
1
.33
Over 60
5
1.66
Total
301
100.00
113
-------
Payroll Cost
Number
Percent
Under 10
103
33.66
10 - 15
102
33.23
16 - 21
45
14 .71
22 - 28
36
11.76
29 - 38
13
4.24
39 - 48
4
1.30
49 - 60
1
.33
Over 60
2
.65
Total
306
100.00
Depreciation
Number
Percent
Under 1
59
19.22
1-2
117
38.11
3-5
85
27.69
6-8
26
8.47
Over 8
20
6.51
Total
307
100.00
Gross Marein
Number
Percent
Under 10
102
33.33
10 - 15
53
17.32
16 - 25
87
28.43
26 - 30
27
8.82
Over 30
37
12.09
Total
306
100.00
U4
-------
General and Administrative
Number
Percent
Cost
Under 1
18
6.10
1-5
88
29.83
6-10
93
31.52
11 - 15
48
16.27
Over 15
48
16.27
Total
295
100.00
Interest Expense
Number
Percent
Under 1
171
59.37
1-4
84
29.01
5-8
24
8.33
9-12
5
1.73
Over 12
4
1.38
Total
288
100.00
Profit Before Taxes
Number
Percent
Under 1
68
23.53
1-4
83
28.72
5-8
61
21.11
9-12
46
15.92
Over 12
31
10.73
Total
289
100.00
115
-------
i. Profit After Tax
Under 1
1-2
3-4
5-7
Over 7
Total
Number
Percent
76
27. 84
63
23.08
56
20.51
45
16.42
33
12.04
273
100.00
20. How representative was this plant's 1976 profit before
tax experience versus the average for 1971-1975?
About the Same
Better than Average
Worse than Average
Total
Number
Percent
70
40.69
36
20.93
66
172
100.00
116
-------
21. Factors related to Revenues and Expenses
a. Fixed Costs: If the plant faces lease, rental or mortgage commit-
ments beyond 1976, (for buildings or equipment), Indicate the
average annual charges and the year the commitments expire.
Leases/Rental
(1) Average Annual Charge: $
< .SC'jO- rj,ur:;- ic ^
O »O j O 50, lC;; 100, )PO
I-- — I i 1 i 1-
I 246i ctP-l lul 4 1 ii number
i 72.9971 20.178 1 2.9671 i.i87i 0.297 1 percentage
[ I ! I [ T-
246 ob ij 4 i number
72.997 20.178 2.967 1.187 0.297 percentage
1tOoO-
i?5» jn<--
1 =>n,r jo-
175.JOJ-
?oh ,oon-
22 5,00j-
l,Ojo
i 5J ,'JCJ
17S,0jn
200,000
225,000
2^0,000
31
21
31
I
1
0.8901
0.593 I
0.8901
I
I
3
2
3
0.890
0.593
0.890
I
I number
I percentage
I
number
percentage
> ROW
250,000 SUrfS
I i 337 number
I i ioo.oco percentage
I 1
337 number
100.000 percentage
117
-------
21. Factors related to Revenues and Expenses
(cont) a Fixed Costs: If the plant faces lease, rental or mortgage commit-
ments beyond 1976, (for buildings or equipment), Indicate the
average annual charges and the year the commitments expire.
Wood Contracts
(1) Average Annual Charge; $
0 OuO T' tC JO J
i r 1 1 1 r
> I number
i 3241 SI i! i
i 96.1421 1.484 1 0.297 1 i 0.8901 percentage
324 ^ 1 ? number
96.142 1.484 0.297 0.890 percentage
l j r»c* jr> - i ^0,000- >0'") 2'5.ooj-
i«=o, jc.j i7e, oor jio«opg z«u.joj
1 r 1 1 1 1
i i I 31 I I I number
: 0.297 ! 0.8901 ! I I percentage
1- I- — i 1 1 1 3
1 „ * number
0.297 0.890 percentage
y CW
*50,003 t SUMS
1 i 337 number
J i i oo. coo percentage
1 1 337 number
100,000 percentage
118
-------
21. Factors related to Revenues and Expenses
(cont) a pjXg(j costs: If the plant faces lease, rental or mortgage commit-
ments beyond 1976, (for buildings or equipment), Indicate the
average annual charges and the year the commitments expire.
Debt Payment
(1) Average Annual Charge: $
< J?- c'C»JOO- 7K»0JO-
0 tOOQ SufjO„ 7?,roo
I I i I I 1
I 256 1 ill Hi zI number
I 75.9641 9.1991 7.1121 3.2641 o.5931 percentage
I i i T I T
256 31 u number
75.964 9 199 7.112 3.264 0.593 percentage
ijc,ooo-
1
] 5 0 t H J0- 17';»Jni>
,000-
2?5.JOJ-
12 c ,OJO
175, OJO 200.
?25 ,000
2S0.JOO
51
II
I
\ I
1.484 I
0.297 I
0.8901
1
0.297 I
¦I
I number
| percentage
s i 3 l number
1*484 0.297 0.890 0.297 percentage
2 50» OO'J
{ 31 337 number
I 0.890 1 ioo.fi oo percentage
•> „ "umber
0.890 l00, percentage
119
-------
21. Factors related to Revenues and Expenses
(cont) ^ Fixed Costs: If the plant faces lease, rental or mortgage commit-
ments beyond 1976, (for buildings or equipment), indicate the
average annual charges and the year the commitments expire.
Other
(1) Average Annual Charge: $
332
< c ^ i j n - ri c« j r j ~ t' » r- i' -
- jn j 7c»" Jr not
I I
0 i- ¦
I X
I 332 1
I 98.516 1 0.5931 , 0.297i ! percentage
?i ! it t number
i j J
? l number
98.516 0.593 0.297 percentage
l jO,Oof- ]50,n0n_ 175, JCO- 22^,00.3-
lcj.JOj 17^00 ?2c,nor» 25u.00j
I 1 i T— 1 I
i I l I I I number
I T I ! I
T percentage
I
>
2$0«00(J oUrtS
1 I
I 337 number
I 0.593 1 ico. ^oo percentage
c 337 number
percentage
°-593 lor.TOO
120
-------
coAt)Fact0rs re^atec* t0 R®ve^ues and Expenses
a. Fixed Costs: If the plant faces lease, rental or mortgage commit
ments beyond 1976, (for buildings or equipment), Indicate the
average annual charges and the year the commitments expire.
Leases/Rental
(2) Commitment Expires: 19
: c F
A F T - P.
Af i S V i R
1
551
16.320 I
I'- I
4.154 I
11
1.187T
264 I
78.338 I
337 number
ioj.gpu percentage
55
16.320
1.187
•t
264
78.338
337 number
10 j. ooo percentage
121
-------
21. Factors related to Revenues and Expenses
(cont) a< Fixed Costs: If the plant faces lease, rental or mortgage commit
ments beyond 1976, (for buildings or equipment), Indicate the
average annual charges and the year the commitments expire.
Wood Contracts
(2) Commitment Expires: 19
VLFok d
1085-1995
A r T u R
199
I
HI
3.264 I
326 1
96.736 I
337 number
io J. j no percentage
11
3.264
326
96.736
337 number
i oo. jo o percentage
122
-------
21. Factors related to Revenues and Expenses
(cont) a Fixed Costs: If the plant faces lease, rental or mortgage commit-
ments beyond 1976, (for buildings or equipment), Indicate the
average annual charges and the year the commitments expire.
Debt Payment
(2) Commitment Expires: 19
L F 0 t_ A r T t_ P •Nj'l C<\
1 Hi 19d5-ANSWER SU^S
I J i I I
I 5^1 2 0i 31 260 i 337 number
I 16.024 r 5.935 1 0.890 T 77.1511 ipj.'jp: percentage
i 1—- l 1 1
5'* 20 j 260 337 number
16.024 5.935 0.890 77.151 iOJ.ooo percentage
123
-------
21. Factors related to Revenues arid Expenses
(cont)
a. Fixed Costs: If the plant faces lease, rental or mortgage commit-
ments beyond 1976, (for buildings or equipment), Indicate the
average annual charges and the year the commitments expire.
Other
(2) Commitment Expires: 19
i p i\ n i*
• r r ArTLP piim ^
£ tF'J . q ,c; i iql 19*5 ANV,cR 3
19 d "S I9b5- i > * I
l 1 x 3301 337 number
l oI A 0QlTl r 97.923 1 ioj.uuu percentage
1 1.7801 0.297 1 • j
I 1 330 337 number
o 1 97.923 in J. ooo percentage
1.780 0.297
124
-------
b. What Depreciation Method is Used:
Equipment
Buildings
(2)
Book Basis
Number
Percent
Number
Percent
Straight-Line
109
73.65
121
87.60
Double-Declining
Balance
35
23.65
13
9.48
Sum of Year's Digits
2
1.34
2
1.46
Other
2
1.35
2
1.46
Total
148
100.00
137
100.00
Equipment
Buildings
Tax Basis
Number
Percent
Number
Percent
Straight-Line
81
52.26
99
72.26
Double-Declining
Balance
68
43.87
31
22.63
Sum of Year's Digits
4
2.58
4
2.92
Other
2
1.29
3_
2.19
Total
155
100.00
138
100.00
(3) Pollution Control Equipment Amortization
Accelerated Over
5 Years
Same method as
Other Equipment
Total
Number Percent
13
96
11.92
88.08
109 100.00
Unusual Production Costs—Are there any circumstances peculiar
to this plant which result in unusual production costs?
Yes
No
Number
17
157
Percent
9.77
90.23
Total
174
100.00
125
-------
Historical/Annual Cost of Pollution Control and Other Environmental
Regulations
(1) Water Pollution Regulations
Annual Operating Costs
Number
Percent
Don't Know
145
63.60
None
83
36.40
Total
228
100.00
Annual ppprp.r.iation
Charges
Number
Percent
Don't Know
125
57.07
None
94
42.93
Total
219
100.00
(2) Solid Waste Disposal (lnclud-lnfl waste water sludge and wood
waste, contract hauling)
Annual Operating Costs
Number
Percent
Don't Know
134
56.07
None
105
43.93
Total
239
100.00
Annual npprp.r.iation
Charges
Number
Percent
Don't Know
126
51.63
None
118
48.37
Total
242
100.00
(3) Other Environmental Re8ulations Affecting Production Processes
and Production Costs
Number
Percent
Air
49
40.83
OSHA
33
27.50
Both
38
31.67
Total
120
100.00
126
-------
a. Annual Operating Costs Number Percent
Don't Know 129 64.82
None 70 35.18
Total 199 100.00
b. Annual Depreciation Number Percent
Charges
Don't Know 122 58.94
None 85 41.06
Total 207 100.00
(4) Other Administrative Costs: Environmental department, research
litigation, consultants, additional administrative costs.
Don't Know
None
Total
Number
126
212
Percent
59.43
40.5,7
100.00
127
-------
i . ni>nt Assets and Liabilities (as of the end of the
24. Value of wood treating plant as
most recent f1$cal year).
a. Net FIXED ASSETS (Gross FIXED A SETS
less cumulative depredation). 5
Under 100000 -
100000 199999
I r i
I 861 NO
2 »000» 000 ANSWER ^Ow
I J J SUMS
1 71 901
1 2.077 1 26.7061 . 33?
I — I QQO
7 , 90
2.077 26.706 337
ioo.ooo
128
-------
24. value of wood treating plant Assets and Liabilities (as of the end of the
(cont)
most recent fiscal year).
b. Total Assets: (Net FIXED ASSETS, Cash
receivables, Inventory, other assets) $
Under 100000- 200000- 300000- 400000-
100000 199999 299999 . 399999 499999
I 3*1 261 1*1 111 221
I 9.496 1 7.715 1 5.638 r 3.2641 6.5281
I i i I i I
It \) 11 71
9.496 7.715 5.638 "3."264 6-528
500000- 600000- 700000- 800000- 900000- p'oon'ooo"
599_999 __ x 6999_9_9_ _ ] 799_999__ j 89_9_999__ { 999_9_99__j _ ' ' j
71 a I 71 31 31 351
2.077 1 2.3741 2.0771 2.3741 0.890 1 10.386 1
I j I 1 I --I
7 6 7 8 3 35
2.077 2.374 2.077 2.374 0.890 10.386
>
2»noo»ooo
I 401
I 11.8691
I — I-
4Q
11.869
WO
ANSWER
1191
35.3121
1
119
35.312
ROrt
SU"S
3 37
mo.ooo
337
100.000
129
-------
24. Value of wood treating plant Assets and Liabilities (as of the end of th&
(cont)
most recent fiscal year).
c. What was the value of this wood treating
plant's accounts receivable? $
< P'jt oOj- t'-'O"!- 7-3,
2^>,JC0 7t>,o0' 100,000
j 47j 181 231 18 I
I 13.9471 5.3411 6.8251 5.341J
I I 1 1-
*7
? 3 IP
13.947
5.341 6.825 5.341
iOOtOOO- 1^5,000- * ,n,^.
l23,ooo 150,000 u 6
--I ; Q 8 T UM 3^7
4 1541 3.8581 29.0801 31.454 1 10J-O0J
T *—- 1 I I
. 1 l^ q8 lOf 337
4.154 3.858 29.080 31.454 L00«0^0
130
-------
Value of wood treating plant Assets and Liabilities (as of the end of the
most recent fiscal year).
d. What was the value of this wood treating
plant's accounts payable? $
<
2 5 » OOQ
? 5» 00J -
50»OoC
-jOfT;oC-
7 o * OO'j
7'j ~OOJ-
1 00, 000
6ai
20.178 I
1.
8.3091
I-
14 1
4.154 I
1-
Is
4.154
1
lr>I
4.4511
1
15
4.451
bii
20.178
as
8.309
ITJ.JOJ- lj^OuO- > NP (vPrt
12 5,000 150, TOO 15u»00J AN'bWcR SJMS
I — i I 1
l-JT 41 70 I 125 [ 337
3.8581 1.1871 2 G • 41 41 37.092 1 100.OOJ
T 1 — I I
14 4 70 125 3?7
3.858 1.187 20.414 37.092 10J.000
131
-------
Value of wood treating plant Assets and Liabilities (as of the end of
most recent fiscal year).
e. Current Plant Debt (i.e., debt maturing
1n current year or payable on demand) $
< j 11OijO- , ooj-
! j i j .
I 5 JI c4 I 12 1 R I
I 14.837 1 7.122 1 3.561 1 2.374 1
5 0 ^4 i j a,
14.837 7.122 3.561 2.374
1"J, J^j- 1 ^ 10 jn- > MP ^Prt
150, pjp ico«uoj A\'iWL;R sjms
r x 1 1
vl II <>71 1 a61 337
2.671 T 0.297 1 13.947 T 55.193 1 J.OO.OOJ
r i T I
9 1 47 136 3? 7
2.671 0.297 13.947 55.193 1OJ.0OJ
132
-------
24. Value of wood treating plant Assets and Liabilities (as of the end of the
(cont) most recent fiscal year).
f. Long-Term Plant Debt (debt maturing
beyond the current year [1977]) $
Under 100000- 200000- 300000- 400000-
100000 199999 299999 399999 499999
I 6jI 251 M 7[ VI
I 19.2311 7.3961 1.4791 2.^711 2.66:>T
I i I I 1 I
2 5 r> 7 9
19.231 7.396 1.479 2.071 2.ofri
500000- 600000- 700000- 800000- 900000- lt0J0,000-
599999 699999 799999 899999 999999 2t000»000
I 1 J _ ! 1
51 I II I I 21
1.4 79 1 T 0.2971 f I 0.593 I
I i I-- — J 1 1
5 1 2
1.479 0.297 0.593
> NO
2»000»000 ANSWfcF SU^S
I II 217 1 ->37
I 0.297 1 64.392[ 100. JPO
x i 1
1 217 337
0.297 64.392 100.000
133
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25. Capital Investment Criteria for the Plant
a. What investment criteria do you use?
Number
Percent
Return on Investment (ROI)
75
22.26
Payback
21
6.23
Other
23
6.82
No Answer
218
64.69
Total
337
100.00
134
-------
24. Value of wood treating plant Assets and Liabilities (as of the end of the
(c°nt)most recent fiscal year).
g. Total Plant Liabilities (long-term
debt, accounts payable, deferred
taxes, other debt, etc.) $
Under 100000- 200000- 300000- 400000-
100000 199999 . 299999 399999 499999
I 631 291 K! 141 91
I 16.6391 e.SiJOI 5.J?5T 4.1<*?I 2.jf-3T
I i 1 T I I
63 29 IS 14 9
18.639 P.,560 b.i?b ^.14? 2.563
500000- 600000- 700000- 800000- 900000- ltOOOfOOO-
599999 699999 799999 899999 999999 2»000»000
t x 1 T j j
SI 51 41 31 21 131
2. 367 1 1 .47^1 l.ldll 0.8901 0.593 1 3.8581
j-_ -I 1 1 j 1
« 5 4 3 2 13
2.367 1 .479 1.183 0.890 0.593 3.858
>
2.000,000
I 41
I 1.1871
I 1-
4
1.187
NO
ANSWER
165 I
48.9611
1
165
48.961
ROW
SUMS
337
100.JOO
337
ICO.'JOO
135
-------
26. Capital Investment Criteria for the Plant
(e°nt) b use return on investment criteria:
(1) What 1s the target Internal pre-tax rate of return on
capital required for Investment 1n this plant?
Q-^ % S — 9 <6 1 j - 1 4 L 5 - 1 > ^ <- J ~ i. 4 'a
i I I I i T
I I 21 71 Hi ai
l I 0.593 1 2.077 1 3.264 1 2.374 I
T ! T
2 7 11 3
0.593 2.077 3.264 2.374
50'o
Ok
zwn 3 5-"^% 40-<+4« 4*5-49* GR £A TFR
- I --1- — I I I 1
121 dT 1 31 I II
3.5611 2.374 1 1 0.890T I 0.2971
I i I I i x
12 b i 1
3.561 2.374 0.890 0.297
WOT .'ml K'Jrf
APPLIC. ANSWtiP SUMS
l I I
I 2651 201 337
I 78.6351 5.935 1 100.030
I 1 i
65 20 337
78.635 5.935 100.UOG
136
-------
26. Capital Investment Criteria for the Plant
(cont) b you use return on ^vestment criteria:
(2) At what ROI would you consider plant shutdown?
u-v* S-S'l 10-14* 15-14*. ?J-iw-,
j J I--- I I I
I 51 ft I 6 1 M 7 T
I 1.484 1 2.374 1 1.780 1 1.780 1 2.077 !
i t i I I
5 3 o 7
1.484 2.374 1.780 1.780 2.077
OK
30~34£ 3 ^ - 3 V ^ 40-H4/S (jR £ A TFR
I I-- — I I I 1
I I 1 I I I IT
1 I 0.297 1 T I 0.2971
j r x I -I 1
1 i
0.297 0.297
SOT 1*0 R-*
APPLIC ANSWER SU^
I 2651 3«I i37
I 78.6351 11.276i lOu.OOO
I -I I
265 36 317
78.635 11.276 100.000
137
-------
26. Capital Investment Cr1ter1a.for the Plant
ont^ c. If you use payback period criteria, what Is the required payback
period for investment? years
<
2 YRS ^ ** 5
I — I I I I I
[ 1! ?I 21 ?I 6 r
[ 0.2971 0.593 1 0.593 T 0.593 1 1.780 1
! 1 I -I -I
1 2 ^ 2 6
0.297 0.593 0*593 0.593 1.780
>
, g 9 in 10 YRS
t I I- —1 1 1
I I ! 31 31
T I I 0.890 1 0.890 1
1- 1 r
0.890 0.890
NOT NO KO«y
APPLIC ANSWER $uys
I- I- I
I 3171 II 3-»7
I 94.0651 0.2971 ICO.000
I 1 1
317 3 37
94.065 0.297 100.000
138
-------
26. Capital Investment Criteria for the Plant
(cont) d. what Is the current long term Interest rate you must pay for
new capital? percent per year
< IX 7 S 9 10
I 1 L j ! T
I 31 11 11T 201 ?5I
I 0.890 1 0.297 1 3.264 1 5.935 1 7.418 1
I 1 — j I I — ---I
i 1 11 20 25
0.890 0.297 3.264 5.935 7.418
NQ R0W
11 12 > l?<. ANSWER SUMS
j I I I
31 51 171 2*21 337
0.8901 1.4841 5.045 1 74.7771 100.OQO
1 T — I 1
3 5 17 252 337
0.890 1.484 5.045 74.777 100,000
139
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26. Capital Investment for the
(cont)
or maintenance expenses).
(Actual) 1971-76
Plant (not Including capitalized operating
(1)
Total Capital Investment
$
LI <* 0 <¦' c v ~ „ 0 J -
t r> r r v i - ?r c ~ o ^ * o j h
I-- 1 1 1
I I mi i
I I 33.531 1 16.617 1
I i —-I i
U3
33.531 16.617
sij o j- 7^J»onj- mo
ysOfP.)0 i.joo.ooo a\s-aF^
1 1 I 1
m i 341 I 11 I
7.122 1 10.089 1 I 32.6411
i i 1 i
^4 ^4 lin
7.122 10.089 32.641
P u a
SUMS
I
I 3j7
I 1JO. ooo
I
3 37
LOG.000
140
-------
26. Capital Investment for the Plant (not Including capitalized operating or
(cont) . . x
maintenance expenses).
(1)
Total Capital Investment
(Planned) 1977 $
Under 100000- 200000-
L,|T*Y 100000 199999 299999
i I 1 I I
I 31 ?3i Itl «>i
I 0.890 1 27.596 1 9.494 1 2.671 1
1 I— -I I i
3 n 32 a
0.890 27.596 9.494 2.671
30000°- A-|C,Jp« Clp,i
1QQQQQ ^ '>vFK SUMS
--------t 1 T
lil I 18al 137
3.8581 I 55.490 T 100.Hon
T i I
13 1P3 337
3.858 55.490 lUO.Ojn
141
-------
26. Capital Investment for the Plant (not Including capitalized operating
(°ont)maintenance expenses).
(2)
Water Pollution Control
(Actual) 1971-76 —
L f r\ '
ENTRY
I
I
1
— I-
I
I
— 1
Under
10000_0___ ..
lull
29.970 I
I
l'Jl
29.970
100000-
199999_ _ T
161
4.748 I
I 6
4.748
200000-
299999
1
I 1
0.297 1
I
0.297
300000-
399999
I-
5!
1.484T
1-
1.484
I 2141
I 63.5011
•I 1
214
63.501
PoW
SUMS
^7
]On .OjO
3 37
IU0 .OJO
142
-------
Capital Investment for the Plant (not Including capitalized operating
maintenance expenses).
(2)
Water Pollution Control
(Planned) 1977 $
L FAQ
EMT^Y
Under lOOOOO- 200000-
l __i-2000_0___1 199999__ j ___299999__
i
I 21 671 31
I 0.5931 19.881 1 0.890 1 I
1 j i i -I
2 67 3
0.593 19.881 0.890
300000- R0W
399999 AinSwFR SUMS
II I 337
0.2971 I 78.338 T 100.000
1 i 1
i ihh 337
0.297 78.338 100.OJO
143
-------
26. Capital Investment for the Plant (not Including capitalized operating or
(cont) maintenance expenses).
(3)
Other Environmental Regulation (State
or Federal) Impacting Production Processes
(Actual) 1971-76 $
Under 100000- 200000-
j ______ _ 100000__i 199999 j 299 9 9_9_ _ _
I iI h' I 3 1 II
0.297 ! 12.760 T 0.890 1 0.297 1
I I 1 I t
1 f 3 3 1
0.297 12.760 0.890 0.297
300000-
399999
" J PJW
An^FR sums
• j i T
II I 288 1 337
0.297 F I 85.4601 lOn.Oun
j 1 J
I 288 337
0.297 85.460 100. COO
144
-------
26. Capital Investment for the Plant (not Including capitalized operating or
(cont)
maintenance expenses).
(3)
(Planned) 1977
Other Environmental Regulation (State
or Federal) Impacting Production Processes
$
Z fc Rt;
FMrlY
51
1.484 !
1.
5
1.484
Under
lOOOOO
261
7.7151
26
7.715
100000-
199999
21
0.593T
2
0.593
200000-
299999
300000-
399999
II
0.2931
1
l
0.293
AuS'.mFK
I 303 I
I 89.9111
1 1
303
89.911
PGW
SUMS
337
100.Ojn
337
100.000
145
-------
APPENDIX D
SAMPLE CALCULATIONS
147
-------
APPENDIX D
SAMPLE CALCULATIONS
1. CASH FLOW
In this study, plant cash flow from operations, which is equivalent to profit after tax plus
depreciation, was used. Individual plant data from the Financial Survey were used to estimate
each plant's cash flow. The pro-forma data were multiplied by plant sales to estimate the dollar
value of cost items in 1976.
The following example illustrates the calculation procedure:
Plant Cost Structure
Item
Percent
(1)
Sales
100
( 2)
Direct Labor
25
( 3)
Materials
40
( 4)
Depreciation
3
( 5)
Other Expenses
10
( 6)
Cost of Goods Sold
78
( 7)
Operating Margin
22
( 8)
Selling G&A
11
( 9)
Profit Before Tax
11
(10)
Tax
5
(11)
Profit After Tax
6
Cash flow is equal to depreciation (Item 4) plus profit after tax (Item 11).
The calculated cash flow represents gross cash flow and approximates total funds available
from plant operations. The uses of funds include investments in capital equipment, debt repay-
ment, increases in working capital and dividend payments. Thus, only some portion of a plant's
annual cash flow would be available to fund pollution control investment.
If internal cash flow is insufficient to cover all the requirements for funds, other sources of
funds, such as new debt or new equity, must be found.
2. ANNUALIZED COSTS
The costs of complying with water pollution control regulations can require investment in
land and equipment and the annual operating expense to run the equipment. The cash expendi-
tures that are required are thus uneven over time for a single plant, and differ by regulatory
option.
To provide a basis of comparison among regulatory options, it is useful to present the
annualized cost of each alternative. A common approach that has been used in numerous studies
149
-------
is to calculate a capital recovery factor for investments and add that to operating cost to obtain
annualized cost. The formula for the capital recovery factor (CRF) is:
CRF-_liL±iL_
[(l + r)']-i
where: r = after-tax cost of capital, and
t = depreciable life of asset
Investments in land cannot be depreciated. Therefore, the CRF for land is equal to the after-
tax coat of capital. For other investments the depreciable life determines the value of the factor.
The shorter the life of equipment, the larger the CRF.
In this report, the cost of capital used in the calculation of CRF was the median value of the
plants responding to that question on the Financial Survey, or 12%. (The sensitivity of the results
to the use of this median value is described in "Chapter V. Limitations of Analysis.") Using the
normal depreciable life of equipment of 11 years produces a capital recovery factor of 0.1684,
which was used to annualize the non-land investment expenditures.
The Development Document " assumed a depreciable life of 20 years and a cost of capital of
109c.
150
*United States Government Printing Office: 1981—341-085/414-^452
------- |